Brussels, 13/06/2014 (Agence Europe) - The Romanian government has clashed with the International Monetary Fund (IMF) over the government's plans to cut taxes paid by employers.
To encourage job creation, Victor Ponta's government wants to cut social security contributions paid by employers by 5% next month.
The IMF says this is not affordable because it would hinder budget consolidation. For this reason, the IMF monitoring mission that has been in Romania since 1 June (along with the European Commission) was not able to complete its review. The IMF and Commission say they “have had constructive discussions with the Romanian authorities on how to ensure further progress and have reached agreement on important policies in this regard. However, some issues remain outstanding. The discussions with the Romanian authorities will continue from respective headquarters”. They add: “The economy has continued to recover and is now expected to grow by 2.8 percent this year. Fiscal imbalances have been reduced and the current account deficit has remained low”.
The negotiations between the Romanian government, the IMF and the European Commission will now continue remotely with the aim of completing the monitoring by November, when the government is due to publish new budget plans and details of how to provide the extra income needed to cover the shortfall due to the cuts in employers' social security contributions. Ponta is reported by Bloomberg as saying that he does not want to renew the current agreement with the IMF, which expires in 2015.
The EU has granted Romania a preventative credit line of up to €2 billion under the balance of payments aid scheme. The credit line expires on 30 September 2015 (see EUROPE 10949). (MB)