Social Security Contributions Won't Be Cut, GDP Growth Revised Down For 2012

05.09.2011 ZF English

The International Monetary Fund and the Romanian Government are today presenting the results of the first review of the new precautionary arrangement, after last week the two parties had yet to reach final agreement on selling the state-held companies and on the possibility of reducing social security contributions in the second half of the year.

The IMF mission headed by Jeffrey Franks started on April 26 and ends tomorrow, May 10.

After talks at the Cotroceni Palace between the Fund's delegation and president Traian Băsescu, the head of state explained on Saturday evening in a press conference, what the results of the talks were. Today is expected to see if not the letter of intent, at least part of the commitments to be included in the letter.

The social contributions cut will not occur this year, suggested the head of state, because it is not possible.

Data of the Finance Ministry revealed that in April revenues of the general consolidated budget rose by 10.2% in the first quarter against the similar period of 2010, largely thanks to the increase in VAT revenues and in excise revenues, with spending climbing by just 1.3%. Investments are the reason for this growth.

The general consolidated budget ended the first quarter with a EUR1.26 billion deficit (1% of GDP), according to data published by the Finance Ministry, while the full-year deficit agreed with the IMF is 4.4% of GDP.

Encouraged by these data, the Government examined the possibility of cutting social securities by a few percentage points as of the second half of the year, and at the end of April, finance minister Gheorghe Ialomitianu said that, although it would be difficult, the Government would try to persuade the IMF that the measure is a right one.

On Saturday the president shattered the illusion, and, speaking for himself, said he did not see a cut to social securities as possible this year. "I don't think it is possible this year. If we can cope with the CAS cut for a few months this year, of course we can do it, but the big issue is what we will do in 2012, when we have to bring the deficit to 3% according to the ESA methodology, and to 2.5% according to the cash methodology.

The Government and the IMF have revised the 2012 growth target of the Romanian economy from 4.5% to 3.5%-4%, while it has remained at 1.5% for 2011.