Tanasescu, IMF: Budget Can Take A Social Security Cut, But We Cannot Risk Slippage In 2012

05.18.2011 ZF English

A cut in social security contributions, or CAS, is being considered in the government's letter of intent to the International Monetary Fund, but will be conditional on the performance of budget revenues, says Mihai Tanasescu, Romania's representative to the IMF.

"Budget revenues are looking good and Romania has the necessary fiscal space to reduce the social contributions this year," Tanasescu said.

"But the problem is what will happen in 2012, when not only the budget deficit will have to be cut to 3% of GDP, but it will have to be calculated based on the European ESA 95 methodology, and will include debts of state-held companies whose financial statements had not been centralized by the end of the Fund mission's visit, and which could produce surprises.

Such being the case, Tanasescu says a careful analysis is necessary prior to making a decision, with social contributions being a very important segment of budget revenues.

"It would be a tremendous error to decide a reduction of social contributions hastily, and have to take additional fiscal action in 2012 to make sure Romania meets its deficit target, including the impact of consolidating the financial statements of state-held companies," Tanasescu said.

He adds that in this respect, the government acted hastily when it announced as early as in the first four months of the year the prospect of cutting the social contributions in the second half of 2011.