Will Govt discuss layoffs or VAT increase with IMF?

The revised economic growth forecasts, to less than 1% this year, increase the likelihood of the Government having to resort to a VAT hike to boost revenues and comply with the 5.9% of GDP deficit target required by the IMF.

The Fund's mission will be back in Bucharest next week to assess compliance of the Romanian authorities with the criteria agreed for the first quarter.

The latest signals from Washington point to a reduction in the economic growth forecast from 1.3% to 0.8%. Under the circumstances, budget revenues are expected to be lower than anticipated.

It remains to be seen if the authorities are able to negotiate with the foreign financers a relaxation of the budget deficit target or if a tax raise ensues.

"The change of the economic growth forecast should also induce a revision of the budget deficit target," ING Bank analysts say.

IMF officials have repeatedly stated that they would not impose a specific solution for curbing budget deficit, with the Government left to choose between cutting public spending by means of layoffs primarily and tax hikes.

Fiscal experts said at a seminar organised by ZF last week that the question about the VAT raise was not if but when.