The International Monetary Fund is still not convinced as to the success of the newly introduced flat tax, despite the encouraging budgetary data for the first quarter that were presented by the Romanian authorities.
Directors at the Fund believe Romania has an atypical economy, which they class together with Russia and Ukraine.
"This is a major change. In countries like Romania, Russia or Ukraine, it is extremely difficult to say what the effects will be, even when several months have passed. It will take more time for a clear picture to form," said Jeroen Kremers, the director on the IMF board representing the group of countries that includes Romania.
He says it is too early to assess the impact of introducing the flat tax. "International surveys are of no use either. We know only that implementation is very important and that authorities say they are determined to make an effort in terms of collection, which is a good sign."
Given the situation, the IMF is in no rush to sign an additional memorandum with Bucharest earlier than the beginning of the summer.
"The concrete elements in relation to the adjustment of the agreement need to be discussed further in the coming months. I believe it is best not to rush so that we can establish something that can be sustained by both sides," he said.
Although the Ministry of Public Finances says it has reached an agreement with Fund officials with regard to the setting of the budget deficit at 0.7% of GDP for the current year, Kremers believes several more weeks of research will be necessary to establish the precise level needed. Over the following period, an IMF expert will work together with ministry officials to rectify the budget. This will be the first rectification to reflect the changes for the different revenue categories after profit tax was brought down to 16% and the same level was implemented as income tax.
Kremer says the IMF understands the importance Romania is placing on spending on investment during the current period, but believes that sticking to budgetary constraints so as to maintain economic stability should come first and foremost.
"International experience has proved that macroeconomic stability is crucial for economic growth and the creation of new jobs in the long term".
"We know from the experience of the 184 countries that are Fund members that none of them was successful when having too high budget deficits," the IMF official added. How high are the "too high deficits"? "It depends on several circumstances, on the situation of the balance of payments, on the inflation level, on the public debt," the IMF official answered evasively. razvan.voican@zf.ro
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