The revised economic growth forecasts, to less than 1% thisyear, increase the likelihood of the Government having to resort toa VAT hike to boost revenues and comply with the 5.9% of GDPdeficit target required by the IMF.
The Fund's mission will be back in Bucharest next week to assesscompliance of the Romanian authorities with the criteria agreed forthe first quarter.
The latest signals from Washington point to a reduction in theeconomic growth forecast from 1.3% to 0.8%. Under thecircumstances, budget revenues are expected to be lower thananticipated.
It remains to be seen if the authorities are able to negotiatewith the foreign financers a relaxation of the budget deficittarget or if a tax raise ensues.
"The change of the economic growth forecast should also induce arevision of the budget deficit target," ING Bank analysts say.
IMF officials have repeatedly stated that they would not imposea specific solution for curbing budget deficit, with the Governmentleft to choose between cutting public spending by means of layoffsprimarily and tax hikes.
Fiscal experts said at a seminar organised by ZF last week thatthe question about the VAT raise was not if but when.
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