IMF Criticizes Romania Intention to Raise Pension

From See.net



This decision may result in increasing the inflationary pressures and in deepening the current account deficit, according to those declared by the High IMF Representative in the region, Juan Jose Fernandez – Ansola.


The International Monetary Fund (IMF) criticized Romania on Friday in relation to its plans to substantially raise pensions, declaring that this decision could result in increasing the inflationary pressures and in raising the current account deficit, according to Mediafax quoting Reuters.

“Even if we understand that pensions are small, the fiscal decisions need to consider the existence of budgetary limits and they should not be made in the absence of conducting a macro-economic environment analysis”, as Juan Jose Fernandez – Ansola (photo), High IMF Representative in the region, said. Imports grow fast during a time when companies are upgrading their structures and Romanians are constantly trying to improve their living standards, after decades of poverty during Communism, according to Reuters, and the strong RON appreciation affects imports, thus contributing to widening external deficit to over 10 per cent of GDP.

“We were already considering a current account deficit of around 13 per cent of GDP in 2007,” Fernandez – Ansola declared.

“Until now, Romania has not experienced issues related to funding its own imbalances, but there are always levels which once exceeded may pose the country in a difficult situation – in my opinion, Romania is heading towards this,” Ansola added.

Fitch: raising pensions increases the downward revisal risk of Romania rating

The intention of the Romanian authorities to raise the state pensions by almost 100 per cent, over the next two years, increases economic over-heating and fast RON depreciation risks, and it could have a negative impact on rating, as shown recently by Fitch Ratings agency, according to Mediafax.

“Provided that this measure is fully implemented in 2008, without reducing other expenditures or increasing taxes, for balance reasons, then there is a strong incentive for an economy that already confronts with the over-heating risks. This would be a negative development in terms of rating perspective”, as declared in an interview for Reuters by Andrew Colquhoun, Fitch analyst. The rating agency maintains the qualification “BBB”, with a stabile prospect, but it continues to monitor the economic situation, as Colquhoun specified.

Risks

“Such a steep raise will be felt in the budget, somewhere to over EUR 2 bn, around 2 per cent of GDP, and the effort will be on long term, and the amounts will be eventually taken from investments. Replacements are considered in relation to the required resources, even by changing the tax philosophy so far used,” as Sebastian Vladescu declared for Mediafax.

Minister of Labour, Paul Pacuraru, explained that the financial resources for covering these raises result from economic growth, from the elimination of the contribution threshold in case of those with over five average salary in economy as well as from charging taxes on the incentives and bonuses paid to employees and which were not taxed so far. It is for the first time when a serious move is made, according to those declared by the business analyst Ilie Serbanescu for Realitatea TV.

Liberal and Social-Democrat leaders accused each other over the weekend of trying to gather electoral capital over the passage of a crucial law providing a significant increase in pensions as of January 1.Social-Democrat Party (PSD) leader Mircea Geoana told a press conference on Friday that the pension increase is probably his party’s most important project ever and the most important project adopted by Parliament in years, Mediafax reported. Meanwhile, Democrat Gheorghe Barbu said the pension increase was a populist measure, a cold element in the image strategy disputed by PNL and PSD. PNL leader and Prime Minister Calin Popescu Tariceanu retorted that the PSD attempt to gain credit over the pension increase is a big lie. “These measures are initiated by the government. PSD is trying to show that they had a contribution. PD should be ashamed for saying they are populist measures,” he said. On Saturday, Geoana slammed Tariceanu’s statements as an “embarrassing attempt” to gain electoral capital. “This project had been debated by Parliament for over six months. If PSD hadn’t forced their hand and threatened with a no-confidence vote, it’s very likely that Mr. Tariceanu wouldn’t be thinking of pensioners’ fate, as he hasn’t for two years and a half,” said Geoana.