ING: Romania’s Follow-up Deal With IMF Endangered By VAT Cut

Romania’s follow-up agreement with the International Monetary Fund could be endangered by the lawmakers’ move to sustain a lower sales tax on basic food items, according to ING analysts.

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In October 2010, the Parliament adopted a bill cutting to 5% from 24% the value added tax level for bread, meat, milk, edible oil and sugar, in a move termed as "erroneous" by representatives of the ruling Democrat Liberal Party.

According to the democrat liberals, the MPs thought they were voting a committee report to reject the tax cut.

President Traian Basescu has subsequently sent the bill back to parliament, but the Senate has rejected his reexamination request. The bill is pending final vote in the lower house, which is the decisional chamber in the matter.

If approved, the tax cut would have a negative impact on the leu's exchange rate and would increase Romania's borrowing costs, ING analysts said.

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