Romania Shouldn’t Cut Taxes For At Least Two Years - IMF

"I would not advise a return to 19% of the value added tax at the end of next year because the need is for fiscal consolidation to continue into 2012," IMF mission chief Jeffrey Franks told MEDIAFAX.

"If you want a 3% [of GDP] deficit in 2012 you cannot cut taxes in 2012," he added.

Franks said it would be "very desirable" if Romania reduced taxes after 2012, but not before fiscal adjustment is completed and the authorities have improved the tax collection system.

"Improving tax administration takes time. You don't all of a sudden wake up and collect twice as much excise tax. You have to implement a number of controls, better information system, better ways of supervising the employees, better incentives for them," he said.

The IMF official predicted the measures to improve tax collection should yield the first results in the next two or three years.

Romanian government recently announced a series of austerity measures to boost revenue and keep the budget gap below 6.8% of GDP in 2010. The measures include a 25% cut in public wages and raising the sales tax to 24% from 19% previously.

"We do not expect things to go bad from here. The measures are having the desired effect. The huge advantage of taking such strong tough difficult measures in June is that you don't have to continue to take additional measures every three months," Franks said.

He said Romanian economy could show signs of a meager, even if temporary revival in the second quarter of 2010, followed by sustained growth toward year-end or in the first months of next year.

"We anticipate that either in the fourth quarter or first quarter of next year we would have sustained positive growth going forward," Franks said. "I actually think that the fourth quarter will be positive and the first quarter of next year as well."

Romania and the IMF last year signed a EUR13 billion loan agreement, part of a larger EUR20 billion aid package that includes funds from the EU and other international lenders.

Joint teams from IMF and the EU arrived in Bucharest July 26 for the fifth review of Romania's agreement.

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