Romania

Romania agrees 2014 budget measures with IMF, WB and EC


Published

The Romanian government has agreed with the IMF, World Bank and European Commission a series of measures to be included in the 2014 Budget as part of their ongoing negotiations for financial support.

Below are two press releases outlining the agreed measures as published on the Government press service website:

First press release:

PM Victor Ponta: I established, for next year, a budget deficit of 2, 2 percent of GDP, and investments to overrun 6 percent of GDP. The minimum wage will rise to 850 RON, as of January 1, and to 900 RON, as of July 1st, and the pensions will rise by 3, 76 percent

Victor Ponta:

Good evening! I would like to make a brief statement, afterwards Mr. Vice – Premier; the Finance Minister will give you details and will answer your questions. We completed well last evening the negotiations with financial institutions, European Commission, IMF and the World Bank, regarding the budget for 2014, and our priorities for 2014. I want to thank Mr. Chiţoiu, Mr. Voinea and all the others who were part of the team coordinated by Mr. Vice –Premier, because, obviously, it was not about some easy discussions.

There have been addressed extremely difficult problems and difficult choices regarding next year’s priorities. I would like to state that some of points on debate and on which we obviously took decisions in order to announce today and tomorrow, officially the successful conclusion of these negotiations.

First of all, we set for next year a budget deficit both ESA and on cash, of 2.2 percent of GDP and obviously, on decrease compared to this year, under the obligations has undertaken as country that ratified the fiscal governance Treaty. But, a 2.2 percent deficit that will be taken into account in a GDP in which next year, it will continue its growth as this year, by 2.2 percent. All in all, for investments, we earmark as construction data of the budget, investments to overrun 6 percent of GDP, being likely to continue the economic growth and to launch certain projects, extremely important for various sectors. With respect to minimum wage, we will take into account its rise to 850 RON, as of January 1st and to 900 RON, as of July 1st. We have a fund to raise salaries in the budget sector. There will not be an equal increase for all employees, but growth will be targeted at certain categories. And I just want to give you an example: we will continue negotiations to establish the extent to which wages will rise for resident doctors, junior teachers and other categories on which, even in times of budgetary restraint, we must clearly make growth decisions for 2014.

We also have budgeted two billion lei for continued investment in local infrastructure and 500 million lei for the continuation of programs that we have ongoing for investment in infrastructure, programs financed by the EIB, the EBRD and the World Bank.

All pensions will be indexed at a rate of 3.76%.

We have a debt ceiling increase for infrastructure projects to local authorities of 1.2 billion lei and an increase in co-financing for EU funds to 3%.

We also provided a budget buffer to sign and start major infrastructure projects , primarily Comarnic -Brasov highway project , even with 2014 and also highway project Suplacu de Barcau-Bors, some of what you know, started, that the former Transylvania Motorway project and that we need to continue and we are able to continue in 2014.

As measures to increase revenues, we will index excises according to the inflation rate. Fortunately, inflation had a rate and will have in 2013 a low rate and, obviously, their influence will be quite small.
We will introduce a tax on special buildings – and here Mr. Vice –Premier will give you details on what kind of buildings we refer, it’s not housing, but it’s about businesses and the buildings with a specific character, an increase of royalties to mineral resources except oil and gas, of 25%, an excise of seven eurocents per litre of fuel, either petrol or diesel. Such excises and resulting money will go into a special fund for the development of road infrastructure, specifically for major infrastructure projects.
We will have as a priority action the adoption by the end of the year, so in early December, of revenue and expenditure budget for CFR Marfa , which obviously will enter a new procedure this time in a reasonable time , in a new privatization procedure.

Regarding the reduction of social security contributions, it was certainly the most intensely discussed topic during these days. There will be in the Memorandum of Understanding, both with the IMF, European Commission, World Bank, a very clear commitment / … / significant decrease, from our point of view, significant one is more than 3%. 5% is significant as relying on the studies, would have really an impact on business, so that is a significant increase in the second semester of … Daniel Chiţoiu: decrease.

This is why Mr. Chiţoiu is here. A significant decrease of 5% in social security contributions in the second semester of the year , with the obligation of the Government to identify, by 1 July , all necessary resources for the budgetary impact to be neutral , which is what we lose by reducing social security contributions to offset from the additional revenues or other funds reallocation or spending cuts . It is a political commitment that we take on behalf of the Government and on behalf of the governing coalition, and certainly, from 1 July this significant decrease, because 5% is really significant, will operate and hopefully, to have on average term, obviously, the effects that we all want.

I would like once again to thank Vice –Premier Chiţoiu for how he coordinated negotiation efforts and to say that based on this data we will complete the budget construction, probably until next week, we will make a presentation to the Government and a public presentation, after which obviously, we will come before Parliament to demand the vote for the 2014 budget. I hope I did not forget any of your important data. I apologize for the confusion between decrease and increase, but as we decreased and increased all sorts of things that happen to me, for all other decisions, I will ask the Vice -Premier, possibly to present you, or to answer your questions.

But I wanted to say once again that it is the joint political commitment of the Government and ruling coalition, and I am convinced that whereby the steps we take, we may continue the positive trend of economic growth and social justice, to repair an important part of social injustice that Romania has lived since 2010. Thank you!

Press release Two:

“The results of negotiation with the IMF, World Bank and the European Commission

I. Macroeconomic Framework

1. Measures negotiated with the three international institutions for the 2014 budget reflects the continuation and strengthening of economic growth of 2.2 % of GDP.
2. It was established a deficit of 2.2% of GDP, an increase by 0.2 percentage points compared to the previous negotiated letter of intent (2%). This shortfall will be allocated mainly for investment (6% of GDP in 2014).
3. The macroeconomic framework of the budget construction is based on increasing the minimum wage from 800 to 900 lei and pension increase by 3.76%.
Minimum wage will be increased by 12.5% in 2 stages: 850 lei from January 1, 2014 and 900 lei from July 1, 2014.
4. There was agreed to increase salaries of certain socio- professional categories of budget sector, within a growth ceiling of 500 million lei: resident doctors, beginning teachers.

II. Measures of economic growth

1. One of the main objectives of the budget construction aims at attracting European funds by providing necessary financial resources. This will increase the co-financing for EU funded projects from 2.6 % of GDP to 3.1 % of GDP.
2. In the context of supporting decentralization, financing investments achieved by local authorities (PNDL program) will increase from 376 million to 2 billion lei.
3. Allocation of 600 million to start works on Comarnic – Brasov motorway (defined as priority investment objective).
4. Increased spending by 300 million lei of investment expenditure from external loans (EIB and EBRD).
5. For local authorities, the ceiling of loans from the Treasury to pay arrears increases from 800 million lei (in 2013) to 1.2 billion lei ( 2014).

With a view to backing the above investment projects and covering the increase in earmarking for financing and co-financing for EU funded projects, there were agreed as follows:

• Regarding royalty, there was set up an increase by 25 % of royalties for mineral and natural resources other than oil and gas, to align to the EU average, but at the same time to maintain the competitiveness potential in the investments in the areas concerned.
• There was agreed to introduce a fuel duty at 7 eurocents / litre, the resulting funds are intended solely for financing infrastructure projects (highways and national roads);
• Excise duty will be calculated by indexing the inflation rate announced by NIS(National Institute of Statistics) for 2013;
• There will be expanded the tax base by introducing a tax on special constructions (ex: transport networks, pipelines, warehouses);

III. Further structural reforms

• Measures to reduce existing arrears to public enterprises and prevent the accumulation of new arrears are first axis of approach;
• There was achieved the indicative target set for September, on accumulated arrears of state enterprises owned by central administration;
• There was achieved the indicative target set for September on the operational results of the largest railway companies and their subsidiaries.
• The second axis consists of measures to improve governance, transparency and monitoring of state enterprises.
• Nomination of a professional council to Hidroelectrica by end of November 2013;
• All new bilateral contracts of power producers will be concluded in a transparent and non-discriminatory way, at prices existing on the market.
• A third axis consists of measures to improve efficiency of energy and transport companies;
• Significant progress has been made in implementing the privatization agenda.
• By IPOs, there were listed successfully 10 percent of the shares in Nuclearelectrica in October and 15 percent from ROMGAZ in November.

Other actions to be taken:

• Electrica: sale until the end of June 2014, of 51 % of the shares, by capital increase;
• Hidroelectrica: there will be adopted a new Executive Decision for the sale of 15 % of shares owned by state at Hidroelectrica until May-June 2014;
• Oltenia: Transaction Advisor has completed the due diligence actions on financial matters.
• CFR Marfa: The adoption of a restructuring program of the company until December 2014 and continuation of the privatization process.

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