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Romania bends to EU and IMF on fiscal reform

03 September 2015, 15:24 CET
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(BUCHAREST) - Romanian lawmakers overwhelmingly adopted Thursday a fiscal reform after taking into consideration concerns of its international creditors that the changes could weaken the country's finances.

The amended version adopted by lawmakers reduces the Value Added Tax (VAT) rate to 20 percent from the current 24 percent, as opposed to the 19 percent originally foreseen.

The amended reform also postponed to 2016 and 2017 the elimination of two other taxes.

These measures ensured that Romania's public deficit at around 2.0 percent of gross domestic product next year, compared with the 3.5 percent that analysts had feared the original project would have caused.

As a member of the European Union, Romania is required to keep its deficit below 3.0 percent of GDP or face the possibility of sanctions.

Romania's finance minister welcomed the adoption of the amended package.

"The new fiscal code will lead to a 4.5 percent increase in consumption and a 6.0 percent increase in investment, all of which should translate into economic growth of more than 4.0 percent in 2016," said Finance Minister Eugen Teodorovici after the vote.

The original draft of the reform adopted in June had sparked sharp criticism from the EU and International Monetary Fund (IMF).

Conservative President Klaus Iohannis also called on lawmakers to reconsider the text, warning of risks of sending the economy of one of the EU's poorest member states into a new crisis.

Romania only managed to claw out of a deep recession after the EU and the IMF agreed to a bailout programme of 20 billion euros ($22 billion) in 2009.

Weakened by corruption charges being pressed against him in June, the social democratic Prime Minister Victor Ponta ceded to appeals to amend the legislation.


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