The International Monetary Fund (IMF) agreed to Romania's planned increase of state - fueled salaries and pensions, after two days of negotiations with the designated Finance Minister Florin Georgescu and other ministers of the new cabinet.

“As an effect of the firm policies and structural reforms included in the IMF agreement, we've identified extra amounts which allowed us to increase the budget deficit, while keeping it under the 3 percent target with the EU and the IMF,” said the designated Finance Minster Florin Georgescu. During the week-end, he was part of 12-hour negotiations with the IMF. The increase in pensions ans salaries will trigger a higher budget deficit, of 2.2 percent, from the initial target of 1.9 percent.

The new Government plans to increase salaries by 8 percent in a first stage in June this year, while paying back the health contributions paid by pensioners. The measures would be included in a Government ordinance that should be issued by May 25. The measure would apply to some 1.2 million state employees. The rest of the increase- another 8 percent- should happen sometime in fall.

State employees saw their salaries down by 25 percent in 2010. They received a 15 percent increase at the beginning of last year. This year's salary increase would require an extra EUR 452 million in the remaining half a year.

Increasing the salaries would also result in a lower deficit for the pensions system, which is financed from the taxes raised from existing employees. The pensions fund would thus go to some EUR 3.6 billion, according to estimations from the country's president Traian Basescu. A lower deficit in the health fund is also expected.

On the pensions side, the state will have to pay back pensioners the health tax they paid, as the country's Constitutional Court deemed the decision to further tax high pensions unconstitutional. However, it is yet unclear whether the country has money to pay back and how it would do that.

editor@romania-insider.com