Threat to Quit CEFTA Stirs Debate in Kosovo

Analysis
06 Nov 172017-11-08 16:42:23

As Kosovo’s government mulls withdrawing from CEFTA, citing its unequal treatment, economists warn that a halt to regional free trade will result in price rises.

Die Morina

BIRN

Pristina

Foto from Facebook page of Kosova Chamber of Commerce

Kosovo’s recent announcement that it may withdraw from the Central European Free Trade Agreement, CEFTA, due to what it sees as its unequal treatment, has triggered a lively argument about this plan and its possible consequences.

The UN Interim Administration Mission in Kosovo, UNMIK, which represents Kosovo in CEFTA, has urged the government in Pristina to reconsider the threat, while most local experts warn that such a move would increase the prices of many imported goods.

Kosovo’s Minister for Trade and Industry, Bajram Hasani, on Friday said Kosovo would consider withdrawing from CEFTA if its demand for direct representation – instead of being represented by UNMIK – is not taken into account.

“We are invited to participate at CEFTA’s roundtable on the 23rd of this month. Of course we are going to raise some issues there. We have also asked the EU Office to put pressure on UNMIK to give up its preamble and to be recognized as the Republic of Kosovo,” Bajrami was quoted as saying on Friday.

Moldovans Send Home More Euros than Rubles

 

Illustration. Photo: Wikimedia Commons/Andreas Schwarzkopf

Moldovans who leave their country to work abroad have been choosing the European Union over Russia, indicated by the fact that remittances sent home are increasingly in euros and dollars rather than in Russian rubles, official statistics showed on Monday.

During the third quarter of 2017, Moldovans sent home 154.11 million dollars, 135.99 million euros, and only 27.13 million Russian rubles, the central bank statistics show.

About 800,000 Moldovan citizens are registered as currently living and working abroad, but the real number is estimated at 1 million people. About half work now in the EU, the US and in Canada while the other half work and live in Russia and neighbouring Ukraine.

According to the state bank, the flow of remittances follows political trends.  Since relations between Moscow and Chisinau became tense, after Moldova signed an Association Agreement with the EU, Russia has imposed sanctions on Moldova and expelled thousands of undocumented Moldovan workers.

Russian authorities and Moldova’s President Igor Dodon, who is friendly to Russia, in March 2017 urged Moldovans working in Russia to register and receive work permits so they would avoid deportation.

Since the Russia imposed an embargo on Moldova in 2013, 65 per cent of Moldova’s exports now go to European markets, and just 11 per cent reach Russia, government statistics show.

With at least a million of its population of 3.5 million now working abroad, Moldova has one of the highest emigration rates in the world. Remittances also account for about a quarter of the country’s GDP.

Romania to Adopt Fiscal Changes Despite Opposition

 

Romanian Social Democrat-led cabinet during its weekly meeting. Photo: gov.ro

Romania’s Social Democratic Party (PSD)-led government is set to adopt a controversial new Fiscal Code, despite widespread opposition from unions, the business community, and the public administration.

Prime Minister Mihai Tudose confirmed Tuesday that the new Fiscal Code is set to pass as an emergency decree during Wednesday’s cabinet meeting. Emergency decrees hold the same status as organic laws passed by parliament.

Over 10,000 employees of the Dacia commercial vehicle plant in Mioveni protested the move Tuesday, while all other unions threatened a general strike. Unions say that the decree will lead to a drop in wages starting January 1, 2018, as most employees will have to pay 35 per cent of gross salary in taxes and social contributions.

Mayors from across Romania also gathered in Bucharest to call on the prime minister and PSD head Liviu Dragnea to give up what they called “the fiscal revolution”.

Activists also called for renewed protests in front of the main government building in central Bucharest on Wednesday at 11:00am, requesting that companies allow their employees to attend.

President Klaus Iohannis also criticised the move on Monday calling it “totally untimely” and said that the government should postpone the move until its impact is thoroughly assessed.

Finance Minister Ionut Misa said Monday that the new Fiscal Code is intended to transfer social contributions from the responsibility of the employer to the employees. It has gathered all other required approval. Misa faced an impeachment motion in parliament on Monday over the planned move, but the liberal opposition could not gather a majority of votes.

“The wages law can be applied without any problems,” Misa told journalists. “When we came up with transferring the social contributions from employers to employees in our governance program we thought of all fiscal requirements and there will be no negative effect over the wages law,” he added.

Dragnea and Tudose also defended the new Fiscal Code by saying that the union leaders did not understand the new measures and that, in fact, they believed salaries would increase.

“No businessman who has good will would use these changes to cut salaries,” Dragnea said last Thursday.

Tudose also said that the unions follow “crooked logic by starting from the premise that we’re going to close down the country.”

But according to Romania’s Fiscal Council, the new tax measures will lead to a drop of a billion euros in budget revenues and the uncertainty will incur major risks to the economy. Employers should increase gross wages by at least 20 per cent to compensate for the transfer of social contributions from employers to employees. However, they are not legally obliged to do this.

Liberal MP and economist Florin Citu, who has been one of the most vocal critics of the new Fiscal Code, stated on his Facebook account that he believes the PSD is activating a ticking time bomb with the new legislation.

The Social Democrats, who hold a majority in parliament, passed a unitary wage law in July increasing wages for the public sector starting January 1, 2018. Citu said that the effect of increasing salaries in 2018 would cost Romania a 5 percent drop in GDP, and, in order to make up for that loss, the Social Democrats came up with the idea of transferring responsibility for social contributions from the employers to the employees causing salaries in the public sector to remain the same or even drop.

“These Fiscal Code changes will cost private companies a lot of money; money they could use for investments or wage hikes. Now, they will have to spend it on new software for paying wages and for the split VAT,” he pointed out.

The Social Democrats are also under fire for trying to pass a justice reform bill that threatens the independence of prosecutors, despite a massive mobilisation of magistrates and civil society against the move. 

Resistance Grows in Albania to Rama’s Tax Reforms

 


Analysis
08 Nov 172017-11-28 13:49:24

Controversial reforms designed to curb the grey economy by forcing small firms to pay VAT, among other things, are coming under increasingly hostile scrutiny.

Gjergj Erebara

BIRN

Tirana

Full moon is captured above Plaza Hotel in Tirana, Albania on 14 November 2016. The Government of Albania had proposed many tax cuts for luxury hotels and adding more taxes on small shops. Photo: Gent Shkullaku/LSA

Albania’s parliament has started discussing [link in Albanian] controversial tax reforms, in a debate that has quickly expanded to include businessmen, media, unions and often hostile critics.

The IMF and many local experts advise against the planned changes, arguing that cuts in VAT on big businesses – and imposing VAT on smaller ones – will greatly complicate the work of the tax administration, possibly for little benefit.

Despite the flak, Edi Rama’s Socialist-led government has moved on with its plan, sending it to parliament.

The changes include cutting VAT from 20 to 6 per cent for four and five-star hotels and their business operations.

Pension Reform Plan Encounters Opposition in Croatia

 

Illustration. Photo: Pixabay/Zstupar

As Croatia’s government announces stricter rules for the state’s ailing pension system, both pensioners groups and experts have warned that the announced changes will not resolve the key issue – the unhealthy ratio between working people and pensioners.

With only 1.16 workers for every pensioner in Croatia, the government plans to tighten the rules on people taking early retirement to stop the ratio from getting worse.

Last year, Croatia paid out pensions costing about 4.9 billion euros while working people paid only 2.7 billion euros towards contribution for retirement. The state budget covered the gap.

Now the government wishes to further penalise people taking retirement before the age of 65, possibly lowering their pensions by 30 per cent instead of the existing 20 per cent.

Also, noting the introduction of new technology and better security and protection at work, the government wishes to cut around 100 job categories in which employees have an opportunity to retire at a younger age. These include police officers, firefighters, workers handling hazardous chemicals and similar jobs.

Milan Tomicic, deputy president of the Croatian Pensioners Union, told BIRN that the union was dubious about the announced reforms, as previous ones did not resolve anything, “but just further worsened the issue”.

He said the union was firmly against stricter criteria for early retirement. “I don’t see how these stricter conditions will ease the unfavourable ratio between workers and pensioners … it [changing the ratio] should be done through new jobs,” Tomicic concluded.

Economic analyst Guste Santini agreed that the planned measures will not help Croatia turn round the unfavourable ratio, or find new money.

“The government must not ignore the fact that Croatia during and after the [independence] war was badly de-industrialised, so some categories of workers can only go to early retirement,” he told BIRN.

“Also, the government can’t deny that certain jobs can’t be performed at certain, older ages,” he added.

All Croatian workers pay into two mandatory “pillars” of the pension fund, giving 15 per cent of their gross salary for the first and 5 per cent for the second pillar.

The government has announced that in future, workers will have to give 10 per cent for the second pillar.

Santini rejects this idea as well, claiming it will have negative effects on the economy by raising the cost of work.

With Croatia’s retirement age set now at 65, the state has vowed to raise it to 67 by 2038. Although the government pondered doing this by 2030, following advice from the IMF it has backed off from this idea for the time being.

The government is also considering introducing a national pension for people who do not have the needed minimum years of working experience to get a pension.

This national pension would be set at around 40 per cent of the minimum salary, around 130 euros a month. The average pension in Croatia is worth around 300 euros.

Romania Bank Chief Warns of High Trade Deficit

 

Romania Central Bank Governor Mugur Isarescu. Photo: IMF/Flikr

Romania’s Central Bank chief Mugur Isarescu on Thursday sounded a cautionary note about the country’s economy, despite the optimistic growth forecasts coming out of the European Commission among others.

Romania faces the risk of running a high trade deficit in 2017, unless the government postpones investment and cuts taxes, he said.

Bank Governor Isarescu also said that inflation is also due to rise from 1.9 per cent earlier this year to 2.7 per cent by the end of the year, due to increased imports and production costs and low exports.

Romania’s currency reached its lowest exchange rate with the euro in five years on Wednesday, due to the high trade deficit.

“We also still have a pro-cyclical fiscal and income policy, an expansive one, although slightly less so lately. The data show now that we will probably meet the[EU’s] 3-per-cent deficit requirement. However, there are issues with the reasons to meet this requirement: reducing taxes and postponing investments,” Isarescu said.

Another problem creating tension in the economy is the lack of correlation between wage hikes and productivity, he added. Romania has a lack of highly skilled workers and too many unskilled workers, he added.

Isarescu explained that while productivity in Romania had risen, wages had risen faster, and the hikes were not always justified by improved productivity.

Romania needs serious structural reforms if the government wants to achieve sustainable economic growth in future, the bank governor warned.

Romania has been hailed for having the fastest growing economy in the European Union in 2017.

On Friday, the European Commission announced that it expects Romania’s economy to grow by 5.7 per cent in 2017 and by 4.4 per cent in 2018, considerably more than economies in the region and way ahead of the EU average.

“Real GDP growth accelerated in 2017, driven mainly by private consumption. Looking ahead, growth is set to decelerate but remain above potential,” the Commission’s forecast for Romania said.

“[However], the budget deficit is projected to increase due to public wage increases projected in the unified wage law,” the report added.

The Commission noted some of the risks that might prevent Romania from reaching the growth forecast. They include a possible tightening of the central bank’s monetary policy in response to emerging inflation, cuts in public investment, and a continued rise in labour costs due to wage growth outpacing productivity growth.

Serbia’s IMF Arrangement Ends on High Note


Analysis
20 Nov 17

2017-11-21 14:03:31

Belgrade’s 1.2 billion euro Stand-By Arrangement with the IMF is slowly coming to its end on a positive note, though experts warn that some serious challenges for the economy still lie ahead.

Stevan Veljovic

BIRN

Belgrade

James Roaf, head of the IMF mission for Serbia and Dusan Vujovic, the Serbian Finance Minister. Photo: Beta 

Under the IMF’s watchful eye, over the past three years, Serbia has curbed its growing fiscal deficit, which was 6.6 per cent in 2014, and its public debt, which was near 75 per cent of the country’s GDP at the end of 2015 – 30 per cent above the legal ceiling.

“Significant fiscal over-performance has continued,” the IMF mission said in a laudatory press release on November 8, following the eighth and final review under the arrangement.

“The general government balance for this year is projected to be around zero, compared to the original budget deficit target of 1.7 percent of GDP. The public debt-to-GDP ratio fell to 65.4 per cent at end-September, more than 10 per cent of GDP below the 2015 peak,” the IMF statement added.

Serbia’s “fiscal over-performance” has convinced the mission, led by James Roaf, to agree to government plans to increase salaries by 5 to 10 per cent for employees in social services, civil servants and pensioners – whose payments were cut in late 2014 as a part of austerity measures. The increases will come into effect next January.

Bulgaria’s Arms Exports Reach Record High in 2016

Photo: Evan Burr/Flickr

Bulgaria’s arms exports reached unprecedented volumes in 2016, with the total value of the deals surpassing one billion euros, the annual report by the state commission for export control shows.

The state approved 595 export licences worth nearly 1.3 billion euros, from which deals worth 1.015 billion euros were realised.

This represented a major increase from 2015, when Bulgaria exported arms to the value of 642.5 million euros.

The report reveals that the steady growth of Bulgarian arms exports to the Middle East in recent years continued in 2016.

A total of 52.8 per cent of all the deals over the year were realised with countries from the Middle East region.

The total value of the shipments to the Middle East reached 536 million euros, while Bulgarian exports to the country’s NATO and EU partners amounted to fewer than 200 million euros.

The main recipient of arms and ammunitions, originating or transferred from Bulgaria was Iraq, with exports for 259.2 million euros, followed by Saudi Arabia, to which Bulgaria shipped weapons worth 238.9 million euros.

Traditionally, the country exports predominantly ammunitions and explosives, such as bombs, rockets and missiles.

In 2016, these groups of defence products formed the largest part of the arms deals approved by Bulgaria, with a value of more than 767 million euros.

With the escalation of conflicts in the Middle East and Ukraine, Bulgaria’s arms sector, which was long suffering from a decline, has undergone a renaissance.

A recent investigation by BIRN and the Organized Crime and Corruption Reporting Project, OCCRP, revealed that since 2012, Bosnia, Bulgaria, Croatia, the Czech Republic, Slovakia, Serbia and Romania agreed exports of weapons and ammunition worth at least 1.2 billion euros to four countries supporting Syria’s armed opposition.

The bulk of the deals, totalling 829 million euros, were made with Saudi Arabia.

“Over the past years the production and realization of defence products have scored record growth, reaching an annual turnover of over a billion leva in 2016,” Economy Minister Emil Karanikolov noted in a report to the government published on August 25.

The minister has proposed setting up a new consultative council to the government which would coordinate and develop the work of all of Bulgaria’s arms traders and producers.

The country’s largest state arms producer, VMZ-Sopot, saw its profits rise by a third in the first half of 2017 compared to the same period last year.

Kintex, a state-owned arms trader, tripled its net sales over the same period from fewer than 50 million leva (25.5 million euros) to 152.3 million leva (77.8 million euros).

Serbia’s Economic Slowdown Alarms Experts

Analysis
25 Sep 172017-09-27 08:47:36

Serbia’s economic growth has slowed down this year, statistics show – and independent experts dispute official claims that this is mainly due to recent bad weather.

Milos Damnjanovic

BIRN

Belgrade

President Vucic has lately devoted far more attention to raising public sector salaries than to economic reform, claims the author. Photo: Beta

Latest data published by the Serbian Statistical Office last week showed that economic growth in the country in the second quarter of 2017 was a modest 1.3 per cent of GDP.

This meant the economy slowed down for a second consecutive quarter. Figures for the first quarter, published in June, showed economic growth at 1.2 per cent of GDP, which was less than half the 2.5-per-cent growth achieved in the final quarter of 2016.

The drip feed of disappointing economic data has seen officials and economic analysts close to them scrambling to justify Serbia’s anaemic economic performance.

Most blamed the summer’s record heat wave, codenamed “Lucifer”, which brought a heavy drought that decimated agriculture across the region.

Albania Unions Demand Hike in Minimum Wage

 

KSSH during a protest in Tirana. Photo: kssh.org

Albania’s Confederation of Trade Unions, KSSH, is pressuring the government to raise the minimum wage by 17 percent within a year, alongside other requests that would improve the conditions of working people.

KSSH chief Kol Nikollaj told BIRN that they intend to use any democratic means in order to achieve this objective.

“On World Day for Decent Work, on October 7 around 200 representatives of our organisation are going to gather in Tirana and protest. Other protests will follow if our requests are not taken into consideration,” he said.

Together with the request to raise the minimum wage from 24,000 lek [180 euros] a month to 28,000 lek [209 euros], the union demanded collective contracts, together with the approval of special status for miners and metal workers.

When it comes to the minimum wage, the government already raised it in May by 9 per cent as result of it not being adjusted since 2013.

However, for the KSSH this is still not enough. According to the Institute of Statistics, the number of those employed in Albania in 2016 was 1,042,810, of whom 164,635 work in the public sector and the 878,175 others in the private sector.

Nikollaj told BIRN that according to their research, the majority of those working in the private sector earned only the minimum wage.

“We have whole important sectors like the garment industry … call centres, tourism and private security services where the overwhelming majority of workers are paid a minimum wage,” he said.

Albania has a low minimum wage compared with other countries in the region. According to the EU statistics agency Eurostat, in 2015, the minimum wage in Serbia was 235 euros. In Macedonia, it was 213 euros and in Montenegro, 288 euros.

The low minimum wage makes it difficult for many families in Albania to have a decent living. A study presented in October 2016 by Albania’s Ombudsman in collaboration with the Albanian Centre for Economic Research suggests that the basic cost of living per person in Albania was 16,000 lek [120 euros].

The average wage in Albania, according to statistics in 2016, was 54,487 lek [407 euros].