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Romania political turmoil unlikely to stop fiscal consolidation - S&P Global

Romania political turmoil unlikely to stop fiscal consolidation - S&P Global gary yim/Shutterstock.com

BUCHAREST (Romania), September 14 (SeeNews) - S&P Global Ratings said on Tuesday that it does not expect imminent risks to Romania’s near-term fiscal consolidation plans following the resignation on of USR Plus ministers from the government coalition.

USR Plus’ withdrawal, following a series of policy clashes and intra-coalition tensions, will require prime minister Florin Citu to seek parliamentary re-approval for his now minority cabinet within 45 days, S&P said in a press release.

This comes at a time when the government is set to engage with the European authorities to secure funds from the EU’s Recovery and Resilience Facility, the agency noted.

"We assume, in our base case, that the government would aim to preserve its capacity to function over the short term in order to contract this funding, which we understand is ready to be disbursed. The adoption of Romania’s budget rectification for 2021 last week suggests that there is capacity to execute policy, in our view,."

However, S&P added, persistent uncertainty could accentuate fiscal risks over the medium term.

Separately, the USR Plus party filed a motion to censure Citu’s government but we understand the debate and vote have been delayed. This is the second time that confidence in the government has been questioned in just four months. Aside from the ongoing votes of confidence, both parties will hold elections of their leadership over the coming month.

In S&P's opinion, this could spur a political re-set of coalition talks, somewhat complicating the political outlook.

For now, Romania’s rebounding economic growth is helping to mitigate pressure on the government’s fiscal position, the analysis reveals. The economy has already returned to its pre-pandemic output, expanding by 6.5% over the first half of 2021, outperforming S&P's April forecast of 5% growth for the full year.

S&P forecasts that Romania;s gros domestic product (GDP) will grow by 4.5% in 2022 and 2023, buoyed by EU and Next Generation EU grants. Also, loans are seen totalling 20% of Romania’s GDP between 2021 and 2026.

The rating agency's current forecasts include a general government deficit of 7% of GDP in 2021, before gradually narrowing to 3% of GDP in 2024 supported by the government’s consolidation agenda and Romania’s recovering economy.

"Nevertheless, should the political deadlock persist, it could disrupt progress on much-needed fiscal reform. We still believe that medium-term fiscal consolidation and a rebalancing of Romania’s budget structure, aided by successful absorption of EU financing, are key elements to stabilizing the country’s fiscal and external positions," S&P concluded.

In April, S&P Global revised the outlook on Romania's rating to stable from negative due to decreasing fiscal risks, while maintaining rating at BBB-/A-3.

The agency is set to review Romania's rating on October 15.

(1 euro=4.9475 euro)

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