Romania’s existing fiscal plans are unlikely to undergo significant changes following the nomination of Dacian Ciolos as the new prime minister to succeed Victor Ponta, Fitch Ratings says in its latest report on Wednesday.
“The main sovereign rating sensitivity remains the possibility that fiscal loosening jeopardises the stability of public finances,” Fitch notes.
The appointment of the former European Commissioner to lead a “government of technocrats” does not eliminate the possibility of early elections, the rating agency says, but it appears to reduce their likelihood after Ciolos’ nomination attracted support from a range of political parties.
He will now assemble a cabinet and present a programme for a parliamentary confidence vote, Fitch thinks. If endorsed, his government would serve for one year.
Some uncertainties were already present in Romania after Ponta was charged over money laundering and tax evasion allegations (which he denies) in July, Fitch remarks, but these do not appear to impact fiscal policy, and there was strong consensus across all parties in support of the Fiscal Code.
The financial agency do not expect Romania’s ‘BBB-‘/Stable sovereign rating in August to change due to the broad political backing it has received.
“The Fiscal Code envisages tax cuts to stimulate consumption.We think there is limited room for offsetting spending cuts, as public expenditure is among the lowest in EU countries, while the authorities’ plans to boost tax collection in the informal economy look ambitious.
But the loosening is less pronounced than in the original Fiscal Code’s previous proposals, and follows consolidation in 2009-2014 (mostly under the Excessive Deficit Procedure) that narrowed Romania’s headline fiscal deficit from 9.1 percent to 1.4 percent of GDP. Headline deficits will widen in 2015-2017 and debt to GDP rise, but the latter will remain broadly in line with the ‘BBB’ category median,” Firch’s report shows.
The agency forcasts that a marked fiscal loosening that jeopardises the stability of public finances or wider macroeconomic stability would put downward pressure on the rating.
“Sustained low fiscal deficits reducing government debt/GDP could create upward rating pressure. Romania’s ratings are supported by a healthy economic outlook (we forecast real GDP to rise 3.3 percent this year), low inflation, comfortable foreign reserves, and a stable banking sector,” Fitch analysts concluded.