Moody’s: Market uncertainties have amplified and they could last until autumn

The recent events in Romania have amplified the market fears on political turmoil possibly jeopardizing the fiscal consolidation of the past three years, and the market uncertainties could last even after the autumn elections and they could probably affect the structural reforms and they could delay the structural reforms addressing the « vast » sectors of state run companies in Romania, according to Moody’s, Mediafax reports. Thus, although PM Victor Ponta has publicly expressed his commitment towards the multi-lateral agreements with IMF, EC and World Bank, it could be that against a background of an increasingly weaker economic growth, turbulences within the euro zone and an anti-austerity feeling increasingly present in Romania, the budget deficit would not decrease this year below the target of 3 per cent of GDP (ESA methodology), undertaken by the Government. Failing to reach this target would postpone Romania’s exit from the EU excessive deficit procedure which could be expected next year. A second negative consequence of the recent political events, external relations respectively, has raised concern in the markets on possibly affecting the relationship between Romania and the EU, an important institutional and financial support for the country.Also, the agency informs, during the analysis released yesterday, that the market uncertainties have resulted in RON depreciating by more than 2 percent in July, the strongest drop registered in the « comparable emerging markets » over the same time period. The depreciation of the national currency induced a raise in the Government’s financing costs, increasing the lending and reimbursement costs of debts for « all Romanian debtors », according to Moody’s. Apart from the market reaction, the rating agency reminds that the budgetary deficit was lower for the first half of this year as against the corresponding level of the previous year and the political strains do not represent a new aspect in Romania as the president was suspended in 2007 as well, when the outcome of the referendum was in his favor. « Yet, considering the regional and global uncertainties, the market fears induced by the current suspension have been partially generated also by the fact that the Party where President Traian Basescu came from, the center – right group PDL, has been associated with fiscal consolidation in the past three years, whereas the dominant party within the current USL coalition, PSD, center left, has criticized the austerity measures and has provided a modest salary raise in the public sector after taking the office », Moody’s report indicates.