Standard & Poor’s Global Ratings on Oct. 7 cautioned that the government’s looser fiscal stance could push up Romania’s fiscal and external deficits. “We anticipate that the general government deficit will widen to 3 percent of GDP in 2016 from 0.7 percent in 2015. With further measures – such as another round of cuts in value-added taxes and excise duties – due to come into effect early next year, we forecast further deterioration in the deficit to 3.5 percent of GDP in 2017,” the rating agency said in a release.
Moreover, the agency’s experts caution that if the legislative initiatives currently under consideration such as cuts to social security contributions, raising the pension point to 45 pct of the average wage and further wage hikes are not accompanied by other compensatory measures, Romania’s general government deficit could widen at a faster pace than currently forecast.
In the opinion of S&P experts, the prospect for Romania “being inducted once again into the European Commission’s excessive deficit procedure should motivate policymakers to again embark on fiscal consolidation, regardless of ideology. In this context, we think that public wage increases are unlikely to be reversed; however, investment spending could suffer,” they said.
“We think that an improvement in energy efficiency and gradually increasing value-added in some pockets of Romania’s expanding export sector – especially services – will likely prevent large external imbalances from re-emerging,” S & P notes, anticipating that, from 2018, Romania’s current account deficit will be fully financed by surpluses in the capital and financial accounts. “We think the financial accounts will benefit from continuing foreign direct investment, public-sector borrowing, and slowing net outflows from the financial sector, as domestic lending opportunities increase,” the statement also reads.
S&P affirms Romania at “BBB-/ A-3”, outlook stable
Standard & Poor’s Global Ratings on Oct. 7 affirmed its ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on Romania, with a stable outlook, the Ministry of Public Finance announced in a release, adding that the agency might raise its ratings provided that budgetary consolidation continues, the net general government debt is firmly on a downward trajectory, and the restructuring and privatization programs carry on.
“S & P Global Ratings affirmed its ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on Romania, with a stable outlook. This confirmation is supported by Romania’s economic results, specifically a moderate external and government debt, amid economic growth prospects,” reads the release, further citing S & P that states that the low interest rates and oil prices have enabled the economy to grow 3.8 percent in real terms in 2015 and 5.2 percent in the first half of 2016 – one of the fastest rates in the EU.
According to Finance Minister Anca Dragu, the rating agency’s announcement confirms that Romania has a sound and sustainable economic growth accompanied by accelerated job creation, low inflation and a low external deficit.
“The government debt estimated for the end of 2016 is at a sustainable level of 39.1 percent of GDP and the State Treasury’s financing costs are going down,” Anca Dragu said.