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Fitch considers risks about Romania's rating are mostly balanced

Risks about Romania's rating are mostly balanced, Greg Kiss, the analyst of Fitch Ratings told Reuters. He added that the relatively low public debt level is a favorable starting point for measures meant to reduce the highest budget deficit in EU, Agerpres informs.


Romania's budget deficit went up to 3.24% of GDP at the end of April, which, according to European Commission analysts will make the 2024 deficit target of the PSD and PNL coalition of 5% , unreachable.


The European Commission expects Romania's budget deficit to rise to 6.9% of GDP in 2024, due, among other things, to the cost of pension reform and will continue to grow in 2025 to 7% of GDP, which would mean the highest budget deficit of a EU member country for both years.


Fiscal slippage is an important risk, said Greg Kiss. According to cash data, in the first four months of the year, the budget deficit is higher than in previous years and that continues t be a risk for Romania, the Fitch Ratings analyst pointed out.


In March, Fitch confirmed Romania's country rating at BBB minus, with stable prospects. On Friday, Fitch will review Hungary's rating, a country which also had problems in reducing fiscal deficit and which has a higher debt burden than Romania.

Greg Kiss said that risks continue to exist as it was in March but there were no unpleasant events at the elections on Sunday, which consolidated the position of center wing parties in Romania.


Fitch expects more fiscal adjutment measures in 2025, when Romania has to present a credible plan of fiscal consolidation to financial markets and the European Commission in order to benefit from European funds of several billion euros.

However, due to Romania's high budget deficit, which was over 7% of GDP after the COVID 19 pandemic, Fitch estimates that years will pas until the budget deficit will reach the level of 3% of GDP requested by EU.


Greg Kiss showed that the fiscal consolidation will last more than a year. The important thing is the level of public debt, which in Romania's case is below that of similar countries, so that he starting position is favorable for Romania.


At the end of 2023, Romania's government debt was 48.8% of GDP, a lot below the 81.7% average in EU and 88.6% of GDP in the euro zone.


If there is an etended adjustment period, the debt level, although on the rise, will be mostly in line with the BBB category, the Fitch analyst considers.


Kiss also said that the National Bank of Romania, which has not reduced the monetary policy interest rate because of high inflation will start reducing the cost of credit because of inflation pressures. Fitch considers that inflation , especially basic inflation, will persist, which will make monetary relaxation gradual.




Friday, June 14, 2024