A Political Deadlock is impacting Romanian’s Economy

According to US rating agency, Fitch, the present political deadlock is jeopardizing Romanias country rating

Daniela Budu, 09.09.2021, 23:00

US
financial rating agency Fitch Ratings warns that the dissolution of the
Romanian government coalition might disrupt fiscal consolidation efforts. These
are critical for changing the ‘negative’ outlook that is currently associated
with Romania’s ‘BBB minus’ rating. Fitch has repeatedly said that the evolution
of public finances is the main factor influencing Romania’s rating. The rating
agency also points out that political turmoil is a danger to the fiscal
outlook.

The
executive has planned ambitious reforms on revenues and expenditures to reduce
the deficit below 3% of the GDP in 2024 from 9.3% in 2020. The ‘BBB minus’
rating currently assigned to Romania by Fitch is the last rating in the
‘investment grade’ category and a possible one-step downgrade would lead
Romania’s rating in the ‘junk’ area, below the recommended investment
threshold.

Pundits
expected the executive to come up with a unitary pay and pension bill by the
end of the year. Furthermore the government pledged to improve the tax
collection system and curb the deficit in the VAT collection.

Shortly
upon Fitch’s warning, the Prime Minister has given assurances the reform
programme will continue in Romania and that the country relies on a higher
income budget this time being able to curb the budget deficit.

We
recall that Romania is presently facing a political deadlock after several
USR-PLUS ministers have stepped down shortly after the Prime Minister’s
decision to sack their colleague, Justice Minister Stelian Ion. Furthermore,
USR-PLUS has tabled a motion to put pressure on the National Liberal Party to
sack the incumbent Prime Minister.

According
to the same sources, USR-PLUS enjoys support from the nationalist group AUR while
the largest opposition group PSD seems to have nothing against the idea of
dismissing the incumbent Prime Minister. Fitch believes these political groups
can muster enough votes to endorse a motion, which could make the president to
appoint a new Prime Minister and forge a new government.

Romanian
president Klaus Iohannis could appoint Florin Citu once again in a bid to forge
a minority Liberal government as it happened in 2019-2020, but two abortive
attempts at making a government might trigger snap elections. According to
Fitch experts, it is still unclear how a PNL-led minority government or a
PSD-led government could be capable of promoting the politically-sensitive
reforms in healthcare, the country’s pay and pension system and justice.

Fitch believes the present political deadlock might further delay the
European Commission’s approval of the National Recovery and Resilience Plan -
NRRP, which the Romanian government will be waiting for until the end of
September. The agency’s next scheduled review of Romania’s rating is due on
October 22.

(bill)