No one can guarantee that all three major rating agencies will have the patience to see how the 40% pension hike saga ends in Romania before downgrading the country, said Cristian Popa, a member of Romania's National Bank (BNR) Board of Directors.

Only the risk of this happening might be enough to put Romanian in the junk basket, he added, Ziarul Financiar reported.

The 40% pension hike, which would generate some RON 25 billion (EUR 5 billion) supplementary expenditures per year, could push the budget deficit to 11% of the GDP in 2021.

The Parliament initially passed the 40% pension hike in 2019 in a different economic context, and, even then, the law raised concerns. The situation is worse now, as the deficit is already under pressure due to the COVID-19 crisis.

Two of the three rating agencies have scheduled in this autumn a review on Romania's creditworthiness: Moody's on October 23 and Fitch on October 30). Both of them and S&P rate Romania's sovereign debt at the lowest level in the investment-grade category, with a negative outlook. Each expects a credible public budget consolidation plan for not downgrading Romania.

"A few weeks ago, I wrote an opinion titled 'We play with fire.' Now we see that we have started to burn our fingers a little, and I am referring here to the public deficit. The deficit is the elephant in the china shop, and the 40% pension hike could increase the gap to 11%," said Cristian Popa, speaking at the second edition of the Fund Managers' Summit. 

iulian@romania-insider.com

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