Fitch: elections fail to alleviate fiscal uncertainty in Romania

Romania's general election result points to continued political uncertainty and hence a still-challenging policy-making environment, Fitch Ratings says in a statement.

The need to pass a 2021 budget will be a near-term test of the next administration's cohesion and will indicate likely fiscal policy settings, the rating agency stresses.

Romania's rating, which is at the weakest level in the investment-grade region (BBB-/negative), depends on the public finance metrics, the rating agency said in November in its latest country review.

Fitch and the other two major rating agencies (S&P and Moody's) deferred downgrading Romania on hopes that a committed Liberal Government would reverse the fiscal slippage and provide more clarity and alleviate medium-term budgetary uncertainty. But Fitch implies that the ruling coalition as emerged after the elections will "consume political energy, making it harder for the PNL to implement its agenda and constraining its appetite and capacity to enact measures to arrest the long-term weakening in Romania's public finances."

The rating agency acknowledges that both PNL and USR-PLUS have pledged to implement gradual fiscal consolidation - but points out that there is no consensus around the scope and precise timing of near-term measures given the continuing health and economic challenges from the pandemic.

Fitch now forecasts the general government deficit to narrow modestly to 7.1% of GDP in 2021 from a record high of 9.8% in 2020, but risks are still predominantly on the downside. In November, its forecast was slightly milder (9.5% deficit in 2020, followed by 6.8% in 2021).

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