Rating analysts: Romania’s new Pension Law raises medium-term fiscal risks

The pension reform in Romania raises medium-term fiscal risks, a credit negative, but reduces long-term cost pressures, according to a research note published by Moody’s.

The recalculation of pensions will cost around 0.6% of GDP in 2024 and 1.7% of GDP in 2025, with savings mainly accruing in the 2030s and beyond, the rating agency estimates.

Moody’s projected a 5.4%-of-GDP deficit for 2024 and a 4.4%-of-GDP deficit one year later, under the latest country update on November 3. Including the new pension Law effects, Romania’s budget deficit would stay around 6% of GDP for the coming two years.

The new Pension Law would negatively impact “debt affordability metrics until the late 2020s, weakening Romania’s fiscal strength over the coming years,” Moody’s senior analyst Petter Bryman said in a report sent to Bloomberg.

“In the absence of any offsetting measures, the unexpected fiscal loosening would undermine the credibility of Romania’s fiscal strategy, in particular its commitment to bring the budget deficit below 3% of GDP,” Fitch analyst Gergely Kiss said in an e-mailed response to Bloomberg questions.

“A loss of credibility and more persistent, large fiscal deficits, as seen already in 2023, can lead to a more unfavourable debt trajectory. This could be negative for the rating.”

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