ING: Political volatility in Romania increases downgrade risks

The near-term risks of a rating downgrade have disappeared in Romania, after S&P's rating affirmation.

Still, downgrade fears will run high into the rating reviews in the fourth quarter and beyond due to the uncertainty about the pension hike and populistic initiatives ahead of the elections, according to the latest research report of ING Romania.

There is an increasingly likely scenario where we could see the Romanian Government toppled but still be allowed to continue its work on an interim basis until the elections, the bank's analysts argue.

This would severely limit the Government's ability to control spending for the remainder of the year and counter the initiatives to increase spending still likely to be promoted in Parliament.

Furthermore, the outcome of the elections this autumn is becoming increasingly unpredictable, the bank's analysts imply. The latest polls continue to show the ruling PNL ahead of the Social Democrats.

However, their lead has reduced significantly since January. The next six months will be decisive for Romania's political and fiscal outlook, which remains fragile.

According to ING's outlook, near-term optimism is underpinned by the European Central Bank's repo line and hopes on a European recovery fund.

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