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Iulian Ernst
Senior Editor

Iulian studied physics at the University of Bucharest, and he sees himself as a physicist in the broadest sense of the word. He also studied economics at Charles University in Prague and Central European University in Budapest, after a master’s program in business administration at Bucharest Academy of Economic Studies. Since recently, he’s been exploring coding and data analysis for business and economics. As a freelancer, he worked for nearly two decades as an analyst for ISI Emerging Markets, Euromonitor International, Business New Europe, but also as a consultant for OMV Petrom and UkrAgroConsult. Iulian was part of the founding team of Ziarul Financiar. At Romania Insider, which he joined in 2018, he is reviewing the latest economic developments for the premium bulletins and newsletters. He would gladly discuss topics such as macroeconomics, emerging markets, Prague, energy sector including renewable, Led Zeppelin, financial services, as well as tech start-ups and innovative technologies. Email him at [email protected] 

 

S&P trusts RO Govt. can defer, then roll back 40% pension hike

International rating agency S&P said in an ad-hoc bulletin that it trusts the Romanian Government will likely try to delay the 40% pension increase to allow the future majority in the Parliament to roll it back after the December 6 elections.

The 40% pension hike passed by lawmakers on September 22 threatens Romania's investment-grade sovereign rating - which is on the brink of junk region, furthermore with a negative outlook.

"Timing is of the essence," the rating agency says in its comment, explaining that previous decisions by the Romanian Constitutional Court prohibited a reduction of pension levels once they have been paid out.

Speaking of timing, S&P's next scheduled rating publication for Romania is December 4, 2020 - two days before the general elections.

Thus, the Government using some procedure (emergency ordinance) to buy some time might convince the rating agency to defer any negative action on December 4.

While leaving the door open for more positive development, the rating agency sketches a forecast for the "no-policy change" scenario that includes the 40% pension hike combined with the best-case macroeconomic developments.

S&P forecasts that Romania's public deficit could surpass 10% of GDP in 2021, and remain near this level in the following two years. Romania's net debt to GDP would rapidly rise to over 60% of GDP in 2023 compared with S&P's current 45% expectation.

Similarly, interest spending to total government revenues would increase substantially on the back of the surging short-term financing needs, and assuming higher funding costs.

"We believe that if the pension hike stands, Romania will have bitten off more than it can chew, fiscally speaking," S&P concludes.

On September 22, Romania's Parliament voted to reinstate the 40% pension hike adopted in the summer of 2019 by the then Social Democrat (PSD) Government.

The incumbent Liberal (PNL) minority Government reduced the pension increase to 14% and promised to observe the 40% rise inked in the Pension Law in the future under a phased approach.

Based on the outcome of the September 27 local elections, PNL hopes to form a new parliamentary majority, most likely together with the USR-PLUS alliance.

(Photo: Bigapplestock/ Dreamstime)

[email protected]

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Profile picture for user iuliane
Iulian Ernst
Senior Editor

Iulian studied physics at the University of Bucharest, and he sees himself as a physicist in the broadest sense of the word. He also studied economics at Charles University in Prague and Central European University in Budapest, after a master’s program in business administration at Bucharest Academy of Economic Studies. Since recently, he’s been exploring coding and data analysis for business and economics. As a freelancer, he worked for nearly two decades as an analyst for ISI Emerging Markets, Euromonitor International, Business New Europe, but also as a consultant for OMV Petrom and UkrAgroConsult. Iulian was part of the founding team of Ziarul Financiar. At Romania Insider, which he joined in 2018, he is reviewing the latest economic developments for the premium bulletins and newsletters. He would gladly discuss topics such as macroeconomics, emerging markets, Prague, energy sector including renewable, Led Zeppelin, financial services, as well as tech start-ups and innovative technologies. Email him at [email protected] 

 

S&P trusts RO Govt. can defer, then roll back 40% pension hike

International rating agency S&P said in an ad-hoc bulletin that it trusts the Romanian Government will likely try to delay the 40% pension increase to allow the future majority in the Parliament to roll it back after the December 6 elections.

The 40% pension hike passed by lawmakers on September 22 threatens Romania's investment-grade sovereign rating - which is on the brink of junk region, furthermore with a negative outlook.

"Timing is of the essence," the rating agency says in its comment, explaining that previous decisions by the Romanian Constitutional Court prohibited a reduction of pension levels once they have been paid out.

Speaking of timing, S&P's next scheduled rating publication for Romania is December 4, 2020 - two days before the general elections.

Thus, the Government using some procedure (emergency ordinance) to buy some time might convince the rating agency to defer any negative action on December 4.

While leaving the door open for more positive development, the rating agency sketches a forecast for the "no-policy change" scenario that includes the 40% pension hike combined with the best-case macroeconomic developments.

S&P forecasts that Romania's public deficit could surpass 10% of GDP in 2021, and remain near this level in the following two years. Romania's net debt to GDP would rapidly rise to over 60% of GDP in 2023 compared with S&P's current 45% expectation.

Similarly, interest spending to total government revenues would increase substantially on the back of the surging short-term financing needs, and assuming higher funding costs.

"We believe that if the pension hike stands, Romania will have bitten off more than it can chew, fiscally speaking," S&P concludes.

On September 22, Romania's Parliament voted to reinstate the 40% pension hike adopted in the summer of 2019 by the then Social Democrat (PSD) Government.

The incumbent Liberal (PNL) minority Government reduced the pension increase to 14% and promised to observe the 40% rise inked in the Pension Law in the future under a phased approach.

Based on the outcome of the September 27 local elections, PNL hopes to form a new parliamentary majority, most likely together with the USR-PLUS alliance.

(Photo: Bigapplestock/ Dreamstime)

[email protected]

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