S&P Global Ratings has revised its outlook on Romania from stable to negative due to rising fiscal and external deficits, while affirming its long- and short-term foreign and local currency sovereign credit ratings at 'BBB-/A-3'. It pointed to planned wage and pension increases largely decided by the previous Social Democratic government as contributor to widening the country's current account deficit.
Key S&P points:
- Large spending deviations by the previous government have forced Romania's current leadership to revise up its fiscal targets for 2019 and 2020, against the backdrop of a slowing economy.
- Planned wage and pension increases will contribute to a widening of Romania's already substantial current account deficit through 2020.
- While we assume significant fiscal consolidation commences next year, the rigid budget structure and volatile policy environment pose risks to that assumption.
- We are therefore revising our outlook on Romania to negative from stable, and affirming our 'BBB-/A-3' ratings.
S&P said "the outlook revision reflects increasing risks to Romania´s economic and fiscal stability should policymakers be unsuccessful stabilizing and consolidating Romania's budgetary stance, including from plans to implement further pension hikes from next year".
It said it could "lower our ratings on Romania within the next 24 months if:
- Fiscal and external imbalances continue to deteriorate and persist for longer than we currently anticipate, with the absence of fiscal consolidation resulting in higher public and external debt than we currently forecast.
- A lack of economic policy synchronization leads to an overextension of real wages and increased exchange rate volatility, with potential negative repercussions on public- and private-sector balance sheets.
On the other hand, S&P said "we could revise the outlook to stable if we observed that the government has made headway in anchoring fiscal consolidation, leading to a stabilization of Romania's public finances and external position".