The risks underpinning the negative outlook, related to the war in Ukraine, the country’s twin deficits and challenging external financing conditions, are aggravated by competing policy objectives that underlie persistent macroeconomic imbalances, the rating agency explains.
Risks of fiscal slippage, including the potential for additional spending ahead of the 2024 super-electoral cycle, persist. Specifically, Fitch expects the slower growth next year (1.6%, down from 6.2% this year) to complicate the fiscal risks particularly ahead of the 2024 elections. While this year’s deficit is expected to narrow in line with Government’s plans to 6.4% of GDP, the picture will turn more challenging in 2023 – particularly with regard to the financing needs that remain high (albeit slightly moderating from 11% of GDP in 2022) requiring EUR8 billion to EUR10 billion in Eurobonds in 2023-2024, Fitch said in its statement.
“This will entail difficult policy trade-offs and could reduce fiscal transparency if the authorities rely on one-offs, reducing capex or implementing ad-hoc windfall taxes,” Fitch warns, adding that more direct support to households and firms faced with high energy prices cannot be excluded.
On the upside, the ratio of public debt/GDP is seen as remaining at an average of 49.5% in 2022-2024 compared with the current ‘BBB’ median of 55.5%.