Fitch noted the Romanian Parliament endorsed Thursday the government led by Mihai Razvan Ungureanu-led, who has said it will aim to respect the agreement signed in March 2011 with the EU and the IMF.
“This is in line with our assumption that the new Romanian administration would stick to its fiscal targets outlined under the EUR5.3 billion precautionary program. This set an ambitious 2012 deficit target of 3% of GDP. Further pledges for fiscal tightening were made in late 2011 in the context of the eurozone crisis as the EU Summit agreed on the fiscal compact,” Fitch said.
Fitch upgraded Romania to ‘BBB-‘ from ‘BB+’ in July, reflecting the export-led recovery and lower current account and budget deficits following substantial fiscal consolidation in 2008-2011.
However, the center-right government led by Emil Boc resigned this week, following prostests against the austerity measures and the drop in popularity of his Democratic Liberal Party, or PD-L.
“We still think that the PD-L will refrain from larger scale, pre-election populist spending, as such vote-buying would erode the ruling party’s political credibility with investors and international institutions and with a portion of the electorate,” Fitch also said.
It noted the key political event therefore remains the upcoming elections. “While the opposition Social Liberal Union, or, USL, currently ahead in opinion polls, has also pledged to work with international institutions, it has also sharply criticized the fiscal austerity measures over the last years. Therefore, the direction of its future economic policy remains uncertain.”
Nevertheless, Romania remains exposed to spill-over risks from the eurozone crisis, both via trade and the role of eurozone parent banks in the financial sector, Fitch concluded.