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Fitch: Fall of government sparked higher uncertainty

The fall of the second government in Romania in less than three months has increased political uncertainty, the Fitch rating agency says in a press communiqué today (Tue).

 The former opposition Social Liberal Union (USL), clearly ahead in opinion polls, will most likely form the new government and run the country until the autumn elections. Fitch Ratings will continue to monitor political developments, including local elections in early June, as they may impact on fiscal and economic policy in the run up to the elections and beyond.

Fitch put the degree of political uncertainty in the run up to the autumn parliamentary elections into Romania’s ‘BBB-’ rating. The rating agency deems a material increase in populist policies resulting in a significant divergence from the current fiscal consolidation programme, either before or after the general elections, could put downward pressure on the rating.

The rating agency notes that Romania has made further progress with its fiscal consolidation programme over recent quarters. At 5.2% of GDP, the budget deficit in 2011 was close to the official target. GDP growth in 2011 was above 2%, and inflation has fallen to historically low levels.

Fitch considers the November elections and the policies of the resulting government will remain an important factor in assessing the country’s rating.

Fitch upgraded Romania to ‘BBB-’ from ‘BB+’ last July. The upgrade reflected the export-led recovery and lower current account and budget deficits following substantial fiscal consolidation in 2008-2011. The Outlook on the rating is Stable.

The rating agency deems 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.

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