Romanian fiscal slippage undermines policy credibility, Fitch says
BUCHAREST, Sept 2 (Reuters) -Romania needs to enforce "meaningful" fiscal adjustment in the medium term, although fiscal slippage ahead of parliamentary and presidential elections later this year have damaged policy credibility, Fitch Ratings said in its latest ratings review.
Fitch affirmed Romania's credit rating at BBB- with a stable outlook, underpinned by strong inflows of European Union development and recovery funds, but said it expected this year's budget deficit to top 7.2% of economic output under EU accounting standards.
Romania's deficit widened to 4.02% of economic output by the end of July under local accounting terms, effectively putting the coalition government's 2024 target of 5% of gross domestic product out of reach.
The government will present to the European Commission a new set of measures meant to bring the deficit back under the EU's 3.0% ceiling over seven years.
"We expect meaningful fiscal consolidation over the medium term, helped by the re-introduction of EU fiscal rules," Fitch said in a statement, "although there are significant downside risks, given current uncertainties around post-election fiscal plans, and the series of fiscal slippages has negatively affected policy credibility."
The average monthly state pension in Romania will rise by around 25.0% from September after a planned recalculation, adding an extra 9.45 billion lei ($2.10 billion) of costs to an already strained budget for 2024.
Ratings agencies, analysts and investors have all said they expect tax hikes from 2025.
($1 = 4.4981 lei)
Reporting by Luiza Ilie
Editing by Gareth Jones
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