Fitch Ratings issues a moderated evaluation on Romania's forthcoming fiscal plan, a month prior to their country appraisal update
The government of Romania, led by Premier Marcel Ciolacu since June 2023, has presented a second package of structural reforms. This package, unveiled following the successful implementation of the National Development and Resilience Plan (PNRR) of the European Union, aims to modernise key sectors such as justice, administration, and public investments.
The initial plans for these reforms were introduced in the spring of 2024, with further details and legislative changes coming in the summer of 2024 and early 2025.
The fiscal impact of this year's budget, as estimated by Fitch Ratings, stands at RON 10.7 billion (EUR 2.1 billion), with a significant impact on revenues. The budgetary impact for this year is 1.1% of GDP, according to Fitch, as stated on July 14. Despite this, the yields in Romania remain above the levels seen until mid-November 2024, as noted by Fitch.
The higher inflation will further erode real incomes, according to Fitch, with more than half the envisaged additional revenue this year coming from the VAT rate hike, as per Fitch's assessment. Fitch expresses concerns about the potential impact of the VAT rate and fiscal stimulus withdrawal on consumption, tax revenues, and economic growth.
Implementation risks cannot be discounted, according to Fitch, with Moody's warning that successful implementation and structural reforms are critical for long-term fiscal sustainability in Romania. Moody's welcomes Romania's fiscal package as a step towards stabilising public finances.
The government's estimated fiscal package impact next year is RON 92.6 billion (EUR 18 billion), balanced between revenues and expenditures, according to Fitch. Significant fiscal consolidation is expected to weigh on economic growth, as mentioned in the paragraph.
Fitch issues a balanced evaluation of the first fiscal package one month before the country review expected on August 15. The revived market confidence in Romania, following successful FX bond issues after the fiscal package launch, is a positive sign, as noted by Fitch.
However, Fitch notes concerns about the potential impact of the VAT rate and fiscal stimulus withdrawal on consumption, tax revenues, and economic growth. Moody's emphasises the importance of successful implementation and structural reforms for long-term fiscal sustainability in Romania.
In conclusion, the second package of reforms, as outlined by Prime Minister Ilie Bolojan, is key to supporting long-term fiscal consolidation, according to Moody's. The reforms, which focus on justice, administration, and public investments, are a crucial step towards Romania's modernisation and EU integration.
For more specific details about the contents of the reforms, I would be happy to provide additional information!
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