Tax slippages before and, possibly, after the November 2012 could lead to “negative rating action”, according to the fiscal evaluation agency Fitch, quoted by Mediafax, which upgraded Romania’s country rating in the investment grade category.

Fitch reports, in its analysis, that supplementary measures are needed to reduce the budget deficit by 1 pc of GDP, to meet the 2012 deficit target, of below 3 pc of GDP. The agency estimates that the budget deficit would shrink next year to 3.5 pc of GDP.

“New austerity measures are unlikely, as 2012 is an election year and the Government has to start paying arrears on civil servants’ bonuses, following a final decision of the judiciary,” Fitch says.

At the same time, a significant hike in administered prices in the energy sector and the elimination of subventions for heating will boost the profits of state companies in the energy sector, one of the main points featured in the IMF agreement, but would also give a boost to the inflation rate and may “undermine the Government’s popularity before the elections”.

The rating agency warns that Romania is vulnerable to the comeback of foreign currency loans, posing a potential financial instability risk, against the background of steady rising inflation, which would force the National Bank of Romania (BNR) to maintain interest rates above the euro zone levels.

“The agency estimates an average annual inflation rate of 6.8 pc, above the BNR forecast in the May 2011 Inflation Report. Nonetheless, the BNR forecast indicates that the odds of inflation reverting to the targeted level before mid-2012 are low,” the rating agency further argues.

Fitch estimates that the hiking of administered prices could add 0.6 pc to the inflation rate by the end of the year. According to the rating agency, high inflation is the main factor preventing Romania’s joining the European Exchange Rate Mechanism (ERM II) in 2012 and, implicitly, the adoption of the European currency in 2015.

Bucharest – investment grade
At the same time, the financial rating agency upgraded the long-term foreign currency credit rating for Bucharest Mayor’s Office, from “BB+” to “BBB-“, by which the said institution enters, once again, the investment grade category, after a similar decision was made, concerning Romania, in early July.

The “BBB-“ rating is the lowest in the investment grade category, while “BB+” is the highest rung in the non-investment grade category. The long-term national currency credit rating was upgraded from “BBB-“ to “BBB”. The long-term credit ratings have a stable outlook. The agency also upgraded the short-term credit rating, from “B” to “F3”.