Moody’s Says Romania Rating Endangered If Budget Gap Exceeds Target

Moody's currently places Romania on Baa3 rating, with stable outlook.

The rating is "contingent upon the continuation of the IMF/EU program, which provides an important backstop to the government's liquidity, as well as enforcing policy discipline," Moody's analyst Kenneth Orchard told MEDIAFAX in an email.

According to Moody's, Romanian Constitutional Court's decision to reject part of the austerity measures proposed by the government to cut public expenditure and tame the budget deficit may put off additional disbursements of a EUR20 billion IMF-led package.

"However, Moody's perceives this as temporary issue and not a fundamental break in the program," Orchard said.

He added the authorities in Bucharest are bound to take corrective action, most likely by increasing taxes.

The IMF board is scheduled to discuss at the end of the month whether to release a new EUR850 million installment to Romania. In addition, the country should receive another EUR1.5 billion from the EU this fall.

"The transfer of funds from the EU -- which would be for budget financing -- is not expected for several months, and Moody's expects that the fiscal issues should be resolved by that time," Orchard said.

He said the government's liquidity position is currently sufficient and is not dependent upon the next IMF loan tranche.

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