The major rating agencies, all of which have scheduled reviews for Romania's sovereign debt in October or early December, will wait to see the new Government's plans after the December 6 elections, says BCR's chief economist Ciprian Dascalu.

This scenario is based on consensus expectations that the general elections will take place on December 6, and the Liberals will be able to form a new Government that will come up with a credible fiscal consolidation plan. It remains unclear how such a plan would look, but finance minister Florin Citu assured it would not include higher taxes.

However, reversing the pro-cyclical expenditures passed by the Social Democrats in Parliament is not a straightforward legislative job, and further delays in holding the general elections might make it nearly impossible. As of October 14, the electoral calendar was reset by a Constitutional Court ruling that trashed the Government's decision on the elections' date and allowed the lawmakers to decide.

Assuming no change in the electoral calendar, which still remains the baseline scenario despite the rhetoric of the Social Democrats, BCR's chief economist unsurprisingly judges the rating agencies' actions in terms of fiscal consolidation and its impact on the public debt.

Thus, if the public debt shows signs that it is heading towards the level of 60-65% of GDP (in line with the A-rated countries), we can expect the agencies to downgrade Romania's debt to junk, Dascalu said. But if it shows signs of balancing, that it could reach a peak of 50% of GDP in two years, to later decrease, the rating could even improve, he concluded.

iulian@romania-insider.com

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