Increasing public spending in Romania wouldn’t just trigger a budget deficit increase, but will also amplify the risk of some indirect adverse effects by decreasing market confidence, according to Fitch Ratings.

A slippage from fiscal targets, especially if caused by permanent measures that increase the risk of a distraction from the medium-term objectives, would be a negative development, according to Fitch analyst Gergely Kiss, quoted by Mediafax newswire.

According to Fitch, an increase in nominal wages exceeding the productivity growth will ultimately lead to inflation, jeopardizing the success of the disinflation trend noticed in recent quarters.

This comes soon after the Traian Basescu, Romania’s President, recently said Romania will have to find solutions to increase salaries of state employees by June 1. The Salaries in the public sector – including teachers – went through a 25 percent cut in 2010, with the promise that they would be restored at a later date, when budgets allowed.

Fitch Ratings says that the main scenario taken into account is that Romania will meet the targets included in the program with the IMF and the European Union. So far, Romania has met the external program's requirements and Fitch will continue to take into account the fiscal and economic performance when evaluating the rating of the country.

Irina Popescu, irina.popescu@romania-insider.com

(photo source: Sxc.hu)