Romania Avoids Being Downgraded to Junk by S&P

Standard&Poor’s Global Rating decided on Friday, June 5, to maintain Romania’s rating at BBB-/A-3, with a negative outlook.

The decision of the American rating agency ranks Romania in a ‘good for investment’ group of countries, but the negative outlook is an issue for the country. Still, Romania has barely avoided the downgrading of its rating. There were some voices who were afraid that Romania will be downgraded to junk, situation which would’ve raised the interest rate of the borrowing for the country.

There is a catch, though: S&P clearly mentioned it maintains the BBB- rating taking into consideration that the pensions won’t be increased with 40% starting from September 1, as the Romanian law stipulates, but only with 10%.

Now, the ball is in the Romanian Government’s yard. If they increase the pensions with more than 10%, they risk an immediate downgrading of the rating, unless there is a visible and measurable improvement for the other criteria. On the other hand, if the Government decides to increase the pensions with less than 40%, as stipulated in the legislation, the governing party will largely lose support of the pensioners.

Either way, Romanian Government has to lose. In the worst case political scenario, they lose power, as the Opposition announced its intention to overthrow the Government through confidence motion in case it refuses to increase pensions with 40%.