According to Standard & Poor’s, Romania has yet to present credible measures to offset the budgetary impact of a pension hike planned for the 2024 election year, and rating agencies warn that the country’s deficit could remain high for the foreseeable future, Reuters and news.ro reported.

Romania, one of the European Union’s poorest countries, last week passed legislation under a framework agreed with the EU in exchange for recovery funds to put its pension system on a sustainable path. The measures are aimed at eliminating inconsistencies in the calculation of state pensions and include a gradual increase in the retirement age, indexation of pensions to the level of inflation from January and another important increase from September.

But S&P said the pension hike could push Romania’s deficit more than one percentage point above its baseline expectations over the next three years, and that the government’s plans to improve tax collection appear ineffective at closing the gap.

“At this point, in our view, none of these measures are concrete or sufficient to fully offset the potential increase in pensions,” Arnaud Hamblo, director of communications at S&P Ratings, said in an emailed response to Reuters.

According to the estimates of the European Commission, next year Romania’s budget deficit will increase to 5.3% of economic output, not including the costs of the planned increase in pensions. This would be one of the highest levels in the EU and almost double the 3% level that Romania needs to be able to exit the EU’s fiscal surveillance mechanism.

For its part, the Fitch agency said that the planned recalculation of pensions from September next year is an “unexpected element” of the expected reforms. “Romania’s new pension law could lead to a less favorable sovereign debt trajectory and weaken financial confidence in the medium term if implemented as planned and without compensatory measures,” Fitch said.

Moody’s says the expected increase in Romania’s budget deficit to 1.7% of GDP in 2025 is “credit negative”.

“While the reforms will significantly reduce the expected increase in long-term pension spending, the savings will accrue mainly in the 2030s and beyond,” the agency said.

Uncertainty over Romania’s yet-to-be-presented 2024 budget is putting pressure on the country’s financing costs, state debt chief Stefan Nanu said. “Obviously until we have a budget, until we see exactly how the government is going to deal with this period, there is uncertainty and that will put pressure on funding costs,” he told the seminar.