OREANDA-NEWS. Romania's existing fiscal plans are unlikely to undergo significant changes following the nomination of a new prime minister to succeed Victor Ponta, Fitch Ratings says. The main sovereign rating sensitivity remains the possibility that fiscal loosening jeopardises the stability of public finances.

Ponta and his cabinet resigned last week after a fatal fire in a Bucharest nightclub prompted large anti-corruption protests. After discussions with party leaders, President Klaus Iohannis on Tuesday nominated Dacian Ciolos, a former European Commissioner, to head a "government of technocrats".

This does not eliminate the possibility of early elections, but it appears to reduce their likelihood after Ciolo's nomination attracted support from a range of political parties. He will now assemble a cabinet and present a programme for a parliamentary confidence vote. If endorsed, his government would serve for one year.

Some political uncertainty was already present in Romania after Ponta was charged over money laundering and tax evasion allegations (which he denies) in July and rejected calls from the President for his resignation, and as the Romanian electoral calendar advanced towards Parliamentary elections due in late 2016. But this did not appear to impact fiscal policy, and there was strong consensus across all parties in support of the Fiscal Code, which passed in September.

The Fiscal Code entails pro-cyclical fiscal easing in 2016-2017, which we factored into our public finance projections when we affirmed Romania's 'BBB-'/Stable sovereign rating in August. We do not expect it to change due to the broad political backing it has received.

The Fiscal Code envisages tax cuts to stimulate consumption. We think there is limited room for offsetting spending cuts, as public expenditure is among the lowest in EU countries, while the authorities' plans to boost tax collection in the informal economy look ambitious. But the loosening is less pronounced than in the original Fiscal Code's previous proposals, and follows consolidation in 2009-2014 (mostly under the Excessive Deficit Procedure) that narrowed Romania's headline fiscal deficit from 9.1% to 1.4% of GDP. Headline deficits will widen in 2015-2017 and debt to GDP rise, but the latter will remain broadly in line with the 'BBB' category median.

A marked fiscal loosening that jeopardises the stability of public finances or wider macroeconomic stability would put downward pressure on the rating. Sustained low fiscal deficits reducing government debt/GDP could create upward rating pressure. Romania's ratings are supported by a healthy economic outlook (we forecast real GDP to rise 3.3% this year), low inflation, comfortable foreign reserves, and a stable banking sector.