The rating on the Republic of Romania is supported by the republic's potential for growth, low public debt, and low contingent liabilities. It is constrained by the government's limited policy response to Romania's rapidly growing external imbalances, against the background of increasingly difficult global credit conditions. Fiscal and incomes policies are expansionary, and the upcoming elections are likely to stimulate further increases in current expenditure, reduce the overall quality of governance, and intensify inflationary pressures. This will continue to hinder the government's capacity to respond to mounting external imbalances, while reducing its ability to take full advantage of the benefits of EU membership. In the short- to medium-term, Romania's pro-cyclical fiscal policy is of particular concern as it reinforces very
