The ratings on the Republic of Romania are supported by the sovereign's strong growth potential, low general government debt, and EU membership, which provides an anchor to economic policy. The ratings are constrained, however, by a political environment that hinders decisive policy responses in the event of economic challenges. This is a particular constraint given current signs of overheating and the increasingly difficult global credit conditions. Fiscal and incomes policies are expansionary, and the upcoming elections are likely to maintain pressure on current expenditure, reduce the overall quality of fiscal governance, and contribute to inflationary pressures. Romania's pro-cyclical fiscal policy is of particular concern as it reinforces strong domestic demand growth. The planned reduction in the budgetary deficit in 2008
