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June 18, 2021

S&P confirms Romania’s rating as BBB- with stable outlook

The Standard&Poor’s credit-rating agency has confirmed Romania’s ratings for long and short-term forex and RON-denominated debt as BBB-/A-3, with stable outlook, a communiqué released by the rating agency shows. BBB- is the first rating in the investment grade category. Romania has also received a Baa3 rating from Moody’s and a BBB- rating from Fitch.

Standard&Poor’s points out that the decision to maintain Romania’s ratings is due to the moderate external debt level, against the backdrop of a relatively stable economic growth outlook. On the other hand, S&P considers that Romania’s ratings are constrained by the low quality of governance, despite recent efforts to lower corruption, by a low GDP per capita level (USD 8,600) compared to that of states that are part of the same category, and a high – albeit falling – private sector debt that can limit the monetary policy.

“In 2014 Romania’s economy rose by almost 3 per cent, backed by the growth of private sector consumption. Households benefitted from the inflation rate drop, especially against the backdrop of the fall in the price of oil, as well as from the effects of the growth in income and occupancy rate. We expect these effects to manifest themselves throughout 2015 too. Moreover, we estimate that internal demand will consolidate in the next four years, considering that non-performing loans will continue to be resolved in the banking sector, thus allowing the resumption of crediting in the private sector. Consequently, we believe Romania’s economy will register an average growth of 3 per cent per year in 2015-2018,” an S&P communiqué reads.

Referring to the government’s proposals to modify the Fiscal Code in 2016, including by lowering the VAT from 24 to 20 per cent, eliminating the tax on dividends, as well as lowering excise taxes and social insurance contributions, S&P points out that its mainstay scenario concerning Romania’s deficit does not take into account the proposals on modifying the Fiscal Code because they require Parliament’s approval. “Nevertheless, we have revised our estimates on Romania’s fiscal trajectory in order to include a slight deterioration in government finances, against the backdrop of rising political uncertainty ahead of next year’s parliamentary elections. We currently estimate that the public debt will reach a peak of 40.7 per cent of GDP in 2017, compared to our previous assessment that entailed a gradual drop in the debt-to-GDP ratio,” S&P warns.

In what concerns the “stable” outlook of Romania’s country rating, S&P points out that it reflects a balance between the probability of the appearance of fiscal consolidation risks and the robust growth outlook. “We could raise Romania’s ratings if the fiscal consolidation process continues and the restructuring of state-owned enterprises is implemented successfully, which would lead to a drop in the net public debt, accompanied by a reduction of the private sector’s vulnerability in the face of exchange rate fluctuations,” Standard&Poor’s points out, being quoted by Agerpres.


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