Fitch: “Investment grade” rating for Romania

Fitch ratings agency has reconfirmed its rating for Romania’s long-term forex and local currency denominated government debt, to BBB-/BBB, with stable outlook. The BBB- rating is of an “investment grade” type (recommended for investments).

“The reconfirmation of Romania’s rating and stable outlook is backed by the improved economic growth outlook and the progress made in the public finances domain. From this point of view, our country is positioned favourably compared to regional states that have the same rating, having a lower indebtedness level,” the communiqué reads.

Fitch estimates an economic growth of 4 per cent in 2016, far above the European states’ and BBB-rated states’ average growth rate. The robust economic growth will continue to be backed by the growth in domestic demand, amplified by the fiscal relaxation’s base effects but also by a growth in investments in the following years.

At the same time, the agency deems that the Romanian banking sector remains stable despite the volatility of the external environment, Romanian banks being well capitalized and the process of lowering non-performing loans continuing at a sustained pace. For 2016, the ratings agency estimates that the favourable macroeconomic environment will positively influence the banking sector in Romania, foreshadowing an improvement of crediting.

“The stable outlook points to a balance between the factors that could positively or negatively affect the ratings,” the MFP communiqué points out.
According to Fitch analysts, in contrast to other BBB-rated states, Romania’s ratings are backed by more robust economic outlook, better fiscal position and more favourable governance indicators.

Nevertheless, for 2016 Fitch is worried that the pro-cyclical nature of the new Fiscal Code puts medium-term fiscal sustainability at risk. The Agency estimates that tax cuts will lead to government revenues dropping by 2 per cent of GDP this year. This will put pressure on the fiscal structural deficit that the Romanian Finance Ministry estimates at 2.7 per cent of GDP in 2016 – up from 0.7 per cent of GDP in 2015 – and at 2.9 per cent of GDP in 2017. These projections are based on an ESA deficit of 3 per cent of GDP in 2016 and 2.9 per cent of GDP in 2017.

Last December, Moody’s ratings agency also improved Romania’s outlook from stable to positive, and reconfirmed her sovereign rating at Baa3 (investment grade). In early October, Standard&Poor’s had in turn reconfirmed Romania’s long-term government debt rating at BBB-, with stable outlook.

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