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September 30, 2022

Standard & Poor’s changed Romania’s rating from stable to negative

Standard & Poor’s changed Romania’s rating from stable to negative, because of the increase in the country’s deficit and confirmed the rating at “BBB-/A-3” for the long-term and short-term debt in foreign and national currency, reads a press release of this financial assessment agency.

“The negative change reflects the risks that Romania is facing in terms of economic and fiscal stability, unless the authorities manage to stabilize and strengthen the budgetary strategy, while including plans to implement new pensions increases next year,” appreciates S&P.

Moreover, S&P warned that it could revise Romania’s ratings downwards again, in the next 24 months, if the fiscal and external imbalances continue and persist longer than the agency estimates at this time. According to S&P, the lack of fiscal consolidation results in a public and external debt that is higher than estimated by the agency at present. The lack of synchronization of the economic policies leads, among other things, to an increased volatility in the exchange rate, with possible negative effects on the public and private sectors balances, shows the said document.

On the other hand, S&P informs that Romania’s rating outlook could be improved to stable if the government makes progress in terms of fiscal consolidation, which will lead to a stabilization of public finances of Romania and its external position.

The slowdown of the economy will affect the governments’ revenues, which will trigger new budgetary pressures, warned the S&P. According to the basic macroeconomic scenario of the Agency, the increase of Romania’s GDP will state close to 3 per cent until 2022.

The growth of the Romanian economy will stand below 4 per cent this year, before dropping in 2020-2021, as a result of the external demand slowdown, stated the rating agency, which doesn’t expect a significant fiscal consolidation before the 2020 elections.

In the medium run, S&P estimates a 3 per cent increase in Romania’s GDP until 2022, even if there are some short-term incertitude.

In the long run, Romania’s growth outlook continues to depend on the skilled workforce migration and demographic decline, in the context in which there seems to be a lack of structural reforms meant to solve these issues, warned the agency.

Moreover, the substantial increase in salaries in the past couple of years was accompanied by comparable increases in productivity, which partially eroded the competitiveness of Romanian exports, explained the S&P.

The Agency estimates the general governmental deficit will reach 4.3 per cent of the GDP in 2019 and 4 per cent of the GDP in 2020. Despite incertitude related to the fiscal perspective, S&P expects the National Bank of Romania (BNR) to maintain inflation expectations under control and maintain an adequate risk level of foreign currency reserves.

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