Fitch Revises Romania Outlook To Stable, Affirms 'BB+' Rating

Publish date: 03-02-2010
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Fitch Ratings revised Romania's outlook to stable from negative, while affirming the country's ratings, citing an improvement in external financial and economic conditions, the ratings agency said Tuesday.

Fitch affirmed Romania's long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB+' and 'BBB-' respectively. Romania's country ceiling and short-term foreign currency IDR are affirmed at 'BBB' and 'B' respectively.

"The improvement in external financial and economic conditions, sharper than expected narrowing of the 2009 current account deficit, passing of immediate election-related risk, adoption of the 2010 budget and expected normalisation of relations with the IMF have eased downward pressures on Romania's sovereign ratings," said David Heslam, Director in Fitch's Sovereign Group.

Fitch said the adoption of the 2010 budget and the expected resumption of the International Monetary Fund-led EUR20 billion arrangement has significantly reduced fiscal and external financing risks and the threat of further macroeconomic instability.

"The passage of the budget and recent statements from the IMF and EU suggest that the next loan tranches from the international support package, as well as those delayed since November 2009, will be forthcoming shortly," Fitch said. The tranches will total around EUR3.4 billion.

The rating agency pointed out that, nonetheless, there are downside risks related to the implementation of politically-challenging policies contained in the 2010 budget, including the public sector wage freeze and the laying-off of some 100,000 public-sector workers, "particularly given the government's narrow parliamentary majority and poor fiscal track record in 2007-08."

Fitch also notes that fiscal consolidation will need to continue beyond 2010 to sustain the economy's external adjustment and lessen the upward trend in public debt ratios. Fitch forecasts Romania's general government debt (including guarantees) at 33% of the gross domestic product at end-2010, compared with 21.8% at end-2008.

Fitch estimates the economic contraction at 6.9% in 2009, driven by falling private domestic demand. "But encouragingly, this has lessened Romania's demand for imports and supported a sharper-than-expected adjustment of the country's current account deficit," it said.

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