S&P Raises Romania Outlook

Standard & Poor's Ratings Services raised its outlook on Romania to stable, citing its view of the Eastern European nation's sustained budgetary reform program. The ratings agency also cited its expectation Romania would continue to comply with a International Monetary Fund/European Union "The outlook revision reflects our view of Romania's sustained budgetary reform program and our belief that the government is likely to continue to comply with the IMF/EU standby agreement, thereby easing external financial pressures," said Standard & Poor's credit analyst Marko Mrsnik.

S&P affirmed its 'BB+/B' long- and short-term foreign currency sovereign credit ratings and its 'BBB-/A-3' long- and short-term local currency sovereign credit ratings on Romania. The ratings agency said Romania's severe economic contraction of 7.1% in 2009 was driven mainly by the abrupt decline of domestic demand, resulting from the narrowing of the external commercial credit channel. The negative evolution has been exacerbated by the fall in external demand.

"The gross domestic product is likely to recover slightly in 2010, thanks mainly to the recovery we anticipate in external demand. Domestic demand is likely to remain subdued, however, due to weak consumption and investment on the back of tightened lending conditions and the government's planned fiscal consolidation," S&P said.

It said that as part of its fiscal consolidation strategy, the Romanian government has announced that it plans to restrain the public wage bill, implement new pension reforms and establish budgetary rules. These measures, likely to be passed during 2010, should help the country "reach its fiscal targets for 2010 and beyond."

"In the near term, we expect the banking system's asset quality to deteriorate further, and the system's capital adequacy ratio of about 14% reported at end-December 2009 should provide a buffer in this respect. This figure may, however, mask solvency issues with individual institutions," S&P said.
Early February, Fitch Ratings also upgraded its outlook on Romania to stable, while affirming the country's ratings.Both agencies downgraded Romania to the "non-investment grade" category in the autumn of 2008.