Today we’ll be taking a look at the ratings given by international agencies to Romania.
Romania has lately got the attention of the biggest international rating agencies, Moody’s, Fitch and Standard & Poors. Two of them, Moody’s and Standard & Poor’s have either raised the country’s prospective rating or even the rating itself. In March, Fitch confirmed Romania’s rating for long-term hard currency credit to be “BBB minus” with stable prospects, a decision reflecting a lower budget deficit and an unexpected economic growth registered last year. On April 25th, Moody’s improved Romania’s Baa3 rating from negative to stable predicting that the 2013 upward trend of macro-economic pointers would carry on this year, the risks concerning economic growth and financing being much smaller thanks to the Eurozone’s recovery.
On May 16th, the financial rating agency Standard & Poor’s improved the rating of Romania from “BB plus” to “BBB minus” against the background of economic growth and taxation discipline imposed by the government. “BBB minus” is the first rating in the investment grade category, recommended for investment, which puts Romania on par with Russia, Brazil and Spain. Standard & Poor’s was the only big agency that kept rating Romania as a ‘junk’, investment unfriendly country, unlike Fitch and Moody’s, which had introduced it among the countries with low investment risk as early as last year.
“The upgrade reflects Romania’s rapid progress in improving its external balance and it underlines our view that the progress in fiscal consolidation and bolstering the stability of the financial sector will continue”, a Standard and Poor’s communiqué says. In an interview on Radio Romania, Minister Delegate for budget, Liviu Voinea pointed out the parameters that contributed to improving the country’s rating.
“It’s not only cutting down on the budget deficit from 9% in 2009 to 2% now, but also its consolidation. In 2013 we had an all-time low deficit of 2.3%, calculated in keeping with European standards. Then it’s the current account deficit, our external exchanges, which dropped to 1% of the GDP, the lowest we’ve ever had. We hit this level last year thanks to massive export growth. Next comes the inflation rate, which registered all-time lows of 1 and 1.5% last year. Now it’s below 1.5%. In 2013 Romania reported an economic growth of 3.5% and the Standard &Ppoor’s rating came before the release of the first quarter’s figures, pointing to a 3.8% economic growth. Macro-econmically speaking we are doing well. We’ve been implementing a lot of structural reforms, the main one being the payment of arrears. Last year, we paid arrears in the healthcare sector, we eliminated or significantly reduced the arrears problem at the local authorities’ level. The level of arrears hasn’t grown ever since we introduced the law on the local authority insolvency. We’re now in the second quarter of 2014 and we’ve already paid more than two billion lei of the state-owned companies’ arrears. This means the economy’s financial mechanisms are being unblocked, in the private sector included.”
Minister Liviu Voinea then mentioned other elements that mattered in Standard & Poor’s decision, such as the sale of minority or majority share parcels of the companies mainly in the energy sector, as well as the increase in the absorption rate of European funds in the last two years, from 7 to 37 per cent. Voinea also recalled that, quite unlike other countries in the region, Romania’s dependence on gas imports from Russia merely stood at around 10 per cent.
Business analyst Aurelian Dochia has also commented on Standard and Poor’s rating:
”If we take objective indicators into account, Romania for quite some time has been meeting the criteria for a better rating, while Standard and Poor’s had raised some questions. They were rather slow in acknowledging the progress of Romania’s economy. I think that apart from the agencies’ ratings, the key factor is to admit that financial markets are the ones to have acknowledged the progress of the Romanian economy. So, for over a year now, the Finance Ministry has managed to contract loans on international markets with a record low interest rate. So that’s the most thorough acknowledgement of Romania’s macroeconomic situation. There are several investment funds that through their own statutes and regulations are compelled to invest only in investment-grade countries. The fact that Romania has been introduced in that category opens up the path for such funds to invest in our country as well, which, on a medium term, might be reflected in the increase of the financial market’s volume and liquidities, and in the readiness with which, first of all the state, the Finance Ministry, can contract a loan.”
Standard & Poor’s underscored it might improve Romania’s rating provided the programme of budget consolidation, the public finance reform and the state-owned companies’ restructuring is successfully implemented with no change in the present tendencies to correct the external imbalance and strengthen the financial sector’s stability. Conversely, Standard & Poor’s might downgrade Romania’s rating, if external imbalance is again reported, if the financial sector’s stability slackens or if the budget deficit grows significantly.
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