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Moody's reaffirms Romania's investment grade rating

posted onJune 3, 2021

Moody’s Investors Service kept Romania's rating at Baa3 with Negative Outlook on Wednesday (June 2) while it sees the country's GDP growing 4% on medium term.

The rating agency could bring back the rating perspective for Romania to stable if it reaches the conclusion that the executive has stopped and on medium term, they will reverse the structural deterioration of the public finances, it said in a report.

"However, downward pressure could emerge if fiscal stability continues to deteriorate structurally, while external imbalances remain high,” the annual credit analysis authored by Moody's head analyst Olivier Chemla said.

The main challenges to Romania's rating include rising macroeconomic imbalances, the fiscal and current account deficits fueled by pro-cyclical policies of the past and the high share of rigid public spending, according to the New York-based agency.

Of note, both the trade deficit and the current account deficit have expanded in 2020, while the first months of 2021 do not look any better. 

In December 2020, Standard & Poor's kept Romania's rating at 'BBB-' (at the bottom of the investment-grade area) and changed the outlook from "negative" to "stable". 

In April 2021, Fitch Ratings affirmed Romania at 'BBB-' but maintained the negative outlook.

“The country's investment-grade ratings are supported by government debt and debt service levels below peers, and GDP per capita, governance and human development indicators that are above 'BBB' category peers and underpinned by EU membership. These are balanced against larger twin budget and current account deficits (CAD) than peers and relatively high net external debtor and negative net international investment positions” Fitch said.

Fitch also added it expects Romania´s economy to expand by an average of 5.8% in 2021-22.

Public Debt Romania

(Source: Ministry of Public Finances)

Last week the IMF said it expects a strong economic recovery in Romania in 2021. "A strong recovery of real GDP of 7 percent is expected for 2021. Romania's economic recovery seems to be the fastest among EU countries starting in the fourth quarter of 2020. A better agricultural harvest is expected to subsequently support production throughout the year. The main risk for this forecast not to be met is that of unexpected negative changes in the evolution of the pandemic," the Washington-based global lender concluded, following the assessment mission of the Romanian economy which took place between May 10 and 28. 

Meanwhile, the National Bank of Romania kept its benchmark interest rate at 1.25% during its May 2021 meeting, choosing to wait before acting, amid expectations of sharp inflation growth.

Public debt has increased from 35% of GDP at the end of 2019 to 48% of GDP in March 2021.

Following Fitch and S&P, now Moody’s keeps Romania on the investment radar, but monitors closely the country's fiscal policies for possible outlook upgrade.

Domestic demand and successful implementation of funds from the European resilience plan could help the economy recover, it added while argued the main asset of the loan profile of Romania is its relatively big and diversified economy.

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