Fitch affirms Romania's Long-term foreign currency ratings
2012-07-02 10:56:09
Fitch Ratings has affirmed Romania's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-', and its Long-term local currency IDR at 'BBB'. The Outlook on both ratings is Stable. Fitch has simultaneously affirmed Romania's Short-term rating of 'F3' and Country Ceiling of 'BBB+'. Fitch's affirmation of Romania's sovereign ratings reflects the country's implementation of substantial fiscal consolidation against a backdrop of deteriorating economic activity at home and in its main trading partners. Nevertheless, exposure to turmoil in Greece and structural weaknesses constrain the rating.
Fitch expects Romania's GDP to grow by 1.3% in 2012, which will be driven by domestic demand. In particular, increased EU funds absorption will boost public infrastructure investment. Short-term risks are skewed to the downside. Fitch projects that GDP growth will increase to 2.5% in 2013 and 3% in 2014, based on the assumption that eurozone activity recovers and EU funds absorption continues to improve.
Fitch expects the budget deficit in EU harmonised (or ESA 95) terms to come in just below 3% of GDP in 2012, broadly in line with government plans. The agency's baseline scenario is that the deficit will continue to fall as a proportion of GDP in 2013-14, albeit at a pace somewhat slower than projected officially. This should allow public debt levels to stabilise at just over 35% of GDP in 2013-14. The government in place after the November 2012 election is likely to have a populist slant, which poses risks of overshooting fiscal targets. Nevertheless, Fitch expects that Romania will stick to commitments undertaken with multilateral lenders, allowing the IMF/EU/WB programme to remain on track.
Fitch forecasts that the current-account deficit (CAD) will remain below 5% of GDP over the forecast period. An increase in current transfer inflows is likely to offset a widening of the trade deficit as domestic demand recovers more robustly. There is a tail risk of a "sudden stop" to external financing, but this is mitigated by official international reserves of EUR38bn (USD48bn); a fiscal buffer worth four months of deficit financing and debt maturities; and by the availability of EUR6bn in funds from multilateral organisations.