Fitch improves country rating for Romania
Date: 03-02-2010
The financial evaluation agency Fitch improved Romania’s rating perspective from “negative” to “stable” and confirmed the rating for long term loans in foreign exchange and lei to “BB+” and “BBB-“, motivating the decision with better economic conditions.Fitch confirmed at the same time Romania’s country level and the rating for short term credits in foreign exchange at “BBB” and “B”.The improvement of foreign financial and economic conditions, the limitation of the current account deficit of 2009 after the risk generated during the election campaign, the adoption of the 2010 budget and estimates for normal relations with IMF, have slowed down the pressures of lowering Romania’s sovereign rating, according to David Heslam, the director of Fitch Sovereign Group.
The approval of the controversial 2010 budget and resuming Romania’s financial programs with EU and IMF have significantly reduced fiscal and foreign financing risks as well as the risk of continuing macroeconomic instability, Fitch shows.
After the presidential elections of November 2009 and the formation of a government coalition, the executive approved a 5.9% deficit of GDP for the 2010 budget, according to the engagements assumed with IMF and EU. The approval of the budget and the recent declarations made by IMF and EU suggest that the next loan installments from the international support package as well as the delayed ones will be granted soon.
The installments amount to 3.4 billion euro, of which 1 billion from EU.However there are risks concerning the application of problem policies included in the 2010 budget, including freezing salaries in the public sector and the release of 100,000 people employed in the public sector, especially as a result of the fragile parliament majority of the government coalition and the weak fiscal history of 2007-2008.
Fiscal consolidation should continue after 2010, to support the foreign adjustment of economy and to slow down the tendency of increasing the share of the public debt. Fitch expects that Romania’s general public debt (guarantees included) should reach 33% of GDP at the end of 2010, compared to 21.8% at the end of 2008.
Romania’s economy went through a process of significant adjustment last year, Fitch estimating that the real GDP dropped by 6.9% in 2009, mainly on the background of the low domestic demand. This drop also reduced the country’s import demands and backed an unprecedented adjustment of the current account deficit, the rating agency writes.
Fitch estimates that the current account deficit dropped lat year from 12% in 2008 to 4.5% of GDP. It foresees a foreign deficit of 5% both in 2010 and 2011.The foreign debt rate maintained at a good level of 85% on the average, in conditions in which mother banks reasserted their engagements to remain in Romania.On the other hand, the foreign economic and financial environment improved, supporting the stability of the national currency, which helped counteract pressures on the banking system, when over 50% of the domestic credit is in foreign exchange, the rating agency shows.
International reserves were 4.7 billion dollars higher at the end of 2009 than the previous year, reaching 44.5 billion dollars. The increase was due to the high rate of foreign debt rolling, the release of 12 billion dollars from Romania’s foreign loan from IMF and other international financial institutions and the delivery of 14 billion dollars from the special allocation of SDR from IMF, analysts say.
Fitch estimates Romania’s overall need for foreign financing in 2010, which includes the foreign deficit and foreign debt due, at 58% of international reserves at the end of 2009, on the drop from 100% of international reserves in 2008.
