The Transylvanian city of Alba Iulia has recently become the first Romanian city to be rated by the ratings agency Moody's.

The agency gave it a Ba1 rating, with a negative outlook, which “takes into account the municipality's solid track record of prudent budgetary management, as reflected in its sound operating surpluses, good financial performances and comfortable cash reserves.”

The rating places the Romanian city on par with cities such as Zagreb or Budapest, according to its mayor Mircea Hava. It will also help the city attract more financial resources in the future, including from private investors, and including reimbursable financing, said city manager Nicolaie Moldovan.

The agency however highlights that there are challenges associated with the municipality's limited revenue-raising capabilities and the potential increase in its debt burden over the next two years due to its substantial capital expenditure programme.

Moody's expressed worries about the city's high capital spending, however the municipality's debt level decreased to 46 percent of operating revenue at year-end 2012 from a relatively stable 51 percent in 2009-2011.

Alba Iulia's debt-repayment profile is favourable, according to the ratings agency, with the redemption of the bonds, which cover almost 70 percent of the total debt, spread out until 2027 and the loans spread across 12 years. Medium-term debt repayments are expected at 6 -7 percent of total revenue, which is manageable by the municipality's finances.

“The rating outlook mirrors the negative outlook on the Baa3 sovereign rating, reflecting the macroeconomic and institutional framework linkages between the state and local governments in Romania. Alba Iulia is highly dependent on intergovernmental revenues in the form of shared taxes and central government transfers, which represent around 80 percent of operating revenue in the past five years. The municipality has limited leeway to generate additional own-source revenue to offset external pressure,” according to Moody's.

Alba Iulia managed to attract European funding of over EUR 150 million in recent years, has contracted loans and issued bonds to co-finance projects made with EU money. These include revamping the citadel, 23 kilometres of roads, pedestrian areas, parking lots and 15 hectares of green areas.

More about the city of Alba Iulia in our Travel Planner piece here. and the opinion piece here. 

editor@romania-insider.com