Moody's Investors Service, one of the biggest rating agencies in the world, has changed the outlook on the ratings of the Government of Romania to stable from positive.

At the same time, the rating agency has affirmed the Baa3 long-term issuer rating and senior unsecured ratings, Moody’s announced in a press release.

The key drivers for changing the rating outlook to stable from positive are: (1) the expansionary fiscal policy of Romania that has resulted in a material widening of its fiscal deficit, and which is expected to lead to an upward trajectory in the government debt-to-GDP ratio; and (2) the pro-cyclicality of macroeconomic policy, which has led to rapid wage growth, a deterioration in price competitiveness and a widening of the current account deficit.

“These developments are contrary to the economic and fiscal trends anticipated at the time of Moody's decision to change the outlook to positive from stable in December 2015,” the rating agency explained.

At the same time, Moody's has affirmed the Baa3 ratings of Romania based upon the underlying fundamentals of the economy and convergence trends regarding wealth and institutional strength under the aegis of EU membership.

“Although expected to weaken somewhat, the still relatively moderate debt levels relative to GDP and revenue, as well as strong debt affordability metrics, also support the current rating level. Finally, in our view, vigilance from the EU and the IMF are expected to support an anchoring of the economic and fiscal policies of Romania in spite of its fragmented political landscape,” reads the Moody’s release.

editor@romania-insider.com