Scope Ratings, a rating agency based in Germany, has downgraded Romania’s long-term local- and foreign-currency issuer and senior unsecured debt ratings from BBB to BBB- and maintained the Negative Outlook.

The continued deterioration of fiscal performance and weak debt trajectory drove the rating downgrade while sustained policy uncertainty underscored the Negative Outlook, according to Scope Ratings.

“Continued deterioration of fiscal performance with pro-cyclical budgets at the peak of the economic cycle. The wedge between fiscal revenues and expenditures has increased significantly following frequent tax cuts over the past few years. The situation is compounded by Romania’s tax collection system, which is one of the most inefficient in the EU. In addition, while expenditures remained broadly stable as a percentage of GDP in 2017, the budgetary composition has deteriorated, with an increase in consumption and salaries (0.8% of GDP) at the expense of much-needed public investment,” reads a press release issued by the rating agency.

Moreover, Romania is on a weak debt trajectory with the public debt ratio projected to return to its 2014 peak of 40% of GDP by 2020, according to Scope Ratings. Romania's BBB- ratings are supported, however, by the country’s relatively high growth potential, moderate levels of public debt, and resilience in the banking sector.

According to Scope, the recent confrontation between the government and EU officials on a rollback of anti-corruption reforms has contributed to a further weakening of the government’s credibility.

“Increasing political uncertainty and deteriorating institutional credibility raise the risk of the sovereign losing the market’s confidence at a time when the economic cycle is turning, exposing risks associated with financing Romania’s fiscal and external imbalances.”

S&P reaffirms Romania’s investment grade rating with stable outlook

editor@romania-insider.com