Standard & Poor's gives Romania positive outlook, could raise ratings in 2014 if Govt sticks to fiscal and reform programs
Ratings agency Standard & Poor's has affirmed Romania's BB+/B ratings and upgraded it from a stable to a positive outlook, after budgetary and external adjustments. This means that S&P could raise the ratings in Romania “if the government sticks to its fiscal and reform programs.”
The agency found that the country has been making steady progress in adjusting external demand, fiscal consolidation, and financial sector stability. The BB+/B ratings apply to long and short-term foreign and local currency sovereign credit.
“We believe Romania's GDP growth will gradually strengthen over 2013-2016, helped by the continued rebalancing of its economy toward external demand,” according to S&P.
The agency expects the country to post an average annual current account deficit of about 1.6 percent of GDP between 2013 and 2016. This would come after higher exports in the last five years, which have led to a shift to external demand and to an expected 2013 trade deficit between 3 and 4 percent of the GDP, compared to 14 percent of the GDP in 2007.
“This adjustment has made Romania a more open economy, with exports that we project to exceed 45 percent of GDP in 2016, versus 30 percent of GDP in 2009. The export growth reflects Romania's improved cost competitiveness against that of most of its trading partners,” notes the ratings agency.
Based on the positive outlook, S&P's estimates that there is at least a one-in-three possibility that it could raise its ratings on Romania in the second half of 2014.
“We could raise the ratings if the planned program of budgetary consolidation, public finance reform, and public enterprise restructuring is implemented in line with our expectations, while keeping external imbalances and financial sector stability in check,” the agency explained.
It could also revise the outlook to stable if, “against our expectations and perhaps in the run-up to the 2014 elections”, the budget deficits widen significantly or the government pulls back from the restructuring of the public enterprises. The ratings could also come under downward pressure if Romania's external imbalances re-emerge or if stability in its financial sector weakens, S&P concluded.
editor@romania-insider.com
