JCR affirms Romania’s rating at BBB/BBB+, stable outlook

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Japan Credit Rating (JCR) Agency has affirmed the maintaining of stable outlook and reconfirmation of country rating for Romania (BBB/BBB +) long-term debt in foreign and local currency, as a press release informs.

“The ratings are primarily supported by the country’s solid growth prospect, improving  external position and a low level of government debt. On the other hand, factors constraining the ratings include its financial system still in the process of improving. The outlook of the ratings is Stable,” the Japanese analysts comment.

After a significant consolidation between 2010 and 2015, the fiscal deficit has been widening since 2016 with the relaxation of fiscal policy. The general government deficit increased to 2.8 percent of GDP in 2016 from 0.8 percent the previous year affected mainly by a series of tax cuts including a 4 percent reduction of the standard VAT rate  and an increase of public sector wages. The general government debt to GDP ratio represented 37.6 percent at the end of 2016, remaining relatively low among the  countries rated in the BBB range by JCR.

Grindeanu government is committed to maintaining the fiscal deficit below 3 percent of  GDP from 2017 onward. However, some tax cuts and increases of public sector wages and pensions decided by the new government have been implemented in 2017 in addition to the further cut of the VAT rate and the elimination of the construction  tax  approved  by the previous government. Without  adjustment measures, the deficit will likely exceed 3 percent of GDP.

JCR expects that fiscal discipline will work to curb the deficit in the medium-term considering a possible initiation of the excessive deficit procedures by the European Commission.

Japanese analysts appreciate that banks’ profitability in Romania has turned positive on lower credit costs. The  nonperforming loan ratio of  the banking sector further declined  to 9.5 percent at the end of 2016 from 13.5 percent a year earlier, a major improvement from above 20 percent in 2014.

“Romania seems to face no difficulties with external financing as stable capital inflows through direct investment and the EU funds have been adequately covering the current account deficit. It has also made a steady progress in repaying loans to the IMF and the EU. Its external debt has been declining both in terms of GDP and goods and services exports due mainly to the banking sector’s reduced external borrowing,” JCR pointed out.

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