Moody’s: Romania’s rating is supported by economic growth, fiscal consolidation and reduced government debt

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The perspectives of medium-term growth, low government debt level and the decrease in fiscal deficit support the ‘Baa3’ rating, with stable outlook, assigned to Romania and counteract the challenges such as poor quality of banking assets, the high level of foreign debt, poor performance in public investment and in the performance of state companies, an analysis conducted by Moody’s rating agency reads, quoted by Agerpres.
According to Moody’s, the ‘Baa3’ for Romania is supported by the ‘high’ score in terms of fiscal soundness. Although the government debt tripled after 2008 to 39.9% of GDP in 2014, it is still at a similar level to that of countries enjoying a similar rating. In addition, fiscal soundness benefited from the reduction of the budget deficit to 1.5% of GDP in 2014 from 8.9% of GDP in 2009.
The report reads that the agency expects the fiscal deficit to remain stable at 1.5% of GDP in 2015, while the government efforts to reduce taxes will be offset by measures on expenditures. In 2016, the combination of the VAT cut and wage rises in the public sector is expected to lead to a higher deficit of 2.1% of GDP.
Romania’s economic soundness is appreciated as ‘moderate’ according to the Moody’s methodology, given both the sustained growth and the benefits in competitiveness for Romania coming from the integration with more advanced countries in the European Union and the challenges arising from volatile demand from trading partners in the EU.
The report reads that Moody’s expects the economic progress to be supported by recovery in industrial production and domestic demand, but constrained by limited demand coming from Romania’s major trading partners of the euro area. The GDP growth is unlikely to return to pre-crisis level, given that some of the exceptional circumstances that have led to a significant increase in the last decade, such as the rapid growth of domestic credit because of the relaxed conditions of the global credit, will not return.
Romania’s institutional soundness is evaluated as being ‘high’, reflecting improved scores in the World Bank analysis on government efficiency, rule of law and control over corruption. Although the Romanian institutions are weaker than the EU average, the institutional capacity has improved after joining the EU.
According to Moody’s, Romania’s vulnerability to risky events is considered as being ‘low’ because there is a small risk of political turmoil to affect policies predictability. Periodic tensions between the president and prime minister as well as within the coalition are unlikely to reduce the reforms path, the Moody’s report underscores.
Romania is rated ‘Baa3’ by Moody’s and ‘BBB minus’ by Standard & Poor’s and Fitch.

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