Fitch Affirms Romania at ‘BBB-‘; Outlook Negative

Fitch Ratings affirms Romania’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ with a Negative Outlook, according to a report published on Friday, April 23.

Overall, Fitch mentions it sees broad commitment to reform and still favorable prospects that expenditure rationalization measures will be approved in 2021 despite recent coalition tensions. Also, Fitch experts expect more clarity regarding revenue measures in 2022, but they note that the implementation challenges remain. In their opinion, Romania has a poor record of meeting fiscal targets (particularly on structural deficits) even in periods of strong growth and under different administrations.

Fitch forecasts the public deficit falling to 6.6% of GDP in 2022, which would be consistent with public debt/GDP increasing to 53.2% in 2022 from 47.3% in 2020 and still below the current ‘BBB’ median of 57.3% of GDP. In their experts’ opinion Romania has good access to external markets, as well as sound debt management (interest payments to revenue are among the lowest in the ‘BBB’ category). Moreover, as the report mentions, moderate contingent liabilities (despite extensive use of guarantee schemes in 2020) and support from different EU scheme reduce financing risks.

Fitch expects Romania´s economy to expand by an average of 5.8% in 2021-22 (versus the ‘BBB’ peer median of 4.4%), thanks to strong investment momentum and a gradual recovery in exports and private consumption. This estimation is closer to the one issued by the IMF (6% growth of the economy) than to the World Bank’s one (4.3%). Also, the report observes that the economy performed very well in Q4 2020 despite moderate pandemic restrictions (limiting full year contraction to only 3.9%), providing a strong carry-over and highlighting the resilience of important sectors such as construction and some service industries. Fiscal measures helped limit the damage to employment and corporate balance sheets, with few sectors likely to see any long-term effects.

This is yet another positive report for the Romanian economy, after World Bank’s report for Romanian economy in 2021, which mentions a 4.3% growth of GDP, the IMF report for Romania, which predicts a 6% growth for the Romanian economy in 2021, and the S&P report which improves the outlook for Romania’s public debt after 7 years.

Is the current coalition in Romania able to continue the reforms and to grow the economy on a medium term? This is quite possible, but first things first the leaders have to solve their political conflicts before anything else. Also, they will have to make sure the growth is sustainable and it is appreciated by the people, otherwise their trust in the coalition will fade out in time.