Standard & Poor’s Ratings Services has raised its long-term local currency sovereign credit and senior unsecured debt ratings on the
- Republic of Romania to ‘BB’ from ‘BB-‘, and its long-term foreign currency sovereign credit and senior unsecured debt ratings to ‘BB-‘ from ‘B+’.
At the same time, Standard & Poor’s affirmed its ‘B’ short-term local and foreign currency ratings on the republic. The outlook is positive.
“The rating actions reflect Romania’s continued successful stabilisation of the economy, which has begun to display sturdy export and private investment-driven growth, accompanied by a lasting reduction in inflation and interest rates,” said Standard & Poor’s credit analyst Helena Hessel.
A strong export performance and a significant rise in workers’ remittances from abroad cut the republic’s current account deficit to US$1.6bn (3.6% of GDP) in 2002 from US$2.3bn (5.8% of GDP) in 2001. Combined with a sizeable return of capital to Romania, this led to a further strengthening of its external financial position. The republic’s official exchange reserves increased to more than US$6bn in 2002, up from US$4bn at year-end 2001, and only US$1.5bn at year-end 1999. As a result, reserve coverage of external borrowing requirements increased to 166% in 2002, up from 103% in 2001 and 61% in 1999. Romania’s net public external debt in terms of current account receipts decreased to 9.4% by year-end 2002, from 18.4% at year-end 2001 and 34% at year-end 1999.
“Although Standard & Poor’s expects the republic’s current account deficit and liquidity ratios to worsen in the coming years, reflecting the ongoing modernisation of the economy, this is not expected to pose much of a threat to Romania’s balance of payments, given its solid level of reserves and rising non-debt capital inflows,” says Hessel.
The positive outlook reflects Standard & Poor’s opinion that prospects for a sustained restructuring and modernisation of the Romanian economy over the next several years are good. The long-term ratings on the republic could be raised in the next year or so if financial discipline and structural reforms continue. In particular, prudent income policies in the budgetary sector and at loss-making government-owed companies are crucial.
“An acceleration in the restructuring of a large and inefficient energy sector could help further reduce inflation, improve Romania’s resource allocation, and accelerate an effective transition to a market-based economic structure, adds Hessel. “These developments could, together, signal a future improvement in the republic’s creditworthiness.”