Fitch Affirms Romania At ‘BB+’; Outlook Stable

Fitch Ratings on Monday affirmed Romania's long-term foreign and local currency issuer default ratings (IDRs) at 'BB+' and 'BBB-' respectively, with stable outlooks, citing the country’s improved external position and sufficient government action to cut the budget deficit.

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Romania's country ceiling and short-term foreign currency IDR were affirmed at 'BBB' and 'B' respectively, Fitch said in a statement.

"Romania faces significant challenges in cutting its large budget deficit in the midst of a recession," said Douglas Renwick, Associate Director in Fitch's Sovereign Group.

"However, the government has demonstrated its commitment to fiscal consolidation and the agency's central expectation is that Romania will be able to steer a path towards an export-led recovery and stabilize its public finances," he added.

Fitch said Romania's external position has improved considerably over the past 18 months due to official balance-of-payments support and a sharp adjustment in the current account, adding that it now expects the country's foreign liquid assets to cover 150% of maturing external debt in 2010.

The ratings agency said the scale of Romanian budgetary problems weighs on its rating, but estimated the austerity measures recently implemented are sufficient to contain the budget deficit at 6.8% of the gross domestic product in 2010.

"The policy risk is nonetheless significant given the unpredictable nature of Romanian politics and the need for further tightening in 2011 and beyond to stabilize the debt stock," Fitch said.

Fitch said it has revised downward its forecast on Romanian economy to a contraction of 2% this year, as the government's consolidation program is slated to negatively impact the economy.

In addition, Fitch expects the recession will worsen the risk profile through adverse debt dynamics and pressure on the banking system, despite well capitalization in the sector.

Non-performing loans rose sharply to 10.2% of total loans in the first half of 2010, the ratings agency said.

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