S&P Keeps Romania Outlook To Negative

Standard&Poor’s on Monday affirmed its “BBB-/A-3” foreign currency and “BBB/A-3” local currency sovereign credit ratings on Romania, with negative outlook, reflecting the country’s inappropriate policy response to the growing macroeconomic imbalances.

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"The ratings on Romania are supported by the sovereign's strong growth potential, low general government debt, and EU membership, which provides an anchor to economic policy," S&P credit analyst Marko Mrsnik said.

"The ratings are constrained, however, by a political environment hindering decisive policy responses in the event of economic challenges,” he mentioned.

The ratings agency said it expected Romania’s current account deficit to register a slight decrease in the upcoming years, but not below 10% of the GDP.

Romania’s current account deficit stood at 14% of the GDP in 2007.

Moreover, S&P analysts consider the Romanian central bank will miss its inflation target in 2008 for the second year in a row, due to a weak local currency and the significant volume of foreign-currency-denominated domestic credit.

"If external imbalances continue to worsen and Romania continues to pursue significantly pro-cyclical fiscal and income policies, or if private sector balance sheet stress causes the economic outlook to deteriorate, a downgrade would follow within the next 12-18 months,” Mrsnik said.

On the other hand, Romania’s ratings might improve, provided political policy would lead to “prudent fiscal and income policies aimed at safeguarding macroeconomic stability, coupled with evidence of subsiding external imbalances and related macro-financial risks,” the analyst said.

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