Romania at BBB says Fitch Ratings, risks in case of fiscal loosening

Romania at BBB says Fitch Ratings, risks in case of fiscal loosening

According to Fitch Ratings, “Romania’s investment-grade ratings are supported by moderate levels of public debt, and GDP per capita and governance indicators that are in line with ‘BBB’ category rated peers. However, pro-cyclical fiscal loosening with a positive output gap poses risks to macroeconomic stability.

With the sharp slowdown in 1Q18 GDP, weakening of economic sentiment indicators, tighter monetary policy, higher inflationary pressures, and renewed external uncertainties, a ‘hard-landing’ scenario presents a downside risk. Balancing fiscal policy with macroeconomic stability is likely to be challenging for the government, the press release reads.

“Romania’s external finances remain weaker than that of ‘BBB’ rated peers. Pro-cyclical fiscal policy, which fuelled domestic consumption, led to a widening of the current account deficit (CAD) to 3.4% of GDP in 2017 from 2.1% in 2016. For 2018-2019, Fitch is projecting an average CAD of 3.9% of GDP on the back of a widening trade deficit. This compares with a median CAD of 2.1% of GDP across ‘BBB’ rated peers.

A widening of the CAD risks stalling the decline in Romania’s net external debt position, which at an estimated 19.3% of GDP (end-2017) remains above the majority of ‘BBB’ rated peers.”

Fitch Ratings stress that the Romanian banking sector is stable. “Banks are well-capitalised, with an average capital adequacy ratio of 19.8% (March 2018).”…. / IBNA