Feb. 26 (Bloomberg) -- Standard & Poor’s is “closely” watching economic risks in Romania and Bulgaria as the global credit crisis deepens, making it more difficult for developing nations to raise financing.

“We have negative outlooks on all emerging southeast European sovereigns and are monitoring them closely,” said Marko Mrsnik, an S&P credit analyst in London, who covers countries including Romania, Bulgaria, Serbia and Bosnia-Herzegovina. “The economic developments warrant close surveillance” as external financing conditions deteriorate.

East European economies may face a region-wide crisis as the global economic slump reduces demand for their exports and western banks, stung by credit losses, cut off lending, S&P said in a report published Feb. 24. Romania and Bulgaria were countries the ratings company singled out, along with Latvia, Estonia and Lithuania and Hungary, saying they are “contemplating despair” because of their external debt and current-account deficits.

The ability to meet external financing needs is an important determinant for the ratings, Mrsnik said, adding that western banks should continue to fund their units in the region to avoid strains.

“Central and eastern European countries have been under pressure in this respect,” Mrsnik said. “In many cases, parent bank inflows are funding a large percentage of these countries’ current-account deficits. As long as these inflows continue to be forthcoming, the liquidity situation will stabilize.”

Junk Grade

S&P cut Romania’s foreign-currency debt rating to BB+ on Oct. 27, the first European Union nation to receive a junk grade. S&P also lowered Latvia’s credit rating to BB+ on Feb. 24 and a day later Ukraine’s rating was reduced to CCC+, seven steps below investment grade and the lowest in all of Europe. Bulgaria’s rating was cut by the company to BBB on Oct. 30.

Romania’s growth rate will “plummet” to 0.8 percent this year from 7.3 percent in 2008, in conjunction with ballooning current account and budget deficits, S&P said in this week’s report. The negative outlook on the rating reflects “the possibility of a downgrade in the event that a tightening of external finance conditions leads to a sharp downturn in economic growth,” Mrsnik wrote in a Feb. 9 report.

Bulgaria’s main vulnerability is its debt-financed current- account deficit and a currency-board regime, which is preventing an adjustment in the lev, S&P said. While the ratings company forecasts about 1 percent economic growth this year, a “negative growth” scenario, can’t be excluded, it added.

‘Intense Pressure’

Bulgaria has a negative outlook because a lack of continued inflows from western banks could put the ratings under “immediate and intense pressure,” Mrsnik wrote on Feb. 9.

Romania is seeking international aid and has held talks with both the International Monetary Fund and the EU, Premier Emil Boc said on Feb. 25. The IMF has already bailed out Latvia, Hungary, Serbia, Ukraine and Belarus.

Romania’s current-account deficit widened to a record 13 percent of gross domestic product last year and the government expects it to narrow to less than 10 percent this year. Bulgaria’s government has so far ruled out the need for aid from outside.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

Last Updated: February 26, 2009 06:07 EST