Moody’s Improves Romania’s Credit Rating Outlook on Lower Risks

Romania’s credit rating outlook was raised to stable from negative by Moody’s Investors Service, which cited macroeconomic stability and lower financing risks. The country’s rating was affirmed.

The eastern European country’s long-term government bond rating was maintained at Baa3, the lowest investment grade and on par with Turkey, India and Ireland, Moody’s said in a statement late yesterday.

“Despite a subdued growth outlook and several changes in government, the fiscal deficit was reduced to 2.3 percent of the gross-domestic product,” Moody’s analysts Atsi Sheth and Bart Oosterveld said in the statement. “Moody’s expects this reduction to contribute to a stabilization in government debt ratios, which underpins the return to a stable outlook on the rating.”

Romania, the European Union’s fastest-growing economy in the fourth quarter last year, embarked in one of the bloc’s toughest austerity programs in 2010 by cutting state wages by a quarter and raising value-added tax. While it’s since maintained fiscal rigor under International Monetary Fund guidance, it hasn’t shed its junk rating at Standard & Poor’s.

The yield on the government’s euro-denominated bonds due 2024 fell six basis points, or 0.06 percentage point, to 3.59 percent in Bucharest yesterday, the lowest since the bonds started trading on April 17, according to data compiled by Bloomberg. The leu gained 0.4 percent to 4.4488 per euro yesterday, the biggest gain in more than a month.

Stable Outlook

“Over the medium term, Moody’s expects Romania to continue along the path of income convergence with wealthier EU trading partners, supported by competitive wages and future policy measures to enhance productivity and the operating environment and these developments support a stable outlook on the rating,” Moody’s said in the statement.

Romania’s GDP accelerated to the fastest since 2008 in the fourth quarter of 2013 to 5.4 percent from a year earlier, driven by exports, industry and a bumper harvest.

“Although growth rates are unlikely to return to pre-crisis levels over the next two years, Moody’s expects the current pace of growth to be sustainable as policy efforts support export competitiveness and investment,” according to the statement.

Moody’s may increase Romania’s credit rating once the country shows a pronounced acceleration in GDP growth, an improvement in external debt, lower government financing risks and greater efficiency in the state-owned sector.

The country’s rating may decline if the government reverses fiscal consolidation or the country’s competitiveness declines. Also a worsening of the balance of payments may push the rating down, Moody’s said.

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