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Moody's reconfirmed the rating related to Romania's government debt at Baa3 for long-term debt
Moody's Investors Service confirmed on Friday the long-term rating of Romania at "Baa3," with a stable outlook, while the short-term rating being maintained at "Prime-3," reads a press release of the financial assessment agency.
The confirmation of the "Baa3" rating reflects Romania's robust medium-term growth prospects, supported by solid inflows of European funds and foreign direct investments (FDI). It also reflects indicators on debt burden and debt affordability, which remain stronger than other countries with the same rating, although both are expected to deteriorate gradually in the coming years, following a still high level of the budget deficit and rising costs of interest payment. These developments are counterbalanced by the low quality of the country's institutions and susceptibility to geopolitical and external vulnerability risks, the same release states.
The stable outlook balances the positive economic trend against the ongoing difficulties of the Government to sustainably reduce Romania's high fiscal deficit and current account deficit. Although these do not represent imminent risks to Romania's credit profile, nevertheless the two deficits represent a potential source of vulnerability when it comes to solvency, warns Moody's.
Although Moody's estimates growth to slow down to 2% this year, after two years of solid growth in 2021 and 2022, in the context in which inflation affects consumption and the fall in economic activity in the Eurozone affects external demand, Romania's medium-term growth prospects remain solid. Moody's expects growth to recover to 3.2% in 2024 and to 3.5% in 2025, in line with the agency's estimate of the economy's growth potential of 3% - 3.5%.
Romania's solid growth prospects are supported by the high level of investments with European funds and FDI. The country has allocated a total of around 11% of 2021 GDP in grants and loans from the EU Recovery and Resilience Facility (RRF) to be spent until 2026. Although implementation is behind schedule, Romanian authorities have continued to register progress with the implementation of the reforms and investments necessary to unlock the European funds. And the regular funds from the EU budget 2021-2027 will increase in the following years, increasing the total funding from the EU to an average of approximately 4% of GDP per year. Furthermore, Moody's expects FDI in sectors such as industry and IT to remain at a solid level, at around 3% of GDP.
The Ministry of Finance reminds that, on September 8, 2023, the Fitch rating agency reconfirmed the rating related to Romania's government debt at BBB-/F3 for long-term and short-term debt in foreign currency, as well as the stable outlook.
Also, on October 13, 2023, the S&P rating agency reconfirmed Romania's government debt rating at BBB-/A3 for long-term and short-term foreign currency debt, as well as the stable outlook.