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Standard&Poor’s reconfirmed the country rate for Romania at BBB- and stable perspective

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The rating agency Standard&Poor’s reconfirmed the stable perspective of the Romanian economy and the grade BBB-/A-3 for the long-term and short term debt in foreign currency and in the local currency, informs the ministry of finances.

Among the factors which support the decision of the agency are the level of the governmental public debt and the foreign public debt, as well as the economic growth of the last years.

Referring to the estimates for economic growth the government considers that the estimates established both for 2019and the medium term ones are doable, taking into consideration the economic factors registered in Q1 of 2019.

As regards the budgetary deficit for 2019, the estimate of the rating agency confirms that Romania will meet the assumed target as a member state of the EU.

Standard&Poor’s estimates the reduction of the growth rhythm of the Romanian economy at under 4% for this year and the following two years, warning about the possible reversal of the economic cycle, as the rhythm of salary growth and demand goes down.

The rating agency reconfirmed on Friday the stable perspective of the Romanian economy and the BBB-/A-3 grade for the long and short term debt in foreign currency and  local currency.

The agency warns on the possibility of reducing the ratings in case fiscal and foreign imbalances  continue more than the estimates of the present moment, leading to the increase of the public debt over the estimates.

Standard&Poor’s mentions the level of inflation of 4.1%, the highest in all the new member states of the EU. The risk of higher inflation could, in some scenarios, could increase the volatility of the exchange rate with negative consequences for the balances in the public and private sectors’ the agency says.

An increase of the rating is possible, says the agency, in case the institutional frame of Romania gets stronger and the policies become more predictable. In such a scenario, we estimate that the government will advance on the budgetary consolidation, getting the net public debt on a descending trend’.

‘One of our hypotheses is that the government will strengthen the budgetary policy to compensate for the considerable growth planned for pensions in 2020 and 2021. As a result, we estimate that the net contribution to the GDP growth following the fiscal measures of 2020 will be slightly positive and zero in 2021.

‘The dynamics of Romania’s growth stays restricted by the migration of the qualified workforce and the general weak growth of the population. The structural reforms for the solution of these issues seem to be lacking.The huge  increase of salaries over the last years was not accompanied by comparable growth of productivity, fact which eroded the competitiveness of Romania’s exports’ the agency says.

S&P estimates that the fiscal deficit of Romania will stay at approximately 3% of GDP in 2019 but they advance the hypothesis of a growth of the deficit to 3.4% of GDP in 2020.

 ‘We consider that the pressure on the Romania’s budget will go on until 2022’ the agency appreciates, in the context of pensions growth and an inflation rate of 4% in 2019, over the target of the central bank.

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