Moody's changes outlook on Romania's Baa3 rating to stable

Moody’s Investors Service has changed the outlook on Romania’s Baa3 government bond rating to stable from negative following improved fiscal and current account metrics and lower risks to growth and balance of payments from Euro area in 2013, also affirming the P-3 short term rating on government bond, according to a press release.

The credit rating agency expects that last year’s improvement in macro-economic indicators will be sustained, this aspect, corroborated by the decline in risks to the country’s growth and external financing outlook owing to a recovery in the Euro area being key drivers of the outlook change.

As for the affirmation of Romania’s P-3 government bond rating, Moody’s indicates that it is based on the likely support to GDP growth provided by an increase in exports and EU fund absorption, although growth in domestic demand and credit may remain below pre-crisis levels in the near term. Another influencing factor is the reduction in the fiscal deficit and moderate government debt levels, which diminish some of the risks arisen from the government reliance on external and foreign-currency debt to meet its financing needs. Besides these, Romania’s access to multilateral financing, thus moderating the impact of the risks to external debt-repayment capacity that international market volatility can generate, was also an important aspect when affirming the ratings.

Moody’s points out that an improved rating could be supported by a combination of the following: “a pronounced acceleration in GDP growth, which appeared sustainable over the medium term without a widening of macroeconomic imbalances; an improvement in external debt and debt-service metrics to levels in line with or above those of peer countries; lower government financing risks due to shifts in the maturity and currency structure of government debt, and its reliance on non-resident financing; and greater efficiency in the state-owned sector”, as per the mentioned press release.

Otherwise, a reversal in recent fiscal consolidation translated into a major increase in the government’s debt, a decline in competitiveness negatively affecting the medium-term growth outlook and a worsening of balance of payments metrics are the main factors which could trigger negative rating action.