The outlook on both ratings is stable.
Fitch has simultaneously affirmed Romania’s short-term rating of ‘F3’ and country ceiling of ‘BBB+’, the rating agency said in a statement.
Fitch expects Romania’s economy to expand by 1.3% in 2012, largely driven by domestic demand.
“In particular, increased EU funds absorption will boost public infrastructure investment,” the statement noted.
However, short-term risks are skewed to the downside, Fitch said, adding that Romania’s rating is constrained by exposure to turmoil in Greece and structural weaknesses.
Fitch projects that gross domestic product growth will accelerate to 2.5% in 2013 and 3% in 2014, based on the assumption that eurozone activity recovers and EU funds absorption continues to improve.
The rating agency estimated Romanian budget deficit will narrow just below 3% of GDP in 2012, in line with government projections.
“The agency’s baseline scenario is that the deficit will continue to fall as a proportion of GDP in 2013-14, albeit at a pace somewhat slower than projected officially. This should allow public debt levels to stabilize at just over 35% of GDP in 2013-14,” the statement noted.
Fitch said the new government after the November elections will probably have a “populist slant”, which poses risks of overshooting fiscal targets. Nevertheless, Fitch expects that Romania will stick to commitments undertaken with multilateral lenders.
The country’s banking system remains well capitalized, Fitch said, but non-performing loans have yet to peak. Additionally, some of the local subsidiaries of Greek banks, which own 13% of Romanian banking assets, rely to some degree on liquidity supplied by the parent, it noted.
In January 2012 a legislative package was adopted to mitigate these risks, which included bridge bank legislation to enable the Deposit Guarantee Fund to take over temporarily assets and liabilities of ailing banks, Fitch said.
Fitch expects reforms to continue in Romania, but estimates the risk of political delays and setbacks is high. “This could hamper improvements in the efficiency and attractiveness to investment of Romania’s economy,” the statement noted.