The rating agency said Romania’s ratings are constrained by the country’s comparatively low per capita GDP, developing institutions, and vulnerability to external shocks owing to its still high, albeit declining, external debt.
However, the country’s external debt burden and its low institutional capacity are balanced by the “considerable progress it has made on economic rebalancing and fiscal consolidation since 2009,” S&P said in a statement.
“The stable outlook reflects our opinion that Romania’s government will continue to consolidate its public finances largely in line with the targets it has specified, and that the net external liability position broadly edges downward as the current account deficit remains more moderate than in the recent past,” the statement noted.
S&P expects the Romanian economy will grow at a steady rate in 2013-2015, largely fueled by rising investment, facilitated by the increased use of European Union funds and a recovery in foreign direct investments, which will support household spending and exports.
Nevertheless, economic performance will likely be constrained by weak administrative capacity — which in turn will limit EU fund absorption — and by slow progress in implementing broader structural reforms, the agency said.
“The government is in the process of restructuring state-owned enterprises, particularly in the energy and transport sectors, but we believe there may be a reluctance to close loss-making companies or sell state assets,” the statement noted.
“As a result of these factors, we do not expect growth to exceed 3% over the medium term.”
S&P said Romania’s ratings could come under downward pressure if the pace and extent of fiscal consolidation were to slow beyond the agency’s expectations or if the government were to deviate from its structural reform strategy.
A significant wider external deficit without improved long-term growth potential could also affect the country’s sovereign ratings, it added.
Conversely, the ratings could be raised if the structural reform program continues and competitiveness and potential growth levels improve, S&P said.