S&P raised its long- and short-term foreign and local currency sovereign credit ratings on Romania to ‘BBB-/A-3’ from ‘BB+/B’, while the outlook is stable.
“Romania is making progress in reducing its external indebtedness. In addition, fiscal consolidation and financial sector stability continue to be on track,” S&P said in a statement.
“The stable outlook balances the likelihood of fiscal and reform programs exceeding our expectations, against the possibility of external imbalances re-emerging.”
S&P kept Romania’s ratings in the “junk” category–non-recommended for investments–since 2008, at the debut of the financial crisis.
The other major rating agencies, Fitch and Moody’s, also rate Romania in the investment grade category.
S&P believes Romania will maintain steady economic growth, averaging 3% over 2014-2017. “While this is slower than before the 2009 financial crisis, it is above any regional peer.”
This evolution, S&P says, underlines the return of relatively healthy fundamentals, even if Romania’s national income per capita in 2014 is still roughly equal to its 2008 high. In 2013 and 2014, external demand has been driving growth and the agency expects a gradual shift toward domestic demand with net exports slightly dragging on growth in 2016-2017.
“This should not dramatically reverse the progress in the external account, which we consider to be largely structural. Romania’s shift toward a more open economy means that exports now constitute 42% of GDP, compared to 31% in 2009. Rapid export growth and flat import demand in 2013 helped lower the current account deficit to 1.1% of GDP, its lowest in two decades. While we forecast the deficit to slowly double to 2.1% by 2017, this rise nevertheless constitutes structurally lower deficits.”
Lower current account deficits also translate into a healthier external debt profile, with net FDI exceeding headline deficits at least until 2017, S&P also said. As a result, Romania’s external debt levels are bound to decline, with net external debt shrinking to 15% of GDP in 2015 from a high of 22% in 2012.
“Domestic political uncertainty has not recently affected economic performance, but we continue to view Romania’s governance framework as a ratings weakness. Emerging geopolitical risks should also be contained as Romania’s economic links with Ukraine and Russia remain fairly limited (for instance, combined exports and imports are less than 5% of total exports and imports) and we do not foresee any direct security implications.”