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RPT-Fitch affirms Romania at 'BBB-'; outlook stable
September 13, 2013 / 3:46 PM / 4 years ago

RPT-Fitch affirms Romania at 'BBB-'; outlook stable

LONDON, September 13 (Fitch) Fitch Ratings has affirmed Romania's Long-term 
foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and 'BBB', 
respectively. The Outlook on both ratings is Stable. Fitch has also affirmed 
Romania's Short-term rating at 'F3' and Country Ceiling at 'BBB+'.

KEY RATING DRIVERS 

Romania's 'BBB-' foreign currency IDR reflects the following key rating drivers:

- Public finance consolidation. 

Romania has consolidated its public finances successfully under two consecutive 
international financial assistance programmes. In June 2013 the European 
Commission decreed Romania's exit from the Excessive Deficit Procedure (EDP) 
after it reduced its general government deficit to 2.9% (in line with the BBB 
median) from 5.6% in 2011. Fitch expects the government to meet its medium term 
objective of a structural deficit of 1% of GDP in 2014. After rising to 38% of 
GDP in 2012 from 13% in 2008, gross general government debt (GGGD) is expected 
to stabilise under 40% in 2013-15, in line with the category median.

- Reduction of external imbalances. 

Romania ran a current-account surplus equivalent to 1.1% of GDP in H1. Fitch 
projects that the current account will be close to balance in 2013, a notable 
improvement from average deficits of 11% of GDP in 2005-08. The agency believes 
that this improvement is partly cyclical, and that a projected recovery in 
domestic demand will produce current account deficits in 2014-15, albeit at 
lower levels than the pre-crisis norm. This would be consistent with a falling 
net external debt (NXD) ratio, although at a projected 27% of GDP in 2015, this 
will still be considerably higher than the category median.

- Safety buffers. 

Romania possesses buffers in the form of a fiscal reserve in foreign currency 
worth around 4.6 months of gross public borrowing requirement; international 
reserves worth nearly seven months of current-account payments (CXP); adequate 
capital ratios in the banking sector; and various precautionary financing lines 
from multilateral institutions. Fitch judges that these would be sufficient to 
withstand a significant degree of market turbulence.

- Low, albeit improving trend GDP growth. 

Fitch has raised its forecast for GDP growth in 2013 to 2%, and projects that 
growth will pick up moderately in 2014-15. Nevertheless, average GDP growth 
appears insufficient to reduce meaningfully the gap with average EU incomes. 
This is because of lingering bottlenecks in the Romanian economy, namely 
inefficient state-owned enterprises (SOEs) in key sectors such as transport and 
energy, and underperforming healthcare and public administration. In late July 
Romania, the IMF and the EU concluded the outline of a new precautionary 
financing deal that is likely to focus on the implementation of structural 
reforms in the aforementioned areas.

- Stable but constrained banking sector. 

The banking sector remains well capitalised and supervised, and has returned to 
profitability. Fitch does not judge it to represent a significant contingent 
liability for the sovereign. Nevertheless, the non-performing loan (NPL) ratio 
is high at 20.9% in July 2013 and has yet to peak, although the pace of NPL 
creation has slowed and prudential provisions fully cover the NPL stock, 
according to data from the National Bank of Romania. The absence of an effective
framework to clean up banking balance sheets combined with ongoing deleveraging 

impairs monetary policy transmission and represents a significant obstacle to 
the resumption of credit growth.

- EU membership underpins domestic politics and institutions, and governance 
standards are in line with the category median. The political scene has 
stabilised in 2013 after a turbulent 2012 but EU parliamentary and presidential 
elections are scheduled for next year and a degree of instability could return. 
  

RATING SENSITIVITIES 

The Stable Outlook reflects Fitch's assessment that upside and downside risks to
the rating are currently well balanced.

The main risk factors that, individually or collectively, could trigger a 
positive rating action are:

- A sustained effort to carry out structural reforms, including the sale or 
restructuring of key SOEs that leads to stronger sustainable economic growth. 

- Faster reduction in external debt ratios than Fitch currently expects.

The main risk factors that, individually or collectively, could trigger a 
negative rating action are:

- A significant fiscal loosening that jeopardises the stability of public 
finances.

- A sustained loss of momentum in the implementation of key structural reforms, 
for example as a result of political instability.

- Stronger market turbulence than in Fitch's baseline scenario that erodes 
significantly Romania's fiscal and external buffers.    

KEY ASSUMPTIONS

-Fitch assumes that the government will meet broadly the targets set down in the
EU Convergence Programme update of April 2013.

-Fitch assumes that the eurozone economy, Romania's largest trade partner, will 
continue to recover gradually in line with the agency's forecast. 

--Fitch assumes that the unwinding of extraordinary global monetary stimulus 
will proceed in a broadly orderly fashion.

Contact: 

Primary Analyst

Matteo Napolitano

Director

+44 20 3530 1189 

Fitch Ratings Limited

30 North Colonnade

London E14 5GN

Secondary Analyst

Paul Rawkins

Senior Director

+44 20 3530 1046

Committee Chairperson

Tony Stringer

Managing Director

+44 20 3530 1219

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: 
peter.fitzpatrick@fitchratings.com.

Additional information is available on www.fitchratings.com.

Applicable criteria, 'Sovereign Rating Methodology' dated 13 August 2012 and 
'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com.

Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here. IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND 
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF 
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE 
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF 
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE.

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