Fitch lets Romania back into group of "almost safe" countries

After six years, international agency Fitch Ratings let Romania back into the group of countries rated as almost safe for investments. Fitch yesterday upgraded Romania’s ratings for the long-term currency and local currency debt, due to the country’s economic performance, the increase of international reserves and the tight fiscal policy. The long-term currency debt rating was upgraded from ‘BAa€š’ to ‘BB-‘, while the rating for long-term domestic currency loans went up from ‘BB-” to ‘BB’. At the same time, Fitch affirmed the short-term foreign currency rating at ‘B’, with the long-term rating outlook deemed as stable.
“It is quite unusual to upgrade twice in one year so some might be surprised by today’s action. Then again, the bond market spreads suggest that the market is also quite upbeat on Romania at the moment,” Sharon Raj, Fitch main analyst for Romania told Ziarul Financiar.
Even so, Romania is still one step behind Bulgaria, whose rating was upgraded to ‘BB’ on Tuesday. Among Central and Eastern European countries, Russia also enjoys a higher rating than Romania, with the other countries having been granted lower ratings.
“Romania’s entrance in the ‘BB’ rating area steers it away from the countries bearing high risks, to which our country has been wrongfully associated over the past years,” Valentin Lazea, National Bank of Romania chief-economist yesterday said in Dubrovnik.
Fitch has been more generous than Standard&Poor’s and Moody’s. According to financial analysts, Romania’s ratings are likely to be upgraded by the two American agencies by yearend (the first months of 2003 at the latest).
“Our investment profile is beginning to resemble that of Central European countries and is moving away from Latin-American countries,” Lazea said.
“Romania’s creditworthiness has improved markedly over the last two years,” a Fitch release shows. “It is currently enjoying its strongest macroeconomic performance since transition began and, underpinned by official financial support and improved bond market access, the National Bank’s international reserves have increased to record levels,” the release also shows. Furthermore, the agency notes that liquidity has improved and the public sector has recently become a net external creditor.
According to Fitch Ratings, the improved economic performance has been largely the result of a relatively tight fiscal stance combined with an acceleration in structural reforms enforced by the government.
“The challenge now is for the government to build on these developments in order to lock in the gains that have been made and secure long-term macroeconomic stability,” the agency analysts say.
Fitch Ratings goes on to say that the target date of 2007 for EU membership and the chance of an invitation to NATO accession are likely to provide momentum over next year. However, “many of the necessary measures are difficult to implement since the short-term impact will be painful for a population that has already seen living standards fall sharply over the last decade”, Fitch Ratings notes.
In the opinion of Fitch analysts, progress may also be hindered by a weak institutional and administrative framework, strong vested interests and corruption. Therefore, “it is possible that, while the direction of reform will remain unchanged, the pace will fall short of the government’s goals.” Under the circumstances, the government’s ability to meet its public sector wage targets and press ahead with the sale of BCR (Romanian Commercial Bank), Romania’s largest bank, and Petrom, the national oil company, will provide key signals.