Rating upgrade from S&P

Standard & Poor’s Ratings Services on Wednesday said it raised its long-term foreign currency ratings on Romania to ‘BB’ from ‘BB minus’, and its long-term local currency ratings to ‘BB plus from ‘BB’. At the same time, the S&P analysts say structural reforms have progressed, although more slowly than advocated by the IMF, reflecting weak investor interest and political hindrances.

The agency also warns that strong vested interests, patronage, and corruption still pose some risk and “at times, undermine Romania’s image among foreign investors. These issues also cloud the country’s relations with multilateral organisations.”

Achieving further disinflation remains a challenge for the authorities, S&P analysts feel. “Inflation has remained on a downward trend this year, but is estimated at a still high 14.5% for year-end 2003. The pace of disinflation was slowed by necessary public sector price increases and a drought,” S&P says.

The institution also recommends applying income policies more successfully and evenly across loss-making government-owned companies.

“The prospects for sustained restructuring and modernisation of the economy during the next several years are good. The ratings could be raised further within the next couple of years if financial discipline and structural reforms continue,” Helena Hessel, Standard & Poor’s credit analyst feels.

She also considers that the upgrade reflects the strong competitiveness of the Romanian economy. “Ongoing restructuring and modernisation are underpinning continued robust growth driven by exports and investment,” Hessel added.

Despite low growth in the EU and a drought earlier this year, Romania is expected to post real GDP growth of at least 4.5% in 2003, the data provided by the rating agency show.

Standard & Poor’s says that the industrial base is being modernised, the banking system has recently strengthened, and the restructuring of the inefficient energy sector is proceeding, albeit at a slow pace. The agency believes this should support robust GDP growth in the medium term, and facilitate integration within the EU, with accession expected in 2007.
razvan.voican@zf.ro