Fitch, the international rating agency, yesterday said that recent developments in the Federal Republic of Yugoslavia would not have any immediate impact on the sovereign ratings of those countries most directly affected – Croatia, Romania, Bulgaria and Greece.
In a comment – Yugoslavia: Potential Impact on Sovereign Ratings – the agency noted that a marked improvement in Yugoslavia’s international relations and an end to the economic decline that has characterised its last 11 years would have positive spill-over effects on the other countries within the region.
Neighbours would benefit from greater trade with Yugoslavia while repairs to the region’s infrastructure would also facilitate greater trade flows through Yugoslavia to third markets.
Moreover, the reconstruction process itself would generate opportunities for construction and related companies and a more stable neighbour would support efforts already underway to develop tourism and attract greater foreign direct investment.
Nonetheless, these developments would not be sufficient to trigger any sovereign upgrades since the ratings of Croatia, Romania, Bulgaria and Greece remain constrained by other factors. Furthermore, the agency stressed that a smooth political and economic transition in Yugoslavia is still far from assured.
Of the sovereigns in the region rated by Fitch, Croatia was viewed as the one most obviously affected by developments in Yugoslavia.
Nonetheless, since Croatia has for some time appeared unlikely to become involved in any regional conflict, security concerns did not weigh on the Long-term foreign currency rating when it was affirmed in June 2000.
Thus, there is no direct impact of the regime change in Yugoslavia on the rating, which remains stable at “BB+”.
While both foreign direct investment and the tourism industry could benefit from improved sentiment towards the region, an improvement of the rating is dependent on progress in addressing fiscal weaknesses.
Bulgaria and Romania also stand to benefit from a more stable Yugoslavia and the reconstruction of the region’s infrastructure. Indeed, clearing the River Danube, which has been blocked by debris since the Kosovo War, will reduce transport costs markedly for the exporters of both nations.
Nonetheless, by itself, this will not affect the ratings of either country. In Bulgaria’s case, the outlook for the “B+” Long-term foreign currency rating is already positive but an upgrade of the ratings remains contingent on further progress with structural reform.