Outpacing again the other large international rating agencies, Fitch yesterday upgraded one of Romania’s country ratings.
The decision is grounded on a report drafted by a team of agency experts that was in Romania at the end of September, without being directly related to the new stand-by agreement concluded with the International Monetary Fund.
Fitch upgraded Romania’s Long-term local currency rating to ‘BAâ’ from ‘B’. The Long- and Short-term foreign currency ratings were affirmed at ‘B,’ while the outlook on the Long-term foreign and local currency ratings was revised to Positive from Stable.
However, further progress with structural reform and signs that this is feeding into a more robust current account position are likely to have a major bearing on the Long-term foreign currency rating going forward, the agency said.
“This decision goes to prove that the Government’s economic policy is correct and that it needs to be further applied,” said Finance minister Mihai Tanasescu.
The decision to upgrade the local currency rating follows a marked fall in the domestic debt from 13.1% of GDP at the end of 1999 to 9.3% in 2000, and “signs of increased commitment to a tighter fiscal stance by the PSD government.”
Agency analysts are pleased with the revision of the 2001 fiscal target to 3.5% of GDP during the summer, while the target for 2002 is 3%. “Given this, and expectation of GDP growth in the region of 4-5% over the coming period, Romania’s overall debt dynamics are favourable,” the agency specifies.
Among the elements justifying the improved rating for the local currency debt, there is progress made in the banking system restructuring.
Fitch says it was encouraged by recent signals regarding the PSD Government’s commitment toward reform, although it notes the limited enthusiasm demonstrated by the ruling party for reform during its last term in office.
The agency praises the sale of Sidex, “the large steel conglomerate and biggest loss-maker in the country,” and the agreement regarding the sale of Hidromecanica, the producer of hydraulic components.
Report authors mention that the privatisation strategy for BCR, the largest bank in Romania, has also been approved and that steps have been taken to enforce tighter financial discipline within the economy.
“Energy prices were raised sharply during the summer and are scheduled to rise steadily over the near term, reaching cost recovery levels in mid-2002,” the report shows.
The Positive Outlook on both the long-term foreign and local currency ratings reflects these factors and the fact that, despite difficult international bond market conditions, Romania’s near-term financing position appears secure.