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The financial rating agency Fitch Ratings confirmed on Friday Romania’s sovereign rating at “BBB minus” with a negative outlook, this being the last note in the “investment-grade” category, recommended for investments, Fitch announced in a quoted press release. by Agerpres. .
This indicator is important for the costs to which the state or large companies of a country are indebted.
Two days ago, Moody’s also announced that it is maintaining the country rating of Romania. The third rating agency, Standard and Poor’s, is due to announce its rating in early December.
According to Fitch, Romania’s rating is supported by moderate level of public debt, as well as a GDP per capita and indicators in governance and human development, What are they over other countries with a “BBB” rating.
But these strengths are countered by a budget deficit and a large current account deficit compared to other countries.
“The negative outlook reflects the deterioration in public finances due to the procyclical policies of recent years, as well as the impact of the coronavirus pandemic on economic and fiscal performance. Although Fitch expects the economy to recover from 2021, uncertainty about political developments, combined with a new explosion in the number of infection cases, both domestically and globally, continues to affect the economic and fiscal outlook.. The weak record of fiscal consolidation despite strong economic growth in recent years, as well as high levels of budgetary rigidity, will continue to pose a significant challenge for public finances in the medium term, ”said Fitch Ratings.
Fitch scenario: 40 percent pension increase will not take place
Fitch analysts expect Romania’s public deficit will reach an all-time high of 9.5% of GDP by the end of this year, amid the rapid increase in spending due to the pandemic, the increase in pensions in September, the acceleration of capital spending and falling revenues. Fitch expects the government deficit to shrink to 6.8% in 2021 and 4.5% in 2022, following a return to revenue and the removal of support measures.
“Fitch’s baseline scenario is that the current opposition-controlled parliament will not be able to reintroduce the initial 40% pension increase, as the president and government are likely to postpone the measure until after the next parliamentary elections.“says Fitch.
The evaluation agency predicts that Romania’s economy will contract 5% in 2020, a better performance compared to an average contraction of 6.7% for the other “BBB” countries, thanks to stronger investments.
The unemployment rate will peak in 2021
Fitch believes that supportive measures taken in response to the pandemic (which could amount to 7% of GDP in 2020) have been effective in limiting negative impact on small businesses and employment, but downward pressures will persist due to the reappearance of the coronavirus.
The unemployment rate is expected to peak at 7.3% in 2021, after which it will drop slightly in 2022.
“Based on our baseline scenario, the economy will average 4% in 2021-2022, supported by a return to domestic and external demand. We assume that some of the support measures will be extended in 2021, especially those focused on maintaining jobs, but these may be insufficient to avoid a further contraction in the economy yes quarantine measures similar to the second trimester will be entered again. There are some uncertainties about the medium-term impact of the pandemic in Romania, as some service sectors such as information and communications technology could benefit, while small companies in the manufacturing sector could suffer permanent losses, ”Fitch said.
What could lower Romania’s rating?
The rating agency notes that the main factors that, individually or together, could lead to a downgrade of the sovereign rating are: a sudden deterioration in medium-term debt sustainability, for example, due to the inability to offset or postpone higher spending and / or implementing a credible medium-term consolidation strategy after the shock caused by the pandemic, as well as weaker medium-term growth prospects, for example, as a result of a longer period of economic contraction.
On the contrary, the main factors that could lead to an improvement in the rating are the confidence that the debt / GDP ratio will stabilize in the medium term, for example as a result of a fiscal consolidations after the pandemic, as well as a reduction in external vulnerabilities, through a sustained improvement in external debt indicators.
Florin Cîțu’s reaction: Victory!
Finance Minister Florin Cîțu reacted on Facebook Friday night to the Fitch agency’s announcement: “Victory! Fitch maintained the country rating for Romania. Furthermore, the rating agency says very clearly that PNL will NOT increase taxes in 2021: “The ruling center-right NLP administration has committed to focusing on efficiency and specific measures rather than raising taxes to reduce the deficit.” . More details soon ”- promises the Chief Financial Officer.
