2023-11-04 11:39:00
Moody’s rating agency reconfirmed on November 3, 2023 the rating related to Romania’s government debt at Baa3 for long-term debt and P-3 for short-term debt, as well as the stable outlook.
Moody’sPhoto: Moody’s
The confirmation of the ratings reflects, in the agency’s opinion, Romania’s robust medium-term growth prospects, supported by the funds allocated by the European Union and foreign direct investment flows.
The rating agency warns that “the government’s continued difficulties to sustainably and significantly reduce Romania’s high fiscal and current account deficits” represent a potential source of vulnerability.
Although Moody’s expects economic growth to slow to 2.0% this year following two years of very strong growth in 2021 and 2022, as inflation dampens consumption and the euro zone economic recession hurts external demand, the longer-term growth outlook Romania’s environment remains strong. Moody’s expects growth to return to 3.2% in 2024 and 3.5% in 2025.
Moody’s also expects the trend of rapid growth in labor productivity to continue as Romania recovers from lags with more advanced European economies.
Moody’s expects Romania’s public debt burden to stand at 48.2% of GDP at the end of 2023.
The government announced a package of measures, which might see the fiscal deficit gradually reduced to 5.3% in 2024 and to 4.4% in 2025.
The still high deficit, together with the slowdown in nominal GDP growth as inflation decelerates in the coming years, means that the debt-to-GDP ratio will rise gradually to reach 50.0% at the end of 2024 and 51.7% at the end of the year 2025.
Romania’s ratings remain constrained by weaknesses in the quality and effectiveness of its institutions. In 2022, Romania left the EU’s Cooperation and Verification Mechanism. However, our assessment of the quality of the judiciary and civil society in Romania remains lower than that of its peers.
The government’s difficulty in reducing the fiscal deficit in line with EU requirements also points to remaining challenges to the effectiveness of fiscal policy.
Romania’s exposure to the risk of geopolitical events also remains a form of pressure on the rating. While Romania weathered the initial shock of the Russian invasion of Ukraine well, geopolitical risks will remain high as long as the war in Ukraine continues.
1699134519
#Moodys #reconfirms #Romanias #sovereign #rating #stable #outlook #Romanias #ratings #constrained #weaknesses #quality #effectiveness #institutions
