Bancherul - BANCI / ENGLISH / Moody's issues annual credit report on Romania

In its annual credit report on Romania, Moody's Investors Service says that Romania's Baa3 government bond rating is supported by the country's diversified economic base and potential for future increases in competitiveness and incomes, relatively low government debt ratios, access to multilateral financial support, and continued improvement in the fiscal balance despite political volatility this year, said the company in a statement.

The rating agency notes the credit challenges posed by Romania's balance-of-payments vulnerabilities manifested in its current account deficit and its relatively high level of external debt, with significant annual repayment obligations. Other credit challenges incorporated in the rating are the reliance of many of Romania's banks on foreign (largely euro area) parent bank funding, as well as the country's poor record in state enterprise performance and privatisation.

The rating agency's report is an annual update to the markets and does not constitute a rating action.

Moody's determines a country's sovereign rating by assessing it on the basis of four key factors -- economic strength, institutional strength, government financial strength and susceptibility to event risk -- as well as the interplay between them.

Moody's assessment that Romania's economic strength is moderate relative to other rated sovereigns is based on the growth potential that stems from the country's diverse manufacturing base and its wage competitiveness relative to regional peers. Romania's ties to Europe via trade, financial, investment and manufacturing links have helped raise growth, efficiency and incomes. However, over the next year, euro area financial volatility and growth slowdown will dampen Romania's growth outlook.

Moody's assesses Romania's institutional strength as moderate. The rating agency considers Romania's demonstrated commitment to international agreements and the positive institutional externalities from accession into the European Union to be institutional strengths. On the other hand, the country's combative political process and inefficient state enterprise sector could negatively affect the country's operating and policy environment.

Similarly, Romania's government financial strength is assessed as moderate. Strengths include relatively low government debt ratios and an improving fiscal position. Weaknesses include continued high government expenditure levels, a reliance on external funding and the uncertainties surrounding the restructuring of the large state-owned enterprise sector.

In addition, Moody's assesses Romania's susceptibility to event risk as moderate based on the chance that unanticipated economic, political or financial events could cause a sudden, significant deterioration in credit metrics. Given Romania's economic and financial links to the euro area, the ongoing sovereign and banking crisis is heightening the vulnerability of the Romanian economy to unanticipated events, as reflected by the negative outlook on the rating. The negative outlook on Romania's rating also reflects that worsening in euro area financial conditions would increase risks related to Romania's balance-of-payments position and its banking system. Moreover, subdued near-term growth prospects and political uncertainty pose challenges to implementing the structural reforms agreed upon with the country's multilateral lenders.