Standard & Poor’s affirmed Romania’s junk credit rating for a fifth year as “high” external debt is balanced by budget rigor.
The eastern European country’s long-term government bond rating was maintained at BB+, one level below investment grade and on par with Croatia and Indonesia, S&P said today in a statement. It left the outlook on the rating at stable.
“Romania’s ratings are constrained by its comparatively low per capita gross domestic product, developing institutions, and vulnerability to external shocks owing to its still-high, albeit declining, external debt,” S&P analysts Leila Butt and Frank Gill, said in the statement. “The stable outlook reflects our opinion that Romania’s government will continue to consolidate its public finances.”
Romania is struggling to shed its junk rating after embarking on one of European Union’s toughest austerity programs in 2010 with a 25 percent cut in state wages and a 5 percentage-point increase in the value-added tax. The government, which arranged two international bailout loans, narrowed the budget gap to 2.5 percent of GDP last year from 7.2 percent in 2009. Public debt was about 36 percent of GDP in January.
The cost to insure government debt against non-payment for five years with credit-default swaps rose to 178 points today after reaching 176 yesterday, the lowest since 2008. The yields on Romania’s 2023 dollar-denominated bonds declined two basis points, or 0.02 percentage point, to 3.94 percent after touching a record-low 3.79 percent on May 3.
Romania’s rating may come under pressure should the pace of “fiscal consolidation slow,” or the government deviate from its “structural reform strategy,” according to S&P. The ratings company may consider an upgrade “if the government continues to push through with structural measures to improve competitiveness and potential growth, while building a sustained track record of fiscal prudence as external pressures diminish.”
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