Fitch Ratings confirmed on Friday Romania’s rating for long-term foreign and local currency debt at BBB-, with a stable outlook, but warned that fiscal loosening is risky for macroeconomic stability.
„Romania’s investment grade rating is supported by the moderate level of public debt, GDP per capita and governance indicators that are similar to other countries from the BBB rating category. However, pro-cyclical fiscal loosening is risky for the macroeconomic stability,” a release of the financial rating agency shows, quoted by News.ro.
Romania’s economy stagnated in the first quarter of 2018, quarter-on-quarter and the annual growth was 4.2% compared to 6.6% in the last quarter of 2017. The economic growth boosted by the rapid wage increases and tax cut started to slow down, in line with Fitch’s expectations. As a result, the agency maintained the economic growth estimate at 3.8% in 2018 and 3.3% in 2019.
Given the strong growth slowdown in the first quarter, worsening indicators regarding the confidence in the economy, the stricter monetary policy, and higher inflationary pressures, as well as the new external uncertainties, there is a risk of a „hard landing” slowdown.
Balancing the fiscal policy with the macroeconomic stability is likely to be difficult for the Government. The expansionist fiscal policy has weakened public finances. Although Romania maintained the budget deficit below the Maastricht Treaty threshold of 3% (2.9% in 2017), which is a strong anchor for the Government, it has obtained that due to the high economic growth and decreased investment. Fitch considers this is not sustainable and anticipates that Romania’s budget deficit will increase to 3.4% in 2018 and 3.6% in 2019.
The Government’s target is a budget deficit of 2.96% in 2018, based on a 5.5% economic growth.
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