Moody’s predicts a fiscal deficit of 5.7% of GDP in 2024, only marginally improved from 2023, and a current account deficit of 6.6% of GDP, down slightly from 7% in 2023.
“The European Commission will conclude, probably this spring, that Romania has not met its fiscal targets under the excessive deficit procedure, but Moody’s expects the government not to announce additional consolidation measures until after the parliamentary elections in the second half of the year 2024”, states the report quoted by Ziarul Financiar.
The Baa3 rating granted by Moody’s Romania reflects the strong growth potential of the economy, supported by important funds from the European Union and foreign direct investments (FDI).
In the opinion of the rating agency, the high economic strength of the local market is counterbalanced by weaker public institutions, as well as high fiscal and current account deficits, although the latter is mainly financed from stable sources. Romania’s government debt is stronger than other countries with the same rating, but will gradually deteriorate in the coming years due to high fiscal deficits and rising interest payments.
The “a3” rating for Romania’s economic solidity reflects the strong medium-term growth potential of the country, as well as the size and moderate level of budget revenues.
The “baa3” score for the soundness of institutions and governance balances the relatively weak quality of institutions with moderate scores for the effectiveness of fiscal, monetary and macroeconomic policy.
The “a3” score for fiscal solidity balances the country’s still moderate debt burden and favorable debt affordability indicators with the relatively high level of public debt denominated in foreign currency.
The score for Romania’s susceptibility to the risk of events is “ba”, determined by the political risk generated by the war between Russia and Ukraine (Ca stable), with which Romania shares a common border, as well as by the increased tensions in the Republic of Moldova (B3 stable).
“The stable perspective balances the strength of the Romanian economy with the ongoing difficulties of the Government to sustainably and significantly reduce the high fiscal and current account deficits. Although these do not present imminent risks for Romania’s credit profile, the twin deficits still represent a source of vulnerability for the sovereign’s solvency”, the report states.
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