Fitch upgrades Romania
BUCHAREST – Fitch ratings yesterday upgraded Romania by two notches to investment grade, taking analysts by surprise but delighting the ruling ex-communist party ahead of a cliffhanger election on November 28. «The upgrade is supported by Romania’s prudent fiscal policy, advances on key structural reforms and good prospects on European Union accession,» the international rating agency said in a statement. The government of Social Democrats (PSD) welcomed the news as a vote of confidence for its policies just days before facing a tough challenge from a centrist opposition alliance, with opinion polls showing the two running neck-and-neck. «This acknowledges that Romania is considered a nearly risk-free country, compared with 1999 when it was on the brink of financial collapse,» Finance Minister Mihai Tanasescu told Reuters. Fitch now rates Romania’s long-term foreign currency and local currency sovereign ratings as BBB- and BBB respectively, from BB and BB+. Its fellow ratings agencies, Moody’s Investors Service and Standard & Poor’s, both rate the country below investment grade. Fitch said it expects Romania will tighten the budget gap, cut inflation and crack down on debtors, honoring pledges made under a precautionary standby accord with the IMF which runs until 2006, and that it would join the EU in 2007. «This is unlikely to be disrupted by the parliamentary and presidential elections scheduled for late November 2004,» it said. «Fitch does not envisage any major problems to emerge.» Romania, which along with southern neighbor Bulgaria was left out of the wave of EU expansion in May when 10 mostly ex-communist countries joined, still has to close three areas of negotiation with the EU while Bulgaria has already finished talks. Also yesterday, Moody’s Investors Service upgraded Bulgaria’s credit ratings, raising the country ceiling for foreign currency bonds to Ba1, one notch below investment grade, from Ba2. But the move came as little surprise as it followed a Moody’s visit to Sofia, and because both Fitch and S&P already rate Bulgaria as investment grade. «This is not a surprise to us,» said Ivailo Vesselinov, emerging markets analyst at Dresdner Kleinwort Wasserstein in London. «Moody’s visited a couple of months back and put the ratings on review for a possible upgrade and, given the differential with the other two agencies, this was expected.» Analysts surprised Analysts said they were, however, surprised by the Romania upgrade before the country wraps up entry talks and 11 days ahead of the elections. «We were expecting a one-notch upgrade, but this is a surprise,» Berna Bayazidoglu from Credit Suisse First Boston said. «Rating agencies upgraded Bulgaria only after its EU accession talks were completed.» The twin presidential and parliamentary elections will decide who will implement tough but necessary reforms and lead the Balkan country of 22 million into the EU. «We were expecting investment agencies to move just below investment grade and wait for the elections to see the new government’s fiscal plans before moving to investment grade,» said Simon-Quijano Evans, analyst at BACA, HVB Group in Vienna. Fitch said the current account deficit, seen at around 6 percent of gross domestic product this year, was expected to widen to around 6.5 percent between 2005-2006, but it was not «overly concerned at this stage.» It said 60 percent of the gap was covered by foreign direct investment, which was on the rise, and much of it was driven by technology imports rather than consumption. «Most key public debt sustainability indicators compare favorably with rating peers’ and should continue to improve over the next two to three years,» Fitch said. Central bank governor Mugur Isarescu said the move was encouraging Romania’s drive to free capital flows by its EU accession date. «We will proceed with maximum diligence to observe the calendar and even move earlier on some deadlines,» he said. Standard and Poor’s upgraded Romania in September to BB+ from BB, one notch below investment grade. Moody’s Investors Service rates the country Ba3. Romania scrapped plans to issue eurobonds this year after revising down its borrowing needs but said will tap international markets in 2005.
