Romania must do more

BUCHAREST (Reuters) – Romania’s economic policy has improved in recent months but a near-term ratings upgrade will depend on further evidence it is able to resist economic shocks, a senior Moody’s Investors Service official said on Wednesday. Moody’s, the last major ratings agency to withhold an investment grade rating for Romania, raised the EU candidate’s foreign currency debt rating from «Ba3» to «Ba1,» one notch below, and placed it on a positive outlook. Pierre Cailleteau, senior vice president at Moody’s, told Reuters in an interview that a rating review was likely in the near future but he was not yet convinced the economy was strong enough to withstand a downturn without a crash-landing. «We are monitoring the situation quite closely and we see a number of positive factors. There is a pretty solid chance we may review the rating in the near future,» Cailleteau said on the sidelines of a financial conference in Bucharest. «I want to have some evidence that Romania is not again in this disruptive boom and bust mood… that there is a structural strength compared with the past,» he said. Cailleteau said limited budget revenues, due to last year’s introduction of a flat 16 percent tax and problems with collection rates, were a source of concern, diminishing the government’s flexibility to withstand economic shocks. «The level of tax revenues (compared) to gross domestic product is very low by EU standards which… is going to be an impediment for the government to absorb a shock in the business cycle. This is a key issue for us,» he said. Credibility Cailleteau said the central bank’s inflation-fighting credentials have improved, despite some remaining criticism from analysts that the bank continues to be overly concerned with currency strength at the expense of curbing price growth. «A positive factor is that the central bank now seems to be clear in terms of its anti-inflationary mandate, though it was a bit noisy at the beginning. They are also vigilant regarding credit growth,» he said. The central bank (BNR) started to target inflation last August but kept managing the leu currency, using massive interventions and a loose policy to curb its rise. The bank has pledged to tighten monetary screws in recent months. The BNR hiked its key rate by 100 basis points to 8.5 percent in February, but has stayed put since then despite a recent upward revision to its December inflation forecast, which put the annual price growth further above its target of 4-6 percent.

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