Moody’s boosts Romania

BUCHAREST (Reuters) – Moody’s Investors Service has upgraded Romania’s ratings to investment grade, becoming the last major rating agency to bring the Black Sea former Soviet satellite into the top category. Moody’s said continuing improvement in Romania’s economic institutions, structural reforms and a falling debt burden warranted the move, while Romania’s accession to the European Union next year ensured further benefits. Romania’s EU membership should give the poor country an economic impetus, and tough entry conditions imposed by the European Commission last month are likely to keep up pressure on the government to continue reforms, Moody’s said. But the agency also warned that Romania, which joins the wealthy bloc together with its southern neighbor Bulgaria, may struggle to maintain competitiveness within the bloc. «Romania’s progress in most relevant areas has reduced credit risk to the point where the country can now be considered an investment-grade credit,» Moody’s analyst Kenneth Orchard said. «Although competitiveness does not appear to be a problem at present, maintaining strong productivity growth will be essential to prevent an unsustainable rise in the real exchange rate and ever greater strains on the trade balance,» Moody’s added in a statement. Romania and Bulgaria face similar issues as their economies power ahead on the back of heavy foreign investment, which hopes to capitalize on cheap labor and growth prospects. But heavy consumption is bloating current account deficits and inefficient public administration coupled with widespread fraud blunt the impact of economic reforms, analysts say. Moody’s also backed many commentators in saying Romania is struggling to conduct efficient fiscal policy, boosting consumption through state spending while still failing to meet expenditure targets. It said the budget balance was «reasonable.» The agency also welcomed Romania’s efforts to contain inflation, which have brought price growth to 6 percent from 40 percent five years ago. «Improvements in the conduct of monetary policy, particularly the introduction of an inflation targeting framework, have increased macroeconomic stability,» Moody’s said. Market watchers said the move was widely expected, but it helped to bring the leu currency to its highest level against the euro in more than two weeks.