By Jerom Bolt
Standard & Poor’s has reconfirmed Romania’s sovereign debt rating at BBB- / A-3 for long-term and short-term local and foreign currency debt, as well as a stable outlook, the finance ministry said in a statement.
According to S&P, Romania’s rating is supported by European Union membership and robust access to finance on international capital markets. Also, the risks generated by the conflict in Ukraine are mitigated by the prospect of absorbing a significant volume of European funds (Romania being one of the main beneficiaries of the structural funds provided in the EU Multiannual Framework and the Recovery and Resilience Facility) and energy dependence. compared to natural gas and oil in Russia.
Standard & Poor’s claims that the record of sustainable economic growth combined with the reduction of the government’s fiscal deficit could lead to the consolidation of the productive capacity of the Romanian economy and, consequently, to a possible action to improve Romania’s sovereign rating.
Standard & Poor’s comes a week after another major rating agency, Fitch Ratings, also confirmed Romania’s sovereign rating at “BBB minus” with a negative outlook, the latest being an investment-grade rating. “.
The agency has halved its growth forecast for Romania this year to 2.1%.
At the same time, S&P significantly increased its estimates on the average annual inflation rate in Romania, which in 2022 would be one of 9%, compared to one of 6% as estimated in December 2021, due to higher prices to food and fuel, both components being exacerbated by the conflict in Ukraine.
According to S&P analysts, the main effects of the war in Ukraine on the Romanian economy will be in the form of weaker economic growth in the euro area, Romania’s main trading partner, rising food, fuel and energy prices, declining business and consumer confidence. of private investment.
“As a result, we have reduced our real GDP growth forecast for Romania to 2.1% in 2022, based on the expected slowdown in exports, investment and consumption. We estimate that Romania’s growth rate will rise to 4.5% in 2023 and will remain above 4% in 2024-2025 amid strong demand and investment from the private sector. The recovery of the Romanian economy in 2023-24 will depend on its ability to absorb and make effective use of the significant funding available under Recovery & Resilience Facility “, reads Standard & Poor’s.
In terms of the government deficit, Standard & Poor’s forecast for 2022 is 6% of GDP. S&P projections incorporate many fiscal pressures such as increased spending on hosting Ukrainian refugees and increased defense spending to about 2.5% of GDP in the coming years. To these are added the increase of the minimum wage by 10%, along with the capping of electricity and natural gas prices for households as well as support schemes for large consumers. According to S&P, this short-term shock will delay the fiscal consolidation process until 2023, with the condition being to stabilize the conflict in Ukraine by the end of 2022.
“Despite spending and revenue efforts, such as reducing the EU’s largest VAT collection deficit, we expect new spending proposals before the 2024 election year to reach the 3% of GDP deficit target. only in 2025, “says Standard & Poor’s.
By Jerom Bolt