Scope Ratings GmbH (“Scope”) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations, performs a monitoring review.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. As part of the monitoring review, Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted either by performing a peer comparison, benchmarking against the rating change drivers, and/or a review of the credit ratings` performance over time, as deemed appropriate by the Lead Analyst or the Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology(ies), including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Romania (BBB-/Stable; S-2/Stable) on 19 October 2021.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action on the credit ratings of this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Romania’s BBB- ratings consider a number of credit strengths, including strong medium-run growth potential, EU membership with resulting access to significant EU structural and recovery fund inflows in the coming years, as well as Romania’s still-moderate levels of public debt.

Despite these credit strengths, significant challenges remain affecting Romania’s BBB- ratings. Firstly, a rigid budget structure and comparatively weak tax base significantly constrain the budgetary outlook and have resulted in structural budget deficits. Secondly, Romania observes elevated current-account deficits, which are the result in part of fiscal imbalance and of weaker competitiveness when compared with other regional trading partners. Lastly, Romania’s available reserves are limited in covering foreign-currency liabilities under more stressed economic scenarios, representing an ongoing balance of payment risk.

The Stable Outlook balances the risks from still-elevated budget and current account deficits against strong growth prospects and ongoing access to EU structural and recovery fund inflows.

The ratings/Outlooks could be downgraded if, individually or collectively: i) continued elevated budget deficits or a renewed reversal in current fiscal consolidation reforms is witnessed, resulting in substantive deterioration in medium-run debt sustainability beyond Scope’s present expectations; ii) the capacity to absorb EU investment funds is curtailed, undermining growth and public finance outlooks; and/or iii) a deterioration in market conditions including exchange rate depreciation and/or shrinking official reserves raise the likelihood of a balance-of-payments crisis.

Conversely, the ratings/Outlooks could be upgraded if, individually or collectively: i) the present adjustment of fiscal policies is sustained and strengthened further, resulting in a stabilisation in Romania’s debt trajectory through the cycle; ii) external sector risks are substantively curtailed, such as via a sustained reductions in net external debt, build-up of foreign-exchange reserves and/or tangible steps being taken in the longer-run adoption of the euro, requiring initial concrete steps in the meeting of Exchange Rate Mechanism II (ERM II) entrance criteria; and/or iii) Romania’s institutional weaknesses are redressed, political stability is enhanced more durably and/or the government’s capacity for reform were improved.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Senior Analyst

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