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.

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. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or 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 (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB-/Stable; short-term local- and foreign-currency issuer ratings: S-2/Stable) on 20 September 2022.

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 connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

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

Despite these credit strengths, significant challenges remain affecting Romania’s 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, due, in part, to fiscal imbalance and weaker competitiveness compared to regional trading partners, as well as increased commodity-import bill in the current period. Lastly, Romania’s available reserves are moderate in covering foreign-currency liabilities under more stressed economic scenarios, representing a balance of payment risk.

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

The ratings/Outlook could be downgraded if, individually or collectively: i) continued elevated budget deficits or a renewed reversal in fiscal consolidation is witnessed, resulting in substantive deterioration in medium-run debt sustainability; 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/Outlook could be upgraded if, individually or collectively: i) the 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 Methodolgy, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Associate Director.

© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.