On November 3, 2023, Moody’s rating agency reaffirmed Romania’s sovereign debt rating at Baa3 for long-term debt and P-3 for short-term debt, with a stable outlook.
The confirmation of the ratings reflects, in the opinion of the agency, reliable medium-term growth prospects for Romania, supported by funds allocated by the European Union and flows of foreign direct investment
The rating agency warned that the government’s “continued difficulties to sustainably and significantly reduce Romania’s high budget deficit and current account deficit” are a potential source of vulnerability.
Although Moody’s expects economic growth to slow to 2.0% this year after two years of very strong growth in 2021 and 2022, as inflation dampens consumption and the eurozone’s economic recession hurts external demand, Romania’s long-term growth forecast remains strong. Moody’s expects growth to return to 3.2% in 2024 and 3.5% in 2025.
Moody’s also expects the trend of rapid labor productivity growth to continue as Romania recovers from lagging behind more advanced European economies.
Moody’s expects Romania’s public debt burden to reach 48.2% of GDP by the end of 2023.
The government announced a package of measures, according to which the budget deficit could gradually decrease to 5.3% in 2024 and to 4.4% in 2025.
The still high deficit, together with a slowdown in nominal GDP growth due to a slowdown in inflation in the coming years, means that the debt-to-GDP ratio will gradually increase to reach 50.0% at the end of 2024 and 51.7% at the end of 2024. year. from 2025.
Romania’s ratings remain limited by weaknesses in the quality and effectiveness of its institutions. In 2022, Romania left the EU Cooperation and Verification Mechanism. However, our assessment of the quality of the judiciary and civil society in Romania remains lower than in other countries.
The government’s difficulties in reducing the fiscal deficit in line with EU requirements also indicate that the effectiveness of fiscal policy remains an issue.
Romania’s exposure to geopolitical risk also remains a form of pressure on the rating. Although Romania has weathered the initial shock of the Russian invasion of Ukraine well, geopolitical risks will remain high as long as the war in Ukraine continues.
Source: Hot News
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.