Friday, May 2, 2008

Romania's large external deficit poses risks to macroeconomic stability

MUMBAI (Thomson Financial) - Moody's Investors Service said Romania's large external deficit poses some risks to macroeconomic stability, with the current global financial turmoil having increased the possibility of an external shock causing economic dislocation over the next 12 to 18 months.

Romania currently has an 'A1' foreign currency ceiling and 'Baa3' government bond ratings, with a stable outlook. The government and banking system could withstand a moderate economic shock at the current rating level, the ratings agency said.

The ratings continue to reflect the country's significant economic and institutional improvements over the past decade and are anchored by the progress made in implementing structural economic reforms leading up to its EU entry in January 2007, as well as the low government debt burden and ample external liquidity.

However, the government's ratings also reflect a number of ongoing transition-related challenges, particularly rapid credit growth, the large current account deficit and rising external debt, the rating agency added.

Moody's noted the overall level of economic development is still modest compared to that of Western European countries, and added it will take several decades for the gap to be closed.

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