Tuesday, July 5, 2011

Romania’s Credit Rating Raised to Investment Grade by Fitch

By Irina Savu and Andra Timu

July 4 (Bloomberg) -- Romania had its credit rating raised to investment grade by Fitch Ratings for the first time in almost three years after the government sought to cut the budget deficit and the economy exited a two-year recession.

The country’s sovereign rating was raised one step to BBB-, the lowest investment grade, with a stable outlook, Fitch said today in a statement from London. Moody’s Investors Service also gives Romania comparable Baa3, while Standard & Poor’s rates the country’s debt BB+, its highest speculative grade.

“The upgrade reflects Romania’s progress in recovering from the effects of the financial crisis,” including a return to economic growth, narrowing the current-account deficit and reducing the budget deficit, said Ed Parker, a director in Fitch’s emerging-market sovereign group. “There’s been a material easing in Romania’s downside risks.”

Romania’s gross domestic product rose 1.7 percent in the first quarter from a year earlier, ending a two-year contraction, as demand for exports increased. The country, which has received two international bailouts since 2009, plans to trim its budget deficit to less than 3 percent of GDP in 2012 from 6.5 percent in 2010 and may borrow on global markets later this year.

The leu rose 1.1 percent to 4.1970 per euro in Bucharest today, the best performer among 25 emerging-market currencies tracked by Bloomberg. Romania’s benchmark BET stock index rose 0.8 percent to 5532.18, as utilities Transgaz SA and Transelectrica SA advanced.

Sentiment Boost

“It will help improve sentiment toward Romania, which has underperformed the countries in the region,” said Gyula Toth, an emerging-market strategist at Unicredit SpA in Vienna. “I think that after this decision, Romania will catch up, the leu will appreciate and financing costs will drop.”

Fitch’s decision comes after Standard & Poor’s maintained Hungary’s credit grade at the lowest investment level on March 24. S&P raised Serbia’s sovereign rating for the first time in five years that month, while Fitch upgraded Latvia to investment grade from junk status.

The move is an “acknowledgment of the country’s improved fundamentals,” central bank Deputy Governor Cristian Popa said in a phone interview. While there are reasons for the leu to strengthen, the currency may suffer if the Greek debt crisis worsens, he added.

Moderate Leu Appreciation

“That’s why I don’t see a clear trend for the leu for the moment,” Popa said. “In the medium to long term, the trend is clearly toward appreciation. We hope it will be moderate.”

After cutting public wages and increasing value-added tax by 5 percentage points, Romania is on track to meet its budget deficit target of 4.4 percent this year, as agreed with the International Monetary Fund and the European Union, Fitch said. It will need to take “further policy measures” to narrow the deficit meet the 2012 target, the ratings company added.

“The rating upgrade will mean lower financing costs for the Finance Ministry and also for the banks operating in the country,” Deputy Finance Minister Bogdan Dragoi said by phone. “The decision shows increased Romanian credibility for foreign investors, and I hope it will make it easier to attract foreign direct investment.”

--Editors: Willy Morris, Andrew Langley

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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