BBB-


Looks like Romania’s economy is still not doing very well, primarily due to government mismanagement. From here:

The issue ratings on Romania’s senior unsecured foreign and local currency bonds have been affirmed at ‘BBB-‘and ‘BBB’, respectively. The Country Ceiling has been affirmed at ‘BBB+’ and the Short-term foreign currency IDR at ‘F3’.

The ratings from Fitch are explained here. Essentially, AAA is the best, then AA, then A, followed by BBB. The “F3” refers to short-term credit quality and is defined as “The intrinsic capacity for timely payment of financial commitments is adequate” as opposed to “good”.

But here’s the kicker (again, from Fitch credit rating agency):

However, for 2016, Fitch is concerned that the pro-cyclical nature of the new Fiscal Code risks medium-term fiscal sustainability. Fitch estimates that total tax cuts (including the 4pp cut in the standard rate of VAT to 20%) will decrease government revenues by 2.0% of GDP in 2016. This places strain on the structural fiscal deficit which the Romanian Ministry of Finance forecasts will widen to 2.7% of GDP in 2016 from 0.7% of GDP in 2015, and to 2.9% of GDP in 2017. This is based on ESA 2010 headline deficits of 3.0% and 2.9% of GDP in 2016 and 2017, respectively. Fiscal risks lie predominately on the downside. The introduction of the Fiscal Code coincides with Romania’s electoral calendar, with parliamentary elections expected in late 2016. As a result, some upward pressure on public expenditure appears probable and there is a chance that Romania would no longer be compliant with the preventive arm of the European Commission’s Stability and Growth Pact.

Translated into English, this means that “things look okay now but when parliamentary elections are held in 2016 it’s likely that politicians will put the government further in debt (in order to win votes), which will trigger punishment from the EU” and thus, of course, reduce the credit worthiness of Romania’s bonds, which will make the leu weaker and have other fun side effects.

Oh well, maybe next year! :)

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