S&P downgrades Romania's outlook from stable to negative due to deficit increase

Standard & Poor's (S&P) has downgraded the outlook for Romania's rating from stable to negative due to rising deficits, local media reported Wednesday, citing the latest statement released by the rating agency, reports Xinhua.

The agency affirmed the eastern European country's long-term and short-term foreign currency debt rating at "BBB" and that of local currency debt at "A-3".

The constraints on ratings include low economic prosperity, relatively poor administrative capacity, unpredictable economic environment, and only medium-level monetary flexibility compared to other countries with similar ratings, official Agerpres news agency cited S&P as reporting.

"The worsening of the rating outlook reflects the risks to Romania's economic and fiscal stability if the authorities fail to stabilize and consolidate the budgetary strategy, including following plans to implement new pension increases next year," said S&P.

S&P warned at the same time that it could revise the country's ratings downwards again in the next 24 months, if the fiscal and external imbalances continue to deepen and persist longer than the agency currently estimates.

On the other hand, S&P informed that Romania's rating outlook could be improved to stable if it is observed that the executive is making progress in anchoring fiscal consolidation, which will lead to a stabilization of Romania's public finances and external position.

The growth of the Romanian economy would stand below 4 percent this year, before dropping in 2020-2021, following the slowdown in external demand, said the rating agency, which does not expect a significant fiscal consolidation before the general elections late 2020.

In the medium term, S&P forecasts a growth of almost 3 percent of Romania's GDP by 2022; while in the long run, the growth outlook continues to depend on the skilled workforce migration and demographic change, said the agency, warning that there seems to be a lack of structural reforms meant to solve these issues.

In addition, the high wage growth in recent years has not been accompanied by comparable increases in productivity, which has partially eroded the competitiveness of Romania's exports, S&P explained.