Fitch, Too, Downgrades Romania\"s Rating

Two weeks after Standard & Poor\"s, Fitch, too, reduced Romania\"s rating, by two notches for long-term forex-denominated loans (from BBB to BB+) and for long-term RON-denominated loans (from BBB to BBB-). Similar to Standard & Poor\"s, Fitch has removed Romania from the \"investment grade\" category. Fitch\"s decision was influenced by the quality and coherence of governmental policies, according to Fitch analyst Andrew Colquhoun, who stressed that, in line with the current trend, Romania could face a financial and forex crisis because of the substantial debts of the private sector. Ionut Dumitru, the Chief Economist of Raiffeisen Bank, believes that the recent rating downgraded by Standard & Poors and by Fitch is undeserved and unwarranted. \"It is an unprecedented decision for a UE member. This decision ignores at least three essential arguments in favour of maintaining the investment grade for Romania: the affiliation to the European Union, which is a very strong anchor, the very low public debt and the very high economic growth potential on long term,\" said Dumitru. He believes that Fitch\"s explanation is very succinct and more or less \"besides the point,\" despite the fact that a downgrade by two notches and a negative outlook deserve more details. \"There is a hint that the crisis may impact the economy, which is the same message we got from S&P, but the country rating is supposed to reflect the State\"s payment capacity. Romania\"s public debt is very low, by any standard. Moreover, the foreign vulnerability indicators are better than those of many countries in the region, but they have a better rating,\" Dumitru stressed. BCR Chief Economist Lucian Anghel shares this opinion. He stressed that, in September, Fitch had forecast a current account deficit of 17% of the GDP for this year, and now the forecast was changed to over 14% of the GDP. Both Anghel and Dumitru share the opinion that the foreign deficit is being corrected and should go below 14% of the GDP. However, neither Fitch nor S&P took this matter into account. Paradoxically, Romania is rated below countries which have recently taken foreign aid. \"We are being punished because we do not need foreign help,\" Anghel said. Despite the inconsistencies found in the rationale of Fitch and S&P, the fact remains that the fiscal policy relaxation is a risk and the Government should take steps in this respect, Anghel said. Moody\"s analyst Kenneth Orchard said this agency had decided to maintain a stable outlook on the rating, despite Romania\"s difficulties. Moody\"s reviews the rating during the economic cycle and avoids to amplify volatility by lowering the rating only to increase it back after one year. He believes that Romania will not default because the debt level is quite low, but the Government will have to take difficult measures to restructure the fiscal policy in order to ensure sustainability. Orchard points out that Romania could need foreign financing from the International Monetary Fund, the EU or the Central European Bank, the same as Hungary, in order to help the banking sector, but that does not mean that Romania is no longer in the \"investment grade\" group. \"The Romanian Government\"s rating is already very low -Baa3, considering that this is a member of the EU and the governmental debt is low,\" Orchard said, estimating that, in two or three years, after the financial crisis, the debt would be much more substantial, the banking sector would be scarred by the crisis and the economic growth rate would be lower than now. Nevertheless, Romania will remain attractive for long-term foreign investments.