S&P maintains Romania’s rating at BBB- / The country avoids being downgraded to junk status, but remains under a negative outlook

Standard & Poor’s agency decided on Friday, October 2, to maintain Romania’s sovereign rating at BBB-, the last notch of the investment-grade category, thus avoiding a downgrade to the “junk” category. The decision gives the authorities some breathing room, but does not eliminate the risks to the economy, as the outlook remains negative.

The assessment was carried out in a context marked by a political crisis, pressure on public finances, high financing costs, and the depreciation of the leu. The consolidated budget deficit fell to 2.89% of GDP in the first eight months of the year, compared with 4.51% during the same period of the previous year, but public debt and interest expenses continue to represent significant vulnerabilities.

On October 2, the euro reached a new all-time high of 5.3447 lei, while the NBR’s foreign exchange reserves fell to 60.060 billion euros at the end of September. Fitch and Moody’s also maintained Romania in the investment-grade category, but with negative outlooks.

In the period ahead, the agencies’ decisions will depend on the reduction of the deficit, debt developments, political stability, and the implementation of the fiscal measures undertaken. A downgrade could increase financing costs and affect banks, which have an estimated exposure of approximately 45 billion euros to public debt.