Correction: Romania's Economic Policy Deterioration May Lead To Possible Rating Downgrade: Fitch

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Fitch Ratings on Thursday in a report said that following the collapse of Romania's coalition government, a significant deterioration in the credibility of the economic policy making could lead to a possible downgrade of the country's sovereign ratings. Currently, Romania's long-term foreign currency Issuer Default Rating (IDR) is 'BB+' and the long-term local currency IDR is 'BBB-', both with negative outlooks.

"The key sovereign rating implication will be the impact, if any, on the Romanian authorities' ability to stick to their policy commitments under the IMF-backed adjustment program, including reining in the budget deficit," said Andrew Colquhoun, Director in Fitch's Sovereigns Group. "Failure of the IMF program would intensify downwards pressure on the ratings", he added.

On September 21, the IMF disbursed a further USD2.7 billion to Romania under the Stand-By Arrangement, bringing the total disbursements at present to USD9.7 billion from a program total of USD18.2 billion.

The IMF widened the country's deficit target for 2009 to 7.3% from 4.6%, recognizing the deterioration in growth prospects for the global and Romanian economies. "Signs of recovery in the global economy may leave the IMF less inclined to tolerate any further fiscal easing in the next review, scheduled for mid-December", the rating agency said.

Fitch meanwhile, in its latest global forecast cut Romania's growth forecast to show a contraction of 7.5% compared to its estimate of a 5.5% drop. Fitch also projects the fiscal deficit at 7% of GDP, leaving little room for maneuver below the deficit of 7.3% ceiling agreed with the IMF, it added.

(Market News Provided by RTTNews)