Moody’s: Romania Needs Structural Reforms, Performing State Companies

05.03.2011 By Florentina Dragu

Romania's government must pursue structural reforms and improve state enterprise performance while maintaining the fiscal prudence that it embraced after the global crisis to fully-benefit from its economic ties with the European Union, Moody’s Investors Service said in a recent report.

Romania's government must pursue structural reforms and improve state enterprise performance while maintaining the fiscal prudence that it embraced after the global crisis to fully-benefit from its economic ties with the European Union, Moody's Investors Service said in a recent report.

Moody's has Romania rated at Baa3, with stable outlook.

The agency noted Romania's outlook is likely to rise on evidence that recent budgetary measures are leading to a significant narrowing of the fiscal deficit and that fiscal prudence can be sustained over the medium term.

Measures that would put upward pressure on the outlook include a better absorption of EU funds, improved performance of public enterprises, as well as norms that would rationalize healthcare costs, Moody's said.

On the other hand, "a reversal of the fiscal consolidation program combined with stasis in structural reform would worsen credit metrics to levels that may eventually be inconsistent with Romania's current Baa3 rating," said Atsi Sheth, VP-Senior Analyst at Moody's.

The ratings agency noted economic recovery in Romania remains sluggish, but the conditions attached to funding from the International Monetary Fund and EU may push economic policy in a direction that is positive for Romania's growth and credit profile.

However, political developments could limit structural reforms.

"The government faced parliamentary opposition to labor market reform earlier this year. Austerity fatigue and the already fractious political system could hamper the introduction of further changes to the fiscal framework, such as a broadening of the tax base, a reduction in healthcare costs and increased efficiency in public enterprises," Sheth said.