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Oct 16, 2007 13:02 EEST
October 16 (SeeNews) - Fitch Ratings said on Tuesday it has affirmed the long-term foreign and local currency rating of the Romanian capital Bucharest at 'BBB-' and its short-term rating at 'F3' with a stable outlook.
“Bucharest's ratings reflect its sound operating performance, helped by a local economy that is dynamic and wealthy on a national basis, financial support and control from the central government due to the city's national importance,” Fitch said in a statement.
The ratings also consider Romania's still developing institutional framework, which translates into, among others things, limited budgetary flexibility for Romanian cities and exposure to refinancing and foreign-currency risks, the agency said.
The stable utlook reflects Fitch's expectations that revenue growth, underpinned by the local economy, will support the city's operating performance in the medium-term and counterbalance increasing debt burden.
While Bucharest's highly centralised budgetary system ensures adequate support and control of the city's financial position given the importance of Bucharest within the national backdrop, this system strongly limits the city's budgetary flexibility.
Indeed, the State controls the tax base, the rates and collection of the city's main revenue sources, as well as important expenditure drivers such as staff salaries. In addition, high investment needs and the administration's strong commitment to improve local infrastructure further limit the city's expenditure flexibility, Fitch said.
The city’s debt is fast increasing and reached about 2.2 billion lei ($935 million/658 million euro) at the end of last year, equivalent to 110% of current revenue, up from eight percent in 2002. New projects on waste management, schools and urban regeneration will require further debt drawdowns in 2007-2010, raising debt to about 2.5 billion lei by end-2010.
However, debt and debt service coverage ratios should remain sound in the coming years supported by continuing sound operating performance. Un-hedged foreign-currency exposure, as well as the bullet repayment of the 500 million euro ($710 million) bond launched in 2005, maturing in 2015, will leave the city with currency fluctuations and re-financing risks, the rating agency said.
(1 euro = 3.341 Romanian lei)
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