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Sep 02, 2009 10:59 EEST
September 2 (SeeNews) - The current deep recession of the Romanian economy will last into 2010 as the country is unlikely to return to its recent lofty growth rates in the near term, but the long-term prospects remain good, Moody's Investors Service said in its annual sovereign credit report on Romania on Wednesday.
Moody’s issued the following statement:
"In a newly-published sovereign credit analysis, Moody's Investors Service says that Romania's Baa3 government bond ratings are supported by the country's moderate levels of economic and institutional strength and its EU membership. Also important to the ratings are Romania's proven access to financing from the IMF and the EU, as well as the commitment of the foreign banks operating in the country to maintain funding for their subsidiaries and branches there. The ratings carry a stable outlook.
"Romania is currently in a deep recession that is expected to last into 2010," said Kenneth Orchard, a Vice President-Senior Analyst in Moody's Sovereign Risk Group. "Having entered the global economic crisis in a somewhat precarious financial position, the government was forced to agree a stabilisation plan with the IMF and the EU in March 2009."
Orchard noted that although the plan has not prevented a sharp drop in output or a serious worsening of the government's debt metrics, it has significantly reduced the country's external financing requirements and the risk of a balance of payments crisis.
"Moody's affirmed its Baa3 government bond ratings for Romania in March 2009, shortly before the IMF/EU programme was announced," said Orchard. "The availability of official foreign financing has helped to stabilise the country's economy and ease re-financing pressure."
He pointed out that the programme was accompanied by an important letter from all the major foreign banks operating in the country, affirming their long-term commitment and pledging support to their Romanian subsidiaries. This commitment was re-affirmed again in August.
"However, the rating also takes into account the country's moderate susceptibility to event risk," says Orchard. "Moody's is not seriously concerned about the ongoing political noise in Romania, but there are still inherent risks in the deterioration in economic activity and asset quality in the banking system."
Although Moody's believes that Romania's economy is unlikely to return to its recent lofty growth rates in the near term, the long-term prospects remain good.
"The primary reason that we anticipate higher growth is that Romania is significantly poorer than most EU countries, which means it has considerable potential for upward convergence," explains Orchard. "The combination of a reasonable business environment, EU membership, and improving physical and social infrastructure -- bolstered by EU funds -- should sustain superior investment rates over time, allowing a gradual rise in real income towards the EU average."
The issuance of this credit report by Moody's Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer."
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