Reaction of Fitch financial rating agency has drawn the attention once again, by downgrading country ratings has highlighted the alarming context of the financial crisis by downgrading country rating, combined with MP elections. Analysts of rating agencies Fitch, Moody’s and Coface, surveyed by Wall-Street described the background of the most recent reviews and their aftereffects on Romanian economic climate.

Romania, removed from investment grade category

Fitch rating agency announced yesterday the removal from investment grade category by cutting two notches the long term foreign currency issuer default rating from ‘BBB’ to ‘BB+’ and the long-term local currency issuer default rating from ‘BBB+’ to ‘BBB-‘.

Romania’s country ceiling was downgraded from ‘A-‘ to ‘BBB’.

The two-notch downgrade of Romania followed a review of 17 emerging market economies in terms of investment grade.

“The review assessed these countries' exposure to risks arising from Fitch's expectation that 2009 will be the worst year for the world's big economies since the Second World War. The assessment was influenced by Fitch's judgment of the quality and coherence of the policy response from the authorities”, said Andrew Colquhoun, Emerging Europe Sovereigns with Fitch Ratings.

He stressed that is very probable that a weaker global economy to affect commodity prices, and the international capital markets.

In Fitch’s analysis, the high current account deficit and high external debt have exposed Romanian economy to these risks which have led to a rating downgrade. Furthermore, the policy response of the authorities has been weakened by a fiscal loosening, before the elections.

According to Fitch, in the current conditions, Romania will hit a currency and financial crisis, given the fixed liabilities of Romania’s public sector which will be associated with a wider economic crisis, which in turn, will dent sovereign’s finances.

“The NBR's attempts to prevent excessive RON volatility, in my view, reflect its understanding of the risks from a sharp depreciation of the RON. My concern is that the NBR's ammunition - its official reserves - may not be adequate to see off the downwards pressure on the RON given the tougher outlook for capital inflows and the additional pressure on the current account deficit from fiscal loosening,” Fitch representative added.

Additionally, Fitch downgraded ratings for BCR, BRD-Groupe Societe Generale, Bancpost, UniCredit Tiriac Bank and Banca Romaneasca, following the rating action taken on Romania and affirmed rating for Banca Transilvania.

Financial credit rating agency, Standard & Poor’s (S&P) downgraded late October, Romania’s long-term foreign currency issuer default rating to ‘BB+’ and for short term foreign currency credits to ‘B’, with negative outlook indicating that the country is exposed to major risks.

S&P said the country is highly dependent to the private sector and to the external funding in the context of current uncertainties, the lack of response policies of authorities to temper down the effects triggered by the international financial crisis and focus on this month elections.

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