THE DIPLOMAT > Reports > Local credit risks ease
Vol. 2 No.2  

Local credit risks ease

     Romania has overtaken Bulgaria in the risk management stakes for the first time, according to credit risk management group Coface, though it still lags behind Slovakia and Poland.
     Romania has an A4 rating, up from the B+ rating in June 2005. This means businesses in the country have an “average” level of risk when undertaking monetary transactions in the short-term.
     Andreea Vass, a counsellor at Romania’s Presidential Administration,
said this is a good sign of an increase in the nation’s credibility abroad.
     “However, Romania is far from being one of the world’s most competitive nations,” she added. “Risks still exist, mainly due to the increase of the trade deficit, the missing of the targeted inflation rate, the quality in public institutions, the high level of corruption and the slowness of the judicial system.”
     These figures reflect how a country’s economic, financial, and political outlook influence financial commitments of local companies, said Coface Romania managing director Cristian Ionescu.
     “However, those involved in international trade know that sound companies can operate in risky countries and unsound companies in less-risky countries and that overall risk will depend not only on a company’s qualities but also on those of the country in which it operates.”
     Coface said in central Europe companies coped without major difficulty with the slowdown in growth and the increase in oil prices in 2005.
     However companies could be hit hard by a potential currency crisis.
     Seven of the ten European Union members joining in 2004 have integrated the European Exchange Rate Mechanism and should be adopting the Euro between 2007 and 2009. Romania plans to join the single currency in 2012, according to its central bank.
     The outlook is less bright for the large countries in the zone: Poland, Czech Republic and Hungary. These three nations, which represent about 60 per cent of the regional GDP, are struggling to reduce their public deficit.
     Hungary also has a significant current account deficit and remains vulnerable to the risk of a turnaround in market confidence. Its listing dropped from A2 to A2 minus on last year.
     There is also a “significant risk” of sharp exchange rate depreciation in Hungary, said Coface.

Corina Mica

Continental shift: Country risk rating
December 2004 (Highest first)
Hungary A2
Poland A3
Bulgaria B+
Romania B
December 2005 (Highest first)
Hungary A2-
Poland A3
Romania A4
Bulgaria B+
Comparing ratings for Romania:
Fitch Ratings: (November 2005)
Country ceiling credit: BBB - (minus)
Standard & Poor’s (end 2005):
Sovereign local currency: BBB
Sovereign foreign currency: BBB
- (minus)