Fitch assesses Bucharest municipality's risk profile above that of Romania

International rating agency Fitch announced that it assesses the Standalone Credit Profile (SCP) of Bucharest municipality at 'a', reflecting a combination of 'Midrange' risk profile and 'aa' debt sustainability.

The city's IDRs are capped by the Romanian sovereign (BBB-/Stable) at BBB-, the rating agency says.

Bucharest mayor Nicusor Dan saluted the rating agency's evaluation, highlighting the four-notch differential between Bucharest's SCP and the sovereign rating.

"This confirms the efforts we made to stabilize financially the municipality. I want to remind you that I started [my term] with a current debt of RON 3 billion (EUR 1.5 billion). Fitch also notes the adjustment of expenses in line with the revenues and the ambitious investment plan. This means that we are taking the money exactly where it needs to go," the general mayor said on Facebook.

Fitch says it sees a moderately low risk relative to international peers that Bucharest's ability to cover debt service with its operating balance may weaken unexpectedly over 2024-2028.

Bucharest's total expenditure growth (adjusted for inflation) has generally been in line with real GDP growth, the rating agency argues. The city tends to proceed with investments only when non-reimbursable funding from the EU and state budgets is assured.

In 2023, Bucharest reported a record operating balance of RON 1.3 billion, twice the RON 662 million in 2022. This was supported by growing tax revenue on economic growth and opex restraint. Its budget surplus was RON 259 million, despite high capex. Fitch expects capex to remain at 15% of total expenditure on average to 2027.

"We believe Bucharest has much more flexibility than other rated municipalities in Romania to cut spending in response to shrinking revenue. Balanced-budget rules, under which local governments' budgets are monitored by the central government and are not allowed to run deficits, further support our assessment," the rating agency's report reads.

(Photo source: Erik Lattwein/Dreamstime.com)