Fitch affirms Bucharest’s ratings at 'BBB-' with stable outlook

Fitch Ratings has affirmed Bucharest’s long-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'BBB-' with stable outlooks and the short-term foreign-currency IDR at 'F3'.

The ratings agency said that the capital’s IDRs are capped by the Romanian sovereign's IDRs. Bucharest’s Standalone Credit Profile (SCP) “is assessed at 'bbb+', which reflects a combination of 'Low Midrange' risk profile and strong debt metrics leading to a 'aa' debt sustainability assessment. The SCP also factors in peer comparison. The IDRs are not affected by any asymmetric risk or extraordinary support from the federal government.”

Unemployment is very low in Bucharest (1.4% at end-2018), according to Fitch, and the city is attractive for working purposes. Moreover, in contrast to the overall Romanian trend, its population is increasing, driven by a positive migration balance.

“The city's economic profile is driven by the service sector, ensuring local wealth well above the Romanian average. Its GDP per capita is more than four times higher than the national average,” Fitch said.

The Romanian capital has stable revenue sources, with revenue growth prospects in line with national GDP growth. Based on its capital status, Bucharest is less dependent on central government transfers, largely stemming from redistributed VAT, and transfers accounts for a low share of the city's revenue, the agency also said.

“Bucharest's ratings are constrained by the sovereign ratings. Consequently, an upgrade of Romania's ratings would lead to corresponding rating action on Bucharest, as long as the city remains in line with our rating case assumptions. The ratings could be downgraded if Bucharest's debt payback ratio deteriorates above nine years according to Fitch's rating case. A downgrade of Romania's ratings would lead to rating action on Bucharest,” the Fitch press release reads.

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