Fitch affirms Bucharest municipality ratings at BBB- with stable outlook

Fitch Ratings affirmed the Romanian City of Bucharest’s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) at ‘BBB-‘ with stable outlook, according to a release of this financial rating agency.

“The affirmation reflects Bucharest’s continuing sound operating performance, moderate debt levels relative to the city’s operating balance and current revenue, and sound debt ratios. The ratings also factor in a strong tax base, due to Bucharest’s wealth being substantially greater than the national average. Negatively, the ratings reflect uncertainty over contingent liabilities,” appreciated the financial rating agency, Agerpres reads.

Fitch’s baseline scenario forecasts a reduced operating margin of above 15% in the medium term, below Bucharest’s five-year average of 26%. This is in line with the city’s preliminary 2018 results, which showed an operating margin of 13.6%.

The drop in the operating margin was driven by higher personnel costs following wage increases for public employees and higher current transfers to public institutions and for social assistance. According to Fitch, the operating performance will remain sufficient to cover debt servicing and a large part of the investments scheduled in 2019.

Bucharest is the capital of Romania and had 1.88 million inhabitants, based on the last census in 2011. Local wealth is more than twice the national average and has proved robust through economic cycles, due to Bucharest’s well-diversified economy. Romania’s GDP grew 6.9% in real terms in 2017, and Fitch expects it to have grown by a further 3.8% in 2018 (3.5% in 2019). Bucharest has a strong labour market, with an unemployment rate at 1.3% in August 2018, significantly below the national average of 4.3%.