Fitch Ratings: CEE region needs EUR 86 bln this year to finance fiscal deficit

Fitch Ratings says in a newly-published report that the larger Central and Eastern European (CEE-4) countries will need to borrow EUR86bn (USD112bn) in 2013 to finance fiscal deficits and roll over existing debt, Reuters news quotes.

This equates to about 10% of GDP, down from 12% in 2012, and compares favourably with a eurozone average of almost 15% of GDP in 2013, says Fitch Report also quoted by Reuters.


All CEE-4 countries bar the Czech Republic (which was affected by a large one-off factor) are estimated to have run lower general government budget deficits in 2012 than in 2011. This reflects a strong commitment to fiscal consolidation, even in the face of poor prospects for economic growth. In 2013 Fitch expects CEE-4 to run low budget deficits, partly in the context of enhanced fiscal surveillance at the EU level.


CEE-4 fiscal fundamentals stand in marked contrast to the eurozone, where deficits, debt and fiscal financing needs are significantly higher. Better fiscal fundamentals and ample international liquidity suggest CEE-4 should have little difficulty funding 2013 gross borrowing requirements (GBRs), barring any major surprises. However, the eurozone outlook dominates and there are significant uncertainties in relation to growth which in turn pose upside risks to CEE-4 budget deficits in 2013.


Providing some relief to CEE-4 countries is a relatively light external (FX) bond redemption schedule. Poland and Czech Republic have carried out significant pre-financing of their 2013 GBRs. Hungary and Romania will be looking to refinance redemptions to official creditors in the market. Hungary successfully refinanced in the domestic market in 2012, but Fitch expects it to go to the international capital market in 2013.


Hungary and Romania owe large sums to the IMF from 2013, as the loans received during the 2008-09 global financial crisis come due. Romania's relations with the Fund are good, and it is likely to obtain a new precautionary IMF deal when the current one expires in March 2013. Hungary's relations with the IMF are poor and Fitch considers a new deal unlikely, barring limited external market access. The renewal of Poland's Flexible Credit Line, worth around USD30bn and due to expire in early 2013, would represent an important backstop in the event of market turbulence.


Fitch maintains Stable Outlooks on the CEE-4. Market perceptions of CEE-4 sovereign risk, as captured by CDS-implied ratings calculated by Fitch Solutions, improved over 2012, outperforming eurozone peripherals in some cases, and all CEE-4 enjoyed significant yield compression. Major central banks' liquidity operations clearly played a key role in easing risk aversion, but so did resolute commitment to fiscal consolidation. Combined with Fitch's assessment of GBRs, this would suggest, all other things being equal, that CEE-4 sovereign ratings are unlikely to change in 2013.


The report, entitled '2013 CEE Governments' Financing Needs' is available at www.fitchratings.com

Link to Fitch Ratings' Report: 2013 CEE-4 Government Financing Needs here

Link to Reuters news here