Fitch Ratings, the award-winning provider of credit ratings, commentary and research, rated Cluj county from Romania, at ‘BBB-‘, with outlook Stable, as published in Q4 of 2023. In these times of volatility and deep transformation, both our business partners and us, are looking for organizations capable of providing clarity and insight about the economic and financial environment around us. Since a large part of Cluj IT community is headquartered in Cluj-Napoca city from Cluj county, the overall evolution of the county impacts us directly.

The BBB Fitch rating stands for a good credit quality and indicate that expectations of default risk are currently low. In this understanding, Cluj County’s ability to pay its financial obligations is considered adequate, but adverse business or economic conditions are more likely to affect this ability.

According to the paper published in October 2023, Cluj County is classified by Fitch Ratings as a ‘Type B’ LRG (Local and Regional Government). This is because it is required to cover its debt service from cash flow on an annual basis. Cluj county is the fourth largest county in Romania, having a population of almost 680,000. In terms of GRP, it is the second fastest growing county in the country (after the city of Bucharest, which is the capital city of Romania). The local economy is well diversified and mainly service-oriented. Its development is strongly supported by six industrial parks within its administrative boundaries.

Why is it important that Fitch Ratings has assigned Romanian Cluj County Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of ‘BBB-‘ with Stable Outlooks?

Cluj county’s slightly encouraging ratings represent Fitch’s view that the county’s operating performance and debt ratios will remain in line with peers AA’ debt sustainability over the medium term. This happens despite major pressure on its public budget from price augmentations, ongoing macroeconomic spillovers from the war in Ukraine and the implementation of several ambitious investment plans.

Fitch scores the county’s Standalone Credit Profile (SCP) as ‘A’, representing a combination of a ‘mid-range’ risk profile and ‘AA’ debt sustainability. The county’s IDRs are subject to sovereign constraints (Romania at BBB/Stable) and are capped at ‘BBB-‘.

The international agency considers that Cluj County has stable sources of revenue, with prospects for revenue growth in line with growth in GDP. In addition, Fitch Ratings analysts consider that the county has high expenditure adjustability, reflected in a “low share of staff costs in its budget (on average below 20% of total in 2018-2022) and a high share of capex in total spending (on average 38% in 2018-2022)”.

Another key driver of the overall rating is considered to be the Debt Sustainability of  ‘AA category’. In the rating-scenario, the payback ratio is expected to average just above 6x in 2025-2027 (‘aa’ debt sustainability category), from low 1.4x in 2022.

Romanian Cluj County Rated at BBB Outlook Stable by Fitch is a short report of our marketing department intended to share updated information about the general economical and financial landscape in the region.