* Fitch says E.Europe risk profile shifts to public finance
* Fitch downgrades growth forecasts for region
* Politics seen rising in importance in ratings
By Michael Winfrey
PRAGUE, Oct 29 (Reuters) - Central and Eastern Europe's risk
profile is shifting from external finances to growth, public
finances, and politics, and ratings actions will be driven more
by country-specific than global factors, Fitch said on Thursday.
The ratings agency said although the most intense phase of
the crisis was past, it was too early to sound the all-clear for
emerging Europe.
It said a new concerns had shifted from countries' ability
to finance themselves to spiking budget deficits and public
debt, the latter of which is saw jumping to an average of 36
percent of gross domestic product in 2008, from 23 percent at
end-2007.
"The marked deterioration in public finances could lead to
negative rating actions, particularly if countries fail to
establish and implement credible medium-term fiscal
consolidation programmes," Fitch said in the report.
Fitch said the gross external financing requirements for the
region -- which includes the European Union's 10 newest members
along with Russia, Kazakhstan, Turkey and other emerging states,
would slip 16 percent to $304 billion in 2009 and 2010, down
from $363 billion in 2008
But average budget deficits would increase to 5.9 percent of
gross domestic product in 2009, from 1.1 percent in 2008. That
would narrow to 4.6 percent next year, it said.
Although public debt levels in many western European states
often dwarfs that of eastern European countries, their lower
credit ratings and higher yields lead to less manageable debt
maintenance costs and can hit future growth.
The largest increase in public debt is in Latvia, where
Fitch forecast it soaring to 58 percent of GDP by the end of
next year, compared with just 9 percent in 2008.
POLITICAL RISK
Fitch said the balance of its outlooks and watches, which
indicate possible future ratings moves, had improved slightly
since August, but 12 countries were evaluated as negative and
only one positive.
No country has been upgraded since July 2008 when Slovakia
got a green light to join the euro.
"In contrast to the rally in East European government bond
prices, sovereign ratings dynamics remain negative, albeit at an
easing pace," it said, referring to a significant drop in yields
in recent months as the effects of the crisis have eased.
The agency revised down its forecast for Eastern European
real GDP to -6.1 percent for 2009, from -4.6 percent in June.
"Many countries still face contracting output, challenging
external financing outlooks, deteriorating bank asset quality,
rising budget deficits and the need to implement fiscal
consolidation measures," Fitch said.
Fitch also said political risk would be a potential problem
due to rising social pressure and electoral timetables that
could make it harder to implement austerity measures.
A string of elections are approaching across the region over
the next two years that have already sparked political jostling
that in some cases has delayed reforms, ousted governments, and
threatened international aid packages.
"This is fertile territory for political shocks," it said.
"Each country's specific political characteristics,
including the capacity of the system to adjust and deliver
sustainable macroeconomic policy settings are likely to be
increasingly important for ratings."
(Reporting by Michael Winfrey; Editing by Andy Bruce)
