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Investing.com -- Moody’s Ratings has shifted the outlook for Romania’s government from stable to negative, while affirming the long-term Issuer and Senior Unsecured Ratings at Baa3. The short-term issuer ratings have also been maintained at Prime-3.
The change in outlook is due to the risk of Romania’s fiscal strength weakening significantly in the coming years if additional fiscal consolidation measures are not adopted. Moody’s predicts Romania’s fiscal deficit will stay at 7.7% of GDP in 2025 and only gradually improve thereafter. This could increase the government debt burden to 68.5% of GDP by 2028, potentially weakening Romania’s credit profile compared to other Baa3-rated countries.
However, the affirmation of Romania’s Baa3 ratings reflects the country’s moderate economic size and growth potential, as well as its relatively high wealth levels. Romania’s credit profile is also affected by its high susceptibility to event risk, due to its proximity to the conflict in Ukraine.
The country’s long-term local and foreign-currency country ceilings remain unchanged at A2. The four-notch difference between the local currency ceiling and the sovereign rating is due to a moderate government presence in the economy, the predictability of government actions, the reliability of key institutions, and moderate political and external vulnerability risks. As a European Union (EU, Aaa stable) member state, Romania’s fiscal and macroeconomic policies are regularly assessed by the European Commission.
The government introduced measures at the end of 2024, such as freezes on public sector wages and pensions, aimed at reducing the headline deficit to 7.0% of GDP this year and 6.4% in 2026. However, based on current measures, Moody’s believes that deficit reduction will progress slower than planned. Achieving these deficit targets would most likely require a strong growth surge and significant improvements in fiscal policy management.
Romania has committed to implementing major tax reform as part of its EU-funded National Recovery and Resilience Plan (NRRP). The adoption of this reform would likely contribute to improving deficit and debt projections, mainly from 2026 onwards. However, the reform is already significantly delayed and details about the scale and composition of revenue-raising measures are not expected to be announced until after the May 2025 presidential elections.
The affirmation of Romania’s Baa3 ratings also takes into account the country’s moderate size and growth potential, as well as its relatively high wealth levels. However, Romania’s credit profile is constrained by a high susceptibility to event risk, due to its proximity to the conflict in Ukraine.
Romania’s ESG Credit Impact Score of 3 reflects low environmental risks, moderate social risks primarily related to demographic challenges, and governance challenges in areas such as control of corruption and fiscal policy management.
The negative outlook suggests that the rating is unlikely to be upgraded in the near term. The outlook would likely be returned to stable if the government’s debt burden and debt affordability metrics were to weaken materially less than currently expected. This would most likely require both the adoption of additional fiscal consolidation measures and an improvement in spending discipline and overall fiscal policy management.
Romania’s Baa3 ratings would likely be downgraded if Moody’s concluded that the government will most likely not achieve meaningful additional fiscal consolidation in the next few years. This scenario would most likely reflect a failure to adopt additional fiscal consolidation measures, limited improvements to fiscal policy management, and a significant increase in geopolitical risk emanating from the war in Ukraine.
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