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Investing.com -- Fitch Ratings has confirmed Romania’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’BBB-’ on February 21, 2025, maintaining a Negative Outlook. The rating is supported by Romania’s EU membership, capital inflows, and macro stability, balanced against budget and current account deficits, political instability, and a high net external debtor position.
The Negative Outlook is based on the significant deterioration of public finances and a marked slowdown in growth in 2024, coupled with potential adverse effects of political uncertainty on fiscal consolidation prospects. Political uncertainty surged in late 2024 when the Constitutional Court annulled the presidential election due to alleged foreign interference. A new presidential election is scheduled for May 2025.
A more divided parliament emerged from the December 1, 2024 parliamentary elections, reflecting Romania’s growing social polarization. A pro-European coalition was quickly formed, and fiscal consolidation measures were announced, with the 2025 budget passed in January. However, the coalition’s durability is uncertain, and political pressures could delay additional fiscal consolidation measures until the second half of 2025.
Romania’s general government deficit was 8.7% of GDP in 2024, the highest among ’BBB’ rated sovereigns. This was mainly due to rapid expenditure growth, including public sector salaries and unfunded pre-election pension increases. The government aims to reduce the budget deficit to 7% of GDP in 2025, meeting the European Commission’s target. However, Fitch forecasts a deficit of 7.5% of GDP in 2025 and 6.8% in 2026, more than double the current projected ’BBB’ median.
Public debt is expected to increase from 53% in 2024 to close to 60% in 2026, and continue to increase to above 65% of GDP by 2028. Economic growth has been slow, with average GDP growth of 0.9% in 2024, compared with 2.4% in 2023 and 4% in 2022. A subdued recovery of 1.4% and 2.2% GDP growth is forecasted for 2025 and 2026, respectively.
The current account deficit (CAD) rose to 8.2% of GDP in 2024 from 6.6% in 2023, making Romania a clear outlier. Net external debt is expected to increase from 14% in 2024 to 19% of GDP in 2026. Despite these challenges, Romania’s banking sector remains well-capitalised, profitable, and liquid.
Factors that could lead to a downgrade include a continued rapid increase in government debt over the medium term, or evidence of adverse spill-overs to external financing and liquidity. Conversely, a greater-than-projected fiscal consolidation or reduction in external indebtedness could lead to a positive rating action.
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