Fitch cuts outlook on Romania's fragile rating to negative over political uncertainty

Fitch Ratings announced on December 17 that it revised the outlook on Romania's long-term forex Issuer Default Rating (IDR) to negative from stable while affirming the IDR at the latest investment-grade level (BBB-).

"Political uncertainty has increased to high levels, and our assessment is that it will likely have a significant adverse effect on fiscal consolidation," the rating agency explained.

The presidential election process was annulled by the Constitutional Court after the surprise first-round victory of the ultranationalist candidate Calin Georgescu due to alleged foreign/Russian election interference. The court also extended the mandate of the current president, Klaus Iohannis, originally due to end on December 21, 2024, until a new president is elected.

Fitch expects Romania's general government deficit to increase to 8.2% of GDP in 2024, above its previous August review forecast of 7.2%.

Although Fitch assumes fiscal consolidation will start in 2025, it revised up the general government deficit forecast to 7.5% of GDP in 2025 and 6.8% in 2026 – more than double the current projected 'BBB' median averaging 3.2% in 2025-2026.

"In our view, fiscal consolidation is likely to face difficult trade-offs due to the potential adverse impact on already subdued economic growth and the risk that financial markets volatility could push up the interest costs, further weakening the fiscal position," the rating agency commented.

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