Fitch revises Romania’s rating outlook to negative, projects 8%-of-GDP public deficit

International rating agency Fitch revised the outlook on Romania's BBB- sovereign rating from stable to negative, citing substantial worsening of Romania's public finances due to the COVID-19 pandemic aggravating the already weak fiscal position.

The move came two weeks ahead of the scheduled regular review on May 1. Romania's debt is rated by all major rating agencies on the lowest investment grade level, with a neutral outlook (except for Fitch, since April 17).

Moody's is also expected to publish its rating review on Romania, and a negative outlook or even rating (less likely) negative action is expected as well.

Fitch expects a combination of sharp economic contraction (-5.9%) and rising spending, to propel the public sector deficit to 8% of GDP this year - somehow above the 6.7% -of-GDP revised deficit target planned by the Government.

In turn, this would push up the public debt by 9.4% of GDP to 44.8% of GDP - still below the projected 'BBB' median of 50%, but the highest ratio since 1995.

The public debt/GDP should rise only moderately in 2021 (to 45.1% of GDP), "but this is subject to significant upside risks," according to the rating agency's press release.

For the next year, Fitch forecasts 5.3% GDP growth and a public deficit of 4.2% of GDP. The key driver for further actions is the confidence in post-pandemic fiscal consolidation with a positive impact on the stabilisation of general government debt/GDP over the medium-term.

Romania's finance minister Florin Citu blamed the Parliament for Fitch's perspective change. He argued that the populist laws passed by the Social Democrat majority significantly increase public expenditures while not generating revenues to balance the budget.

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