Fitch warns Romania risks debt surge that could impact its fragile rating

Romania should take rapid measures to limit the surge in a budget deficit that's become the largest in the European Union to avoid losing its investment-grade score, according to analysts at Fitch Ratings quoted by Bloomberg.

The country, which has the lowest investment grade from all three major rating companies, may need to freeze spending and raise revenue to narrow the deficit to within the EU's benchmark of 3% of gross domestic product from 2027, Fitch analysts Federico Barriga Salazar and Gergely Kiss said in a report.

Romania's budget deficit is going to narrow at 5.8% of GDP (roughly twice as wide as the target) within the four-year forecast horizon, from an estimated level of 7% of GDP this year, without a significant fiscal austerity effort.

The slower process will trigger an increase in public debt towards 80% of GDP in 2037, an "extremely high level for Romania," which would exceed the average of countries with a similar rating, Fitch analysts warned.

"Negative pressures on the rating could increase, especially if there are adverse contagion effects from fiscal weakness on political credibility," Salazar and Kiss assessed, adding that Romania could need more than four years to reduce the public debt.

On August 30, the Fitch rating agency reconfirmed Romania's government debt rating at BBB-/F3 for long- and short-term foreign currency debt, as well as the stable outlook.

"Fitch forecasts general government debt to GDP to increase to 59% at end-2026, from 48.8% in 2023, but still in line with the BBB current median of 58.3%," reads the report published by Fitch on August 30.

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