Fitch warns outcome of presidential elections may impede needed fiscal reforms in Romania

The outcome of the presidential elections in Romania could have implications for investor confidence, the sustainability of the coalition government, and its political capacity to implement fiscal consolidation, according to a note issued by rating agency Fitch in response to the elevated political turmoil and the wide budget deficit in January-February (1.6% of GDP).

The rating agency stressed that further fiscal corrective measures are necessary for Romania to meet its analysts’ 7.5%-of-GDP deficit projection – a guideline for a possible dramatic downgrade that would push the country’s public debt into the junk region.

The urgency for further fiscal consolidation steps is prompted by, besides the Jan-Feb budget execution, pressures to increase defense spending (2024: 2.3% of GDP).

“Without additional measures, we believe there are risks to our 2025 deficit forecast of 7.5% of GDP, especially given the large monthly deficits at the beginning of 2025,” the rating agency said.

Fitch was the first of the three major agencies to change the outlook of Romania’s fragile BBB- sovereign rating to negative last December, followed shortly by the other two.

Notwithstanding the political and fiscal risks, Fitch notes that a subdued recovery in the baseline scenario will see 1.4% GDP growth in 2025 and 2.2% in 2026, helping reduce the deficit to a still-high 6.8% in 2026.

This will not prevent the general government debt-to-GDP ratio from increasing sharply to 62% in 2026 (2023: 49%), above the projected current BBB median of 56%, and to about 70% of GDP by 2028 in the rating agency’s baseline projections.

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