Credit rating agencies are likely to postpone any major decisions on Romania's sovereign rating until the country's 2027 budget has been prepared, according to analysts at Austria's Erste Group, who believe recent fiscal developments should help the country retain its investment-grade status for now. 

"We believe that the favourable budget execution so far this year will be sufficient to preserve Romania's investment-grade status for the moment," the report said.

Indirectly, the report underscores the pivotal importance of the 2027 budget in safeguarding Romania's access to public financing. While the pressure for fiscal consolidation is expected to ease next year following two consecutive years of aggressive adjustment, further consolidation measures will still be required. Their credibility, however, will depend on sustained political commitment, which remains uncertain under the current political landscape.

The assessment comes ahead of scheduled sovereign reviews by Fitch in mid-July and Moody's in early August, following three months of political uncertainty that has complicated Romania's efforts to maintain its investment-grade credit rating.

According to Erste, budget execution in the first five months of the year indicates that the government's full-year deficit target of 6.2% of GDP is "well within reach" and could even outperform official expectations.

The analysts said the fiscal deficit could narrow by more than the 1.7 percentage points projected by the authorities, supported by stronger-than-expected budget performance.

Erste also highlighted what it described as a broad consensus among Romania's pro-Western political parties on key strategic priorities, including implementation of reforms under the National Recovery and Resilience Plan (PNRR), fiscal consolidation and the country's OECD accession path. The bank noted, however, that this assessment is based on recent public statements by President Nicușor Dan – 

The report said favourable budget execution has helped stabilise Romanian government bond markets despite continued domestic political uncertainty and a volatile international environment. Romania's 10-year government bond yield has remained broadly stable at around 6.7-6.8%.

"We expect 10-year yields to remain broadly stable around current levels through year-end, with a marginal upward drift, followed by a gradual decline in 2027 in line with the expected BNR policy path," the report said.

On the political front, Erste does not expect a rapid resolution of the current deadlock and considers early parliamentary elections a plausible scenario.

"After two nominations, one of which was rejected in a parliamentary vote, snap elections have become a realistic possibility, though President Dan does not appear inclined to pursue this option," the report said.

Romania remains under scrutiny from rating agencies because of its large fiscal deficit, with fiscal consolidation and structural reforms viewed as essential to preserving the country's investment-grade rating.

iulian@romania-insider.com

(Photo source: ifeelstock/Dreamstime.com)