International rating agency Fitch affirmed Romania’s fragile rating at BBB- with a negative outlook, on the verge of the non-investment area, while signalling significant risks to medium-term fiscal consolidation.

Risks to medium-term fiscal consolidation are generated by weak growth, implementation challenges, fiscal fatigue, and tensions within the four-party government coalition. In more concrete terms this refers to the sluggish economic performance highlighted by the technical recession in H2 last year and modest growth ahead in the next couple of years, failure to legislate key bills such as that on public administration, social tensions caused by the fiscal consolidation relying on austerity measures, and political turmoil plus expected political volatility once the ruling coalition approaches the prime ministership transfer.

Although seen as significantly diminished from the climax around the presidential elections in May 2025, the political tensions are seen as relaunched. 

“Visible tensions within the coalition, including over the 2026 budget negotiations, the political cost of fiscal consolidation, and high domestic polarisation, could challenge the adoption of further measures to reduce the large fiscal deficit,” the rating agency warned.

There is a consensus among analysts that no rating improvement is expected until there is clarity about the direction of the ruling coalition after the prime ministership transfer to the Social Democrats expected in April 2027. Pressures for quicker transfer, seen in recent statements coming from Social Democrat leaders, are likely to create more concerns among investors.

The public finances remain key for Romania’s fundamentals regaining stability, but inflation and weak economic growth are complicating the fiscal consolidation.

While Fitch expects Romania’s ESA budget deficit to drop by 2 percentage points this year from an estimated 8% of GDP in 2025 (9.3% of GDP in 2024), there is less clarity about further developments. 

“There is uncertainty about the magnitude of additional fiscal consolidation in 2027 and beyond, including due to the planned change in premiership in April 2027 and the 2028 electoral cycle. Romania's general government deficits will remain among the highest in the 'BBB' category over the forecast horizon,” Fitch said.

Romania’s gross general government debt increased rapidly in the past two years. Fitch estimates it was almost 59% of GDP at end-2025, above the BBB current median of 56%, and projects that the debt/GDP ratio will rise to 63% in 2027 and, without further measures, will continue to climb.

Fitch forecasts Romania’s GDP growth to remain below its 2% potential until 2027, given our expectation of additional fiscal tightening, which highlights the difficult policy trade-offs.

High inflation is a rating weakness for Romania, exacerbated by the temporary inflationary impact of the VAT rate hike and the expiry of the electricity price cap, the rating agency warned.

Abundant EU funding mitigates concerns about the fiscal deficit financing this year.  Given the projected significant EU inflows in 2026, Romania's external market financing needs are expected to fall. However, Fitch still sees Romania remaining exposed to changes in global market sentiment.

iulian@romania-insider.com

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