International rating agency Moody’s completed a periodic review on the ratings of Romania, which includes a fragile Baa3 long-term issuer rating with a negative outlook, associated - which the rating agency expects to improve only under the scenario of full and effective implementation of the fiscal consolidation programme adopted in 2025, with the process of fiscal consolidation continuing also in 2027 and beyond. Albeit expected at a more moderate pace than in 2026, the fiscal consolidation in 2027 and beyond “lacks clarity on the specifics of the government's deficit-reduction strategy,” the rating agency stressed.

“Reform fatigue, the rotation of the premiership within the four-party governing coalition in the first half of 2027, as well as parliamentary elections in 2028, all raise risks to the prospect of further deficit reduction and a stabilisation of the debt burden at a level that is still commensurate with a Baa3 rating,” the rating agency warned.

Moody’s sees Romania’s credit profile as weaker than that of rating peers in areas such as control of corruption and fiscal policy effectiveness, also leaving the strength of Romania's institutions and governance somewhat weaker. Romania's government debt burden, currently broadly in line with that of rating peers, is set to deteriorate in the coming years due to the still-elevated fiscal deficit, the rating agency warned. 

The government not being able to implement its fiscal plan, leading to material slippage from the fiscal consolidation trajectory that includes 6.3% of GDP deficit this year and 5.7% gap in 2027, both under the European Union’s stricter ESA methodology, would likely result in a sovereign downgrade, which would bring Romania’s rating into the non-investment region.

Moody’s expectations on Romania’s fiscal consolidation, serving as guidance for further rating actions, are roughly in line with the country’s seven-year plan drafted by the country under the Excessive Deficit Procedure (EDP).

Moody’s said it expects Romania envisages 6.3% of GDP deficit under the ESA methodology this year, down from an estimated 8.2% of GDP deficit last year. So far, the European Commission has not released its estimate on Romania’s deficit under the ESA methodology, but the national authorities estimated the gap at 7.65% of GDP under the cash methodology. 

While this is seen by Moody’s as “a very significant fiscal consolidation effort,” the rating agency expects the government debt burden to continue increasing beyond 2026 unless further measures are enacted for 2027 and beyond.

On the assumption that the headline deficit will fall to 5.7% of GDP at the end of 2027, Moody’s estimates the debt burden will reach 62.9% of GDP at the end of that year, up from an estimated 60.5% at the end of 2025. The rating agency expects that debt will continue to gradually increase before stabilising at around 65% of GDP towards the end of the decade. 

Some reforms that have already been adopted in 2025, including some that improve government revenue collection, can also be expected to generate recurrent deficit reduction in subsequent years, Moody’s admitted. At the same time, the rating agency warned of the limited clarity on the specifics of the government's deficit-reduction strategy beyond 2026.

iulian@romania-insider.com

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