Romania’s Finance Minister and one of the potential prime minister candidates, Alexandru Nazare, said in an interview with Ziarul Financiar that the formation of a credible government able to maintain fiscal consolidation momentum under the 2027 budget plan is critical to maintaining the country’s investment-grade rating. The successful completion of the Resilience Plan and the absorption of the related funds are also needed.

The downgrade risk remains relevant, he admitted, linking it to the lack of visibility into the government's future steps.

“I am optimistic that we will keep the rating, but a downgrade risk still exists, and this risk is generated by the measures that must be adopted in the fall," minster Nazare said.

He indicated that maintaining the rating depends heavily on the appointment of a government with full powers, the fulfilment of the PNRR milestones by the end of August, and the approval of a sustainable 2027 budget, which would demonstrate the continuation of fiscal measures.

The downgrade would bring not only higher financing costs, which are already high, but currency depreciation and inflation, he explained. 

"It is a false impression that the downgrade to Junk would not affect us because we borrow at very high interest rates anyway. We are not only expecting an increase of 50 or 100 basis points in interest rates, but also a depreciation of the exchange rate and an increase in inflation," Nazare said. The minister pointed out that indeed the level of interest paid on public debt has reached 3% of GDP, a very high level, but that, hopefully, by 2029-2030 we will have a stabilization of public debt.

While minister Nazare expressed confidence in the fiscal consolidation this year, to a deficit of 6%-6.2% of GDP, he expressed more scenarios regarding economic growth ranging from deep recession to still meeting the 0.1% GDP growth projection assumed for budget planning purposes.

"So, in a scenario of improving the situation in Q3, significant reduction in contraction and with a positive Q4, there are chances at this moment that we will reach the base scenario forecasted at the adoption of the budget", Nazare said.

Otherwise, the country will enter deeper into recession, but the minister is optimistic that we will record a positive evolution in consumption in the fourth quarter.

(Photo: Gov.ro)

iulian@romania-insider.com