International rating agency Fitch on July 31 maintained its BBB- sovereign rating with a negative outlook for Romania, but only after the country “appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.” The nature of the additional information was not disclosed, but the main concern expressed by the rating agency regards the country’s capacity to implement additional fiscal consolidation measures amid political uncertainty and particularly ahead of the 2028 parliamentary elections.

A downgrade action from Fitch would have had a material impact on the fragile political situation in the country, encouraging the rhetoric of the far-right Alliance for the Unity of Romanians (AUR) against the centrist parties that have failed to form a new government after the successful no-confidence motion against acting prime minister Ilie Bolojan. 

“Political dynamics have reduced visibility over fiscal strategy beyond 2026 and delayed approval of pending Recovery and Resilience Facility (RRF) reforms, which could lead to the loss of funds,” the rating agency commented in its July 31 decision.

Last-minute Parliament approval of reforms improved the fiscal outlook for this year. 

The two chambers of Romania’s Parliament managed to approve four of the six key reforms supposed to unlock EUR 5 billion of grants under the European Union’s Resilience Facility (RRF). Without the Integrity Law, potentially subject to a second tentative approval before the end-of-August deadline, and the Wage Law for the budgetary sector, not likely to be approved within the deadline, Romania can expect to get EUR 3.5 billion out of the EUR 5 billion of grants attached to the reforms.

However, what matters most and probably played a key role in Fitch's initial decision (downgrade) is the dynamics of the political commitment for reforms, which has deteriorated over the year since the inauguration of the four-party coalition in Bucharest and the negative expectations in this regard.

Political commitment for further fiscal consolidation remains particularly problematic, Fitch implied. Technically, Fitch expects Romania’s budget deficit to narrow to 5.9% of GDP in 2026, below the government's target (6%), reflecting better year-to-date execution and an expected increase in capex in 2H26.

The concerns that originally convinced Fitch to push Romania into the non-investment area are related to the deficit reduction beyond 2026, expected to be “slower with significant downside risks ahead of 2028 parliamentary elections, given Romania's record of pre-election easing.”

The economic growth trajectory complicates further fiscal consolidation efforts, as Fitch expects 0.6% economic contraction this year “despite the higher EU-funded investment,” and it expects GDP growth “to recover towards its potential of 2.3% in 2028,” remaining below the projected peer median of 2.7%. Slower growth in principle amplifies the social cost of fiscal consolidation efforts that a politically divided administration should implement ahead of parliamentary elections.

Romania’s public indebtedness is particularly fragile, Fitch warned. The rating agency forecasts general government debt/GDP will rise to 64.5% by 2028 from 59.3% at end-2025, above the projected peer median of 57.9%, and continue increasing thereafter, albeit at a slower pace.

The stabilisation after 2028 requires additional efforts beyond 2026, and even if the stabilisation is achieved, the cost of the public debt will remain elevated: 9.3% of revenues, up from 8% in 2025 and marginally above the projected 'BBB' median of 9.1%. Debt trajectory is also vulnerable to Romanian leu depreciation, as 53% of government debt is FC-denominated, the rating agency warned,

iulian@romania-insider.com

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