Fitch Ratings has reaffirmed Romania’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘, but the Negative Outlook underscores significant concerns about the nation’s fiscal health and political stability. While Romania benefits from EU membership, strong governance indicators, and a relatively high GDP per capita compared to its ‘BBB’ peers, these strengths are overshadowed by persistent twin deficits, escalating public debt, and heightened political uncertainty.
The primary driver of the Negative Outlook is the substantial deterioration of Romania’s public finances, highlighted by a record-high budget deficit of 8.7% of GDP in 2024. This figure significantly surpassed the government’s earlier targets and the previous year’s deficit, largely due to rapid expenditure growth, including public sector salaries and unfunded pension increases. The full-year impact of these increases will continue to strain the budget in 2025, making fiscal consolidation a formidable challenge.
Adding to the fiscal woes is the increasing public debt trajectory. Fitch forecasts that Romania’s general government debt to GDP ratio will rise from an estimated 53% in 2024 to nearly 60% by 2026, exceeding the ‘BBB’ median. This upward trend is attributed to large primary deficits and a slowing economy, further weakening Romania’s fiscal position.
Economic growth has also slowed, with GDP growth averaging just 0.9% in 2024. This deceleration is attributed to weak export performance and a subdued recovery in the eurozone. Fitch projects a modest recovery of 1.4% in 2025 and 2.2% in 2026, contingent on fiscal consolidation and a gradual improvement in external demand.
Romania’s external imbalances are another major concern. The current account deficit (CAD) widened to 8.2% of GDP in 2024, significantly above the ‘BBB’ median. This widening deficit reflects weak export performance and continued import growth, highlighting external competitiveness challenges. Net external debt is also projected to rise substantially.
Political uncertainty has surged, particularly following the annulment of the presidential election and the subsequent formation of a new, potentially fragile coalition government. The new presidential election in May 2025 adds to the political volatility. The divided parliament and social polarization further complicate the political landscape, potentially delaying crucial fiscal consolidation measures.
Financing conditions have deteriorated due to increased domestic fiscal and political risks, coupled with large financing requirements. While Romania’s banking sector remains sound, with strong capitalization and profitability, the overall economic and political environment poses significant challenges.
Fitch’s ESG assessment highlights moderate governance indicators, reflecting peaceful political transitions and established rule of law, but also acknowledging moderate institutional capacity and corruption levels.
In summary, Romania faces a critical juncture. While its EU membership and strong governance provide a foundation, the nation must address its escalating fiscal imbalances, navigate political turbulence, and restore economic growth to maintain its ‘BBB-‘ rating and avoid further deterioration of its outlook.
