Fitch maintains Romania's sovereign rating. “The negative outlook reflects the continuous deterioration of public finances”

Fitch maintained Romania's sovereign rating at “BBB minus” on Friday, with a negative outlook, according to a statement from the financial evaluation agency.

Romania's “BBB minus” rating is supported by EU membership and is associated with capital inflows that support income convergence and access to external financing. GDP per capita and governance are above those of other “BBB” rated countries. These strong points are balanced by the twin budgetary and current account deficits, large and persistent, by the increase in public debt, political polarization and the fairly high net external debt”, reads the press release issued by Fitch on Friday and quoted by Agerpres.

According to Fitch, the negative outlook reflects the continued deterioration of Romania's public finances, following high fiscal deficits, although in decline, and the rapid growth of the government debt / GDP ratio. The government formed in the summer of 2025 has begun to implement significant measures, which will lead to significant fiscal consolidation in 2026, although the 2026 budget is still not approved. Significant risks to fiscal consolidation persist over the medium term, in Fitch's view, due to weak growth, implementation difficulties, “fiscal fatigue” and tensions within the ruling coalition.

“The rapid implementation of the consolidation measures by the new Bolojan Government, including the VAT increase in August 2025, put the budget deficit on a downward trend, from the record high level. Based on the preliminary cash data (deficit of 7.7% of GDP), we estimate that the ESA budget deficit was close to 8% of GDP last year. The full implementation of the measures from 2025 and the spending freeze in 2026 would could alleviate the ESA deficit by almost two percentage points in 2026”, the agency's press release states.

Difficult political compromises

However, there are uncertainties regarding the magnitude of additional fiscal consolidation in 2027 and beyond, including following the planned change of prime minister in April 2027 and the 2028 election cycle. Romania's general government deficits will remain among the highest in the BBB-rated country category over the forecast period, warns Fitch.

Overall gross government debt has risen rapidly over the past two years, and Fitch estimates it will stand at nearly 59% of GDP at the end of 2025, above the current average of 56% for BBB-rated countries. The agency expects the debt-to-GDP ratio to rise to 63% in 2027 and, without further action, to continue to rise.

Economic growth remained below 1% in 2025 as substantial fiscal consolidation and weak external demand affected Romania's economic performance. Fitch forecasts GDP growth to remain below its potential 2% through 2027, given expectations of further fiscal tightening, which highlights difficult policy trade-offs. Household consumption will fall this year due to the prolonged decline in real disposable incomes. However, investments will increase strongly, thanks to the countercyclical incentives of the European funds, strengthened by the increase in the grant component of the Recovery and Resilience Plan.

High inflation represents a weakness for Romania's rating, Fitch believes, exacerbated by the inflationary impact of the VAT increase and the expiration of the ceiling on the price of electricity. For five years, inflation has remained above the NBR target of 2.5% +/-1pp and the average inflation in the period 2024-2026 is estimated to be twice the average of the “BBB” rating states.

The benefits of EU membership

The current account deficit was close to 8% of GDP in 2025, compared to 6.7% of GDP in 2023 and significantly above the current average of 1% for “BBB” rated countries. Fitch forecasts that the current account deficit will fall below 7% of GDP in 2026, particularly following the decline in import demand from public and private consumption. Also, the agency estimates that the net external debt will gradually increase, from 21% of GDP in 2024, significantly above the forecast level of 3% of the “BBB” rated states.

Substantial European funds support Romania's access to external financing to cover its large twin deficits, which highlights the benefits of EU membership. Beyond the cohesion funds, the increase in grants from the Recovery and Resilience Plan in the last year of the program and, most recently, the access to loans from the SAFE (Security Action for Europe) Program, of 16.7 billion euros, including pre-financing of 2.5 billion euros, under favorable conditions, will help alleviate pressures on financing costs and reduce external financing risks in the near future, Fitch estimates.

In Fitch's opinion, the factors that could lead, individually or collectively, to a negative rating action would be the failure to implement additional fiscal consolidation measures, which in the medium term have the effect of stabilizing the public debt, and the negative effects on liquidity and external financing, or macroeconomic stability, due to high political tensions or persistently high twin fiscal deficits and the current account deficit.

Among the factors that could lead, individually or collectively, to positive rating actions, is the confidence that the solid progress recorded with fiscal consolidation will support the stabilization of debt as a percentage of GDP in the medium term, which could lead to a revision of the perspective attributed to Romania's rating, from negative to stable, and the reduction of the degree of external indebtedness and external financing risks, following the structural improvement of the current account deficit, the report states.