Romania maintained at BBB- with negative outlook: S&P warns that deficit and inflation leave little room for shocks

The S&P Global Ratings rating agency on Friday reconfirmed Romania's government debt rating at BBB-/A-3 level, while maintaining the negative outlook.

S&P Core Scale

AAA – highest rating, minimal credit risk.

AA+, AA, AA− – very high payment capacity, very low risk.

A+, A, A− – good solvency, but more sensitive to shocks.

BBB+, BBB, BBB− – the lowest level of investment grade, one step from “junk”.

BB+, BB, BB− – increased risk, greater vulnerability to shocks.

B+, B, B− – significant risk, dependence on favorable conditions.

CCC+, CCC, CCC− – high probability of payment difficulties.

CC – high risk of default.

C – close to insolvency.

D – default (inability to pay).

Each rating can have an outlook attached: positive, stable, negative or under review.

S&P issues: public, private and confidential ratings, depending on the type of issue and the client's needs.

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“Romania's four-party coalition government continues to take measures to consolidate large budget deficits – through tax increases and freezing salaries and pensions,” the rating agency said in a statement. It expects the general budget deficit to narrow to 6.5% of GDP in 2026 and 5.5% in 2027, compared to 7.7% of GDP in 2025.

We forecast Romania's economy to grow by just 0.25% this year and average growth of 2.5% in 2027-2029, as weak consumption is only partially offset by inflows of EU funds, which will peak at around 3% of GDP in 2026.

S&P's baseline scenario assumes that the economic effects of the Middle East conflict will be manageable and contained, reflecting the economy's relatively low dependence on energy imports. However, we have revised upward our inflation projections and our current account deficit forecasts for 2026 and 2027.

Perspective

S&P's negative outlook reflects our view that despite efforts the implementation risks related to the consolidation of Romania's public finances will remain high in the coming yearsthe statement says.

The negative outlook also reflects Romania's vulnerability to growing external risks in global energy markets, as strained fiscal accounts and balance of payments positions leave little room to absorb deepened or prolonged external shocks.

The negative scenario

We could reduce the ratings in the next two years if Romania's fiscal consolidation trajectory deviates significantly from our expectations, S&P analysts also write.

This could happen if the government's consolidation measures are insufficient or if weak economic growth hampers their effectiveness. Delays in the payment of EU funds would exacerbate the pressures in this scenario.

We could also consider a downgrade if external pressures intensify, for example through a more severe or longer disruption of the energy market, caused by the war in the Middle East, which has derailed Romania's medium-term inflationary expectations, while significantly weakening economic growth, the balance of payments position and fiscal outcomes.

The positive scenario

We could revise the outlook to stable if Romania's external and fiscal deficits were to reduce substantially, supported by a recovery in economic growth.

Justification

Despite weakening economic growth and fuel price spillovers from the Middle East war, S&P anticipates that Romania's four-party government coalition will make progress towards implementing planned fiscal measures to bring the general budget deficit to 5.5% of GDP in 2027, compared to 9.4% of GDP in 2024.

“The weak starting point for public finances means that the objective of reducing net public borrowing below 3% of GDP, as required by the EU's Maastricht Treaty, extends beyond 2030. During this period, the debt-to-GDP ratio will remain on an upward trajectory, reaching over 65% by the end of this decade,” the statement said.

The outbreak of conflict in the Middle East and its consequences for global energy supplies and prices is another shock to Romanian households, says S&P, which forecasts Romania's economy to face stagnation in 2026 as fiscal consolidation, eroding real wages and rising energy prices put pressure on private consumption.

We forecast inflation to average 7.25% in 2026, compared to 6.75% in our previous forecast and 4.5% in 2027, amid rising oil and gas prices. Higher import price pressures will keep the nominal current account deficit high in 2026, despite stagnating real imports due to low private consumption. Its dependence on energy imports, at 30%, is among the lowest in the EU.

Romania's balance of payments perspective is stabilizing. Record inflows of EU funds, along with steady foreign direct investment, will finance most of Romania's current account deficits, which are still high, in 2026-2027. An uninterrupted flow of EU funds underpins our short- and medium-term growth forecasts, as public investment is expected to accelerate this year and next. Economic growth will return to 2.5% in the period 2027-2029.

Although fiscal efforts for 2026 are clear, the authorities have not yet specified fiscal measures beyond this period. Moreover, Romania remains under the Excessive Deficit Procedure (PDE), which it entered in 2020.

Improving the government's tax collection capacity is a key driver of the fiscal consolidation agenda. At 30%, Romania's VAT deficit (the difference between the amount of VAT a government expects to collect and the amount it actually collects) is the highest in the EU. The government expects further revenue growth by improving the efficiency of tax administration in the medium term.

Romania's disinflationary trend was interrupted by renewed inflationary pressures at the beginning of 2026, with inflation reaching 8.3% in February (measured by the harmonized index of consumer prices). This could peak around 10% in the second quarter, driven largely by rising oil and gas prices. While favorable base effects from mid-2025 tax hikes and energy price liberalization are expected to drive disinflation from the third quarter, elevated inflation expectations and commodity price spillovers continue to pose risks. We now forecast average inflation of 7.25% for 2026, revised upwards by 0.75 percentage points to reflect the impact of rising energy costs.

The banking sector in Romania is predominantly owned by foreigners and financed mostly from domestic deposits; we consider this to be a limited risk to the government. Non-performing loans fall into the low-risk category defined by the European Banking Authority, despite a marginal increase. Bank profitability has declined slightly since September 2025 from a peak in 2023. Capital and liquidity ratios remain healthy, slightly above the CEE average. Credit to the private sector remains close to 22% of GDP, reflecting low financial intermediation. The banking sector's high exposure to construction and real estate lending, along with rising corporate debt and a sizeable weight of foreign currency loans, could test the stability of the financial sector if related risks materialize.