One year after avoiding a sovereign downgrade by setting up a ruling coalition and passing budgetary measures that aligned the fiscal trajectory to the Excessive Deficit Procedure (EDP) commitments, Romania is now facing new scrutiny from the major rating agencies. While its public sector metrics improved significantly over the past year, thanks to the fiscal measures legislated in December 2024 and in the summer of 2025, the country’s expectations are constrained by political uncertainty and a lack of follow-up plans to avoid slippage into the non-investment region.
Fitch has already started online talks with the authorities and will approach more institutions as well as the private sector, with a final country update expected on July 31, while Moody’s will show up on July 16 as well.
With an interim government and no parliamentary majority in sight, it remains unclear who and how would keep on track the fiscal consolidation that seems to have achieved an impressive 3 percentage points reduction of the ESA deficit over a two-year timespan.
Finance minister Alexandru Nazare briefed Fitch analysts on the encouraging January-May budget execution and the outlook for the whole year, pinpointed by budgetary measures already legislated – but except for this, there is not much the Romanian authorities can provide in their defence. Hopefully, the fiscal pressure for consolidation is easing in 2027, and the budgetary measures should not be as aggressive as those enforced during the first part of the consolidation cycle.
However, the resistance exerted by entrenched interests to even mild reforms in the public administration and state companies surfaced in the ongoing political crisis, stealing Romania’s chance to hope for at least a neutral outlook after more than a year of costly budgetary reform that touched mostly the household sector while not cutting the inefficiency in the public sector. Smooth implementation of the reforms linked to the Resilience Facility and even a gradual approach of reforms in the public sector would have justified higher expectations than just avoiding a junk rating. Instead, the Resilience Facility was repeatedly renegotiated (towards lower financing and investment targets), and the attempts to reform the public sector resulted in a full-fledged political crisis.
Finance minister Nazare promised that Romania “maintains its firm commitment to fiscal consolidation and macroeconomic stability, continuing the consistent implementation of the adjustment measures and reforms agreed with the European Commission,” Digi24 reported. But the rating agencies need more concrete arguments for even an outlook upgrade.
Before the political crisis, some analysts believed Romania could even secure an improvement in its sovereign outlook. In January, economists at Citi argued that the fiscal measures already adopted could justify a revision of the outlook from negative to stable if fully implemented. Six months later, amid prolonged political deadlock, authorities’ expectations have become more modest, with preserving the current investment-grade rating and avoiding a downgrade now seen as the primary objective.
iulian@romania-insider.com
(Photo source: King Ho Yim/Dreamstime.com)
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