The adjustment generated by the fiscal corrective package drafted by the Romanian government could be sufficient to avoid a credit rating downgrade and maintain the country’s access to EU funds, which could support a stabilization of the EUR-RON exchange rate in the range of 5.05–5.10 in the second half of 2025, according to a research report of UniCredit financial group quoted by Cursdeguvernare.ro.
However, Romania’s credit risk premium remains high compared to other countries with the same rating, and investors will closely monitor implementation risks, as social unrest and the sharp decline in the popularity of the ruling parties could intensify tensions within the coalition, the report reads.
The complicated political context suggests, according to UniCredit analysts, that a “significant further compression of Romania’s credit spreads, to levels recorded before 2022, could be delayed until 2026, if the coalition continues to adhere to fiscal plans and investors turn their attention to improving economic growth prospects.”
The Fiscal Council earlier issued a similar opinion, in the sense of the fiscal package averting the rating downgrade. Erste Research, in its July 8 CEE Bond Market Report, concludes that “the fiscal consolidation package recently approved by the Romanian government looks strong enough to avoid a loss of investment grade this fall.”
Both UniCredit and Erste Research estimate that Romania can bring its budget deficit to 7.5% of GDP this year and around 6.5% of GDP in 2026, from 9.3% in 2024.
The package also convinced the European Commission not to take steps against the country whose public deficit hit 9.3% of GDP last year.
The package includes a VAT rate hike and higher excise taxes, along with other reactive measures aimed at bringing some 0.5% of GDP more revenues to budget this year (1.2% of GDP in annualised terms) and 3.35% of GDP in 2026, when the government plans to freeze the public wages and pensions.
However, the fiscal package does not include structural reforms of the nature to support long-term fiscal consolidation and broad public support for the austerity measures already approved.
In the absence of a credible package of broad reforms across the public institutions and state companies (likely to generate tensions within the ruling coalition as highlighted by UniCredit), the public support for the government of prime minister Ilie Bolojan will plummet during 2026, increasing the political risk and maintaining the borrowing cost high.
iulian@romania-insider.com
(Photo source: Sittipong Phokawattana/Dreamstime.com)
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