Romania’s general government budget deficit (ESA terms) would reach 7.4% of GDP this week and 6.3% in 2026, even with only the first fiscal consolidation package legislated in July, international rating agency Fitch commented on August 15 when it affirmed Romania’s fragile BBB-/negative sovereign outlook on an overly optimistic note.
The government is preparing further fiscal consolidation measures on the revenue and expenditure sides, in close cooperation with the European Commission, but “as these are not yet finalised we have not included them in our fiscal projections,” the rating agency’s comment reads.
This might mean that Fitch expects an even smaller public deficit in 2026, compared to 6.4% of GDP under the 7-year fiscal consolidation plan. Romania’s government would thus outperform the target even with no additional packages. Highly unlikely, however, even according to prime minister Ilie Bolojan, who said the 8%-of-GDP gap this year is the best he expects.
There is a methodology detail that may bring closer the prime minister’s and rating agency’s expectations for this year’s public deficit, yet the discrepancy remains significant. Namely, PM Bolojan speaks of the cash deficit, which this year might be wider than the ESA deficit – but not if all the works contracted under the Anghel Saligny public investment scheme are counted.
The rating agency mentions inter alia political and social tensions, but expects political uncertainty no sooner than 2027, when PM Bolojan will make way for a new prime minister from the PSD. There is a non-insignificant likelihood that Ilie Bolojan will make way for a new prime minister, potentially from PSD, much earlier.
“An ambitious fiscal consolidation package was announced and quickly legislated in July based on the joint work of the president and the government,” the press release reads.
In fact, the package was recommended by the EC experts and replaced the ambitious work of the president and the government, which was leading nowhere. Unfortunately, the ruling coalition faces even higher obstacles in sketching the second package of reforms.
The broader macroeconomic scenario sketched by Fitch assumes prolonged weak growth. According to the rating agency’s forecast, GDP growth will not reach the 2% potential growth rate until at least 2027, but downside risks are contained as greater clarity about the fiscal consolidation path will support confidence and external financing. Fitch forecasts 0.7% GDP growth this year, practically the same as in 2024.
Failure to implement additional fiscal consolidation measures (further packages) that would result in public debt stabilisation over the medium term is a factor that could lead to negative rating action/downgrade, which would bring Romania’s rating into the non-investment region, according to the rating agency – a scenario that remains relevant, although it can still be avoided.
iulian@romania-insider.com
(Photo source: King Ho Yim/Dreamstime.com)
Leave a Reply