International rating agency Moody’s on September 12 affirmed Romania’s Baa3 sovereign rating with a negative outlook, pointing to the risks related to the implementation of the fiscal consolidation measures through 2026 and the urgency for the government to present a detailed plan for continued deficit reduction also in 2027 and beyond.
“[W]e remain firmly committed to ensuring the stability of public finances and the gradual reduction of the deficit, to strengthen the resilience of the Romanian economy but also to lay the foundations for a healthy economic growth of Romania,” commented minister of finance Alexandru Nazare in response to Moody’s release.
The decision to maintain the negative outlook reflects the significant implementation risks tied to the government’s ambitious fiscal consolidation programme, the rating agency explained.
Based on the effects of the budgetary measures already legislated by Romania in July and approved by the government in September, Moody’s revised its forecast for the country’s 2026 budget deficit to 6.1% of GDP from 7.7% of GDP in March. Even if the rating agency notes implementation risks, the projection is rather optimistic compared to the 6.4% of GDP target set under the 7-year fiscal consolidation plan sketched by Romania and approved by the European Commission under the Excessive Deficit Procedure.
Moody’s estimates the combined consolidation measures at over 3% of GDP in 2025 and 2026, 0.6% of GDP this year, followed by 2.4% of GDP in 2026.
Moody’s also expects Romania’s public debt to stabilise around 65% of GDP, with the assumption of further deficit reduction in 2027 and beyond.
The adopted measures open up a path towards containing the rise of the government debt burden, keeping Romania’s fiscal strength and overall credit profile in line with its Baa3 rating peers, the rating agency notes.
However, the rating agency sees significant risks to the successful implementation of the fiscal consolidation plan, which, if they materialise, would lead to a weaker-than-expected fiscal outcome, and which justifies maintaining the negative outlook.
Moody’s names three risks to the successful implementation of the fiscal consolidation plan: social pressure undermining the ruling coalition’s stability, a possible vicious circle of fiscal austerity hurting economic growth, and, thirdly, Romania’s track record of weak fiscal policy management.
On the upside, Moody’s explains that the affirmation of Romania’s Baa3 ratings is supported by the economy’s solid growth potential as well as its comparatively high wealth levels, which underpin Romania’s economic strength.
However, Romania’s credit profile is constrained by institutions and governance somewhat weaker than that of rating peers and its high susceptibility to event risk, driven by its exposure to geopolitical risk given its proximity to the war in Ukraine. Romania’s exposure to geopolitical risk is also affected by the diminished engagement of the US in European security.
iulian@romania-insider.com
(Photo source: Roman Tiraspolsky/Dreamstime.com)
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