The outcome of the presidential elections in Romania could have implications for investor confidence, the sustainability of the coalition government, and its political capacity to implement fiscal consolidation, according to a note issued by rating agency Fitch in response to the elevated political turmoil and the wide budget deficit in January-February (1.6% of GDP).<\/p>\n
The rating agency stressed that further fiscal corrective measures are necessary for Romania to meet its analysts\u2019 7.5%-of-GDP deficit projection \u2013 a guideline for a possible dramatic downgrade that would push the country\u2019s public debt into the junk region.<\/p>\n
The urgency for further fiscal consolidation steps is prompted by, besides the Jan-Feb budget execution, pressures to increase defense spending (2024: 2.3% of GDP).<\/p>\n
\u201cWithout additional measures, we believe there are risks to our 2025 deficit forecast of 7.5% of GDP, especially given the large monthly deficits at the beginning of 2025,\u201d the rating agency said.<\/p>\n
Fitch was the first of the three major agencies to change the outlook of Romania\u2019s fragile BBB- sovereign rating to negative last December, followed shortly by the other two.\u00a0<\/p>\n
Notwithstanding the political and fiscal risks, Fitch notes that a subdued recovery in the baseline scenario will see 1.4% GDP growth in 2025 and 2.2% in 2026, helping reduce the deficit to a still-high 6.8% in 2026.\u00a0<\/p>\n
This will not prevent the general government debt-to-GDP ratio from increasing sharply to 62% in 2026 (2023: 49%), above the projected current BBB median of 56%, and to about 70% of GDP by 2028 in the rating agency\u2019s baseline projections.<\/p>\n