Rating agency Fitch on Friday maintained Romania’s rating and outlook at investment grade, after revising the outlook to negative from stable in December. But the rating agency comes with serious warnings about Romania’s fiscal and budgetary balance. Romania is now at investment grade, “one step away from junk,” and a potential future rating downgrade will cause many investors to withdraw they money from the country.
Fitch warns that it could downgrade Romania to junk status, meaning a country not recommended for investment, if there is a rapid and sustained increase in public debt over the medium term, for example due to the failure to implement measures to support sustained and credible fiscal consolidation, or weak economic growth. It could also follow evidence of adverse effects on external financing and liquidity or on macroeconomic stability, as a result of high fiscal and current account deficits or domestic political shocks.
Fitch argues that Romania’s current rating is due to EU membership and related capital inflows, which support income convergence, external finances and macroeconomic stability. GDP per capita, governance and human development indicators are above the “BBB” category. But the rating agency says these strengths are offset by large and persistent budget and current account deficits, deteriorating debt dynamics, weakening policy credibility amid high political uncertainty, and a fairly high net external debtor position.
Fitch: Romania’s Negative Outlook Reflects Fiscal Deterioration and Political Uncertainty
High Political Uncertainty: Fitch states that Romania’s negative outlook reflects the significant deterioration of public finances, a sharp slowdown in growth in 2024, and the likely negative effect of increased political uncertainty on fiscal consolidation prospects.
Political uncertainty has risen since late 2024. The Constitutional Court annulled the presidential elections due to alleged foreign interference following the surprise first-round victory of populist candidate Călin Georgescu. New presidential elections are scheduled for May 2025, with the Constitutional Court set to rule on candidates’ eligibility—including Georgescu’s—by mid-March, given ongoing investigations.
New Parliament, New Government: The parliamentary elections on December 1, 2024, resulted in a more divided parliament, reflecting Romania’s growing social polarization. A pro-European coalition of three parties was quickly formed, and the government announced fiscal consolidation measures, adopting the 2025 budget in January. However, Fitch believes the coalition’s stability remains uncertain, and political pressures will remain high, especially during the presidential campaign, potentially delaying additional fiscal consolidation measures until the second half of 2025.
Record Budget Deficit: Romania’s general government deficit reached 8.7% of GDP in 2024, according to preliminary cash-based data. This was the highest among “BBB”-rated sovereigns and exceeded both the government’s previous target (5% in the 2024 Spring Convergence Program) and the 6.5% budget outcome for 2023. The larger-than-expected fiscal deterioration was mainly driven by rapidly rising expenditures, including public sector wages and unfunded pension increases before the elections. The full-year impact of pension increases from September 2024 will add to fiscal pressures this year, making consolidation even more challenging.
Fiscal Consolidation Challenges and Trade-offs: The government aims to reduce the budget deficit to 7% of GDP in 2025, meeting the European Commission’s target. Key measures include stricter spending controls, such as freezing wages and pensions, and improving tax collection. Fitch forecasts a deficit of 7.5% of GDP in 2025 and 6.8% in 2026—more than double the current projected “BBB” median of 3.2% for 2025-2026. Fiscal consolidation could face difficult trade-offs in the medium term due to its potential negative impact on already weak economic growth and the risk of financial market volatility leading to higher interest costs, further weakening the fiscal position.
Rising Public Debt: Fitch forecasts a steeper upward trajectory for Romania’s debt compared to previous years, as primary deficits remain large and economic growth slows. Under Fitch’s baseline scenario, the public debt-to-GDP ratio will rise from an estimated 53% in 2024 to nearly 60% in 2026—exceeding the current projected “BBB” median of 56%—and will continue increasing to over 65% of GDP by 2028.
Weak Economic Growth: Romania’s economic momentum gradually slowed in 2024, with GDP growth averaging 0.9%, down from 2.4% in 2023 and 4% in 2022. Exports were particularly weak in 2024, partly due to adverse sectoral shocks, while household consumption remained resilient due to strong income growth fueled by loose fiscal policy. Fitch forecasts a moderate recovery, with GDP growth of 1.4% in 2025 and 2.2% in 2026, given the weak cyclical position, negative fiscal impulse, and a less pronounced eurozone recovery.
Large External Imbalances: Romania’s current account deficit (CAD) widened to 8.2% of GDP in 2024 from 6.6% in 2023, reinforcing concerns over its twin deficit issue. The “BBB” median for current account deficits is just 1% of GDP, making Romania a clear outlier. In addition to continued import growth, weak export performance in 2024 highlights challenges related to Romania’s external competitiveness, exacerbated by rapid nominal wage growth. Net external debt is projected to rise from an estimated 14% in 2024 to 19% of GDP in 2026—significantly above the “BBB” median of 3%—after standing at 12% in 2023.
Deteriorating Financing Conditions: Romania had generally favorable market conditions and ample market liquidity until October 2024. However, financing conditions have worsened in recent months due to rising domestic fiscal and political risks and significant funding needs. In February 2025, Romania issued three Eurobonds with maturities of five, nine, and 12 years, totaling €4.1 billion—around 30% of its planned annual external issuance. Given the rising debt and higher marginal yields, Fitch estimates that the interest payment-to-revenue ratio will increase to nearly 8% of revenues by 2026, up from 6.4% in 2024, exceeding the 7.5% median.
Previously, in December, Fitch changed Romania’s outlook from stable to negative, in an unscheduled review. Thus, Fitch Ratings sent Romania once again to the “junk” level. Fitch explained in its press release at the time that the outlook revision reflects a number of key rating factors and their relative weights. According to the rating agency, political uncertainty affects the fiscal outlook