Romania’s Credit Rating Holds, But Borrowing Costs Signal Junk Status
Romania's credit rating remains at the lowest investment-grade level, according to S&P, Fitch, and Moody’s, but its borrowing costs are already in junk territory. The agencies highlight political risks and the uncertainty of fiscal discipline beyond 2026 as key concerns. S&P warns that delays in government formation or failure to control public sector wages could trigger a downgrade.
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S&P, Fitch, and Moody’s have kept Romania at the lowest rung of investment grade, yet the interest rates the government now pays to borrow have already reached levels typical of countries rated as “junk.” Only one notch separates Romania from a downgrade, and the warnings in the agencies’ reports focus squarely on political risk and the fragility of fiscal consolidation after 2026.
S&P’s latest report, released late on August 8, reaffirmed Romania’s BBB-/A-3 rating with a negative outlook. The central message, delivered without ambiguity, is that the fiscal adjustment in 2025-2026 worked, but the future depends on the political ability to sustain discipline through 2027-2028. S&P commends the increases in VAT and excise taxes, profit tax adjustments, and, most notably, the freeze on public sector wages and pensions alongside spending cuts. The agency projects the budget deficit will fall from 9.3% of GDP in 2024 to 7.9% in 2025, then to 6.25% in 2026, 5.8% in 2027, and 5.0% in 2028.
Even so, S&P issues an unusually direct political warning for its standards: if government formation drags on and blocks deficit reduction in 2027-2028, the rating could be downgraded. S&P singles out the public sector wage bill as a major vulnerability, now accounting for nearly 25% of budget expenditures. Romania has already forfeited €750 million in PNRR grants due to failure to pass the unified wage law, and conflicting party statements on wage hikes are increasing fiscal risk, especially as the 2028 elections approach.
Investor confidence is another risk S&P highlights. Romania relies heavily on external financing, and the high share of debt held by non-resident investors increases exposure. Any deterioration in the political climate could quickly erode confidence, put pressure on the exchange rate, and create funding difficulties. In effect, the rating reflects not just budget numbers but also the government’s ability to keep reforms on track.
Fitch, in its July 31 review, also held the rating at BBB- with a negative outlook. The agency points to the advantages of EU membership, access to European funds, GDP per capita, and relatively sound governance for the BBB category. The list of problems, though, is long: a high fiscal deficit, an equally troubling external deficit, rising public debt, persistent inflation, and, above all, political fragmentation and polarization. Fitch is more blunt than S&P: the risk lies in the social and political costs of fiscal consolidation, and the temptation to loosen the budget before the 2028 elections. Increasing political fragmentation makes fiscal strategy less predictable and can stall reforms required for European funding.
In concrete terms, Fitch projects public debt will reach 64.5% of GDP by 2028, and Romania will need an additional fiscal adjustment of about 1.5% of GDP to stabilize debt. The agency spells out the downgrade “trigger”: failure to adopt further consolidation measures to stabilize debt, for example due to a prolonged political impasse that blocks policy implementation. If the government cannot pass the necessary measures, Fitch will downgrade without hesitation.
Moody’s, in its August 7 report, maintains the same stance: Baa3, negative outlook. The agency acknowledges that the initial adjustment measures have worked, slowing the rise in debt and interest costs, but keeps the negative outlook due to the risk of failing to implement the consolidation program. Moody’s distills the core issue: political fragmentation threatens to “sap the momentum” of fiscal adjustment, and the real test will be whether Romania can sustain political support for prolonged fiscal tightening and the structural reforms needed to stabilize debt.
All three agencies are essentially delivering the same message: Romania has so far avoided a downgrade to “junk” thanks to tough measures taken over the past two years, but any political backsliding or hesitation could quickly cost the country its investment grade status. The playbook for avoiding “junk” is clear: don’t abandon fiscal consolidation, keep structural spending (especially wages and pensions) in check, stabilize public debt (which requires new adjustments after 2026), form a government able to adopt and implement measures, don’t sacrifice reforms for electoral deals, and absorb EU funds by delivering on promised reforms. On top of that, external vulnerability must be reduced, meaning the current account deficit and reliance on non-resident financing.
The mechanism tying all these warnings together is straightforward but politically fraught: Romania needs large-scale external financing, and foreign investors are watching not just the numbers but also political stability and policy coherence. Once instability or fiscal relaxation is perceived, borrowing costs rise, pressure on the leu intensifies, and the rating agencies respond quickly. The interest rates Romania pays are already at levels typical of “junk” markets, even though the official rating holds. In practice, the market is treating Romania as a heightened risk, leaving almost no room to maneuver.
Political gridlock, anticipated by all three agencies, could strike either during government formation or when passing unpopular measures. In election years, the temptation to raise wages and pensions or ease fiscal discipline is ever-present. S&P and Fitch explicitly flag this risk: any political compromise or unsustainable electoral promise can derail fiscal consolidation. Without broad political agreement on continuing reforms, any government will be tempted to delay or water down measures under electoral and parliamentary fragmentation pressures.
European funds and the PNRR are both an anchor and a constraint. S&P and Fitch stress that access to EU money depends on delivering promised reforms. Romania has already lost substantial PNRR grants due to delays in the wage law. If the reform pace slips, not only will funds be lost, but funding pressures will rise and the rating will become even more vulnerable. EU funds also help finance investments, reducing the need for external borrowing. Without them, dependence on international markets grows further.
Another critical mechanism is structural spending. Public sector wages and pensions now account for nearly half the budget. S&P warns that the absence of a durable legislative framework and contradictory promises of increases are a major fiscal risk. Without a unified wage law, Romania not only loses EU money but also credibility with investors and rating agencies. In pre-election years, the pressure to boost spending peaks, and fiscal discipline becomes hard to maintain.
Fitch notes that even with the measures already adopted, Romania still needs additional adjustments of 1.5% of GDP to stabilize public debt. That means either higher revenues (through taxes or levies) or spending cuts, especially in wages and pensions. Any delay or easing will push debt above the thresholds considered safe for investment grade.
The current winners, paradoxically, are the Bolojan government and those who backed the unpopular measures of recent years. Without the 2025-2026 adjustments, Romania would already have been downgraded, with direct consequences for funding costs, the exchange rate, and investment. The losers may be all those betting on fiscal relaxation or unfunded electoral promises. If the rating falls to “junk,” the state will pay even higher interest, and there will be no room left for wage hikes or investment.
Fitch projects that without further adjustment, public debt will hit 64.5% of GDP by 2028, breaching the 60% psychological threshold associated with fiscal stability in Central and Eastern Europe. S&P points out that almost 25% of budget spending already goes to public sector wages, and any unfunded increase could quickly destabilize the balance. Moody’s warns that political fragmentation could cause fiscal adjustment to “lose momentum,” with the real test coming as the 2028 elections draw near.
For the markets, the rating is not just a label but a signal of confidence or alarm. A downgrade would automatically raise interest rates, weaken the leu, and make all external financing, from government bonds to corporate loans, more expensive. Institutional investors could be forced to sell Romanian assets, and the state would have to scramble for alternative, costlier funding. This is the real pressure already felt by decision-makers in Bucharest, even as the official rating remains intact.
At this point, Romania stands on a narrow edge: avoiding “junk” status depends on continuing fiscal consolidation and the political will to push through unpopular reforms, even in election years. S&P, Fitch, and Moody’s leave little room for doubt: any political gridlock or fiscal relaxation will be punished swiftly, and the costs will be borne across the entire economy.
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