Romania's credit rating steady, but downgrade risks persist

S&P Global Ratings has kept Romania's sovereign credit rating at BBB-/A-3, maintaining its position in the investment-grade category. The negative outlook, however, signals potential risks of a downgrade to 'junk' status if the country's fiscal policies falter.

The agency highlights the necessity of a credible government budget framework for 2027-2028, noting that fiscal consolidation efforts and EU fund absorption are on track for 2026. The government deficit is expected to decrease progressively from 7.9% of GDP in 2025 to 5% by 2028. Currently, the deficit is estimated at 6.25% for 2026.

Recent fiscal measures, such as VAT and excise tax hikes, along with salary and pension freezes, have strengthened consolidation efforts. Changes to profit taxation have also been implemented to support fiscal stability. EU funds are anticipated to constitute 3.5% of GDP in 2026, while public investments are projected to reach 8.5% of GDP.

Despite these measures, S&P's negative outlook highlights significant risks, particularly in public finance consolidation. Challenges include reducing external deficits and maintaining investor confidence. The agency warns that failure to establish credible fiscal policies could lead to increased financing costs and pressure on Romania's balance of payments.

A downgrade could occur if government formation hinders deficit reduction or if new energy market issues emerge. On the other hand, the outlook could improve if Romania successfully reduces fiscal and external deficits through a credible medium-term policy plan.