Romania rated BBB- by Fitch

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The rating for Romania’s long-term foreign currency debts is BBB- with a stable outlook, Fitch announced. According to the rating agency, the rating is due to Romania’s EU membership and associated capital inflows to support revenue convergence, external finances and macroeconomic stability. 

GDP per capita and human development indicators are above those of other countries in the same category, Fitch noted in a press release published on Friday, 1 March. However these factors are countered by budget and current account deficits higher than other countries in the same category, a modest track record of fiscal consolidation, increased budget rigidities and a high external debtor position, Fitch wrote. 

Romania’s budget deficit in 2023 was almost unchanged year-on-year, at 6.1% of GDP, well above the government’s initial target of 4.4% of GDP, Fitch analysts wrote. 

“We have revised up the deficit path over the medium term in light of the less favourable starting position and the significant legislated pension increases in January and September 2024 with an estimated impact of 1.8% of GDP fiscal easing in 2025,” the analysts said. 

Fitch forecasts that Romania will record a government deficit of 6% of GDP in 2024 and one of 6.4% in 2025. “We expect significant fiscal consolidation over the medium term, helped by the reintroduction of European fiscal rules, even if there are significant downside risks, given current uncertainties over post-election fiscal plans and recent fiscal slippage has negatively affected policy credibility,” Fitch analysts added.

The rating agency also expects the Romanian economy to register growth of 3% in 2024 and 2025, after slowing to 2% in 2023. 

Important engines of growth and investments in the medium term remain large inflows of European funds, including the cohesion and the  recovery and resilience funds as well as the new multi-annual 2021-27 financial framework. EU funds would up Romania’s potential for economic growth, accelerating recovery to EU level, according to Fitch. 

Among risks that could lead to a downgrading of Romania’s rating, Fitch cites a failure in medium-term fiscal consolidation, leading to increased public debt in proportion to gross domestic product (GDP). Conversely, a sustained budget deficit reduction could improve Romania’s sovereign rating.