S&P Maintains Romania’s Credit Rating, But Risks Linger

Romania has narrowly avoided a downgrade to “junk” status after S&P Global Ratings reaffirmed the country’s investment-grade rating at ‘BBB-‘, while maintaining a “negative outlook.” The reprieve comes in the wake of newly adopted fiscal and budgetary measures from Prime Minister Ilie Bolojan’s government, decisive steps designed to restore investor confidence and stabilise public finances in the face of unprecedented deficits.

The assessment emphasises that while the immediate danger of losing investment grade status has receded, significant fiscal risks remain. The agency warns that if Romania fails to achieve convincing fiscal consolidation, or if economic stagnation undermines the government’s plans, a downgrade remains possible within the next two years.

Government’s Fiscal Package: Tax Hikes and Spending Cuts

In mid-2025, the Bolojan government introduced a comprehensive fiscal package aimed at consolidating public finances and addressing a projected cash budget deficit that could have exceeded 8.5% of GDP without intervention. Key measures include:

• Raising the standard VAT rate from 19% to 21%, with reduced rates also going up to 11%, effective August 1, 2025.
• Extending health insurance contributions to pensions over 3,000 lei until 2028.
• Freezing pensions and public sector salaries in 2026.
• Increasing taxes and duties, notably for the gambling sector.
• Implementing reforms to special pensions, retirement ages, and management of state-owned enterprises.
• Downsizing and optimising public sector structures through decentralisation and digitisation.

The package, valued at about 5% of GDP, is recognised as Romania’s most ambitious fiscal adjustment effort since the global financial crisis. While designed to address immediate risks, the measures will bring short-term economic pain: anticipated slower growth, higher inflation, and potential job losses.

Prime Minister Ilie Bolojan took full responsibility for the reform package, acknowledging the unpopularity of the measures but assuring Romanians that this difficult period will be limited in time. He emphasised the need for reforms to ensure long-term stability and called for cooperation from coalition partners and the opposition.

On the other hand, Finance Minister Alexandru Nazare highlighted positive signals from international partners in response to the government’s fiscal actions. He noted that there’s a high degree of certainty that Romania is headed in the right direction. Still, he warned that the work is not yet over, with continued monitoring and further reforms necessary.

The Broader Context and Implications

• Without corrective measures, Romania risked not only a credit downgrade but also the suspension of critical EU funds worth over €28 billion.
• The government has committed to further consolidation packages, targeting broader reforms in public administration, governance, and fighting tax evasion throughout 2025 and beyond.
• The retention of Romania’s investment grade gives the government breathing room, but Romania remains under scrutiny from both markets and European institutions. The path forward requires discipline, transparency, and full implementation of the agreed fiscal roadmap.

The latest evaluation reflects cautious optimism: Romania remains, for now, out of “junk” territory, but the threat lingers if fiscal discipline is not enforced. The Bolojan administration’s willingness to pursue unpopular but necessary measures and its public commitment to accountability signal a new chapter for Romanian fiscal responsibility, one that investors, EU institutions, and the Romanian public alike will closely watch.