The rating benefits from Romania’s membership in the European Union and the capital inflows that come with it. Still, Fitch raised concerns about the country’s high budget deficit and increasing government debt. Economic growth is expected to be slow this year, with only a slight improvement in the next couple of years.

Romania’s Finance Minister welcomed the decision and said the government’s recent reforms, including tax hikes and spending cuts, played a key role in maintaining the rating. However, Fitch, along with other rating agencies, remains worried that these fiscal measures might slow economic growth or face political resistance.

The future of the rating depends on Romania’s ability to keep its budget under control and reduce debt. If the government stays on track with fiscal consolidation and improves the country’s external financial position, Romania’s credit profile could strengthen. But if it fails to deliver on its fiscal plans or political instability worsens, the risk of a downgrade grows.

Fiscal Consolidation: Romania has started fiscal consolidation, albeit from a very weak starting position in 2024, with the general government fiscal deficit at 9.3% of GDP. After measures implemented at end-2024 by the previous government, the budgetary impact of the July package is estimated by the government at around 1% of GDP this year with VAT increases (2pp of the standard rate, 2-6pp of the reduced rate) effective August 2025 as the main revenue side measure. Further tightening measures are scheduled for January 2026, including one more year of the nominal freeze of public sector wages and pensions.

Fitch Ratings on Romania, August 15, 2025

This rating decision, made official on August 15, 2025, is crucial for Romania because keeping an investment-grade rating helps the country borrow more cheaply and keeps foreign investors interested. Losing that status would increase borrowing costs and shake confidence in the economy. For now, Romania has a chance to prove it can manage its finances well, but the challenges ahead are significant.

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Romania’s EU membership remains a cornerstone of its economic resilience, supporting income convergence and providing a steady stream of external financing. The country’s GDP per capita, governance standards, and human development indicators stand above those of many peers within the ‘BBB’ rating bracket. However, these strengths are being overshadowed by significant economic and political headwinds.

One of the most pressing concerns is Romania’s mounting fiscal deficit, which reached 8.7% of GDP in 2024 — the highest among ‘BBB’ rated sovereigns. This surge in public spending was fueled by rapidly growing expenditures, including public sector salary hikes and unfunded pension increases ahead of elections. These fiscal pressures have exacerbated the country’s current account deficit, further straining its economic outlook.

Adding to the uncertainty is the recent wave of political instability. Since late 2024, Romania has faced intensified political turmoil after the Constitutional Court annulled the presidential election, citing foreign interference. The unexpected first-round victory of populist candidate Calin Georgescu has stirred further controversy, with a new election scheduled for May 2025. The ongoing ambiguity surrounding the candidates’ eligibility has only deepened concerns about the country’s governance and its ability to implement much-needed fiscal reforms.

Economic growth has also slowed considerably. Romania’s GDP growth averaged just 0.9% in 2024, a sharp decline from 2.4% in 2023. While household consumption showed some resilience, buoyed by rising incomes and loose fiscal policies, exports struggled due to sectoral disruptions. Fitch projects a modest recovery, with GDP growth expected to reach 1.4% in 2025 and 2.2% in 2026, but warns that these figures remain vulnerable to internal and external shocks.

The public debt trajectory presents another area of concern. Fitch forecasts Romania’s public debt to climb from an estimated 53% of GDP in 2024 to nearly 60% by 2026, surpassing the ‘BBB’ median of 56%. This trend signals growing pressure on the government to enact credible fiscal consolidation measures to prevent further erosion of investor confidence.

Fitch’s reaffirmation of Romania’s ‘BBB-‘ rating underscores a delicate balance between economic potential and mounting fiscal and political risks. While EU membership provides a crucial buffer, the persistence of large deficits, sluggish growth, and political uncertainty weigh heavily on the country’s economic future. The Negative Outlook reflects Fitch’s view that unless Romania takes concrete steps to stabilize its public finances and address its twin deficits, further rating downgrades could be on the horizon.

For Romania to reverse this trajectory, Fitch highlights the need for sustained fiscal discipline, including credible consolidation efforts to rein in public debt and narrow the current account gap. Conversely, any further slippage in fiscal policies or escalation of political instability could prompt a reassessment and potential downgrade.

This latest rating decision is a stark reminder of the urgent reforms required to bolster Romania’s economic standing and restore investor confidence in an increasingly uncertain environment.

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Fitch’s report indicates that while the current rating remains stable, the negative outlook suggests potential risks that could lead to a downgrade if economic conditions do not improve. Analysts highlighted that Romania’s net external debt is expected to increase, further complicating its economic landscape.

Fitch Ratings’ recent decision to revise Romania’s outlook to negative while affirming its long-term foreign currency rating at BBB- raises significant concerns about the country’s economic trajectory. This downgrade reflects a growing unease regarding Romania’s ability to maintain fiscal stability and competitiveness in an increasingly challenging global environment.

Economic Challenges Ahead

The negative outlook indicates that Romania is grappling with serious economic hurdles, particularly in weak export performance and a deteriorating current account balance. Analysts have pointed out that these factors could lead to a further downgrade if not addressed promptly. The country’s reliance on external funding and the potential increase in net external debt are alarming signs that suggest Romania may be heading towards a fiscal crisis.

Risks of Fiscal Consolidation Failures

Fitch has highlighted the risks associated with potential failures in fiscal consolidation efforts. If the government cannot effectively manage its budget deficit, the public debt-to-GDP ratio could spiral out of control, undermining investor confidence and higher borrowing costs. Such a scenario would not only jeopardize Romania’s credit rating but also its economic recovery prospects.

Geopolitical Tensions and Inflation Pressures

Additionally, ongoing geopolitical tensions in Eastern Europe and persistent inflationary pressures threaten Romania’s economic stability. These external factors challenge the government’s previous claims of resilience and sound fiscal policies, which could severely impact growth rates and overall economic health.

A Call for Urgent Action

In light of these developments, Romanian authorities must take immediate and decisive action to address these vulnerabilities. Without a robust strategy to enhance export competitiveness and ensure fiscal discipline, Romania risks falling into a cycle of economic decline that could have far-reaching consequences for its citizens and its standing in the international community. The time for complacency has passed; urgent reforms are necessary to avert a potential financial crisis.

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ROMANIA’S RATING: KEY RATING DRIVERS EXPLAINED

Structural Strength and Weaknesses: Romania’s ‘BBB-‘ rating is supported by EU membership and related capital inflows that support income convergence, external finances, and macro stability. GDP per capita, governance and human development indicators are above ‘BBB’ category peers. These are balanced against large twin budgets and current account deficits (CAD) relative to peers, a weak record of fiscal consolidation, high budget rigidities, and a relatively high net external debtor position.

More significant Budget Deficits: The budget deficit (ESA terms) in 2023 is estimated at 6.1% of GDP, practically unchanged since 2022 and well above the initial government target of 4.4%. FitchRatings revised 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. Fitch projects general government deficits of 6% of GDP in 2024 and 6.4% in 2025.

Fitch expects meaningful fiscal consolidation over the medium term, which will be helped by re-introducing EU fiscal rules. However, there are significant downside risks, given that the current uncertainties around post-election fiscal plans and the recent fiscal slippage have negatively affected policy credibility.

Increasing Public Debt: Fitch forecasts general government debt increasing to 53.3% of GDP in 2025, from 48% in 2023, but still below the ‘BBB’ current median of 57.5%. In recent years, nominal solid growth, due partly to higher inflation, helped to contain the debt increase. However, the upward revisions to our deficit forecasts and a significant slowing in nominal growth have put debt/GDP upward.

Slowing Economy: The growth momentum of the Romanian economy slowed in 2023, similar to the pattern of most EU members. According to preliminary data, the annual average GDP was 2% in 2023 compared to 4.1% in 2022. Nevertheless, GDP growth is still more substantial than the EU average, illustrated by 1% yoy (seasonally adjusted) growth in 4Q23, compared with 0.3% in the EU. Fitch forecasts 3% growth in 2024 and 2025, compared with the eurozone forecast of 0.7% and 1.7%, respectively, and in line with the ‘BBB’ current median of 3.1%.

The large inflows of EU funds, including the cohesion funds from the new multiannual (2021-2027) financial framework and the recovery and resilience funds, will remain key drivers of growth and investment over the medium term. Beyond the direct demand stimulus, EU funds should also improve the economy’s growth potential, accelerating the catch-up towards the EU level.

Declining Inflation: Inflation declined faster than expected in 2H23 due primarily to favourable food price dynamics. Inflation (national CPI measures) was 6.6% in December 2023, more than 10pp below the peak of 16.8% in November 2022, but still significantly above the National Bank of Romania’s 2.5% +/-1pp inflation target. Underlying price pressures are more persistent, signalled by core inflation persistently above CPI since April 2023. Fitch forecasts HICP inflation to reach 5.1% in 2024 and 3.5% in 2025, with risks skewed to the upside.

Multiple Elections in 2024: The grand coalition of the two largest parties (Social Democratic Party and National Liberal Party), which was formed in November 2021, has proven stable as the country prepares for four elections this year: EU and municipal elections in June and presidential and general elections scheduled by the end of 2024. The pre-election fiscal easing of the governing parties, primarily the unfunded pension increases timed with the general elections, underpin the medium-term fiscal risks.

Modest External Adjustment: The CAD narrowed to an estimated 7% of GDP in 2023 from 9.1% in 2022, but still well above the ‘BBB’ median of 1.7%. Fitch forecasts that the CAD will stabilize in the 5-7% of GDP range, consistent with its pre-pandemic average. Romania will continue to have one of the largest CADs in central and eastern Europe and the ‘BBB’ category, partly reflecting competitiveness challenges. Notwithstanding the high CAD, Romania faced no external financing pressures during the global monetary tightening period in 2022 and 2023.

Sound Banking Sector: The Romanian banking sector is well capitalised (standard equity Tier 1 ratio of 18.8% at end-3Q23), profitable (annualised 9M23 return on assets 1.9%), liquid and funded with granular local customer deposits (gross loans/ customer deposits of 69%). Asset quality remained resilient to a slowing economy, high inflation and borrowing costs, with non-performing loans stable at 2.6%. Fitch expects profitability peaked in 2023 but should remain reasonable in the near term for larger banks, despite the burden of the turnover tax effective from 2024. The impact of the tax on profitability is likely to be more pronounced for smaller banks.

ESG – Governance: Romania has an ESG Relevance Score (RS) of ‘5[+]’ for Political Stability and Rights and the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight of the World Bank Governance Indicators (WBGI) in FitchRatings’ proprietary Sovereign Rating Model (SRM). Romania has a moderate WBGI ranking at 59.1 percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

Also, Fitch indicates a couple of factors that could, individually or collectively, lead to a negative rating action/downgrade:

–Fiscal: Failure to consolidate the fiscal accounts over the medium, significantly increasing the public debt to GDP ratio.

–Macro/External: Evidence of adverse spill-overs to policy credibility, macroeconomic stability, and external liquidity stemming from high twin fiscal and CADs.

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As communicated in the press release, the rating is based on the following:

Public Debt Stabilising: Public debt/GDP stabilized at nearly 49% of GDP in 2021-2022. Fitch projects it will remain broadly flat over the medium term in our baseline scenario, below the current ‘BBB’ median of 56%. In the experts’ opinion, the nominal solid growth of the economy, partly due to the economic recovery and partly due to the high GDP deflator, and reforms from recent years that have eased fiscal rigidities and enhanced revenue-raising capacity will compensate for relatively high budget deficits.

Gradual Fiscal Consolidation: The budget deficit in 2022 is estimated to have closed at around 6.3% of GDP. Fitch’s fiscal projections are slightly above official ones, with a budget deficit of 4.6% of GDP in 2023 and 4.0% in 2024. The experts expect narrowing the budget deficit will stem from higher revenues supported by tax reforms, while the expenditure/GDP ratio will remain broadly stable.

Reduction in Downside Risks: Romania’s credit fundamentals have been relatively resilient to shock from the Ukraine war and the subsequent energy crisis in Europe. The economy grew by 4.5% in 2022, and growth momentum was maintained through 4Q22, in contrast to the marked slowdown in the eurozone, Romania’s key trading partner. GDP is almost 7% higher than its pre-pandemic peak, one of the strongest performances among EU members. External finances have also been relatively resilient, with international reserves rising EUR10.1 billion over the past 12 months to EUR57.7 billion in February 2023, reflecting stable FDI, high EU fund flows, and ample market access.

Greater Political Stability: Fitch considers that the grand coalition of three ruling parties (Social Democratic Party, National Liberal Party and Democratic Alliance of Hungarians in Romania), which was formed in November 2021, has made progress on its fiscal consolidation and economic reform plans, and the experts have somewhat greater confidence that relative policy stability will be maintained. This contrasts with previous years of short-lived governments and significant competition between the major parties, often with negative consequences for public finances.

At the same time, Fitch warns about the current account deficit but offers a positive perspective:

The current account deficit (CAD) was EUR26.5 billion, 9.3% of GDP, compared with 7.2% in 2021 and 4.9% in 2020. Romania’s budget and the CAD are significantly higher than the peer median, underpinning the twin deficit problem. The deterioration of the CAD is due to a combination of factors, including the terms of trade shock in the energy sector and the high import content of investments. Notwithstanding the high CAD, Romania faced no external financing pressures, underpinned by the significant increase in international reserves. The exchange rate has been broadly stable against the euro.

We forecast a narrowing of the CAD in 2023-2024, consistent with a fiscal consolidation path and a gradual export recovery. Nevertheless, Romania will continue to have one of the largest CADs in central and eastern Europe and in the ‘BBB’ category, reflecting in part competitiveness challenges.

Fitch Ratings report on Romania

This is good news for Romania; the economy could grow more quickly in 2023-2024, and foreign investors would undoubtedly consider more investments there.

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This deters investors even more in the current regional and international context. An analysis we realized in January this year on the loss of investors’ trust in Romania’s economy seems to have fully predicted the current situation.

Key Rating Drivers in Fitch Ratings’ report

Credit Fundamentals

Fitch considers that Romania’s ‘BBB-‘ rating is underpinned by EU membership and EU capital flows supporting investment and macro-stability. Experts believe these are balanced against a larger twin budget and current-account deficits than peers, a weak record of fiscal consolidation and high budget rigidities, and a reasonably high net external debtor position.

Negative Outlook

The Negative Outlook offered by Fitch reflects continued uncertainty regarding the implementation of policies to address structural fiscal imbalances over the medium term and the impact of the Ukraine war and energy crisis on Romania’s economic, fiscal and external performance.

Heightened Short-Term Challenges

 In Fitch Ratings’ opinion, the Russian invasion of Ukraine represents a significant macro headwind, as it will heighten short-term risks to growth and inflation, and to a lesser extent, to public and external finances. Trade and export links with Russia—as well as Ukraine and Belarus—are minimal (exports to the three countries accounted for only 2.3% of the total in 2020), and unlike other countries in the region, Romania imports only a modest share of its gas from Russia (20%, the is rest domestically produced). However, steep increases in commodity prices, supply-side disruptions and weaker growth in Romania’s main trading partners (mainly the eurozone) will have significant spillovers, heightening short-term risks.

Public Investment Key Growth Driver

Fitch expects GDP growth to slow to 2.1% in 2022 (from 5.9% in 2021), reflecting a slowdown in private consumption and exports. Although the government has put some measures to offset higher energy costs, they will likely be insufficient to prevent a loss of purchasing power. Fitch expects public investment to provide momentum in 2H22, in line with higher absorption of the 2014-2020 Multi-Annual Financing Framework and the Recovery and Resilience Fund (RRF). In 2023 we expect investment dynamics to accelerate further, which, combined with our assumption of normalization of external trade and supply chains, will lift growth to 4.8%.

Inflation Higher for Longer

Fitch forecasts the harmonized index of consumer prices (HICP) will average 10% in 2022 (the highest rate since 2004), with inflation likely to reach double digits in 2Q22 and possibly 3Q22 (from 7.9% in February), reflecting significant pass-through from higher energy and commodity prices as well as second-round effects. The government has placed a cap on electricity and gas prices for households and some companies until April 2023, which should limit inflation pressures somewhat. Unlike other regions, wage growth appears moderate (primarily due to restraint on public wages). Still, tensions are likely to rise as the labour market tightens and employees feel a squeeze on their living standards. Fitch expects inflation to soften to 5.5% in 2023, reflecting base effects.

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BBB- is not the best scenario for Romania, but at least it also maintains the interest of the loans to be contracted further on from the international markets.

According to Fitch, Romania will register a budgetary deficit of 9.5% from GDP in 2020. The forecast is much higher than it was in September, 6.4%, but also higher when compared with the revised budget projection of 8.6%.

Also, the same experts estimate a shrinkage of the Romanian economy of 5% in 2020 and an unemployment rate of 7.3% in 2021.

The outlook of the Romanian economy doesn’t look so promising in 2021. Only in 2022 the financial specialists estimate a partial recovery of the economy, but it is not going to be at the same level as it was in 2019.

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