This decision, made on January 24, 2025, follows a tumultuous period marked by the cancellation of a presidential election due to allegations of Russian interference, which has left the nation grappling with significant institutional uncertainty. Also, S&P is the second rating agency that downgraded Romania’s outlook after Fitch did the same in mid-December.

The credit rating agency maintained Romania’s long-term foreign currency debt rating at BBB-, the lowest investment-grade level. However, the negative outlook indicates a potential downgrade if the government fails to address its widening budget deficit, projected to exceed 8.5% of GDP in 2024. This alarming fiscal situation starkly contrasts the European Union’s average deficit, raising concerns among investors and analysts alike.

Romania’s political landscape has been further complicated by the upcoming re-run of the presidential election scheduled for May 2025. The recent political fragmentation has hindered the government’s ability to implement effective fiscal policies, making it increasingly challenging to craft a credible budget to reduce the deficit to 7% of economic output this year.

The Finance Minister, Barna Tanczos, emphasized that swift action is essential to restore investor confidence and stabilize the economy. The European Commission has approved Romania’s plan to gradually reduce its budget deficit to below 3% by 2030; however, analysts warn that achieving this goal may prove difficult without significant tax reforms or spending cuts.

The government is expected to present its budget for 2025 shortly. Still, it has indicated that no significant tax hikes will be included—an approach many view as insufficient given the current fiscal challenges.

S&P’s outlook change is a critical warning signal regarding the country’s economic trajectory. The international community will closely watch how Romania’s leadership responds to these challenges in the coming months, particularly as it prepares for another round of elections that could further influence its political and economic stability.

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According to S&P, Romania’s rating is supported by its EU membership and the full access to finance in international capital markets. Also, the risks generated by the conflict in Ukraine are mitigated by the prospect of absorbing a significant volume of European funds, as well as the energy dependence of the country compared to the natural gas and oil in Russia.

The Romanian government is implementing effective measures to counter the effects of the energy crisis and the war in Ukraine. We are not the only ones to say it, says Standard & Poor’s, which confirms the country rating and the high degree of security for investors, maintaining a stable perspective.

Adrian Caciu, Romania’s Minister of Finance

According to Standard & Poor, the registration of sustainable economic growth cumulated with the reduction of the government fiscal deficit could lead to the consolidation of the productive capacity of the Romanian economy and consequently to a possible action to improve the sovereign rating of our country.

While all these evaluations of the international rating agencies are presented optimistically by the government, the constantly rising inflation, now reaching double digits, is a problem in Romania, and the protective measures are taken too slowly for the vulnerable population to take advantage of them. Also, the foreign institutions are more reserved when evaluating Romania’s potential to grow this year, estimating it at about 1.9% compared to the optimistic 5% at the beginning of the year.

This is why, despite the optimism displayed by the authorities, the average Romanians have to prepare to face one of the most challenging economic times in the months ahead.

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