Ratings agency S&P maintains Romania's BBB- status, but continues to view the country's outlook as negative, in light of recently implemented fiscal policies.
Romania's Fiscal Consolidation and Economic Outlook
Romania is embarking on a significant fiscal correction amidst challenging economic conditions. The new government's measures aim to reduce the budget deficit to below 7.7% of GDP in 2025 and further to 6.4% in 2026, with a similar narrowing of the current account deficit.
The fiscal tightening involves cuts in public investment and reductions in public sector bonuses. However, this austerity is forecast to slow economic growth significantly. GDP growth is projected at only 0.3% in 2025 and a moderate recovery to 1.7% in 2026, due to dampened domestic demand caused by higher VAT and fiscal constraints.
Alexandru Nazare, the Romanian finance minister, has stated that the S&P's recent reconfirmation of Romania's "BBB-/A-3" rating for long- and short-term debt validates the government's stabilization and fiscal reform efforts. However, S&P maintains a negative outlook for Romania's rating, citing ongoing risks to public finances despite the consolidation measures announced by the new government.
Inflation, driven by resilient domestic demand and looser fiscal policy earlier in 2025, is expected to ease as fiscal tightening takes effect. This will likely influence monetary policy decisions alongside fiscal ones.
Political developments, such as the power-sharing arrangement and upcoming parliamentary elections, create uncertainty that might influence the strictness and continuity of these fiscal policies beyond 2026. Prime Minister Ilie Bolojan's mandate will end in 2026, adding to this uncertainty.
Inflation in Romania is expected to rise to around 9% in the coming months due to increases in electricity prices, VAT hikes, and other factors, making it one of the highest in Central and Eastern Europe.
Despite the narrowing headline deficits, government debt, net of liquid government assets, will continually rise over the next few years, exceeding 60% of GDP by 2027. The "BBB-" rating is considered relatively safe for investments, a positive sign for Romania's debt-servicing efforts.
The next parliamentary elections in Romania are scheduled for late 2028. Economic and political challenges may undermine the government's ambitious policy agenda, making the outlook beyond 2026 uncertain. However, the S&P's assessment represents an important signal that international markets recognize the stabilization and fiscal reform efforts of the current government.
- The fiscal consolidation in Romania, as outlined by the new government, encompasses sectors like finance, business, and politics, as it involves austere measures, specific budget deficit targets, and potential changes in public policies.
- To a broader audience, the general-news outlets may cover Romania's economic outlook, which is influenced by factors such as fiscal tightening, political developments, inflation rates, and upcoming elections, all of which have direct impacts on sectors like finance and business.
