Romania is approaching a critical zone for its sovereign rating, with Fitch Ratings warning that a prolonged political crisis could compromise the country's investment grade status. The agency believes a durable absence of a fully functional government could complicate the implementation of necessary measures to reduce the deficit and undermine the credibility of fiscal policy.
Fitch analyst Malgorzata Krzywicka stated that the longer the government crisis persists, the more questions arise regarding budget predictability and the ability to make necessary adjustments. However, the agency does not foresee an automatic downgrade at this stage, with a reevaluation of Romania's sovereign rating scheduled for January 2027.
In July, Fitch maintained Romania's rating at BBB-, with a negative outlook, which is the last echelon of the recommended investment grade category before moving to speculative grade, or "junk." Romania also holds a BBB- rating from S&P and a Baa3 rating from Moody's, both corresponding to the last echelon of the investment grade category.
S&P is set to review Romania's rating on October 2, 2026. According to Fitch, Bucharest needs to achieve a new fiscal correction of around 1.5 points of GDP to stabilize public debt growth in the medium term. The preparation of the 2027 budget will be a key indicator, with Fitch expecting a credible trajectory to gradually bring the public deficit closer to the 3% of GDP threshold set by European rules.
The political crisis complicates fiscal consolidation, with the institutional crisis prolonging after the fall of the Ilie Bolojan government in the spring. Several attempts to form a new executive with a stable parliamentary majority have failed. On September 17, President Nicușor Dan designated Siegfried Mureșan, a liberal MEP, as the candidate for prime minister, giving him ten days to form a government and seek parliamentary confidence.
The lack of a clearly established majority continues to complicate the exit from the crisis, which is a significant factor for rating agencies. The situation does not affect the rating due to the crisis itself but due to its potential consequences on the authorities' ability to adopt and implement announced fiscal measures.
The tensions are already reflected in the bond markets, with Romanian bonds displaying high yields and being considered by some investors as presenting a risk level comparable to that of speculative-grade securities, despite the official sovereign rating remaining in the investment grade category.
Key points
- Romania's prolonged political crisis may compromise its investment grade status.
- Fitch Ratings urges Romania to reduce its deficit to maintain its sovereign rating.
- The country's 2027 budget preparation will be crucial in determining its fiscal trajectory.
