To meet the 2025 deficit target of 7% of GDP, Romania has to achieve additional fiscal adjustment of 0.8–1.0% of GDP on top of the 1.85% already envisaged under the first fiscal corrective package, according to a research report by Erste Group. 

Delays increase the size of the adjustment, the financial group warns.

Despite the tough challenges posed by the fiscal consolidation amid an adverse political environment, Erste believes that a rating downgrade is unlikely by fall 2025 and can likely be avoided if the government introduces a fiscal adjustment plan, expected to follow the rerun of the presidential elections scheduled May 4-18.

Fitch and S&P recently changed Romania's rating outlook to negative. 

"We believe that the risk of a rating downgrade to "junk" is there, but only if Romania shows no credible fiscal consolidation plans, which currently is not the case," Erste's report reads.

The government has frozen public sector pension and wage indexations scheduled for January 2025, avoiding a market meltdown scenario, generating around 1.5% of GDP in spending savings, and closed several fiscal loopholes and exceptions, adding roughly 0.35% of GDP to state revenues, the bank estimates.

When it comes to deficit financing, Erste estimates gross funding needs for 2025 at RON 235 billion (EUR 57 billion) assuming a budget deficit of 7.0% of GDP - resulting in net issuance of RON 136 billion (EUR 27 billion), out of which RON 59 billion (EUR 12 billion) can be financed domestically.

The equivalent of EUR 15.5 billion is likely to be funded through the RRF loan component (with EUR 11.3 billion available until August 2026), loans from IFIs, and borrowing from international markets. EUR 2 billion in redemptions is due from international markets in 2025. 

The Romanian authorities mentioned EUR 13 billion in external issuance in 2025 vs. EUR 17.6 billion in 2024.

iulian@romania-insider.com

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