Moody's is the third of the three major rating agencies to affirm this autumn Romania's sovereign rating, at a Baa3 level with a stable outlook attached, in line with S&P and Fitch – on the lower end of the investment-rate range. 

The level of the rating reflects Romania's robust medium-term growth prospects, supported by strong EU funds and foreign direct investment (FDI) inflows, besides debt burden and debt affordability metrics, Moody's argues – balanced against weaknesses in the quality of the country's institutions and susceptibility to geopolitical and external vulnerability risks.

The stable outlook balances the positive economic trend against the government's continued difficulties to durably and materially reduce Romania's elevated fiscal and current account deficits.

Moody's expects growth to rebound to 3.2% in 2024 from 2% this year and to accelerate to 3.5% in 2025, in line with the rating agency's estimate of the economy's potential growth rate of 3% to 3.5%. Besides EU funds, Moody's expects FDI in sectors such as manufacturing and information and communications services will remain strong in coming years at around 3% of GDP.

As regards the fiscal consolidation, the rating agency expects certain progress this year, with the ESA gap shrinking to 6.1% of GDP from 6.3% in 2022, but it sees modest further consolidation to 5.3% of GDP in 2024 and 4.4% in 2025.

The still elevated deficit, coupled with the slowing of nominal GDP growth as inflation decelerates in coming years, leads Moody's to project that the debt-to-GDP ratio will increase gradually to reach 50.0% at the end of 2024 and 51.7% at the end of 2025.

Romania's debt affordability metrics will also continue to deteriorate in the higher interest rate environment.

iulian@romania-insider.com

(Photo source: Roman Tiraspolsky/Dreamstime.com)