On January 24, 2025, S&P Global Ratings revised its outlook on Romania to negative from stable while affirming its BBB- long-term foreign and local currency sovereign credit ratings. The step follows a similar one taken by Fitch in December.

Finance minister Tanczos Barna assured in response to the rating agency's release that the 2025 budget planning, which will be presented to the government and sent to lawmakers for approval in the coming days, reinforces "this prudent vision" of managing public money.

"As our partners in Brussels confirmed this week [by endorsing the slow fiscal consolidation plan under the Excessive Deficit Procedure], we can count on a robust economy and constant growth, which will be supported by massive public investments in 2025. Both rating agencies and investors who look carefully at these signals will see the effects of the measures taken at the governmental level in the fiscal-budgetary trajectory and the country's economic development. The country rating depends largely on our ability to stick with our commitments," the minister of finance pointed out.

Romania's government, which remained broadly untouched after the parliamentary elections in December, has not yet drafted its 2025 budget planning, likely to bring with it further fiscal consolidation measures after a preliminary package of measures endorsed at the end of 2024. Amid difficult circumstances, the Treasury still aims to tap the foreign market with a new FX bond soon.

Not surprisingly, S&P explains that its action was prompted by rising risks to Romania's public finances over the next several years, after average deficits of 7.6% of GDP since 2020 that resulted in 15 percentage points (pp) rise in the debt-to-GDP ratio to 52.4% at the end of 2024.

In the absence of further fiscal consolidation steps on top of the recent consolidation package, the rating agency expects a 7.5% public deficit in 2025 and slow fiscal consolidation to a 5.8%-of-GDP gap in 2028 (instead of 5.0% under the Excessive Deficit Procedure plan recently endorsed by European Union) with the debt-to-GDP ratio reaching 65.4% at the end of the four-year forecast period.

However, additional fiscal consolidation measures are seen by S&P as uncertain, not least because of increased political fragmentation, as evidenced by the outcomes of last year's elections, as well as slower economic growth prospects. Failure to meet the targets under European Union's Excessive Deficit Procedure (EDP) – meaning, for instance, 7%-of-GFDP this year instead of the 7.5% gap expected under the no-policy-change scenario – would hinder the access to the EUR 60 billion funds (about 17% of estimated 2024 GDP) the country can get under the current 2021-2027 Multiannual Financial Framework and under the Resilience Facility creating a snowball effect, the rating agency explains. 

S&P said it would lower Romania's rating – putting it in the junk region – if the public finance metrics deteriorate at a faster pace, under the effect of either slower economic growth or government policies. Under the baseline scenario, Romania's economy is expected to grow by 2.1% this year (from 1.0% in 2024) and stronger rates (but never above 3%) in 2026-2028. 

A wider public deficit would result in higher indebtedness and current account (CA) deficit, the rating agency reasons. From 8.2% in 2024, the CA-to-GDP ratio is expected to decline, under the baseline scenario, to 7.3% in 2025 and gradually to 6.8% in 2028.

iulian@romania-insider.com

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