Romania’s ‘BBB-‘ rating is supported by EU membership and related capital inflows that support income convergence and external finances. GDP per capita and governance are above ‘BBB’ category peers. These strengths are balanced against the large and persistent twin budget and current account deficits, rapidly increasing public debt, political polarization and fairly high net external debt.
The Negative Outlook reflects the significant deterioration of Romania’s public finances, demonstrated by a large fiscal deficit and rapidly rising government debt/GDP. Political uncertainty has eased and the new government has introduced an ambitious initial fiscal consolidation package. However, significant risks to medium-term fiscal consolidation stem from weak growth, implementation challenges, fiscal fatigue and high political polarization.
Political uncertainty has significantly declined since the last rating review in February 2025. Nicusor Dan, an independent, pro-EU centrist politician won the May presidential election against the populist candidate, George Simion. A four-party, pro-Western coalition government was formed with a comfortable majority and the support of the president.
According to Fitch, “an ambitious fiscal consolidation package was announced and quickly legislated in July based on the joint work of the president and the government. Nevertheless, the socio-economic cost of the fiscal adjustment, tensions within the government coalition and strong support for far-right populist parties remain significant political challenges. In addition, the two largest coalition parties – Bolojan’s center-right PNL and the center-left PSD – have agreed that Bolojan will make way for a new prime minister from the PSD in 2027, which could lead to policy uncertainty. Romania has started fiscal consolidation, albeit from a very weak starting position in 2024, with the general government fiscal deficit at 9.3% of GDP. After measures implemented at end-2024 by the previous government, the budgetary impact of the July package is estimated by the government at around 1% of GDP this year with VAT increases (2pp of the standard rate, 2-6pp of the reduced rate) effective August 2025 as the main revenue side measure. Further tightening measures are scheduled for January 2026, including one more year of the nominal freeze of public sector wages and pensions.
Nevertheless, Fitch projects Romania’s general government deficits will remain among the highest in the ‘BBB’ category, with the deficit falling to 7.4% of GDP in 2025, 6.3% in 2026 and 5.9% in 2027. These forecasts take into account second-round effects, such as the adverse GDP impact of the fiscal tightening. The government is preparing further fiscal consolidation measures on the revenue and expenditure sides, in close cooperation with the European Commission, but as these are not yet finalized we have not included them in our fiscal projections.”
Romania’s economic growth has remained below 1% since 1Q24 for most of the time, highlighting difficult policy trade-offs between fiscal consolidation and growth anticipated over the next two to three years. According to our forecast, GDP growth will not reach the 2% potential growth rate until at least 2027, but downside risks are contained as greater clarity about the fiscal consolidation path will support confidence and external financing. We forecast 0.7% GDP growth this year, practically the same as in 2024. We project growth will stabilize around 1.2% in 2026 and 2027, benefiting from the counter-cyclical stimulus of EU funds and some recovery in eurozone growth.
The report also says that “high inflation is a rating weakness for Romania, exacerbated by the inflationary impact of the VAT increases. Inflation has remained above the National Bank of Romania’s (NBR) 2.5% +/-1pp target since 2021 May and the three-year average inflation for 2024-2026 is forecast at 6.5%, double the current ‘BBB’ median. Underlying inflation has become more persistent, with core inflation stabilizing at 5%-6% during 2024 and 1H25, following the initial energy and food price shocks. Persistently above-target inflation will amplify the monetary policy challenges for the NBR, anchored on a tightly managed exchange-rate regime.
Gross general government debt increased to 55% of GDP at end-2024, slightly below the ‘BBB’ current median of 56%. Factoring in the government’s initial consolidation package, we project that the debt ratio will continue to increase to 63.4% in 2027 and could approach 70% by 2029. Fiscal consolidation will only mitigate the upward pressure on debt given the very high starting deficit. In addition, the forecast subdued real economic growth and lower GDP deflator means nominal GDP growth will average only 4%-5% over the forecast horizon, compared with a 10% average over 2021-2024.”
According to the rating agency, “the current account deficit (CAD) widened to 8.4% of GDP in 2024 from 6.6% in 2023, due to export weakness and continued buoyant import dynamics, underpinning the twin deficit problem. The ‘BBB’ current median CAD is only 1% of GDP, making Romania a clear outlier. We forecast the CAD will shrink to less than 7% of GDP by 2026, primarily due to the fall in import demand from the public and private sector as fiscal consolidation leads to a fall in real disposable incomes. We forecast net external debt will increase to 26% of GDP in 2027 from 22% in 2024, significantly above the projected 3% for the ‘BBB’ median.
Its large twin deficits mean Romania relies on a steady flow of external financing. Financial market tensions intensified in May 2025 after the first round of presidential elections, highlighting the sovereign’s vulnerability to changes in market sentiment. The prospect of large EU fund inflows could mitigate external risks, as these directly boost FX reserves, which dropped by EUR6.5 billion in May due to FX intervention.
Romania successfully tapped the international bond market (EUR5 billion) in July 2025 immediately after the announcement of the fiscal consolidation package. Government bond yields have dropped from their highs in early May when nationalist George Simion won the first round of the presidential elections but remain above the levels seen until mid-November 2024. The average issuing cost in 1H25 was 7.2% in leu, and 4.2% in euro, compared with 6.2% and 5.2% in 2024, respectively. We expect government interest payments to revenue to increase to 8.7% by 2027 (6.8% in 2024), slightly below the projected 9.2% for the ‘BBB’ median.”
Fitch expects Romania’s banking sector to navigate heightened operating environment risks stemming from the sovereign-bank nexus (government bonds are around 20% of total assets as of end-March 2025), increased market volatility, and a doubling of the turnover tax. This resilience is underpinned by capital ratios typically above the regional average, healthy profitability (annualized 1Q25 return on assets at 1.7%), and stable funding based on granular local customer deposits. Asset quality remains sound, with a non-performing loans ratio of 2.5% at end-March 2025.
Romania has an ESG Relevance Score of ‘5[+]’ for Political Stability and Rights as WBGI have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Romania has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile.