Negrescu: Investors do not wait for downgrading but partially include it in price as probability

The market has validated maintaining the rating with Fitch, but continues to tax Romania at a price that shows political uncertainty, while investors are not waiting for downgrading but partially include it in prices, as probability, according to financial consultant Adrian Negrescu.   “This is the main paradox of the Romanian moment: the market has validated maintaining the rating with Fitch, but continues to tax Romania at a price that shows political uncertainty. Investors are not waiting for downgrading – they have partially included it in prices, as a probability. For the portfolio investor, the BBB-/Baa3 level is binary. Below that, a significant part of pension and investment funds with investment-grade mandate are compelled to sell, regardless of their opinion about Romania. That is why confirmation counts a lot and the finance minister qualified the loss of investment rating as having catastrophic effects for the economy. The very binary nature of the threshold prevents any benefits: it does not improve anything but avoids dislocation ,” he wrote on Facebok.   Negrescu shows that before the evaluation of Moody's agency, to take place on August 7, alarm signals are even more serious that the ones prior to the Fitch decision.   “In September 2025, Moody's confirmed the Baa3 rating with negative perspective, while the March 2026 revision maintained it, warning that getting tired of reform, the premier's rotation in the four party coalition in the first half of 2027 and parliamentary elections of 2028 could prevent the reduction of deficit. In the evaluation of Fitch, the agency evoked other risks like the application of the salary law and a contraction of GDP. The good news is that Fitch estimates deficit at 5.9% of GDP in 2026, below the government target of 6%, reflecting a better budget execution since the beginning of the year – a correction from 9.3% in 2024. S&P describes measures as the most substantial attempt of fiscal correction since the 2008 crisis and estimates a drop to 6.5% in 2026 and 5.5% in 2027, from 7.7% in 2025. Therefore Romania achieves in two years more than in any other post-crisis episode,” the mentioned source commented.   He also considers that the trajectory credibility is very important and reminds that Fitch has warned that political dynamics reduced visibility on fiscal strategy beyond 2026 and delayed the approval of reforms within RRF. That could lead to losing funds, while reducing deficit will be slower after 2026, with significant risks in the perspective of 2028 elections.   S&P was even clearer and might reduce the rating if government blocking extends or could lead to the incapacity of reducing fiscal deficit in 2027.   “In other words, rating agencies no longer doubt what was done but who would continue. Risk moved from fiscal to institutional register, from “can Romania curb deficit” to “will political consensus which allowed cutting resist?' Institutional risk is more difficult to correct than any deficit.” Negrescu pointed out.   Moreover, he explained that, although budget deficit dominates political discourse, the current account remains comparative, while a difference of over 6% against the category average is not a cyclic movement but a signal that the growing signal is financed from the exterior.   “For a portfolio investor, that means that Romania permanently depends on the availability of foreign capital to refinance its imbalance. It is not by chance that S&P explicitly links access to 2026-2027 European funds to risks for the balance of payments,” Negrescu added.   Debt is the second symbolical threshold that exceeds 60% of GDP in 2026, with an estimated stabilization to 65% made by Moody's. According to the economist, Romania joined EU with a debt under 13% of GDP and spending this structural advantage in less than two decades is, on a long run, more relevant than any rating.   “It is important to mention that rating is just a label, as the real cost is seen in quotations. The yield of state bonds for 10 years dropped to 6.75%, with a monetary policy interest rate of 6.5%. The finance minister showed that an emission of 6.9% in February represents a significant threshold as, exceeding 7% could not be excluded in case political unrest escalates. The most concrete signal comes from emissions for the population. The Fidelis edition of August 2026 comes with interest rates up to 7.50% in lei and 6.30 in euro. Euro bonds eliminate the currency risk and isolate the pure price of the sovereign credit risk. A state which pays 6.30% for ten years in euro, in a context of lower European rates, pays a considerable country risk,” Negreanu explained.   Thus he showed that for the strategic investor, rating is secondary because he considers belonging to EU and the associate capital flows, plus a per capita GDP and the quality of superiod ruling for countries from the BBB category, as well as fiscal predictibility for 7-10 years. “Here, the worst signal comes from five packages of measures in a year, higher VAT, frozen salaries and pensions, and risks concerning the Wage law. It is not the level of taxing that discourages, but the frequency of its changes,” the source mentioned.   In these conditions, the consultant shows that the most expensive risk is represented by European funds and quotes S&P which considers that in case Romania does not get funds estimated for 2026-2027, growth prospects will be affected , fiscal consilidation could become more difficult, while risks for the balance of payments will grow.   “It is the only variable that can deteriorate growth, deficit and cuurent account at the same time. It is the only one that depends on domestic administrative functioning. The contrast against Hungary is instructive again: Budapest started 2026 with unblocked European funds and Fitch considers them a source of accelerating growth in 2027. Romania risks the reverse. In essence, Romania's present position is not that of a crisis economy, but an economy that proved the capacity of adjustment, but not that of maing it credible in time. Fiscal adjustment is real and all three agencies acknowledge it. The institutional anchor able to convince markets that it can survive the 2027-2028 political cycle is unfortunately missing,” Negreanu showed.   In the end he mentioned that the three negativ prospects mean that Romania is not faced by a decision, but a sequence: August 7 at Moody's, October 2 at S&P, and the 2027 cycle. At the same time, each rating confirmation is buying time without solving anything, while the price of this time is 6.30 profit in euro for ten years.   “Each confirmation buys time wothout solving anything, but the price of this time is visible in the profit of 6.30% in euro for ten years. Getiing out of the negative perspective requests the significant and simultaneous reduction of the fiscal and foreign deficits, supported by the return of economic growth. Three conditions which, in 2026, contradict each other- fiscal consolidation cuts the growth that makes it sustainable. This is a real trap: not degradation, but prospects of remaining last for years on a row, paying rates of junk risk without being junk,” the financial consultant explained. (Source: https://www.facebook.com/adrian.negrescu)