S&P Global Ratings affirms Romania's rating at 'BBB-/ A-3', outlook negative

Standard & Poor's Global Ratings affirmed on Wednesday Romania's long- and short-term foreign and local currency sovereign credit ratings at "BBB minus/A-3", with the outlook remaining "negative", the agency announced in a release.According to the cited source, the election of Nicusor Dan as president in mid-May, followed by the formation of a new government led by Prime Minister Ilie Bolojan, ended a prolonged period of political and policy uncertainty in Romania. The government enjoys a broad parliamentary majority, which has allowed it to pass a set of fiscal consolidation measures. The total fiscal impact of these measures is estimated at 1.1% of GDP in 2025 and a significant 3.5% of GDP in 2026, split relatively evenly between revenue- and expenditure-related measures.Taking into account the second-round effects on the economy, the measures will help reduce the deficits to below 7.7% of GDP this year and to 6.4% in 2026, down from 9.3% of GDP in 2024. The Government intends to adopt additional measures in the form of two further reform packages in the coming months, something that could result in further fiscal consolidation, albeit to a lesser extent than the already enacted initiatives, the rating agency's analysts maintain.S&P's baseline scenario, which underpins the affirmation of Romania's "BBB minus" rating, assumes that the Government will succeed in containing the country's substantial twin deficits. However, S&P analysts warn that economic and political challenges could undermine the Executive's ambitious policy agenda, while the medium-term fiscal strategy beyond 2026 remains uncertain.According to the rating agency, the fiscal adjustment process will further weaken what was already a fragile growth outlook for this year. "We have revised down our real GDP growth forecast to 0.3% for this year (from 1.8% previously) and to 1.3% in 2026 (from 2.6%)," S&P emphasizes. In this context, the unlocking of EU funds for public investment will support medium-term economic growth, and therefore, the government's fiscal policy and reform agenda should contribute to accessing the available EU funding. These funds would enable increased investment in sectors such as energy transition, transport, and healthcare.However, Romania's economy continues to face several long-term challenges, including adverse demographic trends, which are expected to persist.S&P also highlights that the fiscal outlook beyond 2027 remains uncertain, particularly given that Prime Minister Ilie Bolojan is expected to step down at the end of 2026, as part of a power-sharing agreement with the Social Democratic Party (PSD). The planned structural fiscal reforms, including those aimed at enhancing the efficiency of tax administration and improving the governance of state-owned enterprises, are expected to support continued fiscal consolidation after 2027. However, the fiscal gains from these reforms are likely to be modest.The negative outlook reflects our view that Romania's public finance risks will remain elevated over the next few years, despite the announced consolidation measures, the rating agency states in its press release.S&P also warns that it could downgrade Romania's rating within the next two years if the country's fiscal consolidation path deviates significantly from expectations. This could happen if the governments consolidation measures prove insufficient or if weak economic growth undermines their effectiveness.On the other hand, S&P could revise the outlook to 'stable' if Romania's fiscal and external deficits narrow substantially, supported by a rebound in economic growth.The next credit rating agency scheduled to assess Romania is Fitch Ratings, which has announced that it will publish its next sovereign rating review for Romania on August 15. The country is currently rated "BBB minus" with a negative outlook by Fitch.All three major credit rating agencies - S&P Global Ratings, Moody's, and Fitch - currently assign a "negative" outlook to Romania's sovereign rating, placing the country one step away from junk status (non-investment grade).