Country rating downgraded

Moody's has downgraded the outlook associated with Romania's rating from 'stable' to 'negative'

Corina Cristea, 17.03.2025, 13:50

Moody’s was the only one of the three major rating agencies in the world that still had a ‘stable’ outlook associated with Romania’s sovereign rating! Fitch and Standard & Poor’s had already had a ‘negative’ outlook since the winter, placing Romania one step away from a ‘junk’ rating, i.e. not recommended for investments. Since the end of last week, Moody’s has joined them, confirming the rating at ‘Baa3’, but also worsening the outlook associated with it to ‘negative’. ‘The decision to change the outlook reflects the risk that, in the absence of the adoption of additional fiscal consolidation measures, Romania’s fiscal soundness will weaken significantly in the coming years’ – the rating agency stated.

According to Moody’s scenario, based on the policies announced so far by the Government in Bucharest, Romania’s deficit will decrease from 8.7% of the GDP in 2024 to 7.7% in 2025, which is still high. Thereafter, the deficit will improve, but gradually. Combined with a downward revision of economic growth forecasts, the government debt burden will exceed 59% of the GDP at the end of 2025 and reach almost 63% at the end of 2026.

What does Moody’s think should be done? Romania has committed to implementing a major fiscal reform under the NRRP, the adoption of which will most likely contribute to improving the deficit and debt projections. However, the reform is suffering – the agency says – significant delays. In other words, the rating outlook could be restored to ‘stable’ if the indicators relating to the government debt burden and debt affordability deteriorate significantly less than current estimates. Or, conversely, Romania’s country rating could be downgraded if the Executive fails to implement significant fiscal consolidation. Such a scenario would be the result of a failure.

Adrian Câciu, former Minister of Finance, is optimistic that things will be resolved:

ʺIt wasn’t a disaster deficit, if we report that we still had investments of 7.1% of the GDP last year. That is, we chose a path to get into debt, in order to develop. One cannot grow without borrowing! But what does Moody’s say and what should we be careful about and what should, in fact, the political class be careful about: we need political stability and we need less emotion and quarreling and scandal and volatility and hazard in governing the country. And we need more reason and the entire political class needs to understand that Romania is, however, in a rather complicated geopolitical context, especially regionally.ʺ

Indeed, a recent article published by Bloomberg shows that the current turbulence in the Romanian political environment is worrying investors, who fear that the fiscal measures needed to reduce the largest government deficit in the European Union will suffer further delays. (MI)