Fitch warns outcome of presidential elections may impede needed fiscal reforms in Romania
<p>The outcome of the presidential elections in Romania could have implications for investor confidence, the sustainability of the coalition government, and its political capacity to implement fiscal consolidation, according to a note issued by rating agency Fitch in response to the elevated political turmoil and the wide budget deficit in January-February (1.6% of GDP).</p>

<p>The rating agency stressed that further fiscal corrective measures are necessary for Romania to meet its analysts’ 7.5%-of-GDP deficit projection – a guideline for a possible dramatic downgrade that would push the country’s public debt into the junk region.</p>

<p>The urgency for further fiscal consolidation steps is prompted by, besides the Jan-Feb budget execution, pressures to increase defense spending (2024: 2.3% of GDP).</p>

<p>“Without additional measures, we believe there are risks to our 2025 deficit forecast of 7.5% of GDP, especially given the large monthly deficits at the beginning of 2025,” the rating agency said.</p>

<p>Fitch was the first of the three major agencies to change the outlook of Romania’s fragile BBB- sovereign rating to negative last December, followed shortly by the other two.&nbsp;</p>

<p>Notwithstanding the political and fiscal risks, Fitch notes that a subdued recovery in the baseline scenario will see 1.4% GDP growth in 2025 and 2.2% in 2026, helping reduce the deficit to a still-high 6.8% in 2026.&nbsp;</p>

<p>This will not prevent the general government debt-to-GDP ratio from increasing sharply to 62% in 2026 (2023: 49%), above the projected current BBB median of 56%, and to about 70% of GDP by 2028 in the rating agency’s baseline projections.</p>

<p><em>iulian@romania-insider.com</em></p>

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