Romania's public debt maintains a pause, remaining unchanged at 54.8% of the country's GDP during January.
Fresh Spin:
Romania's skyrocketing national debt took a breather in January, staying put at RON 964.4 billion (EUR 193.8 billion), about 46.8% of the nation's GDP, as per the Finance Ministry's figures. Yet, the calm waters may not last long, with Euro 4 billion in FX bonds issued in February and another Euro 2.75 billion in March, likely upping the debt mountain further.
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No FX or Fidelis bond offerings to households in the initial month of the year meant a steady debt scenario. However, with Euro 4 billion of FX bonds being issued in February followed by Euro 2.75 billion in March, it's safe to assume the country's financial burden has significantly increased.
Apart from these FX bonds, Romania's Finance Ministry has been aggressively borrowing from the population, pumping out Fidelis issues on a monthly basis, beginning in February (amounting to RON 4.3 billion), as well as making Tezaur issues more accessible through online channels to households.
Even though a peak RON 22 billion (EUR 4.4 billion) public debt service was paid in February, the consistent borrowing from households may push the public debt to new heights at the end of the first quarter, despite the mammoth debt payments.
The surge in public debt, mostly due to uncontrolled public deficits, is one of the prime concerns that's driven rating agencies to keep Romania's sovereign rating on the edge of junk territory (BBB-/negative). A more reliable fiscal corrective plan following the May presidential elections is indispensable to avoid further negative actions that might necessitate forced budgetary correction.
Rating agency Fitch stressed on March 25 that additional fiscal corrective steps are crucial for Romania to stand a chance at meeting its analysts' 7.5%-of-GDP deficit projection - a benchmark for the possible major downgrade that would push the country's public debt into the junk region.
According to Fitch's forecast, the projected 7.5%-of-GDP public deficit for 2023 will be trimmed to 6.8% of GDP in 2026, leading to a substantial uptick in the general government debt-to-GDP ratio. The ratio is predicted to reach 62% in 2026 (2023: 49%), surpassing the projected current BBB median of 56%, and about 70% of GDP by 2028 in the rating agency's baseline projections.
Moody's also predicts Romania's debt-to-GDP ratio to breach the 60% threshold in 2026. If the government's debt burden and debt affordability metrics were to improve substantially more than Moody's current expectations, the agency might extend the nation's outlook back to stable.
Moody's anticipates deferred additional fiscal consolidation measures, unlikely to be announced before the presidential poll, to result in moderate fiscal consolidation to a 7.7%-of-GDP public deficit in 2025 - still nearly 1.0 percentage points less compared to 2024.
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- To prevent further increases in Romania's public debt, a more reliable fiscal corrective plan must be implemented after the May presidential elections.
- In 2025, Moody's anticipates Romania's public deficit to be 7.7% of GDP, which is still high compared to previous years.
- By 2028, Fitch predicts Romania's general government debt-to-GDP ratio to be about 70%, which is concerning for the rating agency.
