S&P maintains Romania's BBB- credit rating, with a negative assessment, despite implementing fiscal measures.
Romania's Rating Reconfirmed, but Challenges Loom Ahead
In a recent review published on July 24, 2022, credit rating agency Standard & Poor's (S&P) reconfirmed Romania's "BBB-/A-3" rating for long- and short-term debt. However, the agency maintains a negative outlook for Romania's rating, indicating potential downgrade in the future.
The reconfirmation comes as Romania's Prime Minister Ilie Bolojan's mandate will end in 2026, casting a cloud over the outlook on the reform agenda and fiscal policy beyond that year. Economic and political challenges may still undermine the government's ambitious policy agenda, as per S&P.
To navigate these challenges, it is crucial to consider several factors. In the political sphere, the power-sharing arrangements and upcoming parliamentary elections could potentially destabilize the government's stance on EU policies and internal reforms. Romania's integration into the EU and its commitment to EU policies will continue to be crucial for political stability and economic benefits.
On the economic front, global economic instability, EU policies and funding, inflation, and economic growth will be key challenges. Managing inflation and ensuring sustainable economic growth will be essential, as will investment in key sectors like technology and infrastructure. Addressing social challenges, such as poverty and inequality, will also remain important.
Romania faces challenges related to climate change and transitioning to renewable energy sources, which could impact economic sectors like energy and agriculture. The government's ability to navigate these challenges will be crucial in the post-2026 period.
S&P has reduced its GDP growth projections for Romania to 0.3% in 2025 and 1.3% in 2026. The agency notes that the end of 2026 is significant because Prime Minister Bolojan must hand over the office to a Social Democrat. The new government has implemented fiscal measures with an impact of 1.1% of GDP in 2025 and 3.5% of GDP in 2026.
These measures are expected to reduce the deficit to below 7.7% of GDP in 2022 and to 6.4% in 2026, compared to 9.3% in 2024. Alexandru Nazare, the Romanian finance minister, stated that S&P's assessment validates the fact that budgetary discipline is not only necessary but also possible.
The reconfirmed "BBB-/A-3" rating for Romania's long- and short-term debt is the last step in the investment-grade category. The "BBB-" rating for Romania's long-term debt signifies that countries with this status are considered relatively safe for investments. However, falling below the "BBB-" rating would make any loan taken by the government come with increasingly high costs.
Inflation in Romania is expected to rise to around 9% in the coming months due to increases in electricity prices, VAT hikes, and other factors. According to the analysis, government debt, net of liquid government assets, will exceed 60% of GDP by 2027.
The S&P assessment represents an important signal that international markets recognize the stabilization and fiscal reform efforts of the current Romanian government. However, the negative outlook highlights the need for continued focus on economic and political stability to maintain Romania's investment-grade status.
- The reconfirmation of Romania's investment-grade rating by Standard & Poor's, while affirmative, underscores the significance of maintaining economic and political stability in the face of forthcoming business challenges, including global economic instability, potential impacts from EU policies, inflation control, economic growth, and fiscal policy reform.
- In the sphere of politics, the upcoming parliamentary elections and power-sharing arrangements could potentially influence Romania's stance on European Union policies, internal reforms, and its investment-grade status, necessitating careful consideration and balance.
