The Fitch rating agency left Romania’s rating at BBB- with a stable outlook. “The BBB- rating is supported by EU membership and the associated capital inflows that support income convergence, external financing and macroeconomic stability,” the agency notes.

According to the cited source, GDP per capita, governance and human development indicators exceed other countries in the BBB category. In the opposite direction, according to Fitch, the double deficit (budget and current account), bad history of fiscal consolidation, and budget rigidity weigh in the opposite direction.

1. The budget deficit will continue to grow

The budget deficit in ESA terms in 2023 is estimated at 6.1% of GDP, virtually unchanged from 2022 and above the government’s target of 4.4% of GDP.

Fitch forecasts a deficit of 6% of GDP in 2024 and 6.4% in 2025.

“We expect significant fiscal consolidation in the medium term, underpinned by the reintroduction of EU fiscal rules, although there are significant risks, ongoing uncertainty surrounding the post-election fiscal plans and recent fiscal deviations that have negatively affected political confidence“, says the press release.

2. State debt will significantly exceed 50% of GDP

Fitch expects public debt to rise to 53.3% of GDP in 2025 from 48% in 2023, below the BBB median of 57.5%.

The agency notes that debt has not been high in recent years due to nominal GDP growth fueled by high inflation, but a significant slowdown in nominal terms is now expected, putting debt on an upward trajectory.

In 2024, it estimates economic growth of 3%, a similar percentage in 2025, while for the Eurozone: 0.7% and 1.7%.

Large inflows of European funds, including consolidation from the 2021-2027 financial framework and recovery and resilience funds, will remain key drivers of growth and investment in the medium term.

3. The pension increase that will take place after the recalculation poses a risk to Romania’s finances in the medium term

The coalition of the two largest parties (PSD and PNL), which was formed in 2021, has proved stable as the country prepares for four elections this year. Pre-election fiscal easing of the ruling parties, first of all unsecured pension increases are timed for the general election and underlie medium-term risks.

4. There are risks of rising inflation

Expected inflation (based on the Harmonized Index of Consumer Prices) for 2024 is 5.1% and for 2025 – 3.5%, noting that there are upside risks.

5. The current account deficit is one of the largest in Central and Eastern Europe

It is expected that the current account deficit will stabilize at the level of 5-7% of GDP, in 2023 it is estimated at the level of 7%. Romania will continue to have one of the largest current account deficits in Central and Eastern Europe in the BBB category, partly reflecting competitiveness challenges.

6. The new tax will hit small banks

Fitch also says that the Romanian banking system is well capitalized, profitable and liquid.

“We expect profitability to peak in 2023, but in the short term it should remain acceptable for large banks, despite the burden of the sales tax, which is effective from 2024,” it said in a statement, noting that the impact of the tax on profitability , is likely to decrease. be more pronounced for small banks.