Romania is expected to avoid sovereign rating downgrade in S&P’s evaluation on Friday, according to Citigroup and Erste Bank analyses, but both banks warn that the risk increases if the political deadlock persists and authorities fail to present a credible budget for 2027.
Citigroup sees a higher risk of downgrade in the first quarter of next year, while Erste believes that S&P will wait to see how the political situation evolves and the budget project unfolds.
Citigroup: Rating should be maintained, but risk shifts to 2027
Citigroup estimates that S&P will maintain Romania's rating in the evaluation on Friday, October 2. However, the bank considers that the risk of a downgrade becomes significant in the first quarter of 2027, especially if the political situation remains unclear and fiscal consolidation slows down.
"However, we see a significantly higher probability of downgrade in the first quarter of 2027, in line with recent comments from Fitch," the Citigroup analysis cited by Hotnews states.
The bank notes that Romania's ten-year bond yield is approaching 7.55% (meaning the Romanian state needs to pay an annual interest of approximately 7.55% for the money borrowed through 10-year government bonds), the highest level since the US-Iran conflict erupted.
Citigroup does not expect the Muresan Government to pass through Parliament and believes that, in this case, a possible scenario would be the appointment of another prime minister, possibly a technocrat, who could garner parliamentary support for adopting the 2027 budget.
Erste Bank: S&P will monitor the budget and political developments
Erste Bank also estimates that Romania will maintain its Investment Grade rating in the evaluation on Friday, but warns that the downgrade risk is significant.
"Our base scenario is rating maintenance, but the downgrade risk is significant. We believe that S&P will likely wait to see how the 2027 budget bill will look and how the political situation will evolve," the Erste report cited by Economica indicates.
For both institutions, fiscal performance and the authorities' ability to adopt a credible budget for the next year are crucial elements for the rating agency's decision.
Citigroup estimates that the 6.2% of GDP deficit target for 2026 is very likely to be achieved, although their own estimates suggest a deficit of around 6.5%.
In this context, maintaining the rating on Friday would not alleviate the pressure on Romania.
Both analyses point to the upcoming period and, especially, the beginning of 2027 as the time when the political and fiscal situation could decisively influence the rating agencies' evaluation.