Despite a new round of negotiations for the formation of the government, set to begin on October 5, and Mayor Nicușor Dan’s desire to avoid snap elections, there is a significant probability that they will still take place, notes the financial rating agency Moody’s shortly before Standard & Poor’s announces Romania’s rating decision.
Under these circumstances, „it is becoming increasingly likely” that by the end of this year, it will not be possible to obtain sufficient political support for the adoption of the 2027 budget, Moody’s indicates in a note following Parliament’s rejection of the proposed cabinet led by Siegfried Mureșan.
"Overall, the political developments in the coming weeks will be a determining factor in establishing whether the recent fiscal adjustment will prove sustainable, thus ensuring the sovereign credit profile," the financial rating agency emphasized, as cited by Profit.ro.
S&P Decision Upcoming
Moody's evaluation comes shortly before Standard & Poor's announces Romania's rating decision. The announcement will be made Friday evening.
Interim Finance Minister Alexandru Nazare stated Thursday evening that political uncertainty weighs heavily in the assessment, but budget execution and compliance with fiscal targets are arguments for keeping the country in the recommended investment category.
"I have great confidence, there have been intensive discussions with Standard & Poor's, they came to Romania, had a physical mission, we had meetings and presented our projections, indeed political uncertainty weighs quite heavily, but we also have solid arguments related to execution," Nazare said on TVR, as quoted by News.ro.
He admitted that not all budget estimates have been confirmed, but issues can be managed.
"All in all, the budget projection, of course with adjustments, because not everywhere and not with all authorizing officers things have been confirmed 100%, there are issues, but they are manageable, solvable, things have somehow evolved according to plan. And on these very serious pillars, we have had discussions with Standard & Poor's. I trust that the report to be published tomorrow will take into account all these progress," Nazare added.
What's at Stake in the S&P Decision
Fitch and Moody's rating agencies have maintained Romania in the recommended investment category. A downgrade by S&P below this threshold would mean placing Romania's debt in the speculative category, known as "junk," in this agency's assessment.
Such a decision could increase the borrowing costs for the state and limit access to investors whose rules only allow the purchase of investment-grade bonds.
Moody's Assessment in the Summer
In August, Moody's reaffirmed Romania's ratings at Baa3, the last step in the recommended investment category, and maintained a negative outlook. Thus, Romania has so far avoided downgrading to the non-investment category, but risks remain.
The agency justified the rating maintenance by the progress made in 2025 and the first half of this year in reducing the deficit. However, the negative outlook reflects the high risk that the fiscal consolidation program may lose momentum, amid political fragmentation and difficulties in forming a new government.
Positive aspects noted by Moody's:
- The main argument for maintaining the rating was the better-than-anticipated evolution of the budget deficit. Data up to August 2026 indicated a further decline in the fiscal deficit, dropping to 2.9% of GDP (on a cash basis) from 4.5% of GDP in August 2025. Moody's estimated that the budget deficit would decrease to 5.8% of GDP in 2026, by over two percentage points in a single year.
- The agency noted the containment of expenses, as well as the fact that budget revenues have fared better than anticipated, despite challenging macroeconomic conditions.
- Among the arguments for maintaining the rating, Moody's mentioned the medium-term growth potential of the economy, the relatively high level of economic development compared to other states with the same rating, and Romania's membership in the European Union. European integration supports the credibility of public policies and provides the country access to financing from EU funds.
In the summer, Moody's estimated, however, that a new government would be installed after the parliamentary recess, at the latest in early autumn, so that the 2027 budget could be adopted by the end of the year. At the same time, it considered the likelihood of snap elections, which have not occurred in Romania since 1989, to be low, but expected political instability to persist.
Main negative aspects:
- Even though the deficit is decreasing faster than anticipated, public debt has not stabilized, Moody's noted, estimating that it will rise from 59.3% of GDP in 2025 to 64.5% in 2028, due to persistently high deficits and higher interest costs.
- Interest costs are estimated to increase from 2% of GDP in 2023 and 2.2% in 2025 to 3.3% of GDP in 2028. Romania's borrowing yields have risen significantly in the past two years, and the refinancing needs are estimated at around 12% of GDP annually, on average, in the period 2026–2028.
- In addition, Romania's high gross financing needs, estimated at around 55 billion euros this year, "keep the state dependent on constant market access in a context marked by high uncertainty regarding public policies," the institution emphasized.
T.D.