This report does not constitute a rating action.
FRANKFURT (S&P Global Ratings) May 8, 2025—Following the defeat of his party's candidate in the first round of presidential elections, Romanian Prime Minister Ciolacu has resigned, and his party has withdrawn from the government coalition.
Regardless of the outcome of the second round of presidential elections on May 18, S&P Global Ratings believes policymaking in Romania will become more fragmented, less stable, and less effective over the next few months, which could lead to weaker growth, fiscal, and external outcomes than our already pessimistic assumptions. Our 'BBB-' sovereign ratings on Romania have a negative outlook.
We expect a tight outcome in the second round of presidential elections, with three post-elections scenarios. One option is an unstable minority government that attempts to move ahead with fiscal consolidation measures. Another is a decision to call early parliamentary elections. In the second scenario, further delays in budgetary consolidation would be likely, pressuring the government's refinancing efforts. The third, more positive scenario is the formation of a unity government with sufficient support to implement budgetary adjustments.
The immediate risk is not this year's fiscal deficit, which we project at 7.5% of GDP. Efforts to raise revenue through amendments to the tax code or reforms to increase the efficiency of tax administration will be delayed--but so will the government's ambitious investment plans. In any case, a delay in consolidation is part of our existing base-case scenario.
The key risk is how Romania will finance its large twin deficits moving into 2026, against a backdrop of prolonged political impasse and weakening growth. Until recently, steady capital inflows into Romania via government Eurobond issuance, EU funds, and net foreign direct investment have made it feasible for Romania, an EU member, to continue to run elevated twin fiscal and current account deficits.
The recent political turbulence and, as a result, possible delays in a policy response could undermine some external financing sources. The government's access to the Eurobond market has weakened, leading to pressure on the exchange rate and the domestic bond market. In addition, ineffective policymaking could make EU funds, especially from the Recovery and Resilience Facility, less forthcoming.
Related Research
- Romania, April 14, 2025
- Romania 'BBB-/A-3' Ratings Affirmed; Outlook Revised To Negative From Stable On Higher Fiscal And External Risks, Jan. 24, 2025
- Economic Research: Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth, May 1, 2025
- Sovereigns Are Likely To Weather The Direct Impact Of Trade Tensions While Secondary Effects Loom, April 24, 2025
| Primary Credit Analyst: | Niklas Steinert, Frankfurt + 49 693 399 9248; niklas.steinert@spglobal.com |
| Secondary Contact: | Karen Vartapetov, PhD, Frankfurt + 49 693 399 9225; karen.vartapetov@spglobal.com |
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
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