(Bloomberg) — S&P Global Ratings signaled it may cut Romania’s credit score to junk as the government grapples with the European Union’s widest budget deficit ahead of a presidential election re-run.
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S&P lowered the outlook on Romania’s BBB- grade, the lowest investment level, to negative, the credit assessor said in a statement on Friday. It left the rating unchanged. The move comes after Fitch Ratings took a similar decision in December.
The change in outlook reflects risks to Romania’s public finances, S&P analysts said. “Delivering on the government fiscal consolidation plan could be challenging, not least because of the increased political fragmentation evidenced by the outcomes of last year’s elections as well as slower economic growth prospects.”
The Black Sea nation has repeatedly increased its budget deficit to levels last seen during the coronavirus pandemic, with the gap that probably exceeded 8.5% of economic output in 2024. A court ruling ordering the repeat of presidential elections further rattled markets, and pushed borrowing costs higher.
The yield on the 10-year domestic notes rose to a two-year high of 8.15% this month, before dropping back just below 8% this week. The bonds are the worst performers in the EU, with the yield rising about 150 basis points in the past year and investors demanding the biggest risk premium over comparable German securities in the bloc.
Prime Minister Marcel Ciolacu has so far managed to weather the turmoil, staying in power with the support of a slimmer pro-European coalition after December parliamentary elections. The premier is expected to present a 2025 budget and seek to convince investors that Romania has a credible plan for fiscal consolidation.
“In the absence of additional measures, we expect deficits will not dip below 6% of GDP before 2028,” S&P said.
The re-run of the presidential vote is scheduled for May. The ruling coalition has agreed to support former Liberal leader Crin Antonescu as their joint candidate in an effort to limit the surge of the far-right forces.
–With assistance from Peter Laca.
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