Fitch Ratings affirmed on Friday Romania's Long-Term Issuer Default Ratings (IDRs) at 'BBB-minus' with a negative outlook, the agency said in a statement.

'Romania's ratings are underpinned by EU membership and related capital inflows, supporting income convergence and access to external financing. GDP per capita and governance quality are above 'BBB' category peers. These strengths are balanced against large and persistent fiscal and current account deficit (CADs), rising government debt/GDP and net external debt/GDP, high inflation and increasingly fragmented and polarised domestic politics,' Fitch wrote.

It went on to note that the negative outlook reflects deteriorating public finances due to large, albeit declining, fiscal deficits and rising government debt/GDP. Political uncertainty has increased following the four-party government's collapse, while the path to resolution remains unclear. Consolidation measures have improved the fiscal outlook, but significant medium-term risks remain due to implementation challenges, socio-economic costs of additional measures and political considerations ahead of the 2028 parliamentary elections.

Fitch expects the general government deficit to narrow to 5.9% of GDP in 2026, below the government's 6% target and far under the 9.3% recorded in 2024, though still among the highest in the 'BBB' category. Beyond 2026, deficit reduction will be slower, with Fitch projecting 5% of GDP in 2028, assuming lower capex, following the RRF completion, and modest re-indexation of pensions and wages.

Fitch forecasts general government debt/GDP will rise to 64.5% by 2028 from 59.3% at end-2025, above the projected peer median of 57.9%, and continue increasing thereafter, albeit at a slower pace. The agency estimates the debt-stabilising primary surplus at 0.1% in 2028, implying a further adjustment of 1.5% of GDP will be required to stabilise the public debt/GDP. It notes that debt trajectory is also vulnerable to Romanian leu depreciation, as 53% of government debt is FC-denominated, and projects that interest/revenue will increase to 9.3% in 2028 from 8% in 2025, marginally above the projected 'BBB' median of 9.1%.

The projection for the CAD is that it will narrow only gradually to 6.7% of GDP by 2028 from 7.9% in 2025, despite lower fiscal deficits, but still remain well above the forecast 'BBB' median of 0.3%. We expect net FDI inflows to finance only 26%. Capital inflows should support stable gross international reserves, but we forecast reserves coverage of current external payments will fall to 4.6 months in 2028 from 5.2 months in 2025, broadly in line with the projected 'BBB' median. Net external debt will gradually rise towards 32% of GDP by 2028 from 22.5% in 2025, significantly weaker than the projected small creditor position for 'BBB' peers.

'Romania's large twin deficits make it heavily reliant on external financing, leaving it exposed to changes in market sentiment. High EU fund inflows, including regular cohesion funding, RRF grants and loans, and pre-financing from the EU Security Action for Europe mechanism, have lowered the market's external financing needs in 2026,' the report states.

It goes on to 'forecast that Romanian's economy will contract by 0.6% in 2026 (average growth of 0.3% in 2024-2026), despite higher EU-funded investment, as declining real disposable incomes and weak consumer sentiment reduce household spending, while the Middle East conflict weighs on external demand'. Fitch expects real GDP growth to recover towards its potential of 2.3% in 2028, supported by improving real wage dynamics and a pick-up in private sector investment, partially offsetting lower public capex. Real GDP growth will remain below the projected peer median of 2.7%.

High inflation remains a rating weakness, as Fitch sees average inflation at 7.6% in 2026, up from 6.8% in 2025, before moderating to 3.8% in 2028.

Potential negative rating actions include failure to implement additional fiscal consolidation measures that would result in government debt/GDP stabilisation over the medium term due, for example, to prolonged political gridlock that prevents policy implementation.

Factors that could, individually or collectively, lead to positive rating action/upgrade include confidence that steady progress in the fiscal consolidation will support the stabilisation of government debt/GDP over the medium term, that could lead to a revision of the Outlook to Stable - and reduction in external indebtedness and external financing risks.

All three major rating agencies - S&P Global Ratings, Moody's and Fitch - currently assign Romania a negative outlook, placing the country one step above non-investment grade. AGERPRES (RO - writing by: Mihaela Dicu; EN - writing by: Simona Klodnischi)