Romania narrowly avoids junk rating as Fitch initially planned downgrade, BNR advisor reveals

Fitch's near-miss

On August 1, Fitch Ratings maintained Romania's sovereign credit rating at BBB-, the lowest investment-grade level, with a negative outlook. The agency's official statement noted that the decision followed an appeal by Romania, resulting in a different action from the initial assessment. Eugen Rădulescu, advisor to the governor of the National Bank of Romania (BNR), told Digi24 that the initial decision had been a downgrade to junk status.

“It means that the initial decision was to downgrade Romania, but as a result of additional information presented by the Government and BNR, they reconsidered and gave us a reprieve for a few months.”

He described the outcome as a narrow escape, saying "we escaped by a hair's breadth." The reprieve, however, does not eliminate the risk.

Structural reforms stalled

Rădulescu stressed that the danger has not passed and is now greater than before. The deficit reduction over the past year relied almost entirely on tax and duty increases, with very little substantive restructuring.

“Not only has the danger not passed, but it is greater than it was before. Because what happened in the last year was almost exclusively towards reducing the public deficit, especially through tax and duty increases. But very little has been done in terms of the substantive restructuring that is absolutely necessary and can no longer be delayed.”

He warned that without a credible plan to continue deficit reduction, Romania could face a downgrade within six months. Reform of state-owned companies is vital for the next evaluation, he added.

Rent extraction and energy mismanagement

The BNR advisor identified a pervasive system of "rent extraction" from the public sector. He cited 10,000 court cases where prosecution was halted due to the statute of limitations, allowing perpetrators to keep stolen funds.

“This manifests on an incredibly large scale, starting with theft. We have 10,000 cases where prosecution was stopped because the statute of limitations expired, and the perpetrators remained happily with what they stole. It's not just about the huge sums lost. It's about generating a certain incredibly pernicious system. When you know you're in a village without dogs, you don't carry a stick.”

He also criticized energy policy, calling the administration of the sector "completely inept." While acknowledging exceptional factors like drought and low Danube levels, he argued that Romania failed to increase electricity storage capacity and instead froze energy prices, discouraging prosumers.

“One of the things politicians decided in their wisdom was to freeze the price of electricity, which has the effect of bringing us closer to such a situation. When you freeze the price and give subsidies to all consumers so they can consume as much as they want, that can only lead to disaster.”

What's next

Rădulescu emphasized that Fitch has historically been more favorable to Romania, but the current trajectory is unsustainable. Without structural changes, he said, "we will reach in less than six months where we escaped by a hair's breadth in this Fitch assessment." The negative outlook signals that the rating remains under pressure, giving the government a narrow window to implement reforms that address the deep-seated issues he outlined.