S&P reviews Romania sovereign credit rating as political deadlock threatens junk downgrade

Sovereign rating on the brink

Standard & Poor's will decide on Friday, 2 October, after financial markets close, whether to maintain Romania's sovereign credit rating at BBB- or lower it to speculative territory. A downgrade would push the country out of investment grade into the category colloquially known as junk. S&P is the last of the three rating agencies to review Romania in 2026, following evaluations by Fitch in late July and Moody's in August. Both peer agencies preserved Romania at the lowest tier of investment grade while maintaining a negative outlook.

Fiscal consolidation and deficit targets

The Romanian government points to recent fiscal tightening as its central argument for retaining an investment-grade rating. Official data shows the consolidated budget deficit fell to 59.42 billion lei (2.89% of GDP) in the first eight months of 2026, down from 86.36 billion lei (4.51% of GDP) during the same period in 2025, representing a reduction of nearly 27 billion lei. Total state revenues rose by 11.4%, supported by 103.4 billion lei in value-added tax collections, up 25.2% following an increase in the standard VAT rate from 19% to 21%. Interim Prime Minister Ilie Bolojan stated that spending prioritisation and state company restructuring remain essential. Interim Finance Minister Alexandru Nazare projected an annual cash deficit of 6.2% of GDP and an ESA deficit of 6.0%.

Nazare expressed confidence in discussions held with agency representatives ahead of the scheduled announcement.

I have great confidence, there were intensive discussions with Standard & Poor's. Political uncertainty weighs quite heavily, but we also have solid arguments regarding execution.

Political deadlock and market pressure

Market indicators reflect heightened pressure following months of political friction. On 30 September, designated Prime Minister Siegfried Mureșan failed to win a vote of confidence in Parliament, prolonging a five-month political crisis. Ten-year sovereign bond yields rose by 60 to 80 basis points over two weeks to reach 7.6%, while long-term bond prices declined to levels last seen in May 2025. Five-year credit default swaps price in a two-notch downgrade to BB. Guillaume Tresca of Generali Asset Management estimated a one-in-four probability of an immediate rating cut, noting that rating agencies prioritize deficit reduction over political friction in the short term.

Tresca explained that the agency's tolerance for political instability depends directly on fiscal discipline.

S&P and Moody's could both tolerate a longer period of political instability, provided that the fiscal consolidation process remains on track, but probably not beyond the first quarter of 2027.

Borrowing costs and debt trajectory

Central bank officials and portfolio managers warn that rising debt service costs create sustained vulnerabilities. National Bank of Romania Vice Governor Cosmin Marinescu noted that gross financing requirements now exceed 10% of GDP, while annual interest costs consume roughly 3% of GDP. Kathryn Exum of Gramercy warned that an eventual downgrade could trigger mandatory bond liquidations among institutional investors with investment-grade mandates. Analysts at Erste noted that S&P might defer any adverse rating action until political parties clarify a coalition agreement and draft the 2027 state budget.

Marinescu outlined the pace of borrowing that has accumulated across recent fiscal years.

What is worrying in Romania's case is the speed of debt accumulation in recent years, when the growth rate was three times higher than in the pre-pandemic period.