The agency has, however, affirmed Romania's long-term Issuer and Senior Unsecured Ratings at Baa3, and also affirmed the Senior Unsecured MTN Rating at (P)Baa3. The short-term issuer ratings have also been affirmed at Prime-3.

The move to a negative outlook signals Moody's apprehension that Romania's fiscal position could deteriorate significantly without additional fiscal consolidation measures.

“In our baseline scenario, we expect Romania's fiscal deficit will remain elevated at 7.7% of GDP in 2025 and only gradually improve thereafter,” the agency stated.

This trajectory is expected to drive the government debt burden to 68.5% of GDP by 2028 and substantially weaken the government's debt affordability metrics.

“In the absence of significant improvements to the fiscal outlook, this risks leaving Romania's overall credit profile materially weaker than Baa3-rated peers,” Moody's cautioned.

The affirmation of the Baa3 ratings acknowledges Romania's moderately sized economy, its growth potential, and its comparatively high wealth levels. However, Romania's credit profile is also constrained by a high susceptibility to event risk, notably due to its geographical proximity to the war in Ukraine.

Romania's long-term local and foreign-currency country ceilings remain unchanged at A2. The four-notch gap between the local currency ceiling and the sovereign rating reflects a moderate government footprint in the economy, moderate predictability of government actions and reliability of key institutions, as well as moderate political and external vulnerability risks.

Moody's expects that the fiscal deficit will decline from 8.7% of GDP in 2024 but remain elevated at 7.7% in 2025 and only gradually improve thereafter. This, coupled with a downward revision of growth projections, would rapidly drive the government debt burden higher. Rising borrowing requirements and increasing interest costs will also significantly weaken the government's debt affordability metrics in the coming years.

The agency's experts also noted that while the government has introduced some measures aimed at reducing the deficit, meeting the deficit targets would most likely require a combination of an unexpectedly strong pick-up in growth coupled with significant improvements to fiscal policy management.

Successfully bringing down the deficit and limiting the increase of the government debt burden will most likely also require the adoption of additional fiscal consolidation measures.