UniCredit asserts that Romania's credit rating downgrade has been averted, yet further yield compression necessitates additional reforms
The Romanian government has recently approved a fiscal consolidation package, aiming to prevent a credit rating downgrade and maintain access to EU funds. However, the absence of broad structural reforms could pose risks, according to various analysts.
The fiscal package, which includes a VAT rate hike and higher excise taxes, is expected to bring approximately 0.5% of GDP more revenues to the budget this year and 3.35% of GDP in 2026. Erste Research concludes that the package looks strong enough to avoid a loss of investment grade this fall, while UniCredit analysts suggest that a "significant further compression of Romania's credit spreads" might be delayed until 2026.
However, the lack of credible broad reforms across public institutions and state companies could lead to tension within the ruling coalition. The European Commission has decided not to take steps against Romania due to the fiscal corrective package, but the Fiscal Council shares an opinion that the package could avert a rating downgrade.
The government's plan to freeze public wages and pensions in 2026 could intensify political risk and maintain borrowing costs high. The public support for the government of prime minister Ilie Bolojan is expected to plummet during 2026, and within the government, parties or factions opposing austerity measures could lose support due to the absence of structural reforms in the public sector and resulting internal tensions.
UniCredit financial group predicts that Romania's credit risk premium remains high compared to other countries with the same rating. The absence of structural reforms could increase political risk and maintain borrowing costs high, potentially delaying any significant further compression of Romania's credit spreads.
Despite the risks, the fiscal package could help maintain access to EU funds, supporting a stabilization of the EUR-RON exchange rate in the range of 5.05-5.10 in the second half of 2025. The package could also prevent a credit rating downgrade, but investors will closely monitor the implementation risks to assess the long-term impact on Romania's fiscal health.
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