Romania’s rating holds as budget talks stall

S&P Global Ratings on 2 October kept Romania at BBB−, its lowest investment-grade rating, with a negative outlook, a formal warning that the rating may be cut (BURSA). One notch lower, Romanian government bonds would count as junk, and investors whose rules require investment grade would have to stay away. S&P is betting that the parties will form a government able to pass budgets that keep cutting the deficit in 2027 and 2028, and it warns that a long stalemate blocking this could bring a downgrade (News.ro). This week, parliament rejected the latest attempt to form that government.

Progress S&P can already see

The case for holding the rating is a deficit that kept shrinking under a caretaker government. In the first eight months of the year, the cash deficit (the gap between what the state collected and what it paid out) fell to 2.89% of GDP from 4.51% a year earlier (Digi24).

That is a running tally. S&P judges the full year on the broader measure used in EU fiscal rules, which covers the whole public sector and counts payments differently. On that basis it expects the deficit to fall from 7.9% of GDP in 2025 to 6.25% this year and 5.0% by 2028 (Agerpres, BURSA). The eight-month figure is progress already made. The later numbers are a forecast that comes true only if future budgets deliver it.

Interest is eating part of the savings. The state paid 42.05 billion lei in interest from January to August, 26.7% more than a year earlier (Știrile ProTV). Every leu paid to bondholders cannot go to schools, roads or wages, so cuts elsewhere must go deeper to hit the same deficit target.

Lenders were already asking for more. Yields on ten-year bonds, the annual return investors demand to lend to the state, climbed to their highest level of 2026 in the two weeks before the decision, Reuters reported on 1 October (Reuters via Yahoo Finance). Higher yields make new borrowing dearer as old debt is refinanced. They do not explain this year's interest bill, which mostly reflects debt already issued. S&P announced on Friday evening, so markets have not yet reacted.

A budget nobody has the votes for

Parliament rejected Siegfried Mureșan's cabinet on 30 September with 182 votes, short of the 233 it needed (AGERPRES). The Social Democrats withheld support, and their leader Sorin Grindeanu says he is willing to negotiate a government with a different economic direction (Gândul).

Romania's budget law gives the government until 15 November to send next year's draft budget to parliament (Law 500/2002). That deadline covers sending the draft, not approving it. Still, it is the first date by which the parties will show whether anyone can command the votes to pass a budget. A caretaker cabinet can keep the state running, but it cannot pass a new budget without a majority.

Deadlock already costs money. Ilie Bolojan has said Romania lost about €770 million in EU recovery funds tied to a stalled public-sector pay law (HotNews).

Who would bear the restraint

S&P expects the 2027 budget to cut capital spending and to raise public wages and pensions only cautiously (News.ro). Capital spending pays for hospitals, roads and rail. Cutting it hurts construction firms now and the people who would use those projects later.

The cautious raises matter more to households. Each year the state decides how much to lift pensions and public salaries, a process called indexation. Raises smaller than inflation mean pensioners and state employees can buy less with the same income. If a budget along those lines passes, these groups would carry much of the adjustment. No package has been voted yet, so how the burden splits between them remains open.

S&P has kept Romania at investment grade on the strength of two things: deficit cuts that have already happened, and a budget deal that parliament has not yet produced. Its later deficit figures are forecasts, not results. They depend on the parties now negotiating with President Nicușor Dan agreeing who absorbs the next round of restraint. If they cannot, S&P has already said what follows: the downgrade its negative outlook warns of.