Fitch Ratings announced on December 17 it has revised the outlook on Romania's long-term forex Issuer Default Rating (IDR) to negative from stable, while affirming the IDR at BBB-.

The decision was made after the presidential election process was annulled by the Constitutional Court after the surprise first round victory of the ultranationalist candidate Calin Georgescu due to alleged foreign/Russian election interference. The constitutional court also extended the mandate of the current president, Klaus Iohannis, originally due to end on December 21, until a new president is elected.

“Political uncertainty has increased to high levels and our assessment is that it will likely have a significant adverse effect on fiscal consolidation,” the rating agency said.

Fitch expects Romania's general government deficit will increase to 8.2% of GDP in 2024, above its previous August review forecast of 7.2%.

Although Fitch assumes that fiscal consolidation will start in 2025, it revised up the general government deficit forecast to 7.5% of GDP in 2025 and 6.8% in 2026 – more than double the current projected 'BBB' median averaging 3.2% in 2025-2026. 

“In our view, fiscal consolidation is likely to face difficult trade-offs due to the potential adverse impact on already subdued economic growth and the risk that financial markets volatility could push up the interest costs, further weakening the fiscal position,” the rating agency commented.

Meanwhile, centrist parties in parliament are moving closer to a coalition agreement. The Social Democratic Party (PSD), National Liberal Party (PNL) and the Democratic Alliance of Hungarians in Romania (UDMR) announced on December 17 that they have reached an agreement on reforms for their prospective government. The reformist Union Save Romania (USR), however, was not part of the talks and did not sign the agreement.

The three-party coalition, supported by MPs representing ethnic minorities, holds a slim majority in both chambers of parliament. But excluding USR from the ruling coalition could undermine its stability. A president outside the coalition — whether aligned with USR or nationalist parties — could further weaken the alliance and even precipitate early elections in 2025, a possibility increasingly discussed publicly as an option.