Romania’s rapidly rising public debt (chart) remained steady through January, ending the month at RON964.4bn (€193.8bn), or 46.8% of GDP, according to data published by the Finance Ministry. 

With no FX bond or Fidelis bond issue to households in the first month of the year, the public debt has remained constant. 

However, €4bn of FX bonds were issued in February, followed by €2.75bn in March – which has probably further pushed up the country’s indebtedness. 

In addition to the FX bonds in February-March, Romania’s Finance Ministry has intensified the campaign for borrowing from the population with Fidelis issues launched on a monthly basis from February (when it raised RON4.3bn ) and more accessible Tezaur issues to households (sold through online channels). Besides the FX bonds, intense borrowing from households is likely to result in a higher public debt at the end of the first quarter of the year, despite the peak RON22bn (€4.4bn) public debt service in February.

The rise of the public debt (from only 35% of GDP before the 202 Covid-19 pandemic), driven by uncontrolled public deficits, is one of the main concerns that made rating agencies put Romania’s sovereign rating on the edge of junk territory (BBB-/negative). A more credible fiscal corrective package after the May presidential elections is essential for preventing further negative actions that would prompt forced fiscal correction. 

Fitch rating agency on March 25 stressed that further fiscal corrective measures are necessary for Romania to meet its analysts’ 7.5%-of-GDP deficit projection – a guideline for a possible dramatic downgrade that would push the country’s public debt in the junk region.

Projected 7.5%-of-GDP public deficit this year that would be cut to 6.8% of GDP in 2026 will not prevent the general government debt-to-GDP ratio from increasing sharply to 62% in 2026 (2023: 49%), above the projected current BBB median of 56%, and to about 70% of GDP by 2028 in the rating agency’s baseline projections, according to the rating agency’s forecast.

Moody’s also expects Romania’s debt-to-GDP ratio to exceed the 60% threshold in 2026.

If the government's debt burden and debt affordability metrics were to weaken materially less than Moody’s current expectations, the rating agency says it would likely return Romania’s outlook to stable.

Moody’s expects delayed additional fiscal consolidation measures, unlikely to be announced before the presidential ballot, to result in moderate fiscal consolidation to a 7.7%-of-GDP public deficit in 2025 – still nearly 1.0 percentage points less compared to 2024. 

Coupled with a significant downward revision of Moody’s growth projections for Romania, the still wide public deficit would rapidly drive the government debt burden higher to 59.3% of GDP at the end of 2025 and to 62.7% at the end of 2026, from 48.9% at the end of 2023.

The public indebtedness trajectory expected by Moody’s diverges significantly from the government’s more optimistic expectations included in the seven-year fiscal consolidation plan drafted last year under the Excessive Deficit Procedure. At that time, the government expected the debt-to-GDP ratio to be only 52.2% at the end of 2024 (compared with 54.6% realised), 55.7% at the end of 2025 and 58.5% at the end of 2026.