The budgetary corrective package 2025-2026 could avert a sovereign rating downgrade, the Romanian Fiscal Council concludes in its opinion on the fiscal package approved by the government on July 3.
There was no alternative to the fiscal package, and the urgency has not allowed better optimisation of measures, the Council explains in a strong backing to the government’s move. There are the reckless actions of the previous governments that made the tough fiscal adjustment unavoidable, the Council says.
The fiscal package expects Parliament’s formal enactment, which can be delayed or even derailed by an opposition’s no-confidence motion that is still unlikely to gain support from the necessary majority of lawmakers. The Social Democratic Party (PSD), which expressed frustration with many of its amendments not being considered, may, in principle, pull out of the ruling coalition – but this is an extreme scenario with a very low likelihood even if the weakening electoral support for the party could encourage it to radical steps.
The Fiscal Council revised from 7.7% of GDP to 8.4% of GDP its forecast for the country’s budget deficit this year under the no-policy change scenario and estimates an impact of 0.6% of GDP for the fiscal corrective package. The impact is estimated at 3.35% of GDP for 2026, including 1.6% of GDP lower spending and 1.75% of GDP stronger revenues. This would meet the EC’s request to boost revenues by at least 1.7% of GDP, the Fiscal Council says.
The impact on the budget this year would comprise 0.1% of GDP lower expenditures and 0.5% of GDP higher revenues, according to the Council, and will likely bring the deficit under 8% of GDP by itself.
Further measures, such as restricting investments, may bring the deficit in the region of 7.5% of GDP, the Council reasons.
The Fiscal Council expects other measures in addition to the first corrective package, although it seems to suggest that the first package is sufficient under the aspect of bringing the deficit towards the consolidation trajectory inked by the European Commission.
In addition to the measures provided for in this draft law, it is likely that the next two packages of measures announced by the government will include other measures to streamline public sector spending and prioritize investment projects, the Council’s opinion reads.
Also, the renegotiation of the National Recovery and Resilience Plan (PNRR) may lead to the transfer of some projects financed from the loan component of the PNRR to the grant component or to multiannual European funds. These measures would, in turn, reduce budgetary spending, the Fiscal Council says.
iulian@romania-insider.com
(Photo source: Alexandru Marinescu/Dreamstime.com)
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