The main risk for Romania’s macroeconomic balances rests in the budgetary area and are related to the commitment for full implementation of the first and second packages this year and in 2026 – but even under the best case scenario, the measures legislated so far would not bring the general government deficit lower than 6% of GDP at the end of 2026 and 5% of GDP in 2030, according to the conclusions of the IMF’s Article IV Consultations with Romania. Active fiscal consolidation measures are thus mandatory on top of those already legislated or to be legislated this year.
The 6%-of-GDP projection for next year’s public deficit is highly ambitious, as the trajectory under the 7-year consolidation plan envisages a 6.4%-of-GDP deficit. Romania currently estimates a deficit of above 8% of GDP this year.
The downgrade risks remain on the agenda, linked to the implementation of the reforms already inked by the government (legislated or not yet), the IMF’s conclusion read.
A positive scenario would include the solid implementation of fiscal adjustment and investment projects financed with European funds, which would strengthen investor confidence and reduce risk premiums faster than expected, resulting in higher economic growth and private investment.
“We recommend measures on the revenue side and on the expenditure side. Already, in the planned packages, we believe that several essential factors have been taken into account. […] By taking these factors into account, I believe that a package of measures can be reached that will lead to an improvement in the situation and economic growth,” said Joong Shik Kang, head of the International Monetary Fund mission for Romania, as quoted by Agerpres.
Speaking about discussing a possible financing agreement from the IMF for Romania, Joong Shik Kang said that at this moment, this aspect has not been discussed.
Romania’s ruling coalition will undergo a major political discontinuity in April 2027, when the Social Democrats (PSD) will take over the prime ministership from the Liberal Party (PNL), hopefully after nearly two years of reforms conducted by prime minister Ilie Bolojan.
Markets and rating agencies are concerned about the possible fiscal relaxation PSD could be inclined to pursue ahead of the 2028 parliamentary elections. But the political landscape is highly challenging irrespective of PSD’s plans, as the far-right Alliance for the Union of Romanians (AUR) is consolidating its public support amid economic hardship, a gloomy economic outlook, and an underoptimal communication of its steps by the executive.
The “substantial fiscal consolidation in 2025-2026” is welcome, and its implementation, together with further adjustments over the medium term, is critical to restore fiscal sustainability and market confidence, the IMF experts stress.
The IMF expects that if the reform package is fully implemented, the primary fiscal deficit would fall by around 1.25 and 2 percentage points of GDP, respectively, in 2025 and 2026, reducing the overall general government deficit to around 6% of GDP in 2026.
However, the fiscal deficit is projected to decline only gradually thereafter, to around 5% of GDP by 2030, while the debt-to-GDP ratio continues to rise to almost 70%. This is a trajectory that diverges from the one pledged by Romania’s 7-year fiscal consolidation plan drafted under the EU’s Excessive Deficit Procedure.
Further fiscal adjustments are therefore needed from 2027 on, to reduce the deficit below 3% of GDP over the medium term and stabilise public debt at around 60%.
The detailing of concrete measures from 2027 will help restore credibility and increase the predictability of fiscal policy, facilitating planning for companies and households and improving the investment climate, the report says.
The IMF also recommends bidirectional flexibilisation of the exchange rate, parallel by transparent communication, as a means to address the potential external shocks and the country’s weak external position (8.4% of GDP current account deficit last year, driven primarily by the public demand).
Along with fiscal adjustment, it would help strengthen the weak external position, the IMF believes.
On the economic growth side, IMF experts expect a 1% advance this year – not much above last year’s performance, dragged down by investments – and 1.4% in 2026. This is in line with the 1.5% y/y economic advance in H1 expected to slow down in H2 under the impact of fiscal consolidation measures and lower fiscal stimulus.
The Romanian authorities issued a more conservative scenario on September 5, to be updated in November ahead of the 2026 budget planning, envisaging 0.6% growth this year (therefore implying deeper economic contraction in H2) and softer recovery to 1.2% growth in 2026.
iulian@romania-insider.com
(Photo source: Inquam Photos / George Călin)
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