Rating agency Fitch, based on Romania’s 2025 budget revision and the macroeconomic forecast predicting muted growth of 0.7% this year rising to 1.2% in 2026 and 2027, projected that the country’s public deficit under ESA methodology would decline from 9.3% last year to 8.5% in 2025, followed by gradual reduction to 7% of GDP in 2026 and 6.5% in 2027.
This is a one-year delay compared to the trajectory set by the country under the seven-year fiscal consolidation plan sketched last autumn, when the 2024 gap was estimated at 7.9% instead of the actual 9.3% value.
Under a cash perspective, Romania’s deficit has marked a modest 0.3 percentage point improvement from 8.7% in 2924 to 8.4% last year, despite two packages of budgetary measures: the first implemented in January with an estimated impact of 1.1 pp, and the second implemented in August with an estimated impact of 0.6% pp.
The primary deficit has contracted, however, by 1.1 pp according to the rating agency’s estimates, indicating that the interest paid by the country on its public debt was 0.8% of GDP above its initial estimate. This explains just above half of the 1.4 pp deviation from the initially estimated fiscal consolidation (0.3 pp versus 1.7 pp), with the rest being explained by weaker growth, sluggish revenues, and higher social costs.
The main adjustments under the budget revision are to expenditure (up by RON 27.8 billion or 1.6% of Fitch-forecast GDP), particularly higher interest payments, as well as social assistance and health-related spending.
Given the magnitude of the deficit and the multi-year consolidation process, Fitch underscored that a key challenge is to strengthen fiscal policy credibility, especially after repeated revisions to fiscal targets in 2024, which saw the budget deficit rise from an initial target of 5% to an actual 8.7% in cash terms. The additional packages should underscore the government’s broad commitment to deficit reduction.
The rating agency outlined the Romanian government’s further steps, indicating expectations for further clarifications needed to pinpoint a more credible public policy.
The government has formulated additional consolidation measures, including a second package focusing on spending cuts, mainly at the local government level.
An extension of public-sector wage and pension freeze into 2026 is already legislated, and the government has indicated that a third fiscal package could be presented this month.
Fitch also underscored implementation risks, but also sustained support from the European Commission in terms of fiscal planning and funding under the Recovery and Resilience Facility.
Some proposed measures in the second package, including cuts to special pensions, are subject to review by the Constitutional Court. However, backing for further fiscal measures is not guaranteed, given the political costs and potential resistance. Prime minister Ilie Bolojan postponed a proposal to cut administrative expenses by at least 10% due to opposition from coalition partners.
On the upside, the revised 2025 deficit target has been agreed by the European Commission. Recovery and Resilience Facility funding totaling EUR 21.6 billion or 6.1% of the projected 2025 GDP will provide a counter-cyclical stimulus cushioning the deterioration of the growth outlook. Moreover, Romania will tap the Security Action for Europe financial instrument.
iulian@romania-insider.com
(Photo source: King Ho Yim/Dreamstime.com)
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