The European Union’s finance ministers have welcomed and approved Romania’s move to reduce its fiscal deficit below 3% of national output by 2030. Authorities in Bucharest hope the plan will ease investor concerns about the country’s economic outlook and steady bond yields that have been in a state of flux. Romania has been subject to the EU’s excessive deficit procedure since 2020, which requires it to submit a multi-year plan showing the European Commission how it intends to reduce its deficit and comply with the bloc’s ceiling of 3% of gross domestic product (GDP).
Last October, Bucharest presented Brussels with a seven-year deficit reduction plan that resolved to lower the nation’s fiscal shortfall from 7.0% in 2025 to 2.5% in 2031. This month, Finance Minister Barna Tanczos told the Reuters news agency that the new coalition government was committed to the plan. The government’s 2025 budget aims to cut the deficit to 7% of economic output while avoiding major tax increases and keeping state investment high. Analysts, however, have warned that more measures will be needed.
Romania’s budget deficit for 2024 is expected to hit 8.6% of economic output following the heavy spending that preceded parliamentary and presidential elections late last year. The country faced political upheaval when a far-right candidate, a NATO critic, won the first round of the 24 November presidential election, unleashing charges of Russian interference (rejected by Moscow). In the end, the ballot was annulled.
The three major credit rating agencies now list Romania at their lowest investment-grade, while Fitch has reduced the country’s credit rating to negative. Earlier this month, Romania’s 10-year yield surged to 8.1% — a two-year high. Despite this, Tanczos insists that the country’s fiscal plan “aims to stabilise public debt” and that Romania “continues to rank among the first in the EU for public investment levels.”
Fiscal consolidation will ensure that Romania continues to receive the billions of EU recovery and development euros (70 billion-plus by 2027) vital to underpinning the country’s infrastructure investment and ensuring its economic growth.
