Romania's self-prevolved budget crisis: The correction is painful and needs social peace and solidarity, warns the Fiscal Council

The fiscal consolidation marks a potential turning point, but the road to restoring credibility will take years, writes the Fiscal Council in an analysis of the budget rectification.

Romania is at a crossroads. After years of tax recklessness that pushed its sovereign rating by the status of junk, the new government started an unprecedented budget correction that could mark the inflection point in restoring trust in its public finances, says the Fiscal Council.

The stakes could not be bigger; Without corrective measures this year, the budget deficit of Romania would have reached about 9% of GDP, according to the Fiscal Council. The three major rating agencies have reconfirmed the sovereign risk of Romania at a level immediately above the junk.

What makes the situation of Romania special is the fact that, unlike other EU Member States that have faced fiscal crises, it is entirely self-prevolved. There was no financial collapse, no pandemic shock, no external catastrophe. In contrast, the crisis comes from years of expenses related to the electoral cycle and permanent increases in expenses, culminating with a deficit in 2024 of 8.67% based on cash and 9.3% in ESA methodology.

“The electoral years cannot justify great recklessness in the management of public finances,” says the Fiscal Council in its recent opinion on budget rectification. “The 2024 budget deficit was deepened especially by permanent increases.”

The trap of twin deficits

The fiscal dominance of Romania has created what economists call a “twin deficiency syndrome” that singularizes the country within the EU. The budget deficit evolves in parallel with a current account deficit that exceeded 8% of GDP in 2024, funded mainly by loans. This double bleeding exerts strong pressure on monetary policy, forcing the central bank to maintain interest rates at high levels to combat inflation.

The correction is essential for maintaining confidence in the national currency, warns the Fiscal Council. However, the claim that the budget adjustment leads to the economic crisis “omits that Romania cannot perpetuate 9% of GDP”, notes the analysis.

A problem of income

The challenge of Romania consists in the exceptionally low collection of tax revenues. At 28.8% of GDP in 2024, Romania remains a long way from its regional colleagues: 35% in both the Czech Republic and Hungary, 37.5% in Poland and an EU average of 40.1%.

The notion that rapid improvements in tax collection could avoid the need for fiscal regime changes is “illusory”, according to the Fiscal Council.

Even the freezing of salaries of December 2024 for employees in the public sector and non-industry of pensions failed to stop the nominal growth in these categories during 2025. The pensions felt the annualized impact of the recalculation, while the salaries reflected the increases of 2024. their weight in GDP.

External size

The international environment complicates considerably the inevitable budget correction of Romania. Commercial wars, slowing down economic activity in Europe, economic fragmentation, need to increase defense expenses, geopolitical tensions and increasing aversion – all these multiply the challenges facing Bucharest.

Defense expenses represent a particular burden for the future. The reduction of tax evasion could help in this regard, given the very low levels of income collection in Romania.

A narrow path before

The fiscal package adopted in July has a positive impact on the deficit of 2025, affecting the budget execution only since September. However, the effect of reducing the deficit will be considerably higher in 2026, leading to a deficit around 6.5% of GDP – a significant adjustment to the very high values ​​of previous years.

The recent budget rectification provides for a cash deficit of 8.4% of GDP in 2025, with 1.36 percentage points over the target of the initial budget, but far below the 9% that would have materialized without intervention.

The ceiling of public debt was increased to 59.6% of GDP according to EU methodology. Without corrective measures, the debt would follow an explosive trajectory, with average increases of over 6 percentage points annually, reaching 83% until 2029 and exceeding 100% in 2032.

“This deeply unsustainable trajectory of the public debt highlights the urgency of adopting the budget correction measures, even if they are painful,” the Fiscal Council points out.

The issue of European money absorption

Adding to Romania's troubles is its chronic inability to absorb EU funds. By the end of August 2025, the effective absorption rate for structural and cohesion funds within the multiannual financial frame 2021-2027 was only 10.4%. For the facility for recovery and resilience, the rate was 30.7% – and this after a review that reduced Romania's allocation to 21.6 billion euros.

The weak administrative capacity that undermines the absorption of EU funds represents not only lost development opportunities, but also a threat to the fiscal-budgetary and financial-valuable balances.

A call to national solidarity

“The correction is painful and to be achieved there is a need for social peace and solidarity, even if these desires can sound like naive,” concludes the Fiscal Council.

With internal and international environments full of uncertainties, the Romanian authorities must proceed with caution, while remaining consistent. The extent of the necessary adjustment is unprecedented for an EU Member State that does not face a deep financial crisis or severe shock.

After years of fiscal excesses, Romania started the journey that leads to credibility. The question is whether the political will can be supported enough to complete it.