How the recession was avoided and what chances Romania has to reduce its deficit in 2026. Economist: “Other increases should not occur”

Economist Cristi Tudorescu notes that good signs have started to appear, albeit timid ones, for Romania's economy. But he also warns that there are still challenges to which the government has not yet found an answer, and the deficit is a big problem. However, there is a possibility that the deficit will decrease by two percent in 2026, the expert believes.

The first signs of a timid revival appear. PHOTO: Freepik

Romania has by far the largest deficit in the entire European Union, but it also has an undesirable record: it also has the highest inflation. The two problems are just like two serious, deadly diseases that affect an organism and devour it, ruining it, until they push it to collapse. And the bad news is that the “doctors”, in this case the politicians and decision-makers, have no solutions, in fact in many cases they act backwards and feed the “viruses and microbes”, that is, the deficit and inflation.

Deficit and inflation, like AIDS and cancer

Due to the colossal deficit, Romania risks losing the goodwill of the European Commission at some point and being left without European funds, even if the politicians claim, as is their custom, that the risk is non-existent. And the galloping inflation doesn't even need explanations for Romanians who have learned what it means to pay more and more from day to day for any product on the shelves of the supermarket.

When most economists are pessimistic and have no way of seeing with good eyes the stubbornness of the government, which refuses to reform and relies on increasing taxes and fees, which bring inflation, but also on massive loans and spending as they deepen the enormous deficit, the economist Cristi Tudorescu sees the light at the end of the tunnel and explains how Romania could escape from the year of two percentage points from the deficit that is pressing it more and more much.

In a post on Facebook, the expert refers to the budget execution and talks about the government's achievements, challenges and issues that have not yet been answered, but also about the prospects.

First good signs

“The main conclusions drawn from the budget execution in October 2025: Revenues for the first 10 months +12.3% vs total expenses for the first 10 months +9.9% → it is the first month in which the budget deficit decreased visibly as a percentage of GDP. – Budget deficit at 10 months: -5.7% (vs. -6.2% last year), and in lei it is almost the same as last year: -109 billion lei so far. Regarding income, I looked in particular at the receipts from VAT and excise duties, as it was written last week that it was not known what had happened to them: net VAT collected = a record of 13.6 billion lei in October, after weaker months followed a very good month of receipts. I assume that the relevant average is somewhere around 12.8 – 13 billion lei, that's what we should expect as monthly receipts”says Tudorescu.

The good news here is that VAT revenues have increased compared to the summer months, but also above those collected from VAT in the same period last year.

“Clearly they are about 20% above those of June-July (when they were), he also says.

On the other hand, Cristian Tudorescu also notes that income from profit tax, income taxes, insurance contributions are +15% for each of these lines, in some cases +20%. All of the above shows that the part of the economy that pays its taxes has generally paid its dues to the state. Even so, with unwanted and increasing fees, adds the expert.

The big challenge the government has yet to solve

However, some problems remain to be solved, and the Bolojan Government will face a big challenge: “The problem remains with the part of the economy that does not pay its dues — let's see how much the Government will manage to reduce evasion.”

As for the expenses part, they would have remained at the level of the last two months of last year. “Now moving on to the expenditure side: Although the world (I meant the websites, the televisions…) was left with the impression that personnel expenses increased in 2025 as well, I remind you once again: expenses remained at the level of November-December 2024 = 14.2 billion lei per month, and over time they began to decrease due to exits from the system, retirements, departures, etc. In October 2025, monthly personnel expenses were 13.6 billion lei (-4%). If we project 13.6 × 12 personnel expenses, we end up seeing that small decrease. So, the Government didn't know / couldn't / didn't want to reduce expenses through pro-active measures — it let them fall naturally, by about 4%. supports Tudorescu.

At the same time, certain expenses continue to rise. “Expenditure on goods and services: last month we saw increases of +7% vs. last year and we said they were incomprehensible; now we see +5.5%, which looks acceptable, being below inflation. The other expenses remain rigid, there is no way to reduce them in the short term: the pensions remain constant, the interest rates are very difficult to reduce as a total volume, so they will remain like this for a long time”, complete the expert.

How can the deficit decrease in 2026 by two percent

The big question that Cristian Tudorescu asks himself is the following: “And then how is the deficit going to come down from 8.4% this year to 6-6.5% next year?” The answer also comes from him. Starting from the idea that this year we may have a deficit of 8.4%, absolutely enormous, but slightly below that of 2024, there is a possibility that in 2026 it will decrease by 2 percent.

“This year, 8.4% is plausible. And for next year, it should be reduced by 2 percentage points of GDP, meaning about 38-40 billion lei. Where could this amount come from? Once the VAT increases are implemented, the budget receives about 1.5-2 billion lei in addition monthly: those 13 billion vs. 11 billion lei/month. VAT increase impact: +18-24 billion lei in 12 full months. From excise taxes a few billion more are being raised“, are the first sources that would bring money to the state treasury.

At the same time, the Bolojan Government should move from PR exercises to facts and reduce budget personnel expenses, as it promised, but “forgot” to do it. “The decrease in budgetary personnel expenses: now there are -600 million lei monthly savings → in one year: 7 billion lei saved”, it is the other source from which the state can get some more money, through savings.

Cristian Tudorescu believes that the three solutions are enough to lower the deficit to 6% next year. In such a situation, the Bolojan Government should no longer resort to other increases in fees and taxes, apart from those already announced, the expert claims.

“These three factors result in an improvement in the deficit of more than 30 billion lei in the next 12 months. This tells me that, apart from the already known changes from January 1 — dividend tax increase and local tax increases (if they pass legislation) — other increases should not appear. But there will still be articles/posts/TV shows to scare us that the VAT will go up to 23%”he explains.

For the end, Cristi Tudorescu kept room for a conclusion. “And one last conclusion: In the post from 1 month ago, I was afraid that the VAT will also increase in HoReCa from 11% to 21%. After seeing the data in October, they may get away without the increased VAT. The Minister of Finance said that he supports, at this moment, that it should remain so“.

How we avoided an economic collapse

He later came back with another post in addition to the one above. In his opinion, the credit for the slightly better results belongs to those Romanians who pay their taxes, regardless of whether it is companies or the population.

“Instead of boasting, the Government should thank the citizens and companies that pay their taxes. The Ministry of Finance has published the budget execution at 10 months, and the data shows somewhat better than in previous months, a sign that the economy has good resilience to the stress induced by the fiscal measures in the recent period. The fact that the budget deficit at the beginning of the year is 5.7% of GDP, compared to 6.2% in the same period of the year past, it's the credit of the economy. Or rather, of that part of our economy that pays its taxes. The government should, first of all, thank the citizens and companies that have borne the increased VAT, the removal of benefits on labor, CASS applicable to a wider base of taxpayers, plus higher inflationit is”, states the expert.

For this reason the economy avoided going into recession, although there were enough voices announcing this.

“The fact that the economy has not gone into recession, as some or the other have been quick to tell us, is all to its credit — to the economy,” he says.

Good news, bad news

Cristi Tudorescu adds more good news in the second post.

“Good news for the first 10 months: Total revenues to the budget rose by 12.3%, while expenses rose by only 9.9%. The profit tax paid by companies is 38.1 billion lei (+15.8%). The tax on salaries and income is 48.6 billion lei (+19.5%), under the conditions of the elimination of the exceptions from the four economic sectors that benefited from the reduction of labor taxation. The net VAT paid to the budget: 108.4 billion lei (+9.2%), of which 13.6 billion lei were transferred in October, a monthly record. With the increase in VAT rates, transfers to the budget rose to 12-13 billion lei, compared to 10-11 billion previously, which shows that the initial shock of the rate increase has been absorbed. Excise duties paid since the beginning of the year are almost 40 billion lei, an increase of 10%.“, Tudorescu also affirms.

Even expenditure on budgetary personnel has decreased in certain segments, less expenditure on goods and services which continues to increase. “Budget personnel expenses have a monthly rate of 13.6 billion lei, compared to 14.2 billion lei per month in the first part of the year. The total is still above the previous year (+5%), but there is a downward trend. Expenditure on goods and services: 79.7 billion lei (+5.5%), below the inflation level. The other expenses (pensions, social assistance, interest, subsidies) are much more rigid and difficult to change”, he points out.

But there is also some bad news, and it is not being hushed up.

“Some sectors or activities will have problems in the coming period. We are learning about insolvencies or economic difficulties in areas that had become uncompetitive”, summarizes Tudorescu.

What would be done

Cristi Tudorescu also says what the Government should do, in his opinion. The final conclusion is that only in this way does the economy have a chance to recover and will be able to avoid a collapse that would affect all Romanians.

“After congratulating the economy that makes its contribution to the budget, the Government should get real results from the economy that does not divert contributions — the results in the fight against evasion are timid, hard to see even in comparative data. Remove the obstacles placed in the way of businesses through measures such as the minimum turnover tax or the “pole tax”. To expedite restructuring decisions in state-owned companies and solutions for large private players in difficulty — example: Liberty Galati. To provide direct and indirect support measures for companies. For example, the loans for SMEs announced through the Investment and Development Bank — 6 billion lei for 2026 — seem insufficient. The previous IMM Invest program offered guarantees of more than 11 billion lei annually, and fears about non-performance did not come true: the non-performance rate is 1–2%, slightly above the average for ordinary loans. To show the ability to pro-actively reduce state spending. So far we see only a natural decline in personnel expenses, through retirements and departures — -4% compared to the previous pace. Only in this way will the Government be able to support what the good part, the healthy part of the economy has shown that it can do in challenging conditions“, is Cristi Tudorescu's analysis.