Romania’s deficit-cutting plan to reduce its budget deficit to less than 3% of national output by 2030 has been approved by EU finance ministers, a move Bucharest believes will reassure investors about the country’s economic prospects and contain rising bond yields.
Romania has been subject to the EU’s excessive deficit procedure since 2020, which requires it to present the European Commission with a multi-year plan to decrease its deficit to less than 3% of GDP.
Last October, Bucharest submitted its seven-year deficit reduction plan to Brussels, stating that it aimed to reduce the fiscal deficit from 7.0% in 2025 to 2.5% in 2031.
Despite analyst cautions that more steps are required, the administration stated that its 2025 budget plan will reduce the deficit to 7% of GDP without raising any substantial taxes while maintaining high public investment.
Fitch has downgraded Romania’s credit rating outlook to negative, and all three major rating agencies place the country at the lowest investment-grade. Romania’s 10-year yield soared to 8.1% earlier this month, a two-year peak.
Fiscal consolidation is key to ensuring Romania continues to receive billions of EU recovery and development funds over 70 billion euros by 2027 which are underpinning infrastructure investment and economic growth.
Romania’s budget deficit for 2024 is estimated to be 8.6% of GDP, following substantial spending ahead of the parliamentary and presidential elections late last year.
Romania was plunged into political turmoil when a far-right NATO critic won the first round of the presidential election on November 24, prompting accusations of Russian interference denied by Moscow and ultimately leading to the annulment of the entire election.
