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Romania commits to achieving a 7% public debt target this year and a 7-year plan for fiscal tightening

Romanian Ministry of Finance commits to achieving a public deficit target of 7% of GDP, as per the ESA methodology, according to their statement following Eurostat's release, and reaffirms their adherence to a 7-year fiscal consolidation plan, as agreed with the European Commission.

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Romania commits to achieving a 7% public debt target this year and a 7-year plan for fiscal tightening

Rewritten Article:

In a recent statement, the Romanian Ministry of Finance confirmed their persistence in keeping the annual budget deficit below 7% of GDP this year and adhering to the seven-year fiscal consolidation plan agreed with the European Commission under the Excessive Deficit Procedure.

The Ministry's declaration reads, "We remain determined to stick to the 7%-of-GDP deficit target for this year and continue the fiscal consolidation trajectory in the following years, as specified in the Medium-Term National Budgetary - Structural Plan agreed with the European Commission."

The fiscal plan, endorsed by the European Commission, aims to cut the budget deficit to 2.4% by 2031 and bring the public debt-to-GDP ratio under 60% by the end of the seven-year period, with possible deviations above the benchmark.

To explain, the initial estimate for the ESA public deficit in 2024 was around 7.9%, which is expected to adjust to 7% in 2025. However, the actual 2024 deficit, as calculated according to the cash methodology, amounted to 8.6% of GDP. The ministry does not address this discrepancy in their press release.

In contrast, the ESA budget deficit, according to Eurostat data, was 9.3% of GDP at the end of 2024. The difference between the two approaches is due to the application of different estimation methodologies. Factors contributing to the larger ESA deficit include unpaid amounts owed by budgetary institutions, adding RON 9.1 billion to expenses, and transposition of interest (-RON 9.6 billion) from the cash basis to the accrual basis.

The Ministry of Finance points out that such differences have been observed between the ESA deficit and the cash deficit in Romania before.

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(Photo source: Vlad Sogodel/Dreamstime.com)

Insights:

The revised fiscal consolidation plan of Romania faces notable deviations from the initial targets, with ongoing adjustments expected after the elections. Here are the pivotal aspects:

Deficit Targets

  • 2024 Performance: The actual cash deficit reached 8.6% of GDP[1], exceeding the originally projected ~7.9%-of-GDP ESA deficit[2].
  • 2025 Target: The government persists in a 7%-of-GDP deficit target under both cash and ESA methodologies[2], but IMF forecasts a 7.8%-of-GDP cash deficit[1]. Rating agencies predict a 7.7%-of-GDP deficit[3].
  • Long-Term Goals: The IMF projects Romania's deficit to narrow to 6.4% of GDP by 2030[1], while the government’s medium-term plan likely aims for deeper reductions post-2025[2][5].

Public Debt Trajectory

  • Current Debt: Romania’s public debt reached 54.8% of GDP in 2024[2], up from 48.9% in 2023[2]. Under IMF methodology (broader scope), this stood at 57.2%[1].
  • Projected Growth: The IMF forecasts debt-to-GDP to rise to 75.7% by 2030[1], while Fitch predicts 62% by 2026 and ~70% by 2028[3]. Moody’s also expects debt to surpass 60% by 2026[3].

Consolidation Measures

  • Focus Areas: The plan focuses on spending cuts and improved tax collection, avoiding tax hikes in 2025[2][4]. Post-May 2025 elections, a fiscal corrective package is anticipated[2][3].
  • Challenges: Romania faces risks with its twin deficits (budget and current account), especially considering the current account deficit exceeding 8% of GDP in 2024[5]. Experts underscore the need for higher revenues and restrained expenditures[5].

Market Risks

Rating agencies warn that failure to meet deficit targets could lead to downgrades[3]. Fitch highlights that a 7.5%-of-GDP deficit in 2025 may push debt into "junk" territory[3], emphasizing the urgency of credible reforms.

  1. The annual budget deficit target for Romania, as defined by the Ministry of Finance and agreed with the European Commission, is 7% of GDP in 2025, although international financial institutions forecast it might exceed this figure.
  2. Despite the initial ESA public deficit estimate for 2024 being around 7.9%, according to Eurostat data, the actual ESA deficit was 9.3% of GDP, highlighting differences in estimation methodologies.
  3. To achieve long-term fiscal consolidation goals, the Ministry of Finance plans to focus on spending cuts and improved tax collection, with possible adjustments in the fiscal corrective package post-2025 elections.
Eurostatannounced Romania's public deficit according to the ESA methodology at 9.3% of GDP. In response, the Ministry of Finance reaffirmed its determination to meet the 7%-of-GDP deficit goal for this year and adhere to the 7-year fiscal consolidation plan it had agreed upon with the European Commission.
Ministry of Finance commits to adhering to the 7% GDP public deficit target for this year, as per the Eurostat's disclosure of Romania's deficit under the ESA methodology, and remains steadfast in its 7-year fiscal consolidation plan alongside the European Commission.
Romania's public deficit, as per the ESA methodology, stands at 9.3% of GDP, according to Eurostat. The Ministry of Finance has pledged to adhere to the goal of a 7%-of-GDP deficit this year, as well as the 7-year fiscal consolidation plan that was previously agreed with the European Commission.

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