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Romania’s fiscal position has deteriorated significantly since 2019, culminating in a budget deficit of 9.3% of GDP in 2024 — the highest in the EU —, while public debt is rising and projected to exceed 60% of GDP by 2026 amid slowing growth and structural rigidities. This article assesses the arithmetic of Romania’s fiscal challenge (deficit, debt, revenue/expenditure mix), situates it within the broader EU context (peer countries: Bulgaria, Hungary, Poland; EU-27 average), and examines the politics of legitimacy surrounding consolidation. Using data from Eurostat, the Romanian Fiscal Council, and Eurobarometer 103 (Spring 2025), it argues that without credible reform of both spending and revenue, and a transparent communication strategy, fiscal adjustment may undermine social trust and legitimacy. The article closes with a recommended sequencing of measures that protect investment and social floors while restoring credibility.

1. Why this matters now: context & stakes

Romania stands at a fiscal crossroads. After a post-pandemic bounce, the government budget entered 2024 with heavy pressures: elevated wage growth, pension recalculations, high interest payments and subdued tax-base growth. The 2024 result — a general government deficit of 9.3% of GDP — marks the highest among EU member-states.

The implications are multiple: (a) macro-fiscal credibility — failure to adhere to the 3% of GDP deficit threshold under the Stability and Growth Pact creates reputational and market risks; (b) investment and growth — the rising debt/inflation/wage spiral threatens competitiveness; (c) legitimacy — as public resources are constrained, the social contract is under stress, making reforms politically difficult.

For a country gearing up for deeper EU integration (and eventual euro-adoption) and reliant on EU funds, fiscal stability is not just domestic housekeeping — it is a strategic prerequisite. This article will first map the numbers, then turn to the EU-rules/conditionality dimensions, and finally to the politics of reform and legitimacy.

2. Romania’s fiscal arithmetic, 2015-2025

2.1 Deficit dynamics

Romania’s deficit trajectory tells a cautionary tale. In 2024, the country recorded a general government deficit of 9.3% of GDP, the highest in the EU (European Commission, 2025). While many EU countries posted improvements in 2024, Romania’s fiscal gap widened. In contrast, Bulgaria recorded 2.2%, Hungary 5.6%, and Poland 6.5% in the same year (Eurostat, 2025). The trend underscores Romania’s persistent deviation from Stability and Growth Pact thresholds despite sustained GDP growth until 2023.

2.2 Debt trajectory

Looking ahead, the European Commission estimates government debt will increase from 48.9% of GDP in 2023 to about 63% by 2026 under current policies. The increase is driven by persistent deficits and elevated interest-cost burdens. While Romania’s debt ratio remains moderate compared to heavily indebted euro-area states, the direction is problematic: rising debt in a low-growth environment raises sustainability concerns.

2.3 Revenue and expenditure mix

Romania’s revenue-to-GDP ratio stood around 34% in 2024 — significantly below the EU average (~46%) —, while expenditure rose to 43.5% of GDP.

This gap suggests weak tax-based mobilization and/or favourable exemptions/deductions. At the same time, expenditure growth has not always aligned with productivity or investment efficiency, raising questions about spending composition and rigidity.

2.4 Spending composition and rigidity

Social protection, pensions, and wages account for over half of general government outlays, leaving little room for productive investment. The Romanian Fiscal Council (2025) warns that pension recalculations and rigid wage bills pose “major structural pressures.” Education and health remain underfunded relative to EU averages, while defence outlays have risen moderately.

3. EU rules, conditionality, and fiscal credibility

Romania has been under the Excessive Deficit Procedure (EDP) for multiple years, reflecting persistent breaches of the 3% deficit threshold. The European Commission’s latest forecast expects a narrowing of the deficit to 8.6% of GDP in 2025 and 8.4% in 2026 under unchanged policies.

The implications are serious: non-compliance can trigger a formal Council decision, potentially leading to suspension of EU funds or increased market funding costs.

The Romanian independent Fiscal Council warns that the 2025 deficit target (initially 7% of GDP) is “very ambitious” and that both revenue and expenditure sides need significant adjustment.

Restoring credibility thus requires more than technical adjustment: it demands a clear timetable, credible measures, transparent reporting and visible progress. For Romania — which aims for deeper EU integration and eventual euro adoption —, fiscal credibility is a strategic imperative.

4. Politics of legitimacy: consolidation under pressure

4.1 Living standards, inflation and social pressure

Fiscal consolidation in the context of subdued growth and high inflation is inherently sensitive. In Romania, wage growth remained double-digit in 2024, and inflation averaged 5.8% (HICP) with slower disinflation expected. Meanwhile, public services and social transfers suffer growing expectations. Against this backdrop, any perception that consolidation falls on ordinary households while privileges remain intact can erode legitimacy.

4.2 Trust and perceived fairness

Legitimacy of reform depends on perceptions of fairness and trust in institutions. The Fiscal Council notes that Romania has one of the lowest tax-to-GDP ratios in the EU and a thin revenue base, which increases vulnerability to shocks. According to Eurobarometer 103 (Spring 2025), only 26% of Romanians trust their national government and 28% trust Parliament, while 56% trust the EU and 58% support stronger EU budget oversight (European Commission, 2025). These figures reveal a confidence gap between European and national institutions — a critical factor for reform legitimacy.

These results highlight a legitimacy paradox: Romanians are more likely to trust EU institutions than their own government, suggesting that fiscal rules backed by Brussels may enjoy higher credibility than domestic initiatives. This creates both a constraint and an opportunity for policy communication.

4.3 Communication and sequencing

For Romania, the challenge is dual: politically feasible reform and credible communication. If reforms are introduced too fast or with inadequate justification, the social contract erodes. Conversely, delay invites credibility losses and external sanctions. The sequencing, therefore, matters: starting with low-hanging fruit, protecting core social spending, and signalling transparency can build trust before tougher measures.

5. What to cut, what to keep: A feasible consolidation mix

Short-term levers (2025-2026)

- Freeze or moderate public-sector wage increases and hiring (while respecting key strategic roles).

- Rationalize transfers/subsidies (especially energy/social support) with better targeting.

- Strengthen tax compliance and enforcement (e-invoicing, digital tax tools) to lift revenue without raising headline rates.

Medium-term (2026-2027): revenue-side options

- Broaden base: reduce special exemptions, optimise environmental/property taxes.

- Rebalance PIT/SSC mix at lower income levels to protect fairness – and consider a modest shift to indirect bases that are less distortionary.

- Consider moderate VAT/excise adjustments but pair with social compensation to preserve legitimacy.

Protecting growth and investment

- Ring-fence EU-fund-cofinanced investment spending and priority sectors: green transition, infrastructure, education.

- Maintain robust public-investment pipeline to avoid losing EU funds and jeopardising long-term growth.

Sequencing & political logic

- Phase 1 (2025): Focus on audit/compliance, better targeting, freeze non-essential growth items; launch public communication campaign.

- Phase 2 (2026): Introduce broader revenue base measures and moderate reforms; maintain social-floor protections.

- Phase 3 (2027-28): Consolidate primary balance, revisit pension or structural reforms if required, pivot to growth-friendly spending.

6. Risks, contingencies, and monitoring

Key risks include further growth downside, revenue shortfalls (especially tax base stagnation), political reversal (election cycle), external shocks (energy/commodity price), and EU fund delays. Should any of these materialize, the consolidation path will need contingency buffers (e.g., automatic stabilizers, pre-agreed contingency cuts).

Monitoring should include monthly budget-execution reports from the Ministry of Finance; quarterly EDP updates via Eurostat; inflation and wage-growth trends (via BNR/INS); and public sentiment metrics (via Eurobarometer).

7. Takeaways & near-term policy priorities

- Romania’s fiscal position is urgent and strategic: failing to re-establish credibility risks funding access, growth and institutional standing.

- Both spending- and revenue-sides must be addressed; a one-sided approach will raise legitimacy and growth risks.

- Political feasibility hinges on sequencing, transparency and protection of social floors — otherwise reform may backfire.

- The 2025-27 timeframe is pivotal: quick wins in 2025 can build trust; 2026-27 is when structural moves may be feasible.

- This article sets the stage for the next instalment in the series: pensions reform & OECD accession (Episode 2), which links directly to the long-term fiscal sustainability agenda.

References

Banca Națională a României. (2025). Raport asupra inflației – august 2025. Bucharest: BNR.

Business Forum. (2025, April 22). Romania records highest EU deficit in 2024.

Consiliul Fiscal. (2025). Opinia preliminară asupra bugetului 2025. Bucharest: Consiliul Fiscal.

European Commission. (2025). European Economic Forecast: Spring 2025 – Romania Country Report. Brussels: Directorate-General for Economic and Financial Affairs.

European Commission. (2025). Standard Eurobarometer 103: Spring 2025 – Romania Factsheet. Brussels: DG Communication.

Eurostat. (2025). Government Finance Statistics (2015–2025). Luxembourg: Eurostat.

Intellinews. (2025, April). Romania’s Public Deficit Reaches a New Record in 2024. Warsaw: BNE Intellinews.

Ministry of Finance. (2025). Investor Presentation – March 2025. Bucharest: Romanian Government.

Photo source: PxHere.com.