Romania: Fiscal Pressures Rise Due to Domestic Political Uncertainty and External Risks

Domestic political uncertainty and the unfavourable external environment increase the likelihood that Romania will miss its growth targets of 2.5% in 2025 and 2.9% in 2026, in turn weighing on the plausibility of reaching its fiscal targets.

Under the EU Excessive Deficit Procedure, launched by the European Commission in 2020 and reaffirmed in 2024, Romania should achieve significant, if gradual, annual reductions to lower the fiscal deficit to below 3% of GDP by 2031 from 8.7% in 2024 (in cash terms). This is the highest fiscal deficit of EU member states, and significantly above those of Hungary (4.9% of GDP) and Serbia (1.7%).

According to the government’s plan, general government debt-to-GDP would peak at 62.6% in 2029, up from 54.8% in 2024, and decline thereafter, which in Scope Ratings’ view is optimistic. Scope’s latest estimates, which incorporate expectations of weaker growth over 2025-26 and slower budgetary consolidation, show the debt-to-GDP ratio remaining on a steadily increasing trend, concluding a forecast horizon to 2030 at around 74%, double its pre-pandemic level.

Romania’s recent fiscal slippages were driven by inflation-related spending increases and lower-than-expected EU fund disbursements. The government plans to lower the fiscal deficit to 7% of GDP in 2025 primarily through cuts to current expenditure, including a freeze on public sector wages and pensions. The budget also assumes strong revenue growth, underpinned by robust real output growth and new taxes.

Domestic Political Uncertainty Weighs on Investor Confidence and Ability to Absorb EU Fund Inflows

Preserving a constructive dialogue and achieving the targets agreed with the European Commission are key to preserving economic stability, as this also ensures continued access to balance-of-payment assistance mechanisms in case of need. These facilities provide a backstop for the country’s external financing, having last been activated in 2009-11 (with additional precautionary programmes over 2011-15), so constitute an important insurance policy not available to non-EU sovereign peers.

In this context, the outcome of the presidential elections – with a far-right, nationalist candidate having won the first round this past weekend – and the credibility of commitments to fiscal consolidation and reform are crucial to Romania’s economic trajectory. High political uncertainty, after the previous presidential poll was cancelled on the grounds of foreign interference, has weighed on investor confidence and increased government funding costs (Figure 1).

Figure 1: Funding conditions for Romania have tightened amid high political uncertainty
bps (RHS), % (LHS)

The National Bank of Romania’s April decision to leave its policy rate unchanged at 6.5% for the fifth time in a row, amid sticky services-sector inflation, external uncertainties and fiscal pressures, limits prospects for relief in domestic funding conditions in the near term.

Similarly, given the domestic political divisions and the protracted presidential election, progress on achieving EU-milestones has been slow. Romania’s absorption rate for funds allocated under the Recovery and Resilience Facility (RRF) is around 33%, while the government has met only 14% of milestones and targets (M&T) (Figure 2).

Figure 2: The implementation of Romania’s RRP has lagged most central and eastern European peers
% of total

Accelerating reforms is a prerequisite for further EU disbursements but will likely prove challenging in the near-to-medium term, raising the risk that the government will have to fund projects nationally or cancel them.

As the Next Generation EU programme concludes in August 2026, there are material risks that Romania loses access to a significant portion of its RRF allotment. The Romanian Fiscal Council recently raised similar concerns as regards Cohesion Funding, given the low absorption of EU funds tied to the 2021-27 EU Budget.

Continued low EU fund absorption rates and the potential loss of significant funds would impair the medium-term growth outlook, challenging fiscal consolidation, and also exacerbate external sector vulnerabilities given a high current account deficit of 8.4% of GDP in 2024.

Geopolitical Uncertainty Adds Further Pressure on the Medium-term Growth and Fiscal Outlooks

Given rising geopolitical tensions and the uncertain commitment of the US to support Europe’s security, Romania’s president has said defence spending may need to rise to 3% of GDP by 2027 from around 2.3% in 2024, in line with the new proposed NATO targets. Scope recently estimated that achieving this increase would require additional public funding of around 3.5% of central government revenues.

The protectionist shift in US trade policy also lowers Romania’s growth prospects. While Romania has limited direct exposures to the US (around 2.5% of total goods exports or less than 1% of GDP), indirect spillover risks arise from its strong ties to the US-exposed, export-driven economies of Germany and Italy, which are destinations for more than 30% of Romania’s exports (about 8% of GDP).

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Brian Marly is a Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings.