The 2025-2026 budget correction package can avoid the downgrading of Romania’s sovereign risk, and there is no alternative to a severe correction, according to the Fiscal Council, which has published its Opinion on the package of fiscal measures for which the Government has taken responsibility.
„The 2025-2026 budget correction package can avoid the downgrading of Romania’s sovereign risk. There is no alternative to a severe correction. The optimality of the examined correction package is difficult to evaluate, especially since distributive aspects (including equity) and second-round effects come into play.
The budget correction, which means a reduction in internal absorption (affecting personal incomes, corporate revenues), is the price we must pay to ensure the sustainability of public debt and avoid an even more severe correction," says the Fiscal Council.
According to the cited document, a substantial fiscal adjustment package will have a significant effect in narrowing the external imbalance.
In this context, the Fiscal Council has pointed out that the analysis of budget execution in the first 5 months of 2025 is likely to worsen the Fiscal Council's assessment at the time of adopting the budget project, which saw a cash deficit around 7.7% of GDP.
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Therefore, in the absence of adopting corrective measures for the budget deficit, the dynamics of the main revenue and expenditure categories in the first part of 2025 appear to be compatible with a cash budget deficit of over 8.5% of GDP, according to the source cited.
"The Fiscal Council considers that adopting a substantial package of measures to correct the budget imbalance is an absolute urgency. Without a credible, firm package of measures, the risk of blocking access to financing and refinancing becomes imminent," the Opinion further states.
The Government took responsibility before Parliament on Monday for the first package of fiscal measures, which includes a VAT increase, as well as freezing pensions and public sector salaries in 2026, despite protests and dissatisfaction in the public sector.
Budgetary impact of 0.6% of GDP in 2025
The draft law on certain fiscal-budgetary measures indicates a budgetary impact of 0.6% of GDP in 2025 and 3.35% of GDP in 2026, as assessed by the Fiscal Council.
According to the cited source, in addition to the measures provided within this package of measures, considering the commitments made under the PNRR and the PBS (Romania's Structural Budgetary Plan), in 2026, a recalibration of the property tax calculation method and the introduction of an environmental tax for means of transport are also likely. Both measures would have an additional positive effect on the trajectory of budget revenues.
"In 2026, the impact of expenditure adjustment measures, projected in a no-policy change scenario, is about 1.6% of GDP. In addition to the measures provided within this bill, it is likely that in the next two packages of measures announced by the Government, other measures to streamline public sector spending and prioritize investment projects will be included.
Furthermore, renegotiating the PNRR may lead to the transfer of projects, financed from the loan component of the PNRR, to the grant component or to multiannual European funds. These measures would also reduce budgetary expenditures. The draft law indicates a budgetary impact of 0.6% of GDP in 2025 and 3.35% of GDP in 2026, creating conditions for reducing the budget deficit below 8% of GDP in 2025 and respecting the budget deficit target in 2026," the document mentions.
The institution specifies that, for 2025, reducing/prioritizing certain public investment expenses (which would be provided in the next packages of measures) would bring the budget deficit to around 7.5% of GDP.
Additionally, the Fiscal Council argues that corrective measures for the budget deficit should be included in the budget rectification project and should underpin the new trajectory of the budget deficit.