EU finance ministers approved Romania's plan on Tuesday to reduce its fiscal deficit below 3% of national output by 2030. By doing so, Bucharest aims to instill confidence in investors regarding its economic prospects and curb escalating bond yields. Under the EU's excessive deficit procedure since 2020, Romania must provide the European Commission with a multi-year strategy to bring the deficit back below the EU's 3% GDP threshold.
In October, Bucharest presented its seven-year deficit reduction plan to Brussels, targeting a decrease from 7.0% in 2025 to 2.5% in 2031. Finance Minister Barna Tanczos confirmed the new coalition government's commitment to this plan. Despite analyst concerns about the necessity for additional measures, the government plans to trim the 2025 deficit to 7% of economic output without imposing significant tax increases while sustaining robust state investment.
Fitch's revision of Romania's credit rating outlook to negative and the country's low investment-grade status from all three major ratings agencies have intensified economic challenges. Romania's 10-year yield spiked to 8.1% earlier this month, reaching a two-year high.
Tanczos highlighted on Tuesday that Romania's fiscal strategy aims at stabilizing public debt while sustaining high levels of public investment compared to other EU countries. Fiscal consolidation is crucial for Romania to secure continued access to the sizable EU recovery and development funds—expected to exceed 70 billion euros by 2027—supporting infrastructure projects and economic advancement.
Forecasts project Romania's 2024 budget deficit to reach 8.6% of economic output due to substantial expenditures preceding last year's parliamentary and presidential elections. Additionally, Romania faced political upheaval when a far-right NATO critic emerged victorious in the initial round of the presidential election on November 24, sparking allegations of Russian interference—refuted by Moscow—and ultimately resulting in the voiding of the entire election.