Romanian Fiscal Council Issues Warning on Sovereign Debt Crisis

The Romanian Fiscal Council delivered a preliminary opinion on November 27, 2025, cautioning that without immediate and sustained fiscal corrections, Romania faces a severe sovereign debt crisis amid ballooning deficits and public debt hitting 59% of GDP by July 2025.

Urgent Deficit Projections

The Council’s analysis views the government’s revised 8.4% of GDP deficit target for 2025 as ambitious but attainable, thanks to late-year measures that staved off a potential overrun above 9%. Looking to 2026, it forecasts a cash deficit around 6.5% of GDP, possibly dipping below 6% with improved tax collection, and under 5% thereafter if spending growth lags nominal GDP expansion and evasion drops sharply.

Romania’s fiscal revenues, stuck at 28.7% of GDP in 2024 against the EU’s 40.1% average, underscore chronic collection woes treated as a national security threat given escalating demands in defence, education, and climate adaptation.

However, recent fiscal measures have backfired, with consumption plummeting sharply—down over 4% in August alone following VAT hikes to 21% and excise increases—slashing 2025 GDP growth forecasts to just 0.7% and heightening recession risks amid weakening private demand

Twin Deficits and External Vulnerabilities

Persistent twin deficits—budgetary and current account—amplify risks in a volatile global landscape, with financing reliant on expensive external borrowing outside the eurozone.

Recent steps like excise hikes, CASS on high pensions, property and vehicle taxes, and wage and pension freezes in the public sector form the backbone of projected improvements but also carry regressive social burdens. Public investments, steady at 7.8% of GDP in 2025, offer some buffer against economic slowdowns triggered by these procyclical fixes.

Path to Correction and Reforms

Proper stabilisation demands more than cuts; overhauling the tax regime, digitising ANAF for better enforcement, and accelerating EU fund uptake—currently at 11.7% for the 2021-2027 multiannual framework and 31.6% of PNRR grants by late October—proves essential.

Fiscal Council head Daniel Daianu emphasised that ANAF’s reform remains critical, as current policies risk social unrest without multi-year discipline to rebuild investor trust. This correction trajectory, born of past policy missteps, prioritises avoiding a credit rating downgrade to junk status.