Romania's Govt. to come up with 2025 budget planning this week

The ruling coalition in Romania discussed on January 27 the draft budget for 2025, which the Finance Ministry plans to complete by January 29, according to sources consulted by Economedia.ro and G4media.ro.

The budget planning is expected by the European Commission, as the country is under Excessive Deficit Procedure (EDP), and also by the rating agencies that already changed the outlook on Romania's fragile rating to negative as a last step before placing its debt in the junk category.

A credible fiscal consolidation plan, beyond the fiscal corrective package endorsed in December, is necessary to address the wide budgetary and external deficits.

Investors will no longer accept as credible another overly optimistic plan as that drafted by the Romanian government for 2024, ahead of the dense electoral year. Even if the repeated presidential elections still put pressure on the ruling coalition, tough consolidation measures are needed immediately, after more inertial and uncertain structural improvements on the tax collection side yield results.

According to sources, the government envisaged cutting the payroll, which ballooned in 2024 despite initial plans. The coalition decided to cut personnel expenses in the budgetary system by 5% y/y this year. The only exceptions will be the sectors of Health, Education, the Ministry of Defense, and the Ministry of Interior. However, this will not be sufficient for a fiscal consolidation of a magnitude of 1.6 percentage points.

Even if the wages in the budgetary sector were frozen, as well as the pensions, this will not be enough to bring the country's budget deficit from 8.6% of GDP in 2024 close to the 7% target set under the long-term fiscal consolidation plan sent by the government to the European Union.

(Photo source: Ungureanu Vadim/Dreamstime.com)