According to notes published after visiting Romania, Citigroup analysts believe that the country’s budget deficit could even fall below the 6% of GDP this year, with only the measures already adopted for 2026 (expenditure cuts and revenue increases). 

• Public deficit potentially below 6% of GDP this year from 7.7% (8.0% under ESA)  in 2025
• CA deficit down to 7% of GDP, down from 7.8% in 2025, driven by thinner imports following shrinking demand
• Headline inflation eases to 3.7% y/y at year-end (upside tilted risks)
• Ruling coalition stays united in the absence of alternatives, incentives (PSD), and resilience (on the side of PM Bolojan)
• The exchange rate is seen as “broadly stable,” despite REER being a concern (not seen as a threat to exports, though)

The ruling coalition is seen as stable mainly due to no better alternative for the Social Democrats (PSD), a strong incentive created by the prime ministership transfer in April 2027, while, on the side of prime minister Ilie Bolojan – the resignation rhetoric would not be more than a political tactic.

The robust fiscal consolidation would result in a smaller external deficit (7.0% of GDP current account gap, from an estimated 7.8% in 2025) as well, while separately, the inflation is seen as easing to 3.7% y/y (upside tilted risks) by the end of the year, according to the notes published by Economedia.ro.

Last year’s budget deficit is assumed, based on the latest comments from the government, at 7.7% of GDP under the cash definition and 8.0% of GDP under the ESA definition.

Elaborating on the external sector, Citigroup analysts expect most of the adjustment in the external deficit to come from reduced imports in the context of fiscal consolidation, while exports are likely to remain broadly stable. 

“While the appreciation of the real effective exchange rate (REER) remains a concern, we do not yet see it having a significant impact on export performance - a view reinforced in our meetings.[...] Overall, and given our expectations that the NBR will continue to focus on containing inflationary pressures, we continue to see the currency as broadly stable.”

On the monetary policy front, Citi analysts’ meetings reinforced their view that the National Bank of Romania (BNR) is likely to remain cautious and is unlikely to cut rates before the summer. 

“In fact, in a scenario where inflation surprises positively, we believe that the bank could opt to postpone the start of its easing cycle until October,” according to the notes.

Citigroup analysts keep ROMGBs (Romanian government bonds) at a constant level in their model portfolio, and consider them as an attractive carry trade (based on the differential interest rate), based on the good economic fundamentals and expectations for a stable exchange rate.

iulian@romania-insider.com

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