The fiscal stance, a measure based on the increase in net expenditure (deficit), including that financed by the EU budget, relative to medium-term potential GDP growth, will decrease from 2.5% of GDP this year (2.2% of GDP in 2025) to 0.7% of GDP in 2027, according to the European Commission's projection included in the Convergence Report published on June 22.

This implies that the budget planning would require fewer consolidation measures compared to the budgets of 2025 and 2026. 

The Commission, however, assumes the country's economic growth would accelerate to 2.3% next year, from modest performances in 2025 (+0.7%) and this year (+0.1%).

Based on the fiscal consolidation plan revised by the European Commission last July, the magnitude of the fiscal consolidation will ease in the coming years because of above-plan performance in 2025-2026. Net expenditure grew by 0.5% in 2025, which is below the recommended maximum growth rate of 2.8%. Net expenditure in 2026 is projected to increase by 1.8%, below the ceiling of 2.6% recommended by the Council for 2026, and the cumulative net expenditure growth by 2026 is projected to remain within the recommended cumulative ceiling of 5.5%. Net expenditures could thus rise by 7.5% in 2027, posing milder constraints to policymakers.

However, the Commission finds that Romania’s fiscal situation remains fragile as it recorded the highest budgetary deficit in the EU in 2025 and faces significant implementation risks that require a strong and persistent focus on fiscal adjustment in 2026 and subsequent years.

When it comes to the reforms and investments underpinning the extension of the adjustment period, the Commission found that the implementation of the key steps of these reforms and investments that were due by April 30, 2026 seemed to be broadly on track, while noting that further progress is needed in areas such as tax administration, VAT compliance, property taxation, and expenditure monitoring.

The Council revised Romania’s EDP fiscal adjustment path on July 8, 2025, under which Romania must keep nominal net expenditure growth below 2.8% in 2025, 2.6% in 2026, 4.6% in 2027, 4.4% in 2028, 4.2% in 2029, and 4.0% in 2030. These equate to an annual adjustment of about 2 percentage points per year in 2025 and 2026 and about 1 percentage point thereafter. The EDP correction deadline is 2030, at which point the July 2025 revised recommendation under Article 126(7) TFEU envisages a deficit of 2.8% of GDP.

Debt sustainability risks appear high over the medium term, the Commission warns. Government debt is projected to increase rapidly from around 59% of GDP in 2025 to around 90% of GDP in 2036, the Commission says. Under adverse interest rate circumstances, the debt could actually hit 97% of GDP, it estimates.

This projection assumes that the structural primary deficit decreases from 4.7% of GDP in 2025 to 2.3% of GDP in 2026 and remains at that level (excluding changes in the cost of ageing) over the projection period.

The sensitivity to possible macro-fiscal shocks contributes to this assessment. In particular, if the interest-rate growth differential deteriorates by 1.0 percentage point compared with the baseline, the projected debt ratio in 2036 would be around 7 percentage points higher than in the baseline.

(Photo: Ruletkka | Dreamstime.com)

iulian@romania-insider.com