The Fiscal Council (CF) considers the 2026 budget framework to be compatible with a cash deficit of around 6.25% of GDP, although this assessment does not take into account the possible severe effects of the war in the Middle East or any measures that may be associated with it, according to its opinion on the 2026 State Budget Law.
"The adoption of Romania's 2026 budget has been significantly delayed. This situation reflects not only the difficulties of operating a broad coalition, but also complex decisions regarding fiscal consolidation in a tense social and economic context. Shortly before the planned adoption of this year's budget by the Government, a war broke out in the Middle Eastwhich, if prolonged, will have severe consequences for European economies, including Romania's, against the backdrop of a new energy shock; economic growth and inflation will be affected. The budget deficit could nevertheless remain close to the programmed level if the effect of higher inflation (than forecast) on nominal GDP offsets weaker economic dynamics. The absence of a programme to clean up public finances placed Romania in an extreme situation in the first part of 2025, when the spectre of a downgrade of the sovereign rating was looming," the summary of the opinion states.
According to the source, increases in taxes and duties, although painful for citizens, were necessary. Spending cuts alone (as sometimes argued in public debate - but without plausible numerical backing) would not have made it possible to reach the deficit target.
"It is bold to speak about 'economic recovery' in 2026, a year in which fiscal consolidation is under way. Public investment can support production and aggregate demand in 2026, but it cannot cancel the negative fiscal impulse required by fiscal consolidationHowever, economic policy measures can be envisaged to support vulnerable citizens and certain companies. The budget deficit problem was caused not by investment but by excessive stimulation of consumption and the neglect of the need for higher fiscal revenues, appropriate to the needs of an EU Member State," the document notes.
According to the Fiscal Council, reforms in the public sector are important for improving efficiency and can help reduce the budget deficit; such reforms are also important for reasons of economic and social fairness. However, these reforms take time, as they involve institutional factors and social behaviour, as well as interest groups with influence in society.
"Fiscal consolidation is necessary in order to keep public debt under control, which has exceeded 60% of GDP. If the VAT gap and the corporate tax gap are substantially reduced, together with other measures (for example, controlling budget expenditure in relation to the dynamics of nominal GDP), the deficit could fall below 4% of GDP within a few years. For durable fiscal consolidation and the creation of fiscal space, tax collection must become much more efficient (ANAF-the National Agency for Fiscal Administration - plays an essential role in this area), an effective insolvency regime must operate (legislative amendments are needed), and the sense of impunity among many of those who defraud the public budget must disappear. The justice system must also work more in this direction. Increasing fiscal revenues through much better collection (reducing the VAT gap and other tax gaps) is an internal 'war' Romania must win; political will and the capacity to overcome opposing interest groups will also be tested here. It may sound naive, but the stakes are enormous; the low level of fiscal and budget revenues is a matter of national security given the heavy pressures on the public budget. We must consider the relationship between the nominal GDP growth rate (real growth plus the deflator) and borrowing costs (rolling over public debt). Under favourable conditions this relationship can help fiscal consolidation, but there is also the reverse side of the coin. The electoral year 2028 also brings risks for fiscal consolidation. The relationship mentioned above can be disrupted by external shocks," the Fiscal Council's opinion states.
The institution stresses that one challenge for fiscal consolidation is the need to increase defence spending. Fiscal consolidation is absolutely necessary in order to improve Romania's sovereign rating. The Fiscal Council notes that if the deficit were to remain stuck at around 6% of GDP in the coming years, it is unlikely that the current rating would improve; it could even deteriorate if public debt is not stabilised.
"Accession to the Eurozone cannot take place as long as we do not have small budget deficits (below 3% of GDP) and sustainably low inflation. The increasing degree of uncertainty in the international system, the erosion of rules and arbitrariness in the policies of some countries, the return to spheres of influence and a new arms race, wars and widespread disorder are all putting growing pressure on national budgets and creating major challenges for both public and private policies. There are signs of a shift (to be confirmed by subsequent data) in the centre of gravity of economic growth from consumption towards investment and net exports, against the backdrop of substantial public-sector investment. However, the efficiency of public investment (from all sources of financing) is low, with economic growth, even in conditions of very large investments in quantitative terms (around 6.7% and 7.2% of GDP in 2024 and 2025), not exceeding 1 percentage point. The macroeconomic forecast used for the draft budget and the Fiscal-Budgetary Strategy is realistic, but it should be noted that greater prudence is needed regarding the trajectory of effective interest rates on government securities - which determine the projected path of interest expenditure; another element requiring a more cautious approach is the dynamics of the wage bill envelope over the horizon of the fiscal-budgetary strategy," the document says.
The Fiscal Council notes that the realism of the projection may be undermined by risks stemming from geopolitical tensions caused by the conflict that began at the end of February this year in the Middle East. However, it is too early to quantify the magnitude and persistence of the shocks that would be needed to incorporate them into the baseline fiscal and macroeconomic scenario.
The high values of the external deficit (current account or trade deficit), in the context of an unfavourable financing structure, represent a major vulnerability of the Romanian economy, increasing the risk of a sudden stop in financing and therefore reinforcing the need for fiscal adjustment, which would also reduce financing needs and stabilise the trajectory of public debt.
The numerous and significant internal and external risks, combined with the vulnerable position of the Romanian economy due to unusually large twin deficits (even for emerging economies) and public debt exceeding 60% of GDP (very high for a country with Romania's economic characteristics), underline the urgency and necessity of fiscal adjustment, a sine qua non process for easing these vulnerabilities.
"The budget framework for 2026 envisages a cash budget deficit of 6.25% of GDP, representing a reduction of 1.4 percentage points of GDP compared with the level recorded in 2025. This reduction is planned through an increase in total revenues by 1.3 percentage points of GDP, while total expenditure is projected to decline marginally by 0.1 percentage points of GDP. Excluding the impact of European fund aggregates, other revenue categories are projected to increase by 0.46 percentage points of GDP, while the remaining expenditure categories are projected to decrease by 1.44 percentage points of GDP. Thus, the budget correction in 2026 is planned to take place mainly on the expenditure side. The analysis of the Finance Ministry's forecast for budget revenues in 2026, taking into account the macroeconomic projection of the National Commission for Strategy and Forecast and the adopted fiscal policy measures, including the contractionary macroeconomic effects of consolidation measures, appears to indicate that the aggregate revenue target is achievable, but surrounded by uncertainties and risks," the institution's opinion says.
The Fiscal Council considers that there are premises for staying within the ceilings set for consolidated general government expenditure, but the budget is built on the assumption of strict control of such spending, while experience from previous years has shown how difficult such an approach can be. Depending on developments in the national and international economic environment, there are risks of exceeding the projected levels, especially regarding interest expenditure, spending on goods and services, and social assistance.
The institution also warns that there are uncertainties regarding the full implementation of projects financed through the National Recovery and Resilience Plan (PNRR). Failure to absorb these funds in full would not only deprive the economy of a growth engine but could also lead to an unforeseen increase in the budget deficit, jeopardising the fiscal consolidation trajectory.
"Based on a prudent approach to forecasting revenues and expenditures, the Fiscal Council considers the budget framework for 2026 compatible with a cash deficit of around 6.25% of GDP. This assessment does not take into account possible severe effects of the war in the Middle East or any measures related to them. The plausibility of the projection for budget revenues and expenditures is closely linked to the evolution of the macroeconomic framework, with intensifying global tensions raising additional risks. A prolongation of the conflict in the Middle East could have a negative impact on economic growth and tax bases, as well as increase risk aversion on international financial markets. The analysis of the fiscal framework for the period 2027-2029 shows that, compared with 2026, the reduction of the budget deficit in the medium term is planned to occur mainly through budget expenditure, while fiscal revenues are projected to increase by only 0.5 percentage points of GDP and social security contributions to decrease by 0.1 percentage points of GDP," the source notes.
Regarding expenditure adjustment, the Fiscal Council signalled risks related to the projected trajectories of personnel spending, social assistance expenditure and interest costs, as well as the need to reflect rising military spending, which may limit the possibility of significant adjustments to investment expenditure.
In the absence of stronger support for consolidation on the revenue side, medium-term deficit adjustment based mainly on expenditure cuts raises questions. Under these circumstances, the balance of risks appears tilted towards the possibility of higher deficits than those estimated in the fiscal framework for 2027-2029. A considerable improvement in fiscal revenue collection would greatly help achieve deficit targets in the coming years.
According to the Fiscal Council, increasing budget revenues is mandatory in order to ensure compliance with the consolidation path and exit the excessive deficit procedure by 2030.
"Although the budget deficit decreased in 2025 and is projected to adjust towards 6.25% of GDP this year, the continuation of fiscal consolidation is mandatory. If deficit correction does not continue in the coming years (the no-policy-change scenario), public debt would follow a steep upward path, reaching around 80% of GDP by 2034. Such an evolution is not sustainable and markets would penalise it," the Fiscal Council argues.
By contrast, under a scenario in which fiscal consolidation continues after 2026 in line with the trajectory of net primary expenditure recommended by the European Commission, public debt would reach a peak of 63% in the period 2027-2028. Subsequently, from 2029 onwards, debt would begin to decline, falling below 60% of GDP in 2030. There is a time lag between deficit adjustment and the stabilisation of the public debt trajectory, the Fiscal Council notes.
A structural risk with a direct impact on the consolidation period is the dynamics of social assistance spending. Mitigating this risk requires structural measures aimed at increasing labour market participation among those fit for work, gradually adjusting the retirement age in line with life expectancy and eliminating exceptions to the standard retirement age.
Stress tests of public debt sustainability indicate its high vulnerability to adverse shocks, reinforcing the need to continue fiscal consolidation in order to ensure macroeconomic stability and highlighting the importance of building fiscal space that would allow the absorption of future shocks.
The Fiscal Council notes that the absorption of European funds - an essential financial resource for the sustainable development of the economy and for maintaining fiscal-budgetary and financial-currency balances - has faced major difficulties and significant delays. Regarding EU funds under the 2021-2027 Multiannual Financial Framework, by the end of November 2025 the effective absorption rate stood at 15.2% (National Programmes) and 13.4% (total National and Regional Programmes).
The low level of implementation over nearly five years compared with the deadline for completing all milestones and targets under the National Recovery and Resilience Plan - August 2026 - makes it extremely difficult to recover delays in just six months, implying the risk of losing significant amounts of European funds and failing to carry out important reforms and investment projects, the source notes.
"European funds will continue to represent an essential element for the domestic investment process. It is vital that we succeed in fiscal consolidation and move towards a growth model that targets sectors with higher added value and reduces external imbalances," the Fiscal Council says.
The importance of public spending reviews is supported by the rule anchoring net primary expenditure in the new governance framework.
By the end of 2025, the Romanian Government, through the Ministry of Finance and several line ministries, had conducted public spending reviews in the following areas: education, health, environment and transport (ongoing), and approved, by memorandum, the Public Spending Review Strategy for the period 2024-2030.
The ex post evaluation of the public spending reviews for education, health and the environment conducted by the Fiscal Council found that these analyses were carried out within a formalised procedural framework, involving interinstitutional working groups and showing a tendency to align with international best practices for spending review exercises.
Regarding the ex post evaluation of the public spending review in the transport sector, the Fiscal Council noted that the report analysing spending in this area is not available in the public domain.
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