Romania tackles record budget deficit: EU demands reforms

Photo: Unsplash

The Romanian government is preparing new measures to reduce a record budget deficit that reached 9.3% of GDP in 2024—the highest in the EU, Politico
reports. Prime Minister Ilie Bolojan’s cabinet plans to cut spending, reduce the number of civil servants, and raise taxes. These steps are stirring concern among trade unions and heighten the risk of protests.

The European Commission earlier stated it expects Romania’s budget gap to narrow to 8.6% in 2025 and 8.4% in 2026. It noted that authorities are not taking sufficient action to correct the excessive deficit. As a result, Romania could face a credit-rating downgrade, higher borrowing costs, and a suspension of EU funds aimed at regional development and economic recovery.

To avert negative outcomes, the new government led by PM Ilie Bolojan unveiled a plan for large-scale spending cuts. Proposed measures include eliminating 20% of public-sector positions (~167,000 jobs), raising VAT, and introducing a new gambling tax. The Finance Ministry also plans to increase rates on corporate profit and dividends from 10% to 16%, and VAT on fuel, firewood and other energy products from 5% to 9%. Most reduced VAT rates—except those on food and medicines—would be restored to the standard 19%.



Officials stress the goal is not just fiscal savings but restoring investor confidence and preventing further debt growth. Finance Minister Alexandru Nazare said Romania must convince citizens, markets and the Commission that it can stabilise the situation and avoid a downgrade. In August he presented a second fiscal package to boost revenues. It includes changes to the taxation of multinationals, a levy on importing assets from abroad, and a higher minimum share capital for limited liability companies. Meanwhile, the consolidated budget deficit for Jan–Jul 2025 reached 76.44 bn lei (€15.1 bn), up from 71.04 bn (€14.0 bn) in the same period of 2024.

In late September, PM Ilie Bolojan said the recently approved packages are estimated to yield 0.6–0.7% of GDP in 2025 and over 2.5% in 2026. Romania confirmed to the European Commission and the European Parliament its intention to end the year with a deficit of 8.4% of GDP (around 159 bn lei / €31 bn). “If we reach this year’s target, we can approach 6% in 2026,” Bolojan noted. The IMF considers this achievable if reforms are fully implemented, but warns that weak growth and rising debt-service costs pose risks to fiscal sustainability.



The overall impact of the programme is estimated at 10.6 bn lei (€2.4 bn), Reuters notes, with the government splitting it into five separate bills. On 8 October, Romania’s Constitutional Court upheld measures on state-owned enterprise governance and health-care system changes, while postponing a decision on raising the retirement age for judges and prosecutors from 48–49 to 65, and on capping pensions at 70% of final salary. The court has previously blocked similar initiatives.

Bolojan said his government would lose legitimacy if key provisions—job cuts, pay caps at SOEs, and higher taxes on property and vehicles—were annulled. Even so, he vowed to continue implementing the programme regardless of the outcome.

Romanian Fiscal Council chair and former finance minister Daniel Dăianu called the reforms a “day of reckoning” for the economy, stressing that such deep adjustment inevitably carries social costs. Analysts add that implementation is complicated by politics: three of four ruling-coalition parties previously governed while the deficit ballooned. Ana Otilia Nuțu of the Bucharest think-tank Expert Forum argues it will be difficult to persuade the public to accept “austerity” when the leadership features politicians voters are weary of.