EU Approves Romania’s Seven-Year Deficit Reduction Plan

EU finance ministers approved Romania’s deficit-cutting plan to bring its fiscal deficit below 3% of national output by 2030, a move Bucharest hopes will help reassure investors about its economic outlook and tame surging bond yields.

Romania has been under the EU’s excessive deficit procedure since 2020, meaning it must present the European Commission with a multi-year plan to reduce the deficit back to below the bloc’s ceiling of 3% of gross domestic product (GDP).

Bucharest submitted its seven-year deficit reduction plan to Brussels last October, saying it aimed to lower the fiscal shortfall from 7.0% in 2025 to 2.5% in 2031.

Finance Minister Barna Tanczos told newsmen this month the new coalition government was sticking to that plan.

The government said its 2025 budget plan will cut the deficit to 7% of economic output without hiking any major tax while keeping state investment high, despite analyst warnings that more measures are needed.

Fitch has cut Romania’s credit rating outlook to negative and all three main ratings agencies have the country on their lowest investment-grade. Romania’s 10-year yield has surged to 8.1% earlier this month, a two-year high.

“Romania’s fiscal plan aims to stabilise public debt at a time when Romania continues to rank among the first in the EU for public investment levels,” Tanczos said.

Fiscal consolidation is key to ensuring Romania continues to receive billions of EU recovery and development funds over 70 billion euros by 2027 which are underpinning infrastructure investment and economic growth.

Romania’s budget deficit for 2024 is expected to hit 8.6% of economic output after heavy spending ahead of parliamentary and presidential elections late last year.

In a further test of investors’ confidence, Romania was plunged into political turmoil when a far-right NATO critic won the first round of the presidential election on November 24, prompting accusations of Russian interference denied by Moscow and ultimately leading to the annulment of the entire ballot.

REUTERS/Christopher Ojilere