International Monetary Fund warns about the necessity for additional fiscal consolidation measures in Romania after year-end 2026
Romania faces persistent fiscal challenges, according to the International Monetary Fund (IMF) report following its Article IV Consultations with the country. The report suggests that the general government deficit is projected to be 6% of GDP at the end of 2026 and 5% of GDP in 2030, even under the best case scenario.
Currently, Romania estimates a deficit of above 8% of GDP this year. To address this, the Romanian authorities are expected to update the more conservative scenario in November ahead of the 2026 budget planning.
The IMF experts stress the importance of substantial fiscal consolidation in 2025-2026 for restoring fiscal sustainability and market confidence. Active fiscal consolidation measures are necessary in addition to those already legislated or to be legislated this year.
The detailing of concrete measures from 2027 will help restore credibility and increase the predictability of fiscal policy. Further fiscal adjustments are needed from 2027 on, to reduce the deficit below 3% of GDP over the medium term and stabilize public debt at around 60%.
The IMF report also recommends bidirectional flexibilization of the exchange rate as a means to address potential external shocks and Romania's weak external position. Addressing the potential external shocks and Romania's weak external position would help strengthen the country's fiscal position, the report suggests.
The ruling coalition in Romania is set for a major political discontinuity in April 2027, with the Social Democrats (PSD) taking over the prime ministership from the Liberal Party (PNL). Markets and rating agencies are concerned about the possible fiscal relaxation PSD could pursue ahead of the 2028 parliamentary elections.
The IMF recommends measures on the revenue side and on the expenditure side for Romania. Joong Shik Kang, head of the International Monetary Fund mission for Romania, believes that a package of measures can be reached that will lead to an improvement in the situation and economic growth.
The IMF's projections for economic growth are in line with the 1.5% y/y economic advance in H1 expected to slow down in H2 under the impact of fiscal consolidation measures and lower fiscal stimulus. For 2021, the IMF expects a 1% advance in economic growth, with a 1.4% increase in 2026.
The fiscal deficit is projected to decline only gradually thereafter, reaching 5% of GDP by 2030, while the debt-to-GDP ratio continues to rise to almost 70%. The 6%-of-GDP projection for next year's public deficit is highly ambitious, as the trajectory under the 7-year consolidation plan envisages a 6.4%-of-GDP deficit.
It is currently uncertain which political party will govern Romania in April 2027. The outcome of the political landscape could significantly impact the country's fiscal policy and the implementation of the recommended measures.
In conclusion, the IMF's report underscores the need for substantial fiscal consolidation in Romania, particularly in the short term, to restore fiscal sustainability and market confidence. The detailing of concrete measures from 2027 will be crucial in addressing the country's fiscal challenges and ensuring economic growth.
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