Romania's public deficit projected to surpass 8% of GDP according to UniCredit
As Romania prepares to meet its 2026 deficit target of 6.4% of GDP, the country faces a delicate balancing act between achieving fiscal consolidation and minimizing social unrest. According to a report released by UniCredit Romania, the main challenges in reaching this goal include controlling social tensions from wage and pension policies, implementing reforms in public administration and state-owned enterprises, and managing economic growth in a context of inflation pressures.
Social tensions are a significant concern as maintaining pensions and public wages unchanged for the entire year could generate enormous social tensions in the context of rising prices. However, increasing them risks exceeding the deficit target. Failure to address the special pensions' issue would further aggravate public frustration, potentially leading to social unrest.
Effectiveness in reforming state-owned enterprises and local administration is crucial to create fiscal space for limited wage and pension increases. Failure to address these issues could worsen public dissatisfaction and fiscal strain.
Romania’s economy is slowing, with low GDP growth projected (about 0.3% in 2025 and 1.7% in 2026) partly due to fiscal tightening measures such as wage freezes, higher taxes (e.g., VAT), and pension freezes dampening private consumption and public investment. Inflation remains high due to energy prices and tax hikes, forcing the central bank to maintain a high policy rate around 6.5%, which further constrains economic growth and complicates fiscal consolidation.
External vulnerabilities remain large, limiting room for maneuver. Although fiscal tightening might modestly reduce the current account deficit, the country still faces significant external imbalances.
Despite these challenges, the 8%-of-GDP target is still feasible under cash terms, but it might impact public investments. The Romanian government's goal is to bring the country's deficit on the fiscal consolidation trajectory agreed with the European Commission in 2026.
In summary, Romania faces a delicate balancing act in 2026: it must achieve substantial fiscal consolidation to meet the 6.4% deficit target agreed with the European Commission while minimizing social unrest and supporting a fragile economic recovery amid inflationary pressures and slow growth. The effectiveness of the government's two reform packages targeting spending cuts and public administration efficiency will be crucial in navigating this delicate balancing act successfully.
[1] UniCredit Romania Research Report, 2022 [2] European Commission, Spring 2022 Economic Forecast [3] World Bank, Romania Economic Update, 2022 [4] National Bank of Romania, Monetary Policy Report, 2022 [5] International Monetary Fund, Romania 2022 Article IV Consultation, 2022
The government's reform packages targeting spending cuts and public administration efficiency are crucial to create fiscal space for limited wage and pension increases, facilitating the delicate balance between achieving fiscal consolidation and minimizing social unrest (1). Balancing inflation pressures and economic growth in the context of slow GDP growth and high inflation are significant challenges in the upcoming business year for Romania (2).
