Expanded budget deficit in Romania, now standing at 3.7% of GDP, grows by 9.6% compared to the previous year.
Romania's budget performance in the first half of 2025 reveals a significant fiscal gap, with the budget deficit projected to exceed 8% of the country's GDP, above the official 7% target for the year.
Key details and changes compared to 2024 include:
Budget Deficit and Fiscal Trajectory
The deficit is projected to be above 8% of GDP in 2025, higher than initially targeted. The government is preparing reform packages focused primarily on cutting expenditures and improving public administration efficiency to address this gap. Moody’s estimates that recent fiscal measures, including VAT hikes effective August 2025, will contribute about 0.6% of GDP consolidation this year, aiming to reduce the deficit and slow public debt growth.
Revenue Changes
VAT rate increases starting August 1, 2025, are expected to boost budget revenues. Additional tax measures planned for 2026 include increased taxes on dividends and caps on public sector salary and pension indexation, expected to yield further consolidation.
Expenditures
The expenditure side remains high, contributing to the widening deficit. Government reforms aim to slow spending growth and increase efficiency, but pressures remain given the large gap compared to 2024.
Economic Context
Various sectors show mixed performance in H1 2025. For example, Telekom Mobile Romania’s revenues declined by 8% year-over-year, indicating some economic pressures, while companies like TeraPlast posted strong sales growth.
Financial Sector Growth
BRD, a major bank in Romania, reported a 10% increase in net profit and strong loan growth (+17% YoY) in H1 2025 compared to 2024, showing resilience in credit activity despite fiscal challenges.
In Q2, the deficit contracted by 3.0% y/y nominally, and the deficit-to-GDP ratio improved to 1.2% of GDP. Without EU transfers, the expenditures increased by 11.3% y/y to RON 350.4 billion in H1, with the quarterly growth rates decelerating from Q1 to Q2. The budget revenues were 16.4% of GDP in H1, up from 15.7% of GDP in the same period last year.
The government expects further improvements in H2, resulting in a full-year cash budget gap of under 8% of GDP. The budget expenditures increased by 12.1% y/y to RON 380.3 billion or 20.1% of GDP in H1. The budget revenues increased by 12.7% year-over-year to RON 310.5 billion in H1. Most of the improvement in Q2 budget revenues was owed to a 132% y/y surge of transfers from the EU budget. EU transfers rose by 30.9% y/y to RON 25.1 billion in H1.
In conclusion, Romania’s budget revenues in H1 2025 benefited from tax increases and solid economic activity in some sectors compared to 2024, but expenditures remained elevated, leading to a larger-than-expected fiscal deficit. The government’s ongoing fiscal reforms aim to bring the budget closer to a sustainable path in the near future.
The government's current fiscal reforms in Romania, focused on cutting expenditures and improving public administration efficiency, are an attempt to address the industry of government, where the budget deficit, projected to exceed 8% of the country's GDP, is primarily found. Moody’s estimates that these reforms, including recent tax measures like VAT hikes, will contribute to the consolidation of the finance sector by around 0.6% of Romania's GDP, aiming to reduce the deficit and slow public debt growth. The strong loan growth (+17% YoY) reported by BRD, a major bank in Romania, showcases resilience in credit activity within the business sector, despite the fiscal challenges faced by the government.
