Romania: large twin deficits
Romania, the EU state with the largest budget and current account deficits, is close to reaching its deficit target for 2026, says the country's president
Sorin Iordan, 01.10.2025, 13:50
Romania is close to reaching its budget deficit target for next year, set together with the European Commission, said the country’s president, Nicuşor Dan. According to him, thanks to the measures already taken by the government, the deficit should drop from 8.4% this year to approx. 6.5% in 2026, getting near the declared 6% target.
The president’s optimism comes as Romania’s GDP increased by 1.2% in the second quarter of this year, the second highest growth in the EU alongside the one reported by Croatia. However, the inflation rate reached 9.9% in August, 3 times higher than the EU average. In addition, all this takes place at a time when the country has to deal with the war started by Russia in neighboring Ukraine.
The executive director of the Romanian Banking Association, Gabriela Folcut, says Romania is the country with the highest twin deficits, the budget deficit and the current account deficit. She added that, in addition to the way in which public money has been spent, there are 3 structural factors that have a negative impact on the budget deficit:
Gabriela Folcuţ: “The high share of the grey economy in the GDP, 26% of GDP. We notice, however, that companies are keen on going digital, but, at the same time, 41% of companies in Romania still pay salaries in cash. A second aspect that weakens Romania’s economic situation and which in my opinion is a structural element, has to do with companies’ capacity to develop, while demography is another factor.”
Folcuţ also said that, according to data made public by the European Commission, 99.8% of companies in Romania are small and medium-sized enterprises, which employ two-thirds of the workforce and generate 60% of the added value. The RBA official also explained that the productivity of SMEs in Romania is 70% lower than that of large companies and below half the European average, while the number of insolvencies is growing.
Unless companies in Romania quickly optimise their processes, they risk exiting the market, the entrepreneur Cosmin Răileanu warns. He believes that they may outsource some services and that, in today’s context, companies that do not prioritise clients and the value they bring to the market are in danger of disappearing:
Cosmin Răileanu: “The contexts may be taxes, crises, pandemics, political movements, armies, whatever may be happening. And as have seen, every now and then we see news that some investor has closed their business, another one has sold it, the other has moved abroad. All this happens because they do not have enough confidence in what they are doing.”
On Tuesday, the executive director of the International Monetary Fund, Jeroen Clicq, stated that Romania is on the right track in the fiscal consolidation process and promised that the Fund supports the continuation of the reforms initiated by the Romanian government. The IMF official was received by Romania’s PM Ilie Bolojan, who emphasised that austerity measures, while criticised by the public, are vital to ensuring fiscal stability and reducing social imbalances and inequities. (AMP)
