<\/p>\n
The twin deficits that Romania has been struggling with give headaches to decision-makers in Bucharest, who are forced to take unpopular measures in an effort to solve this problem that has been dragging on for years.<\/p>\n
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The country has been under an excessive budget deficit procedure since before the pandemic, and in recent years the deficit has deepened as high public spending and relatively poor tax collection put pressure on public debt.<\/p>\n
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At the same time, the current account deficit indicates a dependence on foreign financing. Romania\u2019s two deficits are interconnected: a large budget deficit stimulates domestic consumption, which leads to increased imports and implicitly to a growing current account deficit. This situation is viewed as risky because it makes the economy more vulnerable to external shocks and to changes in international financial markets.<\/p>\n
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Addressing these imbalances involves measures such as increasing budget revenues, streamlining public spending and encouraging domestic production and exports. This is what the Romanian government is trying to do, after having promised Brussels to reduce the budget deficit from 9% in 2025 to 6.2% this year.<\/p>\n
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It is not a comfortable process. Central bank data shows that foreign debt is increasing by about EUR two billion per month, and although the budget deficit was lower in the first months of 2026 compared to the corresponding period last year, a sustainable structural correction remains critical to preserving foreign investor confidence.<\/p>\n
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The economic analyst Drago\u015f Cabat, a Board member in the organisation of investment professionals in Romania, CFA Romania, explains:<\/p>\n
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Drago\u015f Cabat \u201cCorrecting the deficit remains just as urgent. We are under an excessive deficit procedure and a few years ago, I think two or three years ago, we undertook to reduce this deficit, in a seven-year plan. Of course, it was not complied with, because there was an election year during this time, but now the first steps have been taken. In 2025 we managed to reduce the deficit a little compared to 2024 and we need to stay on this trend. Once again, we promised these things to our partners in the European Union, but this is not only about a promise, we do have a big deficit, it was 9%, now it is 7%; the target for this year is 6.2%, but we need to reach a maximum of 3%, as indicated at EU level. And to be able to do these things, of course we must first of all cut budget spending, and secondly we need to increase budget revenues.\u201d<\/p>\n
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Romania risks losing the gains of the past few months if the fiscal deficit is not corrected quickly, warned the National Bank of Romania, referring to international credibility, access to financing on foreign markets and the country rating, which is still in the investment grade area. Drago\u015f Cabat also spoke about the risks looming if Bucharest deviates from the course set with Brussels:<\/p>\n
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Drago\u015f Cabat \u201cThe risks are very clear and easy to describe. First of all, we are once again losing face with our EU partners, who will look at us with distrust. Of course, given the excessive deficit procedure, they always have the option to reduce our EU funding, i.e. the money that comes to us from the EU, which would have a major impact on the Romanian economy. Then there are the rating agencies: if they see that we keep promising things and never keep our promises, they can lower our country rating, which would mean that investors, or at least a good many of them, those who finance Romania’s governmental debt, will do it for much higher interest rates or not do it at all. And all these things would mean Romania will have difficulties getting loans, and will get them at higher interests.\u201d<\/p>\n
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With a 4-year long war at Romania\u2019s border with no ending in sight and the highly volatile situation in the Middle East, the geopolitical situation further complicates things. Bucharest must carry on its fiscal consolidation process in spite of the situation generated by the Middle East conflict, the Central Bank warns, estimating that the impact of the war in Iran on domestic economy could be severe.<\/p>\n
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\u201cThe ongoing conflict in the Middle East generates significant risks, including growing pressure on energy prices, worsening economic growth prospects and high risk aversion in international financial markets,\u201d the National Bank governor Mugur Is\u0103rescu says. According to him, \u201cif the conflict becomes protracted, its impact on the economy, not only in Romania but in general, may be severe. However, in our case, despite this risk, fiscal adjustment must carry on.\u201d<\/p>\n
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We are in a complicated context, Drago\u015f Cabat agrees. He warns that when you have a very unbalanced economy in macroeconomic terms, as the Romanian economy is at the moment, adding to which is a possible recession or an economic growth rate close to 0, any negative international event will have a much greater impact. (AMP)<\/p>\n","protected":false},"excerpt":{"rendered":"
The twin deficits that Romania has been struggling with give headaches to decision-makers in Bucharest, who are forced to take unpopular measures in an effort to solve this problem that has been dragging on for years. The country has been under an excessive budget deficit procedure since before the pandemic, and in recent […]<\/p>\n","protected":false},"author":108,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[43939],"tags":[29547,37614,32811,29212,36111],"coauthors":[113249],"class_list":["post-1002164","post","type-post","status-publish","format-standard","hentry","category-the-future-starts-today","tag-budget","tag-challenges","tag-deficit","tag-economy","tag-international"],"acf":[],"yoast_head":"\n