Romania's Fiscal Consolidation Faces Challenges Amid Recession Risks
The budgetary measures implemented by the Romanian government so far are insufficient to stabilize the public debt-to-GDP ratio. Further fiscal adjustments will be complicated by a likely recession in the second half of this year and a lack of unity within the ruling coalition, according to Nichollas Farr, an analyst at Capital Economics.
Romania’s 10-year local currency borrowing costs are expected to remain near the current 7% level by year-end. However, these costs may come under pressure once the impact of previous budgetary measures diminishes and additional steps become necessary, Capital Economics noted, as cited by Cursdeguvernare.ro.
Barriers to Lower Borrowing Costs
Farr indicated that achieving a sustained decrease in borrowing costs will be difficult due to present economic and political constraints.
Fiscal Council's Outlook
At a recent conference, Daniel Daianu, head of the Fiscal Council, stated:
“The public deficit could reach 6%–6.5% of GDP next year as a result of the measures already taken and may fall below 5% of GDP after 2026 following a significant reduction in tax evasion and avoidance pursued by the tax collection agency ANAF.”
Summary
Romania faces fiscal consolidation difficulties as recession threats and political discord limit the effectiveness of budgetary measures, sustaining borrowing costs and risking higher deficits in the near term.