Fitch forecasts that Romania's budget deficit to reduce to 8.5% of GDP in 2025

Financial rating agency Fitch Ratings has revised its estimates regarding the evolution of Romania's government deficit, which is expected to decrease this year to 8.5% of GDP, from the record level of 9.3% of GDP recorded last year, and, due to the high starting point, is expected to decrease in the coming years only to 7% of GDP in 2026 and 6.5% of GDP in 2027, according to a Fitch analysis published on Friday.According to Fitch, the upward revision of the budget deficit forecast following the rectification shows the challenges Romania faces in halting the deterioration of public finances and implementing sufficient consolidation measures to reduce large fiscal deficits and stabilize debt over the medium term.Additional fiscal measures could also face implementation challenges, given consolidation fatigue, modest economic growth and persistent political uncertainty, Fitch analysts point out.According to the budget revision of October 1, this year's deficit will be 8.4% of GDP, compared to 7% as projected in the February budget. The main adjustments are on the expenditure side (up 27.8 billion lei, or 1.6% of Fitch's estimated GDP), notably higher interest payments, as well as social assistance and health spending.Fitch analysts believe that this budget revision shows that Romania's total fiscal deficit, in cash terms, will fall by only 0.3 percentage points, from 8.7% of GDP in 2024 (the primary deficit will fall by 1.1 percentage points). This is despite the initial spending freeze announced in January 2025 by the former government and the July fiscal package (the impact of which was initially estimated at 1.1% of GDP), introduced by the new coalition.This highlights the difficulties related to pressures on social spending, higher borrowing costs and slow economic growth, which complicate achieving a deficit reduction compatible with stabilizing public debt over the medium term," Fitch's analysis shows.The rating agency emphasizes that reducing deficits and stabilizing debt are crucial conditions for lifting the "negative" outlook associated with Romania's "BBB minus" country rating.Given the size of the deficit and the multi-year consolidation process, a key challenge will be to strengthen the credibility of fiscal policy, especially after various revisions to fiscal targets in 2024, following which the budget deficit increased from an initial target of 5% to 8.7% on cash. The new packages should highlight the government's commitment to reducing the deficit, Fitch analysts consider.