Analyst :Romania's fiscal consolidation showing results, but economy remains vulnerable

     The positive evolution of Romania's budget deficit is a "light at the end of the tunnel", but the results achieved could be jeopardised by possible populist measures from the new government, economic consultant Adrian Negrescu said."The positive evolution of the budget deficit announced this morning by the Finance Ministry should essentially be seen as a kind of 'light at the end of the tunnel'. Let us hope the new government does not extinguish it through populist measures. What we need is an executive made up of professionals in their respective fields, not party activists concerned only with their image and electoral considerations," Negrescu wrote on Facebook.He said Finance Ministry data point to a clear improvement in Romania's fiscal trajectory."Beyond the political speculation, the fact is that Finance Ministry data show a clear improvement in the fiscal trajectory: the budget deficit fell to 2.34% of GDP in the first seven months of the year, from 3.99% of GDP in the same period of 2025 - a 37% reduction in nominal terms, equivalent to 28.36 billion lei less than last year. It is the first concrete, data-backed indication that the fiscal consolidation announced by the government is actually producing results," Negrescu said.He added that the way the adjustment had been achieved was as important as its scale, with budget revenues rising 11.2%, while total expenditure increased by only 2.9%.Personnel expenditure was 4.06 billion lei lower, while investment reached 76.51 billion lei, almost 15 billion lei above last year's level, with more than 71% supported by EU and NRRP funds, Negrescu said.The government also continued VAT reimbursements to companies, which exceeded 20.4 billion lei in the first seven months of the year, supporting business liquidity.Negrescu warned, however, that the improvement does not mean Romania's fiscal problems have been resolved."Interest paid by the state has already exceeded 40 billion lei in the first seven months of the year - a direct bill for the imbalances accumulated in recent years, when Romania budgeted deficits of more than 5-6% of GDP for six consecutive years, peaking at 9.3% of GDP in the 2024 election year. The more the deficit and financing requirement decline, the more pressure on borrowing costs can ease over time," he said.In his view, the real test will be keeping budget execution on track to meet the full-year deficit target.Negrescu also warned that the Romanian economy remains vulnerable, with economic growth close to stagnation in 2026 amid ongoing fiscal consolidation and weaker domestic consumption.He cited forecasts ranging from 0.1% growth in the European Commission's spring forecast to slightly above 1% under more optimistic scenarios. A recovery is expected in 2027, with growth of around 2.2%-2.3%, but this will depend on the continued success of fiscal adjustment and a decline in inflation, he said.The economic consultant also pointed to Romania's rising public debt."Public debt has already exceeded 61.4% of GDP (May 2026), above the 60% threshold considered a limit for joining the euro area, while the European Commission estimates that it will continue to rise towards 62.7%-63.3% of GDP by 2027. Every year in which the deficit remains high adds fuel to this trend, while the increasingly high interest paid on existing debt becomes itself a factor driving future deficits," Negrescu said.He also highlighted persistent inflation and pressure on the Romanian currency."The leu reached a record low against the euro on May 6, 2026, at 5.2688 lei/euro, and at the end of August the exchange rate remains in the same range, above 5.25 lei/euro - well above the 2025 average of 5.0431 lei/euro and the 2024 average of 4.9746 lei/euro," he said.Negrescu said these pressures reflect the high external deficit, substantial external financing needs and market concerns over the sustainability of Romania's fiscal trajectory."All these threads come together in one imminent test: S&P's rating assessment, due on October 2. The good seven-month budget execution results are a genuine argument in the dialogue with rating agencies, but not a reason for complacency, because markets and investors look not only at the results of one quarter, but at Romania's ability to stay the course over the long term and build a credible budget for 2027, at a time when public debt is rising and financing costs remain high," he said.Negrescu concluded that reducing the budget deficit requires a sustained structural correction of Romania's public finances, including firm spending discipline, a predictable public-sector wage policy, faster absorption of EU funds and genuine prioritisation of investment."Without sustained structural correction, the stabilisation achieved so far risks remaining temporary, while the bill - as already shown by the more than 40 billion lei paid in interest in just seven months - will continue to rise for the entire economy: for the state, for companies and ultimately for every Romanian," Negrescu said.