Romania: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, September 12, 2025
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- Published: September 12, 2025
Outlook and short-term macroeconomic assessment
- Mission conducted during September 3-12, 2025.
- Economy expected to grow gradually amid necessary fiscal consolidation.
- Inflation will remain elevated temporarily before falling within NBR’s tolerance band by end-2026.
- Real GDP growth:
- 0.8 percent in 2024.
- Projected 1.0 percent in 2025.
- Projected 1.4 percent in 2026.
- Inflation:
- Core inflation 7.9 percent (y/y) in August (2025).
- Headline inflation 9.9 percent (y/y) after removal of electricity price cap and VAT increase.
- Growth drivers and constraints:
- Strong private consumption in 2024 supported by robust wage growth.
- Continued contractions in investment activities in 2024.
- 2025 H1: weak growth momentum due to significant uncertainty weighing on sentiment.
- NGEU-funded investments expected to partly offset moderation in private consumption.
Deepening twin deficits and recent developments
- Fiscal deficit:
- Rose to 8.7 percent of GDP (cash basis) in 2024.
- Large fiscal deficit persisted through mid-2025 despite freeze on public sector wages and pensions in 2025.
- Drivers: significant increases in pension spending, public wages, and domestically financed public capital expenditure; continued increases in current expenditures.
- Current account deficit:
- Reached 8.4 percent of GDP (2024).
- Risks to outlook:
- Downside risks to growth and upside risks to inflation.
- Sovereign credit rating downgrade risk due to concerns about execution of planned fiscal consolidation for 2025-26 and medium-term sustainability.
- External risks: slower growth among major trading partners, higher trade barriers, uncertainty, intensification of regional conflicts reducing trade and FDI.
- Upside inflation risks: higher energy prices, adverse climate shocks affecting food prices, stronger-than-expected wage growth that could delay normalization of core inflation.
- Upside scenario: strong fiscal adjustment and EU-funded investment implementation could improve investor sentiment and lower risk premia, boosting private investment and growth.
Fiscal policy: consolidation, projections, and recommendations
- 2025–26 reform package:
- Welcome step including tax reforms (raising the standard and reduced VAT rates) and continued freeze on public sector wages and pensions in 2026.
- If fully executed, expected to reduce the primary fiscal deficits by about 1¼ and 2 percentage points of GDP in 2025 and 2026, respectively.
- Narrow overall fiscal deficit to about 6 percent of GDP in 2026 (if fully executed).
- Medium-term projections and needs:
- Fiscal deficit projected to narrow gradually to about 5 percent of GDP by 2030, with public debt-to-GDP continuing to rise to close to 70 percent.
- Additional fiscal adjustments of about ⅔ percent of GDP per year on average from 2027 are needed to reduce the deficit to below 3 percent of GDP over the medium term and stabilize public debt at around 60 percent.
- Upfront specification of concrete measures effective from 2027 recommended to restore credibility and increase predictability of tax policy.
- Tax policy and revenue mobilization:
- Romania’s tax revenue as a share of GDP is among the lowest in the EU.
- Recommendation: a tax reform package to mobilize revenues and improve fairness, while strengthening work incentives and remaining attractive to capital investment.
- Public investment and fiscal governance:
- Need to make full use of available EU funds.
- Enhance public investment management by strengthening coordination and monitoring to support planning, allocation, and implementation.
- Continue prudence with wage and pension policies beyond 2026.
- Strengthen fiscal governance: integrate regular public spending reviews into annual budgeting; develop a stronger medium-term fiscal framework with credible medium-term revenue and expenditure strategies and contingency plans.
- Digitalization: planned introduction of a new digital budgeting platform is positive; ongoing digitalization can strengthen tax administration and public service provision.
Monetary policy and exchange rate stance
- Recommendation: NBR’s cautious approach remains appropriate.
- Policy rate guidance:
- Policy rate cuts should resume only after inflation is on a firm downward trend and growth of wages and prices moderate in a sustained manner.
- NBR should stand ready to adjust the policy rate based on prevailing economic conditions and price dynamics.
- Exchange rate:
- Greater two-way exchange rate flexibility over the medium term recommended to enhance resilience to shocks.
- Benefits: limit carry trade opportunities, mitigate balance sheet mismatches, enhance resilience to external shocks, and, together with fiscal adjustment, help strengthen the weak external position.
- Clear communication accompanying exchange rate flexibility emphasized.
Financial sector stability and supervision
- Banking system resilience:
- Banks remain well capitalized and liquid.
- NBR guidelines to retain profits combined with increased countercyclical capital buffer (CCyB) have bolstered capital and releasable buffers.
- Asset quality overall remains healthy, with the NPL ratio close to the EU average.
- Emerging vulnerabilities and supervisory priorities:
- Monitor asset quality and stress-test liquidity amid growing sovereign exposure, buoyant consumer credit growth, and sizable unhedged FX loans.
- NBR’s effort to expand eligible collaterals according to risk-based haircut criteria is welcome and will strengthen the emergency liquidity assistance scheme.
- Authorities should be prepared to recalibrate macroprudential policies to align with evolving risks and ensure enhanced resilience.
Structural reforms to boost growth potential
- Key reform priorities:
- Strengthen efficiency of the state to make full use of EU funds and support growth amid fiscal adjustment.
- Establishment of an independent agency to monitor the large state-owned enterprises (SOE) sector is welcome; timely appointment of the board would strengthen oversight and efficiency.
- Improve predictability and quality of regulations to enhance the business climate and reduce informality.
- Increase labor force participation and productivity through better availability of childcare and investment in education quality in response to an aging population.
- Energy transition and climate policy:
- Authorities submitted updated Integrated National Energy and Climate Plan and National Energy Strategy 2025–35 to achieve net zero GHG emissions by 2050 (submitted in fall 2024).
- Consider additional incentives to limit emissions in sectors not covered under the EU Emissions Trading System (ETS), including a complementary carbon tax in the transport and building sectors.
- A fully integrated and interconnected energy market within an EU-wide Energy Union remains crucial.
International Monetary Fund staff concluding statement (Romania: Staff Concluding Statement of the 2025 Article IV Mission).