PA Focus: January Fiscal Updates

With the newly proposed State Budget Law, a negative credit outlook, and fiscal reforms on the horizon, 2025 is shaping up to be a year of both challenges and opportunities for businesses and investors in Romania.

Here are the key developments that public affairs professionals should watch closely:

?? Budget Deficit: Realistic Planning or Wishful Thinking?

The State Budget Law for 2025 forecasts a 7.04% GDP deficit, despite previous struggles in meeting fiscal targets. While the government is optimistic about 2.5% GDP growth and 4.4% inflation, the Fiscal Council warns that these numbers may be overly ambitious. Revenue collection remains a key challenge, and history suggests that expected improvements might not materialize.

?? Fiscal Council’s Warning Signs

A more realistic deficit estimate could reach 7.7% of GDP, as the Fiscal Council raises concerns about overestimated revenues and underestimated expenditures. While the emphasis on investments—especially from EU funds—is welcomed, balancing the growing fiscal pressure remains uncertain.

?? S&P Downgrades Romania’s Credit Outlook

Romania’s credit rating remains at BBB-/A-3, but S&P Global has downgraded the outlook to negative due to rising deficits and increased borrowing needs. If fiscal discipline does not improve, Romania risks a junk rating, which could deter foreign investors.

??? ECOFIN’s Fiscal Discipline Plan

The European Economic and Financial Affairs Council (ECOFIN) has imposed strict expenditure growth limits as part of the EU’s Excessive Deficit Procedure. Romania must reduce spending growth from 5.1% in 2025 to 3.9% by 2030, signaling a tougher fiscal discipline approach.

?? Tax Reforms & VAT Collection: Looking at Hungary’s Model?

To boost tax collection efficiency, Romania is studying Hungary’s VAT system, which leverages digital tools for better administration. Could this be the solution to chronic revenue shortfalls?

?? What’s Next?

• Parliament is set to pass the State Budget Law, with minor changes focused on local budgets, infrastructure, and energy investments.
• The IMF will visit Bucharest for macroeconomic consultations, though no financial assistance discussions are expected.
• Fiscal austerity measures—including tax increases in 2025—will likely move forward despite resistance.

?? How can businesses adapt? Staying ahead of legislative changes is crucial. From tax policy shifts to budget decisions, having reliable legislative monitoring can make the difference between reacting late and staying ahead of the curve.

?? Want to track fiscal and policy developments efficiently? Discover how Issue Monitoring can help you navigate Romania’s evolving public affairs landscape.