Ahead of rating reviews, Romania narrows the first half of its 2026 budget deficit to 2% of GDP

The Ministry of Finance (Romania), 24 July 2026

Summary

The following are the main conclusions and general trends drawn from the analysis of the budgetary data contained in the press release issued by the Romanian Ministry of Public Finance on 24 July 2026:

1. Significant fiscal consolidation

Romania recorded a marked budgetary adjustment in the first half of the year, considerably reducing its deficit relative to the size of the economy. This performance sends a strong signal of stability to international markets and reduces the risk of a downgrade in the country’s credit rating, thereby preventing an increase in the cost of government borrowing.

2. Broadening the tax base and improving revenue collection

Government revenue has grown at a significantly faster rate than expenditure. The key factors were:

• Legislative measures: The removal of specific tax incentives in sectors such as IT, construction and agriculture.
• Strengthening tax collection: Increased efficiency in the collection of VAT and social security contributions, coupled with faster VAT refunds to businesses to support liquidity in the economy.

3. Discipline in current expenditure

The budgetary adjustment was based on strict restraint in state budget spending:

• Control of public sector wages: Staff costs fell as a proportion of the economy through wage caps and the reduction of certain allowances.
• Pressures from interest payments and healthcare: The savings made on wages were partly offset by rising interest costs on public debt and payments in the healthcare sector.

4. Reorientation of investment towards European funds

The financing structure of public projects has changed radically:

• Increased dependence on the EU: The country’s investment programmes have relied predominantly on non-repayable external resources and funds from the National Recovery and Resilience Plan (PNRR).
• Protecting the national budget: The use of European funds has offset the reduction in allocations from the state’s own resources, whilst maintaining a high rate of investment implementation.

Press release

Romania narrowed its consolidated budget deficit to 2% of gross domestic product in the first half of 2026, from 3.64% a year earlier, strengthening the government’s case ahead of upcoming sovereign-rating assessments by Fitch Ratings and Moody’s. The shortfall fell by 1,65 percentage points of GDP and by almost 28,8 billion lei (5,51 billion euro) in nominal terms, reaching 41.03 billion lei (7,84 billion euro) compared with 69.80 billion lei (13,34 billion euro) in the first six months of 2025, the Finance Ministry said in a statement.

The figures offer the government a key measure of fiscal credibility as Romania seeks to preserve its investment-grade status. A downgrade would risk raising sovereign borrowing costs, weakening investor confidence and increasing pressure on public finances.

”The first-half budget execution sends a strong signal of Romania’s credibility ahead of the upcoming assessments by Fitch and Moody’s,” Finance Minister Alexandru Nazare said. “Reducing the deficit to 2% of GDP shows that the fiscal-consolidation plan is delivering and that Romania is meeting its commitments. Credibility is built through results and preserved through consistency.  Romania cannot afford to reverse course,” he said.

Revenue Rises 10.3%

Total government revenue increased 10.3% year on year to 342.52 billion lei (65.49 billion euro) in the first half. As a share of GDP, revenue rose by 0.46 percentage points, supported by tax receipts and inflows of European Union funds.

Revenue from wage and personal-income taxes rose 11.1% to 33.71 billion lei (6,44 billion euro). Dividend-tax receipts increased 29.9%, reflecting distributions concentrated in December 2025 following changes to dividend taxation. Receipts associated with Romania’s Single Tax Return increased 21%. Wage-tax revenue rose 5.8%, compared with a 3.1% increase in the economy-wide wage bill.

The Finance Ministry attributed part of the change to the removal of tax exemptions for employees in construction, agriculture, food processing and information technology.

Social-security contributions increased 7.1% to 110.86 billion lei (21,2 billion euro), outpacing the growth of the wage bill. The ministry said the increase reflected an expansion of the tax base under Law No. 141/2025, as well as receipts linked to the Single Tax Return.

Corporate-income-tax revenue rose 10.1% to 18.97 billion lei (3,63 billion euro). Tax receipts from companies increased 12.5%, including a 17.5% rise in June, mainly reflecting final payments for the 2025 tax year.

VAT collections and refunds Increase

Net value-added tax revenue increased 25.1% to 74.14 billion lei. Gross VAT receipts rose 21.6% following changes to tax rates introduced under Law No. 141/2025.

VAT refunds reached 18 billion lei (3,44 billion euro), up 9.7% from 16.41 billion lei (3,14 billion euro) in the first half of 2025.

The ministry said the increase in VAT receipts and social-security contributions reflected a broader tax base and more effective revenue collection.

“The increase in net VAT refunds to 18 billion lei (3,44 billion euro) is an important signal for the real economy,” Nazare said. “Higher refunds provide direct support to businesses, inject liquidity into Romanian companies, reduce bottlenecks in commercial chains and offer entrepreneurs greater predictability.”

Excise-duty revenue rose 5.9% to 23.25 billion lei (4,45 billion euro), supported mainly by a 13.9% increase in receipts from energy products.

Non-tax revenue declined 15.9% to 24.13 billion lei (4,61 billion euro). The ministry attributed part of the decrease to a base effect, as the first half of 2025 included 1.6 billion lei (310 million euro) in recovered state-aid funds.

EU reimbursements for expenditure already incurred, together with donations, increased 20.8% to 30.29 billion lei (5,79 billion euro)

Expenditure growth slows, while spending falls as a share of GDP

Total expenditure rose 0.8% in nominal terms from a year earlier to 383.55 billion lei (73,3 billion euro), a considerably slower pace than the 10.3% increase in government revenue.

Relative to the size of the economy, however, expenditure declined to 18.66% of GDP, from 19.85% in the first half of 2025, a reduction of 1.19 percentage points.

The Finance Ministry said the adjustment reflected efforts to contain current expenditure while preserving public investment and the absorption of funds available through the National Recovery and Resilience Plan and the European Union’s Multiannual Financial Framework.

Personnel expenditure declined by 3.3 billion lei (630 million euro) to 82.11 billion lei (15,7 billion euro), falling to 4% of GDP from 4.5% a year earlier. The ministry attributed the decrease to reductions in certain allowances and measures aimed at limiting public-sector wage spending in 2025 and 2026.

Spending on goods and services increased 8.6% to 49.42 billion lei (9,45 billion euro), mainly because of higher healthcare payments, while interest expenditure rose by 4.14 billion lei (790 million euro) to 29.37 billion lei (5,62 billion euro), equivalent to 1.4% of GDP.

Social-assistance expenditure declined 0.5% to 126 billion lei (24,09 billion euro). Subsidies amounted to 6.7 billion lei, while other expenditure fell by 2.19 billion lei (420 million euro) to 6.82 billion lei (1,3 billion euro). 

Investment funding shifts toward European sources

Romania changed the financing mix of its public-investment programme in the first half of the year, relying increasingly on European funding and less on national budget resources.

Total public-investment expenditure rose by 9.52 billion lei (1,82 billion euro) to 59.96 billion lei (11,46 billion euro), from 50.44 billion lei (9,64 billion euro) in the same period of 2025. Of that amount, 70.94% was financed through non-reimbursable European funds and the loan component of the National Recovery and Resilience Plan.

Payments for projects supported through the EU’s 2021–2027 financial framework and through recovery-plan grants and loans increased by 15.32 billion lei (2,93 billion euro), or 56.32%, from a year earlier.

The higher use of European financing more than offset a decline in investment funded from domestic sources. The ministry said the comparison was also affected by an unusually high base in early 2025, when the government settled outstanding obligations under national investment programmes, made a capital contribution to Carpatica Feroviar România and recorded specific defence-related payments.

Spending on projects financed through non-reimbursable external funds reached 37.17 billion lei (7,11 billion euro), covering EU cohesion programmes, agricultural subsidies, the Modernisation Fund and the National Recovery and Resilience Plan.

Photo: (source: Pixabay, CC0)

Subscribe to the channel of the blog “The Bridge of Friendship” in YouTube, where a number of video and audio interviews are published! The blog can also be followed in Facebook and Twitter. Its Telegram channel is here. And here is its Substack account.

About Author