An International Monetary Fund (IMF) mission led by Joong Shik Kang concluded its 2025 Article IV Consultation with Romania on September 12, following discussions held from September 3-12. The IMF staff presented their preliminary findings regarding the country’s economic situation and outlook.
The statement highlighted subdued economic activity in Romania, noting that real GDP growth slowed to 0.8 percent in 2024. Strong private consumption was offset by a decline in investment activities, and growth remained weak into the first half of 2025 due to ongoing uncertainty affecting economic sentiment. Core inflation stayed high at 7.9 percent year-over-year in August, mainly driven by persistent services inflation linked to strong wage growth. Headline inflation rose sharply to 9.9 percent year-over-year after the removal of an electricity price cap and an increase in VAT rates.
Fiscal challenges have intensified as the fiscal deficit increased to 8.7 percent of GDP in 2024, primarily because of higher pension spending, public wages, and capital expenditure funded domestically. This fiscal imbalance contributed to a widening current account deficit, which reached 8.4 percent of GDP. Despite a freeze on public sector wages and pensions for 2025, the fiscal deficit has remained elevated through mid-year due to continued rises in current expenditures.
Looking ahead, the IMF projects that real GDP will grow by 1.0 percent in 2025 and by 1.4 percent in 2026 as investments funded by the NextGenerationEU program are expected to partially counteract slower private consumption caused by high inflation and fiscal consolidation measures. The Romanian government has introduced a significant fiscal reform package for 2025–26, including tax reforms such as increases to standard and reduced VAT rates and an ongoing freeze on public sector wages and pensions through at least 2026.
The IMF notes that risks remain tilted toward lower growth and higher inflation: “A sovereign credit rating downgrade remains a risk as concerns persist regarding the execution of the planned fiscal consolidation for 2025-26 and the medium-term sustainability of public finances due to the still high fiscal deficit.” Other downside risks include weaker demand among major trading partners or heightened regional tensions affecting trade and foreign direct investment flows.
On policy recommendations, the IMF welcomed Romania’s planned large-scale fiscal consolidation for 2025–26 but stressed that its effective implementation is essential: “The large fiscal consolidation for 2025–26 is welcome and its execution, along with additional adjustment in the medium term, is critical to restore fiscal sustainability and market confidence.” The staff estimates that if reforms are fully executed, primary deficits could fall significantly over two years; however, further adjustments averaging about two-thirds of a percentage point of GDP annually from 2027 would be needed to bring deficits below three percent over time.
Additional tax reforms alongside full use of available European Union funds are recommended to strengthen public finances while supporting economic growth. Fiscal structural reforms—including digitalization efforts—are also considered key for improving governance and efficiency.
On monetary policy, the IMF cautioned against premature easing: “The re-emergence of inflation pressures calls for a cautious monetary policy approach to ensure that inflation securely returns to the target band.” They advised maintaining current policy settings until wage and price growth moderates sustainably.
The financial sector was described as resilient with banks remaining well-capitalized and liquid; however, supervisors were urged to continue monitoring asset quality amid growing consumer credit and unhedged foreign exchange loans.
Structural reforms are deemed necessary for long-term growth potential—particularly advancing oversight of state-owned enterprises (SOEs), enhancing regulatory predictability, raising labor force participation given demographic trends, and investing in education quality.
Romania’s updated energy strategies were acknowledged as part of its transition toward net zero greenhouse gas emissions by mid-century; complementary policies such as carbon taxes outside sectors covered by EU emissions trading may be needed.
The IMF mission expressed appreciation for cooperation from Romanian authorities during their visit: “In closing, the mission would like to thank the Romanian authorities and other stakeholders for their warm hospitality and for the open and productive discussions.”