Critical Perspectives for Public Relations and Legal Specialists: Crucial Understandings for January

Romania's State Budget for 2025: Optimism and Challenges Ahead

The State Budget Law for 2025 in Romania is poised to pass Parliament, with a focus on supporting local budgets, infrastructure, and energy investments. However, concerns have been raised about the budget's realism, as the Fiscal Council and rating agencies such as S&P Global and Fitch have expressed reservations.

The fiscal measures introduced for 2025, including multiple Value-Added Tax (VAT) rates and increased excise duties, aim to reduce the budget deficit. However, these measures are expected to result in only limited deficit relief, accompanied by rising inflation (peaking around 9%) and stagnant real wages, which may constrain economic growth. Economic growth forecasts for 2025 have been revised sharply downward to 0.5-0.8%, reflecting the challenging economic environment and the deflationary effect of fiscal tightening combined with external pressures.

The consolidated budget deficit for the first half of 2025 has already widened significantly, indicating difficulty in meeting deficit reduction targets. The government’s forecast of a deficit level of 7.1% of GDP for 2025 is seen as overly optimistic. The governor of the National Bank and independent observers have warned that Romania is unlikely to meet this target, with actual deficits remaining higher.

The International Monetary Fund (IMF) is set to visit Bucharest for consultations, reviewing Romania's macroeconomic outlook but without discussing new financial assistance. The Romanian government aims to keep the budget deficit at 7.04% of GDP for the year 2025, as stated in the State Budget Law.

The Fiscal Council has raised concerns about the reliance on hypothetical tax collection improvements and underestimating necessary allocations for goods, services, and interest payments. S&P Global's primary concern is Romania's rising deficits and increasing reliance on borrowing to sustain expenditure. The downgrade by S&P Global serves as a warning that further slippage could push Romania toward a junk rating, making it less attractive to foreign investors.

Inflation in Romania remains at 5.1%, with service prices experiencing the highest annual increase (+7.1%). The National Bank of Romania (NBR) has decided to maintain its monetary policy interest rate at 6.5%, balancing inflation control with economic stability. The plan is part of the EU's Excessive Deficit Procedure, aimed at bringing Romania's deficit under control.

Despite resistance from certain economic sectors, the government's fiscal austerity package, increasing taxes in 2025, is unlikely to see major amendments. Businesses should prepare for potential tax changes, stricter budgetary discipline, and an economic environment where investor confidence will play a crucial role.

The projected revenues for the 2025 State Budget are RON 357.8 billion, while the expenditures are expected to significantly exceed this figure. Romania is exploring new strategies to enhance VAT collection efficiency, looking at Hungary's model as a potential benchmark. The Fiscal Council has expressed concerns about the feasibility of the revenue projections for the 2025 State Budget.

The Fiscal Council has welcomed the government's plan to prioritize investments through both EU funds and national resources. Whether the government’s strategy to balance the growing fiscal pressure through investments will be successful remains uncertain. The plan also aims to address concerns about Romania's fiscal sustainability and reforms, as highlighted by Fitch, which expects to maintain Romania's BBB- rating with a negative outlook.

The Fiscal Council has suggested that the realistic budget deficit might reach 7.7% of GDP, higher than the government's projected 7.04%. Romania is exploring new strategies to enhance VAT collection efficiency, looking at Hungary's model as a potential benchmark. The Fiscal Council has raised concerns about the feasibility of the revenue projections for the 2025 State Budget.

In conclusion, the State Budget Law for 2025 in Romania is ambitious, with a focus on investments and fiscal austerity measures. However, the economic headwinds Romania faces, including a widened budget deficit, disappointing growth prospects, high inflation, and cautious fiscal stimulus, suggest that the budget may be overly optimistic. The Fiscal Council’s concerns and S&P Global’s downgraded outlook point to risks that fiscal targets may not be fully met. The government will need to navigate these challenges carefully to ensure a stable economic future for Romania.