Romania's general government budget deficit, expressed in cash terms, will narrow from 8.6% of GDP in 2024 to 7.8% of GDP this year, versus a 7.0% target that remains untouchable for another two years (2026-2027), according to the updated forecast of the International Monetary Fund (IMF) published along with the latest World Economic Outlook edition released on April 23. The slower-than-planned fiscal consolidation would not trigger a sovereign rating downgrade, however, the scenario implies.
At the end of the forecast period, in 2023, the Fund expects Romania's budget deficit at 6.4% of GDP – more than twice the Romanian government's target inked in the fiscal consolidation strategy endorsed by the European Commission under the Excessive Deficit Procedure.
Romania's gross public debt-to-GDP ratio would consequently rise by 17.5 percentage points over the coming six years to 75.7% of GDP at the end of 2030.
Notably, the Fund's methodology for calculating the gross public debt includes several elements besides those under the European Commission's ESA. The IMF thus estimated the debt-to-GDP ratio at the end of 2024 to be 57.2%, compared to 54.8%, according to the EU's methodology.
Despite the deviation from the fiscal consolidation plan, Romania's interest on public debt would widen moderately from 2.0% of GDP in 2024 to 2.7% of GDP in 2030 indicating no dramatic change in investors' sentiment consistent with the rating agencies keeping the country's debt in the investment region.
The wide budget deficits over the forecast period will keep the current account (CA) gap at high values as well, under the Fund's projection. From 8.3% in 2024, the external gap-to-GDP ratio will narrow to 7.6% this year and will further decline gradually to 6.1% in 2030.
When it comes to economic growth, the IMF has worsened its estimates regarding the Romanian economy this year, from 3.3% as forecast in October to 1.6% under the updated scenario. The growth is expected to accelerate to 2.8% in 2026 and above 3% per year in the following years up to 3.5% in 2030.
The economic recovery is consistent with the return of total investments at a record level of 28.8% of GDP in 2026 and above 27% of GDP in the coming years from historically modest levels of 25.4% of GDP in 2024-2025, under the Fund's scenario.
Regarding inflation, the IMF forecasts that Romania will register an average annual price increase of 4.6% in 2025 and 3.1% in 2026, after a 5.6% increase last year. In October, the IMF estimated an inflation of 3.6% in 2025.
Regarding the unemployment rate, the IMF estimates that it will remain stable at 5.4% in 2025, and will decrease slightly to 5.2% in 2026. In October, the IMF forecast an unemployment rate of 5.4% in 2025.
iulian@romania-insider.com
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