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Since the fall of the communist regime in 1989, Romania has reached the highest external debt in its history. For Romania, the past year is the icing on the cake of economic reality, an extremely painful reality which, coupled with a budget deficit of 9.3% of GDP and borrowing of €200 billion (€50 billion in 2024 alone), has made Romania the most indebted EU Member State. An aspect that cannot be overlooked is the fact that this year alone, Romania has borrowed EUR 1 billion every 10 days (EUR 9 billion in the first 3 months). With this record budget deficit, Romania is on the top of an undesirable European Union ranking, followed by Poland and France. Despite government promises, international commitments and one-off measures implemented late by the ruling coalition, the structural imbalance of public finances has worsened recently, generating a climate of fiscal uncertainty that calls into question Romania’s economic stability, which risks reaching junk rating in the coming years.
A high deficit is symptomatic of an economic policy without a compass
According to the latest official data, Romania ended 2024 with an estimated budget deficit of 9.3% of gross domestic product (GDP). As mentioned above, this is the highest in the entire European Union. That is why this budgetary imbalance is not just a simple economic indicator because it reflects structural depths, administrative inefficiencies and, above all, a chronic inability of the current political class to implement real economic reforms in a tense electoral climate. Such a high deficit indicates that the Romanian state is spending far more than it can collect. This is the result of populist policies during the electoral campaign, where promises of wage and pension increases, along with electoral tax breaks, are not backed by a real and sustainable revenue base. The problem is made all the worse by the fact that Romania’s budget deficit is coupled with an accelerated increase in public debt. From a level of 35% of GDP in 2019, Romania has reached an external debt of almost 55% in just five years. If this trajectory continues, without significant adjustments, the country risks breaching the critical threshold of 100% of GDP in the next decade, a dangerous spiral that could lead to a financing crisis and loss of investor confidence.
Romania’s economic model is exhausted
The main source of the fiscal imbalance is Romania’s economic architecture. The consumption-led growth model, supported by imports and structural deficits, has shown its limits and has implicitly reached its limits. While other countries in the region have capitalized on public investments and European funds to develop their infrastructure and productive capacity, Romania has failed in transforming economic growth impulses into sustainable development. Rigid public expenditures such as public sector wages and pensions, especially special pensions, have come to consume more than 90% of recurrent state revenues. This leaves little room for investment or crisis response. Moreover, the postponement of tax reforms, for fear of negative electoral impact on those in power, exacerbates budgetary vulnerability. Raising VAT or introducing a flat rate with no exceptions are solutions systematically avoided by the governments, even if these measures seem to become inevitable in the coming period.
The failure of tax reform and the costs of delaying unpopular measures
Romania has pledged to the European Commission to gradually reduce its deficit to below 3% of GDP over the next seven years in exchange for budgetary flexibility to allow investment. But the fiscal reform, initially scheduled for April 2025, has already been postponed (the main cause being the presidential elections in May) until January 2026, signaling a lack of political will and the absence of a coherent strategy by the current governing coalition. Instead of a comprehensive package of measures, minor changes have been made: an increase in dividend tax, corporate taxes and the restriction of tax breaks in certain sectors (IT, agriculture and construction). These have brought in modest revenues, insufficient to cover the holes caused by the expansion of public spending.
Analyses by Erste Bank and the Fiscal Council warn that Romania is at risk of a real “sacrifice curve”, similar to that of 2009-2010, but this time without the protection of an IMF agreement. Rating agencies have already reacted: all three major institutions – Fitch, Moody’s and S&P – have downgraded the country’s outlook, indicating a possible downgrade to junk status.
A toxic political context
The year 2024 was marked by heightened political instability. Presidential elections were canceled leading to negative international reactions on the rule of law in Romania, internal scandals in the ruling coalition and a fragmented opposition led to economic measures being postponed. In such a climate, any attempt at wide-ranging tax reform becomes extremely difficult. The government, more concerned with maintaining electoral support than macroeconomic stability, has preferred to postpone tough decisions, fueling a spiral of uncertainty. This political volatility has had direct echoes in international financial markets: yields on government bonds have risen and Romania has had to borrow at ever higher interest rates. The economic forecast for 2025 is grim. Financing needs exceed €50 billion, a huge sum that puts additional pressure on the already fragile budget.
Romania has the biggest current account deficit in the EU
The current account deficit is the second time bomb for Romania’s economy. In addition to the budget deficit, Romania also has the biggest current account deficit of the 27 EU countries. The widening gap between imports and exports points to a deep vulnerability of the real economy: a lack of competitiveness and an excessive dependence on domestic consumption. This double deficiency, fiscal and external, paints an alarming picture that should mobilize the authorities to act quickly and coherently.
Scenarios for the future: painful adjustment or economic reinvention
Romania has essentially two options for rebalancing the economy. The first is a tough adjustment, imposed from outside – through rating downgrades, financing bottlenecks or even a new economic crisis like the one in 2009. This scenario involves sudden spending cuts, tax hikes and a sharp fall in living standards. The second option is a domestically owned reform where the government restructures the budget, streamlines tax collection, reduces waste and redirects public funds to productive investment. This economic reinvention should have three pillars. The first pillar would be the reform of the tax system, with the elimination of exemptions and a rebalancing of the tax burden. The second pillar would be the digitalization of public administration to fight tax evasion and increase collection efficiency. The third pillar of economic reinvention would be to reorient spending policies with a focus on investment, education and infrastructure.
Romania in a fragile international economic context
At the global level, trade tensions over tariffs with the US, geopolitical reconfigurations and rising protectionism are affecting emerging countries’ exports and growth prospects. For Romania, which is dependent on trade and external financing, these developments may amplify the risks. Moody’s warns that without economic diversification and a coherent investment attraction strategy, Romania risks becoming increasingly economically irrelevant in the region. A foreseeable crisis and a historic opportunity The record deficit in 2024 is not just a figure, it is the signal of an impending crisis, but also an opportunity to reset. Romania can avoid disaster only if it courageously and responsibly undertakes economic reforms that may be painful but necessary. Recent history has shown that avoiding the economic truth leads to collapse. In contrast, a clear-sighted face of reality can restore investors’ confidence and citizens’ hope.
The presidential elections in May 2025 will be a test not only politically but also economically. Will Romania be able to rise above the interests of the moment and build a sustainable path? Or will we postpone difficult decisions again, pushing the country to the brink? The answer to this question will decide the future of an entire generation.
Romania 2009 vs. Greece: two crises, two lessons
To fully understand the current risks and the path Romania is on, it is essential to look back and analyze how other European countries reacted to similar crises. To do so, we have considered two obvious examples: Romania in 2009-2010 and Greece in 2010-2018. Although both countries were severely affected by the recession, the decisions taken and the treatment applied by international creditors were fundamentally different.
Romania in 2009-2010 relied on austerity, not restructuring. The 2008 global financial crisis hit Romania’s economy extremely quickly, already facing a growing budget deficit and a fragile economic model based on speculative consumption and investment. In order to revive the economy, the Romanian government signed a loan agreement worth around €20 billion with the IMF, the World Bank and the European Commission in 2009. In exchange for these funds, the government was obliged to implement a tough austerity program. This austerity program saw public sector salaries cut by 25%, pensions frozen, VAT increased from 19% to 24%, and thousands of civil service jobs abolished. The decisions taken in 2009 were a turning point and painful, but in the short term they had the desired effect: the deficit was reduced and financial markets regained confidence. But the social cost has been huge. Living standards have fallen sharply, many citizens have emigrated to Western European countries in search of a better life, and trust in the state has eroded deeply. Romania did not benefit from any debt restructuring like other EU countries. Debts were paid in full, with interest. Austerity was the solution chosen by the government of the time, one with mixed results, but without the alternative offered to others in the same period.
Greece: partial default and debt write-off
In contrast to Romania’s handling of the 2009-2010 economic crisis, Greece, which was in a much worse economic situation at the time, eventually benefited from a massive debt restructuring. Thus, since 2010, the Greek state has received three rescue packages totaling more than €300 billion from the IMF-ECB-EC troika. In parallel, in 2012, the biggest haircut in modern economic history took place: more than €100 billion of Greece’s public debt to private creditors was wiped off the books. This restructuring, combined with structural reforms and a painful adjustment period, allowed Greece to avoid total collapse. Paradoxically, although austerity policies were severe here too – with wage cuts, tax hikes and mass privatizations – the institutional support Greece received was far superior to that offered to Romania. The IMF was willing to accept losses in Greece, but maintained rigidity in Romania. Why? The answer lies largely in the geopolitical and systemic stakes. Greece was in the euro area, and a total default would have shaken the entire single currency. Romania, as a non-eurozone member, was treated as a laboratory for austerity rather than a patient of the system.
What can we learn from these two cases?
The comparison highlights two models of crisis management. Romania chose fiscal discipline at all costs, bearing the full cost of adjustment. Greece obtained massive concessions, despite domestic policies that were seen as populist and unstable. This difference must raise serious questions among today’s decision-makers. Romania seems to be on the brink of a budgetary cliff again, but the geopolitical context is different and the EU will no longer easily grant financial leniency. The important lesson is that without real domestic reform, no amount of debt relief will come to the rescue of the Romanian economy.