Published by Global Banking & Finance Review®
Posted on July 15, 2025
2 min readLast updated: January 22, 2026
Add as preferred source on GoogleRomania's deficit reduction relies on political stability and tax hikes. Fitch warns of risks due to coalition dynamics and policy disagreements.
BUCHAREST (Reuters) - The implementation of tax hikes and other measures to lower Romania's deficit, the EU's largest, depends on the stability of its new broad coalition government and will inform its ratings, Fitch Ratings said on Tuesday.
The EU and NATO member has been rocked by political instability in the wake of a presidential election, which was cancelled in December and re-run in May, with market turmoil boosting borrowing costs and crashing the leu currency.
The extended election cycle inflated Romania's budget deficit above 9% of output last year and the risk of a downgrade to below investment grade appeared imminent. But financial assets stabilised by end-June when a new broad coalition government announced a series of tax hikes.
However, the four parties that form the government of Liberal Prime Minister Ilie Bolojan were reluctant to enforce the unpopular tax hikes and planned cuts to state spending, which have been criticised by unionists and employers and triggered protests by public sector workers.
The parties have also agreed to rotate prime ministers from Bolojan to the centre-left Social Democrats before 2028 parliamentary elections, running the risk of policy disruptions. The two parties already disagree on income tax.
"Significant fiscal consolidation will weigh on economic growth, and implementation risks cannot be discounted," Fitch said in a statement.
"Coalition dynamics and the implications for fiscal settings beyond next year could shift as its two largest parties ... have agreed that Bolojan will make way for a new prime minister from the Social Democrats in 2027."
The government will raise value-added tax, excise duties, levies on dividends and banks' turnover, and a series of other measures, some from August and others from January, with a budget impact of 1.1% of output this year and 3.5% in 2026.
Fitch, which like rival agencies S&P Global and Moody's rates central Europe's second-largest economy on the lowest rung of investment grade with a negative outlook, holds its next review on August 15.
(Reporting by Luiza Ilie; Editing by Joe Bavier)
Fitch states that Romania's efforts to reduce its deficit depend on the stability of its coalition government and warns that significant fiscal consolidation could impact economic growth.
Political instability following a prolonged election cycle has inflated Romania's budget deficit above 9% of output last year, raising concerns about a potential downgrade to below investment grade.
The Romanian government plans to raise value-added tax, excise duties, and levies on dividends and banks' turnover, with some measures taking effect from August and others from January.
Fitch holds a negative outlook on Romania's economy, which is currently rated on the lowest rung of investment grade, and its next review is scheduled for August.
The coalition government, which includes four parties, faces risks of policy disruptions due to the agreed rotation of prime ministers before the 2028 parliamentary elections.
Explore more articles in the Headlines category
