Romania’s budget deficit narrowed by 1.65 percentage points (pp) year on year to 2.34% of GDP in January-July, reaching RON41bn (approximately €8bn), according to data published by the Finance Ministry. The improvement already matches the fiscal consolidation target set for the full year, while maintaining the pace of fiscal consolidation next year will require continued expenditure controls and political commitment.

The slight 6% year-on-year increase in the July deficit, to RON7.1bn (€1.35bn), does not necessarily indicate a reversal of the consolidation trend, given the volatility of monthly budget data. Interest expenditure, for instance, rose 66% year on year in July, overstating the otherwise real problem of public debt cost, although the increase was considerably lower at 16.4% in January-June.

The deficit-to-GDP ratio increased by only 0.34pp in July, compared with the 1.64pp consolidation achieved in the first half of the year.

If the deficit remains at the same proportion of GDP in the second half as in the corresponding period of 2025, Romania would still meet its full-year fiscal target. The outcome could be further supported by higher spending of European Union recovery funds (easing pressure on investments from the local budget). Moody’s said in a note on Romania’s failed Wage Law last week that it expects the deficit to reach 5.8% of GDP in 2026, below the government’s target. However, the figure would remain almost twice the medium-term 3% of GDP threshold, requiring further political consensus on necessary budgetary measures.

Budget revenues increased 15.8% year on year in July to RON69.8bn, accelerating from 10.3% growth in the first half. January-July revenues rose 11.2% to RON412.3bn.

The July increase was driven in part by a 79% rise in transfers from the EU budget, to RON7bn, equivalent to about 10% of monthly revenues. The increased contribution from the Recovery and Resilience Facility (RRF) is unlikely to be sustained next year, after the fund’s support phases off, creating a challenge for government finances in subsequent years.

Revenues from national resources increased 10.8% year on year in July, compared with 9.6% in the first half. Net VAT collection rose 34.4% in July after increasing 26.5% in the first half, despite a contraction in retail sales volumes. Higher inflation and the increased VAT rate supported the increase, although the effect is expected to weaken in the second half.

Expenditure rose 14.8% year on year in July to RON76.8bn, compared with 0.8% growth in the first half. Spending financed from EU funds increased 80% to RON8.7bn, while expenditure on goods and services rose 26%.

Public-sector payroll spending fell 5% year on year in July, following a 3.9% decline in the first half, while social security spending also contracted in nominal terms.

Frozen public wages and pensions, combined with higher VAT and personal income tax revenues, have been the main contributors to consolidation so far this year.

The focus of fiscal consolidation will increasingly need to shift towards improving tax collection as EU recovery funds provide less support and economic growth is expected to remain weak in 2026.