IMF among Bucharest delegation as businesses eye (apparently) positive resolutions

The first week of February 2025 was an intense one for Romanian government representatives, who attended a long series of discussions with the country’s international financial partners, such as representatives of the World Bank and several international investment funds, including the IMF.

The visits of the foreign representatives to Bucharest were aimed at analysing Romania’s most recent financial and economic developments, most likely against the background of the country’s rating outlook being downgraded, from stable to negative, in December 2024 (according to Fitch Ratings).

The delegation of the Romanian government reconfirmed its commitment to restrict the budget deficit to within 7% of GDP this year and to continue the corrective path in the coming years, in line with the fiscal plan agreed recently with the European Commission and the recommendations received under the excessive deficit procedure (EDP) of the Economic and Financial Affairs Council (ECOFIN).

Romania was included in the EDP five years ago, as a result of exceeding the EU’s budget deficit reference value of 3% of GDP in 2019.

In 2023, the budget deficit in Romania reached 6.5% of GDP, more than two percentage points above the 4.4% limit recommended by ECOFIN (according to data published by Eurostat).

On January 21 2025, ECOFIN gave the green light to medium-term budgetary and structural plans for 21 member states, including Romania. The country also received approval of an extension of the budgetary adjustment period from five to seven years.

In the plan submitted to ECOFIN, Romania commits to a set of reforms and investments aimed at improving growth and fiscal sustainability for the period 2025–31.

Among the most interesting measures in the fiscal plan approved by ECOFIN are the following:

• Minimum wage reform – the plan aims to introduce, from 2025, a new system for setting the gross minimum wage, based on the expected rates of inflation and productivity growth forecasted by an independent institution.

• A tax reform for micro-enterprises – this complements the actions in the National Recovery and Resilience Plan (Planul Național De Redresare Și Reziliență, or PNRR) and refers to additional measures to gradually reduce the scope of the micro-enterprise regime by revising the eligibility threshold and updating the tax rate. The reform is expected to generate additional revenues of at least 0.1% of GDP in 2025 compared with the current system, and even more additional revenues could be generated thereafter if the reform materialises in a drastic reduction of the eligibility criteria, by alignment with the VAT threshold; i.e., the RON300,000 ceiling.

• Reform of the overhaul of the fiscal framework – an existing reform from the PNRR (aiming at phasing out tax incentives regarding property tax or expanding green taxation) will be complemented by new measures to generate a target revenue growth of 1.7% of GDP in 2025.

• Reform of the administration of the tax system – this is based on the PNRR actions on improving the tax system administration processes and expanding digitalisation. The reform includes measures (some of which have already been implemented or are being implemented/developed) on:

  • The introduction of a mechanism for early detection of VAT fraud associated with intracommunity purchases, transit operations, or domestic transactions;

  • The implementation of tools to address VAT collection shortfall; and

  • Better digital compliance monitoring – through, for example, e-invoicing, SAF-T, fiscal electronic cash registers, e-TVA, DAC7, and/or the Central Electronic System of Payment information (CESOP), or the introduction of a tax planning control mechanism for large and medium taxpayers.

The Romanian government should prioritise several key actions in 2025 to ensure sustainable economic growth and fiscal stability. These actions include:

• Implementing the new governance framework – making full use of the new governance framework to boost needed reforms and investment;

• Reducing the budget deficit – committing to reduce the budget deficit to 7% or less of GDP by adopting prudent fiscal measures and ensuring that the budget reflects this objective;

• Improving revenue collection – focusing on improving the efficiency of tax collection to achieve revenue targets, addressing the current deficit of about RON9.7 billion;

• Adjusting spending – allocating additional funds for essential services and carefully managing expenditures, particularly on goods, services, and interest payments; and

• Maintaining a sustainable debt level – ensuring that the budget construction is aligned with a cash deficit of around 7.7% of GDP, while striving to reach the 7% target through better revenue collection and prioritisation of projects.

By taking these actions, the Romanian government can work to achieve fiscal discipline and promote economic development in the face of continuing challenges. This work can only produce the desired results through frequent collaboration and consultation with the business community.