Preliminary data discussed at a government meeting on October 16 indicated a slight deterioration in budget execution in Q3, but this does not put the full-year deficit target of 6.2% of GDP at risk, Economica.net reported. This is 1.45 percentage points (pp) below the 7.65% recorded in 2025.
Revenues increased by 11.8% y/y to RON 523 billion, rising from 24.2% to 25.4% of GDP. Revenues from the national budget increased by 9.3% y/y, from 22.4% to 23.0% of GDP, marking a small real increase.
Expenditures rose by only 5.5% y/y, while the expenditure-to-GDP ratio eased from 29.5% to 29.2%. Investment and interest expenditure rose sharply, while the rest of expenditure actually declined in nominal terms.
Looking forward, the government can afford a deficit of 2.4% of GDP in Q4, slightly above the 2.3% recorded in the same period of 2025. Strong utilisation of transfers from the EU budget, particularly evident in Q3 and likely to continue in Q4, makes this target attainable.
However, fiscal consolidation is losing one of its main drivers: the VAT rate base effects, which had contributed substantially to improving budget execution over the past year, had already dissipated by August. The new government, expected to take office on October 20, has to revise the 2026 budget while remaining within the fiscal targets.
Drafting the 2027 budget plan may be an even more challenging task. Amid sluggish economic growth next year, a further 1 pp of consolidation, bringing the deficit to 5.2% of GDP in 2027, is becoming increasingly demanding for the new government, which has promised to present next year’s budget plan by the end of December. In 2026, the higher VAT rate, the freezing of wages and pensions, and the surge in EU transfers under RRF/PNRR accounted for most of the fiscal consolidation - but none of these drivers will remain in place next year.
Regarding Q3 2026 budget execution, the deficit increased both in nominal terms (+15% y/y) and as a share of GDP, from 1.7% to 1.8%. However, for January-September as a whole, the deficit maintained its 23% y/y nominal contraction, while the deficit-to-GDP ratio decreased by 1.5 pp to 3.8%, from 5.3% in the same period of 2025 - slightly more than the 1.45 pp consolidation planned for the full year.
Budget revenues increased by 14.8% y/y in Q3, according to calculations based on the preliminary budget execution data. Revenues from national sources increased by 9.9% y/y, mainly driven by a 24.4% increase in net VAT collection, although revenues from property taxes rose faster (+28.9% y/y). The latter, however, account for a relatively small share of total revenues. Notably, transfers from the EU budget soared by 86% y/y and accounted for 10.3% of total budget revenues in Q3, up from 6.4% in the same period of 2025.
Public expenditure increased by 14.8% y/y in Q3, driven by a 44.5% y/y rise in interest payments on public debt and a 49% y/y increase in investment expenditure, which raised its share of total expenditure from 17% to 22%. The remaining expenditure, excluding investment and interest, increased by only 4.0% y/y in the quarter. This was mainly due to a 2.9% y/y decline in the public-sector wage bill and a marginal 1% y/y increase in social expenditure.
In H1, expenditure excluding investment and interest had actually contracted by 3.6% y/y. Overall, this category of expenditure, which reflects the cost of running the public administration, contracted by 1.0% y/y in nominal terms. Further compression will require genuine reforms within the public administration.