Romania’s Energy Transition Helps to Achieve Energy Security

Romania’s transition to a low-carbon economy, along with the completion of the EU-wide Energy Union, will help achieve energy security, the International Monetary Fund (IMF) mission, which held discussions for the 2025 Article IV Consultation with the officials of the South Eastern European country between September 3 and 12, said.

The IMF team said that in fall 2024, the authorities submitted their updated Integrated National Energy and Climate Plan and National Energy Strategy 2025–35 to achieve net zero GHG emissions by 2050.

To achieve this goal, additional incentives could be considered to limit emissions in sectors that are not covered under the EU Emissions Trading System (ETS) regime, including a complementary carbon tax in the transport and building sectors.

“More fundamentally, a fully integrated and interconnected energy market within an EU-wide Energy Union remain crucial,” the IMF team noted.

Economy

The IMF said that Romania’s economy is expected to grow gradually amid the necessary fiscal consolidation, which is essential to address the widening twin deficits. Inflation will remain elevated temporarily before falling within National Bank of Romania’s (NBR) tolerance band by end-2026.

While welcoming the recent reform package for 2025-26 including tax reforms, the IMF team said that it marks an important step forward. Its full execution and additional adjustment measures from 2027 to reduce the fiscal deficit to below 3% of GDP are critical to restore fiscal and macroeconomic sustainability.

Additional tax reforms over the medium term, along with making full use of the available EU funds, would help strengthen public finances while supporting growth.

Romania’s tax revenue as a share of GDP is among the lowest in the EU and insufficient to support increasing needs for social protection and public services at levels aligned with EU averages, the IMF said.

“A tax reform package aimed at mobilising revenues and improving fairness, while strengthening work incentives and remaining attractive to capital investments, would help facilitate a growth-friendly and equity-enhancing fiscal consolidation,” it said.

Deepening Twin Deficits

Economic activities have been subdued, while inflation has recently risen notably due to temporary factors. Real GDP growth softened to 0.8% in 2024 as strong private consumption on the back of robust wage growth was offset by continued contractions in investment activities.

Growth momentum remained weak in the first half of 2025 as significant uncertainty weighed on economic sentiment. Core inflation remained high at 7.9% y-o-y in August, driven by persistent services inflation due to still strong, albeit moderating, wage growth. Headline inflation rose significantly to 9.9% y-o-y upon the removal of the electricity price cap and the VAT rate increase. 

Twin deficits have deepened further due to the deterioration of the fiscal balance. The fiscal deficit rose to 8.7% of GDP (cash basis) in 2024, driven by significant increases in pension spending, public wages, and domestically financed public capital expenditure.

Rising fiscal deficits contributed to a widening current account deficit, reaching 8.4 percent of GDP. Despite the freeze on public sector wages and pensions in 2025, the large fiscal deficit persisted through mid-year, driven by continued increases in current expenditures.

Growth is expected to rise gradually to moderate levels amid fiscal consolidation. Real GDP is projected to grow by 1% and 1.4% in 2025 and 2026, respectively.

The government has introduced a large fiscal reform package for 2025–26, which includes tax reforms to raise the standard and reduced VAT rates, along with a continued freeze on public sector wages and pension in 2026. Headline inflation is expected to remain elevated over the next 12 months before falling within the NBR’s tolerance band by the end of 2026.