Special pension reform - blocked by the CCR

The middle of the calendar autumn recorded a visible economic and political tension at the national level, in which financial stability depends on the fine balance between the Government's decisions, macroeconomic developments and the reaction of the markets. The first day of October was marked by the approval by the Executive of the budget rectification that was built on an economic growth of only 0.6% and a deficit projected at 8.4% of GDP, a sign that the pressure on public finances remains high, while the need to support the population and investments cannot be postponed.

The correction also took into account the budget execution data at the end of September, which indicated a deficit of 102.47 billion lei, or 5.39% of GDP, slightly improving compared to the same period last year, when the deficit was 5.47% of GDP, which shows an attempt at fiscal stabilization in a complicated economic context.

Therefore, the Ministry of Finance was forced to continue the policy of borrowing from the capital markets and, in particular, from the domestic market, to cover budget expenditures. Thus, October was marked by increased interest from the population for government securities intended for individual investors. The FIDELIS program attracted approximately 2.2 billion lei, with high demand for the tranche in euros with a maturity of 10 years and an interest rate of 6.50%, but also for the lei securities with a maturity of 2 years and a yield of 7.20%. Significantly, the tranche dedicated to blood donors attracted over 143 million lei, benefiting from an interest rate of 8.20%, demonstrating that financial investment can coexist with social solidarity. In total, since its launch, the FIDELIS program has attracted over 59.32 billion lei, with over 479,000 subscriptions, becoming a benchmark of stability for the local capital market.

In parallel, the Ministry of Finance continued issuances through the Tezaur program, an instrument aimed at the rural and urban population, which is not active in the stock market. Competitive yields and the state guarantee have maintained stable interest, allowing the Government to diversify its sources of financing and reduce pressure on external markets. In addition, the operations of exchanging short-term bonds for extended-term securities reduced the refinancing risk and allowed obtaining borrowing costs that, although still high, fell below the 7% threshold for long maturities, marking the lowest level recorded this year for this segment.

In terms of monetary policy, the National Bank's meeting of October 8 confirmed the continuity of a prudent approach. Although inflation rose to 9.85% in August, following the elimination of the cap on electricity prices and the increase in VAT and excise duties, the NBR Board of Directors decided to maintain the monetary policy interest rate at 6.50%, with the lending facility rate at 7.50% and the deposit facility rate at 5.50%, while maintaining the level of minimum reserve requirements. The decision was taken unanimously and is intended to temper inflationary pressures without blocking economic recovery, given that energy price dynamics and external tensions remain major risk factors.

An event that strained relations between the state powers took place on October 20, when the Constitutional Court decided, by simple majority (5 votes in favor, 4 votes against) on October 20, that the law by which the Government had attempted to reform the special pensions of magistrates by assuming parliamentary responsibility is unconstitutional. The CCR noted the absence of a valid opinion of the Superior Council of Magistracy, considering that the consultation carried out was improper and premature, and the legislative process did not respect the constitutional order of the mandatory stages of approval.

We also mention that, on October 26, a moment with major symbolic charge took place: the consecration of the painting of the Cathedral of the Salvation of the Nation. The service was officiated by His Holiness Bartholomew I, Ecumenical Patriarch, together with Patriarch Daniel and an impressive council of hierarchs, priests and deacons, in the presence of thousands of believers and over 2,500 official guests, including heads of state institutions and regional leaders. The construction, valued at over 200 million euros, was financed from donations, Patriarchate resources and public funds.

• Budget rectification to cover the increase in public spending

The budget rectification of October 2025 was the Government's response to the real pressure on public spending and the deficit dynamics after the first nine months. Therefore, at the meeting of October 1, the Executive adopted an emergency ordinance through which he placed the entire state budget on a new macro foundation: economic growth of 0.6%, GDP revised to 1,902 billion lei, average annual inflation of 7.1%, deficit targeted at 8.4% and an average gross salary of 8,700 lei/month, to cover a fiscal gap fueled by mandatory costs and commitments already underway.

The rectification established that the revenues of the general consolidated budget increase per balance by 3.23 billion lei, while expenditures rise sharply by 27.81 billion lei, pushing the deficit up by 24.58 billion lei; at the state budget level, revenues decrease by 1.81 billion lei, and expenditures increase by 23.35 billion lei, proof that the pressure does not come from collection, but from the state's payment bill. The driving force behind this rectification is the composition of expenditures: consistent increases for the Ministry of Finance (plus 20.06 billion lei, of which 12.09 billion for interest, 500 million for the Reserve Fund and significant amounts for PNRR - grants and loans), for Labor (plus 5.52 billion lei, directed towards social assistance and balancing the social insurance budget), for Development (plus 2.47 billion lei, including Anghel Saligny and PNRR projects), for Agriculture, Energy, Environment, Economy, Education, Justice and other institutions that support current payments, European projects and social protection in a context of higher cost of money. In the mirror, the reductions in Investments and European Projects, Health, Transport, Finance - in the segments of personnel, goods, subsidies or projects with delayed execution - show a hard prioritization of budgetary flows towards areas with certain debts, salary obligations and social benefits that cannot be postponed. In the territory, the increase in the amounts deducted from VAT by 502.1 million lei for counties, municipalities, cities and communes - from the Program for schools and the rights of children with CES to the financing of personal assistants for people with severe disabilities and free transportation for students - confirms the transfer of pressure on local budgets, and in health, the supplement of FNUASS revenues by 4.04 billion lei and of expenditures by 3.40 billion lei sets the priority of payment of materials, medical services, salaries in public health units and sick leave.

All this budgetary repositioning is based on the 9-month execution: total revenues of 466.95 billion lei, up 12.3% year-on-year, but expenses of 569.43 billion lei, up 11.2%, with cost lines that structurally push the deficit: personnel expenses of 126.67 billion lei, expenses for goods and services of 71.02 billion lei, interests of 39.94 billion lei, social assistance expenses of 187.86 billion lei, to which are added energy subsidies and other investment expenses. Thus, at the end of the first nine months of the current year, the Government recorded a budget deficit of 102.47 billion lei, i.e. 5.39% of GDP, a deficit that explains why the adjustment was urgent. In the same picture, the decisions from the government meetings in October reinforce the economic-financial context regarding the increase in public spending: fiscal-budgetary measures to allow UATs to guarantee loans for fuel stocks for district heating in the winter of 2025-2026, the approval of action plans with budgetary impact and impact on the PNRR, the allocation of funds for the partial local elections to be held on December 7, 2025, as well as other decisions with direct or collateral costs on the public cash flow and the annual deficit, which the rectification had to integrate.

• 4 billion euros of financing, following a Eurobond issue

Under these conditions, the Ministry of Finance was forced to continue its borrowing policy. Thus, on October 2, the Ministry of Finance raised approximately 4 billion euros through a Eurobond issue carried out in three tranches, with maturities of 7 years (2033), 12 years (2037) and 20 years (2045). The transaction, the fourth this year and announced as the last public Eurobond issue in 2025, recorded the highest total volume of orders from investors, reaching 17.5 billion euros before margins were set.

The Ministry of Finance continued in October the active management of the public debt, through an early redemption operation of bonds maturing in 2026, totaling approximately 1 billion euros from a cumulative offer of 4.25 billion euros: 550 million euros for the February 2026 maturity (42.3% of the issue), 240.3 million euros for September 2026 (13.4%) and 209.6 million euros for December 2026 (18.2%), reducing the refinancing risk and extending the average maturity of the debt. The investor structure confirms the strong interest of "real money" funds, with weights of 71% on the 7-year tranche, 51% on the 12-year tranche and 69% on the 20-year tranche, while the pensions funds participated with 18% in the 12-year tranche, and the official institutions with 5% for the 7- and 20-year maturities and 8% for the 12-year one. The prudent debt management policy was also confirmed by the operation of exchanging securities maturing in 2026 with long-term bonds maturing in 2035, worth 450.65 million lei, obtaining a yield of 6.93%, the lowest level for long maturity this year.

Regarding the financing of the development of strategic infrastructure, on October 8, 2025, a contract of 500 million euros was signed with the European Investment Bank for the continuation of the construction of the A1 Sibiu-Piteşti Motorway, the first high-speed road corridor that will cross the Carpathians and a key element of the European TEN-T network. The total value of the project is approximately 5.5 billion euros, plus VAT, with financing provided by European non-reimbursable funds, contributions from the state budget and EIB loans.

Regarding the financing of the state budget, last month the Ministry of Finance attracted total subscriptions of approximately 2.2 billion lei through the FIDELIS Program, with over 21,067 subscription orders. The tranche in euros, with a maturity of 10 years and an interest rate of 6.50%, attracted the equivalent of 492.4 million lei, and the special tranche dedicated to donors from the campaign "Romania has the blood of a rocker, now also of an investor" accumulated 143.7 million lei through 3,235 investors, benefiting from the highest interest rate, 8.20% over two years, and a subscription threshold reduced to 500 lei.

Also in October, the Ministry of Finance and the Bank for Investment and Development accelerated the implementation of guarantee and financing programs dedicated to SMEs, local authorities and public companies, with an estimated allocation of 12.6 billion lei to support about 26,000 companies, respectively 2.2 billion lei for UATs and a direct credit line for utility and regional development projects. The Regional Participation Fund managed by the IDB, with 233 million euros from the Regional Programs 2021-2027, offers low-interest loans and grants of up to 40%.

At the fiscal level, last month our country obtained in the negotiations with the European Commission the replacement of the milestone on reducing the VAT gap with one oriented towards structural reforms and the complete digitalization of ANAF by 2027, avoiding the loss of an allocation of between 800 million and 1 billion euros from the PNRR grants. The reform involves internal reorganization, performance indicators, modernization of IT systems, improvement of insolvency legislation and combating tax evasion, along with increased transparency and public reporting.

• BNR maintains the reference interest rate at 6.5%

The members of the Board of Directors of the National Bank of Romania reaffirmed during the meeting of October 8 a firm position on price stability and the consolidation of macroeconomic balance, in a period in which the national economy is experiencing strong inflationary pressures and complex financial dynamics. Following the analysis of economic data for the first nine months, the members of the Board of Directors of the central bank decided to maintain the key interest rate at 6.50%, the Lombard interest rate at 7.50% and the deposit facility rate at 5.50%, a position that reflects the need to anchor inflationary expectations and protect financial stability.

In the motivation of the decision, the NBR shows that inflation registered a sharp jump in the third quarter, rising to 9.85% in August, a visible excess over previous estimates. The increases were mainly determined by the expiration of the electricity price cap scheme, followed by the increase in VAT and excise duties implemented on August 1, which amplified the pressure on consumer prices. The adjusted CORE2 component, which excludes volatile influences and is essential for the analysis of real inflation in the economy, also advanced above expectations, reaching 7.9% in August. The members of the Council emphasized that the transfer of the new indirect taxes to final prices was rapid and almost complete, fueled also by the maintenance of demand in certain segments and high inflation expectations. At the same time, some sectors continue to feel the effect of the increase in the costs of raw materials, energy and labor, fueling additional pressures on prices. In this context, the NBR nevertheless observes timid signs of tempering long-term inflationary expectations among analysts, while the real disposable income of the population recorded a decrease in June-July, but without a total loss of purchasing power. On the macroeconomic front, economic activity accelerated slightly in the second quarter of 2025 and limited the deepening of the aggregate demand deficit, but household consumption decreased marginally, and investments and exports continue to influence the evolution of economic growth in a mixed manner. Net exports reduced their negative impact on GDP, while the current account deficit continued to remain high, reaching 18.789 billion euros in the period January-August 2025, compared to 18.001 billion euros in the same period in 2024. Although the services balance increased, the trade deficit continued to widen.

The NBR also announced that foreign direct investments reached 4.685 billion euros, which confirms investor interest, but total external debt increased significantly to 222.317 billion euros, a level that calls for prudence, fiscal coherence and a sustainable financing strategy.