The first fiscal package, Bolojan's gift

The middle of the calendar summer represented a turning point for our country, marked by a tense economic, financial and political climate, which led to the first firm decisions of the Bolojan Government towards stabilizing public finances and the national economy. Starting from a critical context - the largest budget deficit in the European Union, of over 9.3% of GDP in 2024 and with a minus of 3.68% (69.8 billion lei) of GDP after the first six months of 2025, rising borrowing costs and the threat of losing European funds - the Bologna government has put on the table a first tough fiscal-budgetary package, but presented as essential to avoid economic collapse. The measures, adopted by assuming responsibility in Parliament on July 7 and subsequently confirmed by the Constitutional Court, include increasing the standard VAT rate to 21%, introducing a single reduced rate of 11% for basic food and other essential products, increasing excise duties on alcohol, tobacco and fuels, additional taxation of dividends and large profits, as well as introducing CASS for pensions exceeding 3,000 lei. Added to this are the freezing of salaries and pensions in 2026, the limitation of hiring and the reduction of unjustified expenses, as well as a reorganization of the school scholarship system to become meritocratic and sustainable. The government has set clear targets: reducing the deficit, regaining investor confidence, maintaining the country's rating and continuing to absorb European funds. The first positive signals were not long in appearing: interest rates on loans on international markets have decreased, ECOFIN agreed with the new fiscal package, while the Standard & Poor's and Moody's agencies maintained our country rating, which is considered a positive signal regarding the rating that will be granted to us by the Fitch agency on August 15.

Read July in numbers

In parallel, also last month, the Executive prepared a second package of reforms, targeting special pensions, restructuring state-owned companies and reducing the budget apparatus, combating tax evasion and accelerating projects with European funding.

All these measures, which also came after the reliberalization of the electricity market on July 1, were harshly criticized by the political opposition, which filed a motion of censure, a motion that did not meet the number of votes required for adoption on July 14, and was rejected. Following this failed political move, the opposition challenged the first package of fiscal measures at the Constitutional Court, but the CCR rejected the appeal as unfounded on July 22 and on July 25 the new law was promulgated by President Nicuşor Dan, and the measures entered into force.

The measures to reform the public system and the fiscal measures have aroused the dissatisfaction of civil servants, but also of employees in Education and Health, who have protested in front of Victoria Palace and the relevant ministries throughout the past month.

In economic terms, the government continued to approve strategic projects - from the refurbishment of Unit 1 of the Cernavodă NPP, to investments in road infrastructure and the implementation of a new electronic pricing system according to the "polluter pays” principle.

The country's serious financial situation also emerged from the budget execution for 2024 approved and published by the Bolojan government in July, a situation that confirmed the size of the imbalances: the state budget deficit exceeded 157 billion lei, public debt reached over 1,129 billion lei, and the health and pension funds recorded significant deficits.

In this troubled context, the NBR decided on July 8, 2025 to maintain the monetary policy interest rate at 6.5% per year, the interest rate for the lending facility (Lombard) at 7.5% per year and the interest rate for the deposit facility at 5.5% per year.

Read Records at BVB; tax measures appreciated internationally

The political context was, however, shaken by the resignation of Deputy Prime Minister Dragoş Anastasiu, following media revelations related to an older criminal case, in which the businessman had the status of a witness in a case in which an ANAF inspector was convicted of bribery. In addition to Anastasiu's resignation, in July the DNA opened criminal proceedings against Cristian Popescu Piedone, the president of the ANPC, who allegedly favored in his capacity an economic agent that was to be checked by the inspectors of the public institution, an economic agent that belonged to the wife of a liberal politician, a friend of the head of Consumer Protection.

The month of July ended with good news: athlete David Popovici became a double world champion in the 100-meter freestyle and 200-meter freestyle, winning gold in both events, on July 29 and 31 , at the World Swimming Championships held in Singapore.

• The first fiscal measures of the Bolojan government

The government launched a broad legislative offensive in July aimed at stabilizing public finances, restoring investor confidence and avoiding a collapse of the country's rating into the "Junk" zone. The first package of fiscal-budgetary measures, presented on July 4 and adopted, by assuming the responsibility of the Executive in Parliament, on July 7, was based on two clear directions: increasing revenues and reducing permanent expenses. The first fiscal package will have an additional impact of 9.5 billion lei on the budget in 2025 and 35 billion lei in 2026, along with a reduction in spending of over 57 billion lei in 2026. Prime Minister Ilie Bolojan spoke in Parliament about a "national emergency" and the imminent danger of losing the country's economic attractiveness, emphasizing that, without rapid measures, Romania would risk tax, price and interest rate increases, the blocking of European funds and job losses.

Key measures include increasing the standard VAT rate to 21%, introducing a single reduced rate of 11% for basic food, medicines and other essential goods, increasing excise duties on alcohol, fuel and tobacco, taxing pensions exceeding 3,000 lei per month, increasing the dividend tax to 16% from 2026, surtaxing gambling winnings and freezing salaries and pensions in the public sector in 2026. The education system is targeted by a reform of scholarships, awarded strictly on the basis of merit and real need, increasing the teaching norm and reducing additional hourly payments.

In parallel, the Government announced a second legislative package for the end of July - later postponed to the second half of August -, focused on the reform of special pensions, restructuring state-owned companies and autonomous authorities, reducing the budget apparatus, combating tax evasion and accelerating access to European funds.

The package of fiscal measures undertaken by the Government did not please the political opposition made up of AUR, POT and SOS, whose MPs submitted a motion of censure. The document was debated and voted by the plenary of the Parliament in the session of July 14, obtaining only 134 votes, well below the threshold of 233 necessary for the Government to be dismissed. Faced with the failure recorded in the Legislative, the opposition challenged the respective package of fiscal measures at the Constitutional Court of Romania.

The Constitutional Court, in turn, rejected the opposition's complaint, declaring the law constitutional, and President Nicuşor Dan promulgated the fiscal package on July 25. The Prime Minister claimed the first positive effects: a decrease in borrowing costs on international markets and savings of 200 million dollars over the next four years, following an issue of Eurobonds with lower interest rates.

In the following meetings, the Executive approved the National Strategy for Combating Cardiovascular and Cerebrovascular Diseases 2025-2030, aiming to reduce mortality and disabilities by increasing access to specialized medical services, modernizing hospital infrastructure and developing rehabilitation centers. Other important decisions included issuing the environmental agreement for the refurbishment of Unit 1 of the Cernavodă NPP and the expansion of the spent fuel storage facility, supplementing compensation for the Roşiuţa and Timişeni-Pinoasa mining pits, expropriations for the Azuga-Buşteni bypass, with a direct impact on the fluidization of traffic in the Prahova Valley, and approving the budget execution for 2024, which records a deficit of 157 billion lei in the state budget and a total public debt of over 1,129 billion lei.

On the fiscal front, the Government introduced amendments to the Fiscal Procedure Code for the retroactive extension of advance pricing agreements (APA roll-back) and improved the amicable procedure in international tax disputes, measures that prepare for accession to the OECD.

In the field of infrastructure, the first stage of the new Electronic Road Pricing System was approved, financed from the PNRR, which will apply the "polluter pays" principle and will charge vehicles based on distance and emission class.

At the same time, the Government eliminated allowances for members of the Territorial Authorities of Public Order, reducing local government expenses by almost 22 million lei annually, and established a working group for the reform of public enterprises, with objectives such as reducing boards of directors, capping allowances, closing loss-making companies and listing some enterprises on the stock exchange.

At the end of the month, the methodological rules on VAT were amended to reflect the new rates introduced by the fiscal-budgetary law, with precise definitions for food intended for human and animal consumption, in line with European legislation. The reform package adopted form marks the beginning of a profound restructuring of fiscal and budgetary policy, with effects that will be felt in the economy and in the daily lives of Romanians in the coming years, with the Executive relying on macroeconomic balance, financial discipline and maintaining Romania in the attractive circuit of international investments.

• New loans from the capital markets

During July, to cover the budget deficit, the Ministry of Finance continued to borrow from the domestic capital market by launching new Fidelis issues, but also from the international capital markets. Moreover, last month the Ministry of Finance announced that it had successfully completed the first stage of sustainable financing through two green bond issues, attracting 10.85 billion lei, the equivalent of 2.18 billion euros, funds fully allocated for projects with a positive impact on the environment. The Ministry of Finance published the first official report on the allocation of these amounts, confirming their direction towards projects related to water and wastewater management (4.6 billion lei), sustainable transport (1.87 billion lei), climate change adaptation (2.04 billion lei), natural resource protection (2.33 billion lei) and pollution prevention, even if in this area the amount allocated is symbolic, 52,000 lei.

The performance comes in the context in which Romania, in July 2025, carried out one of the largest Eurobond issues in recent years, attracting 4.7 billion euros in three tranches, with maturities of 5 and 10 years in dollars and the reopening of a series in euros maturing in 2039. Investor interest exceeded the desired amount by almost three times, and financing costs were significantly reduced, recording negative premiums for some tranches, a sign of confidence in the Romanian economy.

In parallel, Moody's has revised the outlook for the fiscal path positively, appreciating the recently adopted fiscal package as an important step in reducing the deficit and slowing the growth of public debt. The agency estimates a deficit of 7.8% of GDP in 2025 and 6.1% in 2026, but warns that the success of this plan depends on the strict implementation of the measures, the continuation of the reforms in the PNRR and the maximization of the absorption of European funds.

At the end of last month, the Ministry of Finance published the budget execution for the first six months of 2025, an execution that indicates a deficit of 69.8 billion lei, or 3.68% of GDP, with total revenues increasing by 12.7% and expenditures increasing by 12.1% compared to the same period in 2024. Personnel expenses increased by 10% compared to 2024, reaching 85.46 billion lei, while expenditures on goods and services were 45.51 billion lei. The lion's share was taken by budgetary expenditures on social assistance, which amounted to 126.57 billion lei in the first semester, 15.3% more than in the first six months of 2024, while investments received 50.44 billion lei.

• Stability from the NBR

In light of the above financial context, the members of the Board of Directors of the National Bank of Romania decided in the meeting of July 8, 2025 to maintain the monetary policy interest rate at 6.50% per annum, the Lombard interest rate at 7.50% and the deposit facility interest rate at 5.50%, as well as to maintain the current levels of minimum reserve requirements for banks' lei and foreign currency liabilities. The NBR management motivated its decision in light of accelerating inflation, slowing economic growth and considerable external pressures. According to the NBR, inflation will accelerate in the coming months, as a result of the expiration of the electricity price cap and the increase in VAT and excise duties from August 1, exceeding previous forecasts. Although a jump in inflation is expected in the short term, the central bank is betting that the new fiscal-budgetary package will temper inflationary pressures in the medium term and reduce the current account deficit, supporting exchange rate stability and financing costs.

The NBR also shows that the trade and current account deficits have increased sharply, and the balance of payments for the period January-May 2025 indicates a deficit of 12.63 billion euros, almost 4 billion higher than the previous year. Foreign direct investment fell to 1.48 billion euros, and total external debt reached 209.45 billion euros. On the labor market, the number of employees decreased in March and April, while the ILO unemployment rate fell slightly after a peak of 6% in the first quarter. Nominal gross wages remained at double-digit increases, and the unit labor cost in industry rose at the beginning of the second quarter to 21.8%.

The BNR also shows that the financial market experienced a slight easing after the elections and amid discussions to form a new coalition, which led to downward corrections in government bond yields and a temporary appreciation of the leu against the euro and the dollar.

Regarding the foreign exchange reserves, they increased to 63.23 billion euros on July 31, 2025, and international reserves (foreign exchange and gold) reached 72.86 billion euros, compared to 67.63 billion euros at the end of the first semester of this year.