Kathleen Brooks, XTB London: It poses a political risk, it could be unpopular, for example, and challenge the coalition government, but from an economic and financial perspective this is good news and Romania is on the right track.

Kathleen Brooks, research director, XTB

  • The government wants to adopt a budget quickly to reduce the deficit and maintain creditworthiness, ZF writes.
  • Raising VAT and taxes will reduce bond yields and prevent credit downgrades.
  • The measures may create political tensions but are necessary for economic stability and control of public spending.

To avoid a credit downgrade, the government must take measures such as increasing VAT and certain taxes. This has led to a decline in government bond yields, despite market expectations, ZF said .

If the budget is passed and the measures are implemented quickly, Romania has a chance to avoid relegation this year.

What does Kathleen Brooks, research director at XTB, say?

The Romanian government is trying to quickly pass a budget through parliament to reduce the budget deficit. This is necessary to comply with EU deficit rules and to protect the country’s investment-grade credit rating. Maintaining this rating is essential for the government because it allows access to a wider range of investors and keeps borrowing costs as low as possible. If the government wants to avoid a downgrade of its credit rating, measures such as raising VAT and some taxes are crucial. Bond yields have fallen as a result of this plan, as investors open up to the prospect of a lower budget deficit.

The market has been waiting for these revenue-generating measures for a long time, causing Romanian government bonds to hit a months-long high and interest rates to fall. If this budget is passed and the measures are implemented quickly, Romania could have a chance to avoid a credit rating downgrade later this year. In 2025, there is a new focus on highly indebted countries, such as the US and the UK, which should follow Romania’s example and cut government spending. Now is not a good time to be a highly indebted country with a large budget deficit. Romania is aware of the problem and if it wants to avoid a sudden increase in borrowing costs or a fiscal crisis, it must control public spending, ” she said.