site.btaRomania Faces Harsh Economic Measures to Avoid "Greek Scenario"

"We must admit that for years our country spent much more than it could afford," Romanian Prime Minister Ilie Bolojan said last night on Antena 1 television, explaining the unpopular fiscal-budgetary measures that his government will implement in an attempt to curb the excessive budget deficit, which reached 9.3 percent of the gross domestic product (GDP) last year. The measures include increases in various taxes, fees, and excise duties and have been met with a wave of public discontent and protests, while the main opposition force - the nationalist party “Alliance for the Union of Romanians” (AUR) - announced that it will submit a vote of no confidence against the government.

Prime Minister Ilie Bolojan warned yesterday in parliament that if no action is taken, “Romania would go back 15–16 years, into one of the most severe situations of economic and political instability” since the fall of the communist regime in December 1989.

He was referring to the economic crisis of 2009, when Romania faced a sharp GDP contraction (-7.1%) and a spike in the deficit (8.6% of GDP), which forced Bucharest to enter a standby agreement with the EU and IMF and to implement painful austerity measures, including a 25% cut in public sector wages and an increase in VAT from 19 to 24 percent.

To illustrate the current situation, Prime Minister Ilie Bolojan asked Romanians to make the following calculation: “From every 100 lei collected in taxes and fees from citizens, Romania spends about 132 lei - that is, 32 lei more, which are obviously borrowed. Please consider how long a household could last if it spends 30% more than its income every month, and then apply that image at the state level, and you’ll understand the position Romania is in.”

“Not one, not two, but three packages of fiscal measures will be implemented by the Romanian government to avoid the so-called 'Greek scenario' or a state bankruptcy of Romania, which would mean, among other things, that the state could no longer pay pensions and wages, and unemployment would explode,” commented the Romanian news site Recorder.

The first package, for which the government assumed responsibility yesterday in Parliament, aims to bring Romania onto a trajectory of a seven-year fiscal budget plan, foreseeing the reduction of the budget deficit to below 3% of GDP by 2031.

The government explained that Romania must maintain investor confidence and avoid a downgrade of the country’s credit rating.

Currently, international rating agencies place Romania at the last rung of investment grade - just one step away from the “junk” category, characterizing a country where investments are not recommended.

The government also explained that if it fails to take action to correct public finances, Romania risks the suspension of EU funds, including under the National Recovery and Resilience Plan (NRRP), which provides the country with funds totaling over €28 billion. For the fourth NRRP installment alone, Romania expects EUR 2.68 billion gross, or 0.7% of GDP.

Prime Minister Ilie Bolojan admitted Monday in Parliament that the measures proposed by the government are unpopular and thanked Romanians for their patience and understanding. He assured them that “this difficult period” will be limited in time and said that “if we do what we must in the coming months, by the end of next year we’ll be in a different situation.”

What measures does the first fiscal-budgetary package include 

From August 1, 2025, the standard VAT rate will change from 19% to 21%. The current reduced VAT rates of 5% and 9% will be increased to 11%.

The reduced 11% VAT will apply to basic foodstuffs, medicines, firewood, books, water supply, sewage, and district heating, as well as access to museums and other cultural institutions. Hospitality and catering services will also remain at the reduced 11% VAT rate.

Pensioners receiving pensions over 3,000 lei (approx. BGN 1,160) will pay a 10% health contribution on the amount exceeding 3,000 lei. The government explained that the healthcare system has over 16 million beneficiaries, while contributors are slightly over 6 million, making the system unsustainable.

Individuals on parental leave will also pay a 10% health contribution via withholding tax, and the same measure will apply to the unemployed and people with minimal income.

Excise duties on fuel, alcoholic beverages, and cigarettes will increase by 10% starting August 1.

From January 1, 2026, the government plans a freeze of salaries and pensions at current levels, limiting new hires and unjustified bonuses. This measure triggered widespread protests over the past two weeks.

The student scholarship system will be reorganized to become sustainable and merit-based. Scholarships will be granted only for grades above 9 (on a 10-point scale) and only for up to 15% of a class.

Regarding student and pupil protests, Prime Minister Bolojan noted that in the past three years, the value of scholarships increased over 25 times - from 188 million lei to 4.7 billion lei - reaching anomalies like an entire class receiving merit scholarships without real academic results. Regarding social scholarships, he said they will reflect actual needs.

The dividend tax will increase from 10% to 16% starting next year.

Gambling income will be taxed at the source from January 1, 2026, with a progressive scale.

Starting January 1, 2026, in addition to profit tax, banks will also pay a specific turnover tax.

The main opposition force, the Alliance for the Union of Romanians (AUR), announced it would submit a no-confidence motion against Bolojan’s cabinet over the austerity measures.

“Faced with this betrayal, AUR will fulfill its duty as an opposition party and will take all possible steps to submit a vote of no confidence against the government led by Mr. Ilie Bolojan,” said AUR floor leader Mihai Enache at a press conference in parliament Monday.

The government passed the austerity measures in parliament using a procedure called “assumption of responsibility,” where a bill is considered adopted if no vote of no confidence is submitted within three days. If such a vote is submitted and supported by a majority of MPs and senators, the government falls.

The Romanian parliament currently has 466 members - 136 senators and 330 deputies. The opposition can count on 153 MPs, while a successful vote of no confidence requires 234 votes.

Prime Minister Ilie Bolojan remarked in his speech to Parliament that in the public discourse, it is said that only the poor will suffer from the proposed austerity measures, and that salaried workers will not lose anything.

“I want to assure all Romanians of one very clear thing. I am a prime minister who has a mandate and takes full responsibility that everything I’ve said will be implemented in practice. Otherwise, I will no longer be prime minister,” Bolojan declared, adding that two more packages of measures will follow, aiming to bring order to public finances and ensure social justice and good governance with respect for citizens.

Bolojan said that by the end of July, a second package of measures will be presented in Parliament focusing on justice and efficiency. It will include a reform of special pensions by eliminating exceptions; a uniform retirement age; reform of state-owned enterprises and autonomous agencies such as the Financial Supervisory Authority, the National Authority for Management and Regulation in Communications (ANCOM), the National Energy Regulatory Authority (ANRE).

Bolojan promised to reduce the number of board members in these agencies and their remuneration, as well as ensure transparency of their activities and contracts.

The second package will also include reforms to local and central government through downsizing the public sector, decentralization, and digitization.

Another key objective of the cabinet is the fight against tax evasion and public funds fraud.

Prime Minister Ilie Bolojan called on his coalition partners to support their government colleagues who are pushing reforms, and urged the opposition not to block the process.

“Stoking division won’t lead to higher wages and pensions,” he told the opposition. “This is the only true economic patriotism, not the one printed in campaign brochures,” the prime minister said, as quoted by Romanian media.

By the end of the summer, the government will draft a third package of measures, and in October an analysis of state revenues will be carried out. At that time, if necessary, the hospitality and catering sector may also transition to the standard VAT rate of 21%, local media report.