Romanian inflation to rise over higher VAT, warns Fitch Ratings

Business Forum

16 July, 2025 at 9:11 AM

Romania's fiscal package is expected to have a substantial budgetary impact, estimated at 1.1% of GDP this year and 3.5% in 2026, finds an analysis by Fitch Ratings.

The consolidation plan is evenly split between revenue-generating and expenditure-cutting initiatives. The first wave of measures is set to take effect on August 1, with additional actions following on January 1 2026.

A key revenue component for this year includes a 2 percentage point increase in the standard VAT rate to 21%, and a unification of the current reduced rates of 5% and 9% into a single 11% rate, effective from August.

“This will generate higher inflation, which will further erode real incomes,” wrote the agency's analysts.

Romania's annual inflation rate rose to 5.7% in June 2025, up from 5.45% in May.

In a positive sign for investor confidence, Romania successfully issued €5 billion in euros and US dollars on the international bond market immediately following the fiscal consolidation announcement, attracting strong demand.

Government bond yields have also seen a decrease from their early May highs, though they remain above pre-November 2024 levels.

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