The climate-fiscal timebomb: Romania

Fiscal outlook

Romania recorded a 9.3% deficit and a debt-to-GDP ratio of 54.8% in 2024. On 8 July 2025, the Council of the European Union revised its recommendation to Romania under its ongoing excessive deficit procedure (EDP), which requires Romania to take effective action and present measures necessary to reduce its deficit by 15 October 2025, with the aim to comply with fiscal rules by 2030. Romania has been subject to an EDP since 2020. The government has recently introduced drastic measures, such as the removal of energy price caps for households, to reduce its debt.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Both heatwaves and heavy rainstorms are becoming increasingly prevalent in the country. The 2024 Climate Status Report for Romania highlights a significant increase in the duration and frequency of heatwaves. It predicts that, by 2040, approximately 50% of the urban population will be affected, which will have devastating consequences for agriculture and food security. In June 2025, Bucharest experienced the heaviest rainstorms in its history. Torrential rainstorms in the same year killed three people and forced hundreds to leave their homes, prompting Romania to request EU funds for flood reconstruction.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Romania’s GDP declining by 11% by 2050 and 16% by 2070 under current policies. Our modelling shows the following:

• Under current policies (BAU – business as usual), Romania’s debt is 68 pps higher than the climate-agnostic baseline in 2050 and 230 pps in 2070.

• With early EU mitigation and sufficient adaptation spending, debt is 68 pps higher in 2050 and 120 pps in 2070.

• Delayed EU investments and insufficient adaptation results in higher debt levels of 75 pps in 2050 and 135 pps in 2070.

• EU early action combined with global cooperation results in 15 pps higher debt levels than the climate-agnostic baseline in 2050 and 2 pps lower levels in 2070.

• Progressive taxation, such as a wealth tax, combined with EU early action would increase debt by 32 pps in 2050 and by 49 pps in 2070 compared to the climate-agnostic baseline.

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