IMF urges Romania to keep up deficit-cutting plans

BUCHAREST, Sept 12 (Reuters) - The International Monetary Fund (IMF) on Friday forecast slower growth in Romania this year and urged the country to push ahead with fiscal consolidation plans as it battles the European Union's highest budget gap and the risk of a credit downgrade.

The IMF expects Romania's economy to grow by 1.0% in 2025, down from a previous forecast of 1.6%, and 1.4% in 2026, down from 2.8%, it said in a mission statement published on Friday.

It said the government's deficit-cutting plans could help meet goals next year, but that more would be needed in the coming years to keep state debt from jumping.

Romania's new government is pushing through deficit-lowering tax hikes and spending cuts as it seeks to reduce a budget gap that reached over 9% of gross domestic product last year - more than triple the EU-mandated 3% limit.

"The large fiscal consolidation for 2025–26 is welcome and its execution, along with additional adjustment in the medium term, is critical to restore fiscal sustainability and market confidence," the IMF said.

It said a sovereign credit rating downgrade remained a risk.

The government is aiming to cut the fiscal gap to around 6% of GDP in 2026 but the four parties in the ruling coalition are struggling to agree on further cuts to state spending while protests are growing.

The IMF said the state's reform package, if fully executed, could get the fiscal gap to the government goal in 2026, but the narrowing will slow after that without more action. Without further measures from 2027, the fiscal shortfall would only fall to around 5% of output by 2030 while public debt would reach close to 70% of output.

"Additional fiscal adjustments of about 2/3 percent of GDP per year on average from 2027 are needed to further reduce the deficit to below 3 percent of GDP over the medium term and stabilize public debt at around 60 percent," the IMF said.