2026 is an important stage in the current structural transition path for our country. Although consumption is under pressure due to the necessary adjustments, accession to the OECD and the completion of investments financed by European funds (especially within the NRRP) significantly orient the economy towards greater efficiency and competitiveness.

Unlike the pre-pandemic period, where fiscal policy was dominant in relation to various policies, the COVID-19 pandemic and then the war in Ukraine led to a major paradigm shift, which outlines a so-called new normality: fiscal policy was the one dominated in relation to the health crisis, respectively, in relation to the country’s defense policy. Unlike the past, where establishing a level of up to 2.5% of GDP for the defense budget represented a decision of opportunity, the new geo-strategic realities impose the level of 2.5% of GDP as a minimum threshold. In these circumstances, finding efficient sources of financing is an important premise for fiscal-budgetary stability.

In this regard, I emphasize that the evaluation of the SAFE program should be carried out both through the direct effects on the fiscal-budgetary situation and based on the indirect effects as a result of the positive externalities on the real economic sector. Regarding the direct effects, it is important to note that loans contracted through the SAFE program are obtained at significantly lower costs than those at which the Romanian state currently borrows. In addition, these loans benefit from substantially longer maturities and a considerable grace period before repayment begins. These features of the loans contracted through the SAFE program significantly mitigate the fiscal-budgetary impact.

Although the base effect generated by the negative dynamics of the economy in the last quarter of the previous year (negative carry-over) limits the level of economic growth that we could have in the current year, perhaps the most important favorable factor is that the set of economic policies aims at macro-financial stability. It is also supported to replace the approach in which the economy was stimulated by significant fiscal impulses, an approach that is not sustainable in the long term, with a necessary intensification of productivity, as a result of investments in infrastructure and structural reforms adopted in the context of the OECD accession process. Through their effects, Romania has the opportunity to return to a sustainable long-term growth trajectory, though not immediately and not under all conditions.

In this context, the objective of the economic policy mix is not to stimulate aggregate demand under all circumstances – which, in the absence of complementary measures, would contribute to persistent inflation and widen the current account imbalance – but rather to reshape aggregate supply and support the necessary correction of domestic absorption. Fiscal consolidation also helps reduce the crowding-out effect exerted by the state on financial resources, thereby facilitating the access to lower-cost financing for sectors that produce high value-added tradable goods.

Also, investments financed through the NRRP and reforms carried out for OECD accession can support an efficient sectoral reallocation of economic resources. Public investments in infrastructure reduce entry barriers and logistics costs, thereby increasing the return on private capital (Return on Invested Capital). It is not only a quantitative increase in GDP that is targeted, but an increase in total productivity (Total Factor Productivity – TFP) through positive externalities due to the modernization of the public capital stock. Therefore, the consistent contribution of investments to GDP growth, which has the potential to compensate for the short-term decline in consumption, remains essential.

The lack of a consistent and coherent plan over time for the return to sustainable public finances has contributed to maintaining the yield curve at high levels, discouraging long-term investments and undermining macro-financial stability. Currently, the multi-year fiscal adjustment path needs to work towards a gradual reduction in the level of the sovereign risk premium. It also needs to bring more predictability to the business environment, thus allowing for more rigorous planning of capital investments (CAPEX), and contributing to the reduction over time of the weighted average cost of capital.

At the same time, the rebalancing of domestic demand acts as a catalyst for correcting external deficits, facilitating a sustainable transition to a more robust economic growth model, that avoids generating large imbalances, as occurred in the past. By prioritizing labor productivity growth over increases in unit labor costs (ULC), and through rigorous fiscal discipline, pressures on the real exchange rate are mitigated, thereby strengthening the structural competitiveness of Romanian exports. Thus, the strategic objective of shifting from a growth model driven by import-intensive consumption to a more efficient, export-competitive economy – capable of integrating organically into OECD global value chains – is supported.

An important advantage of the current structural measures is their potential to prevent hysteresis effects – that is, the long-term loss of economic potential. By focusing on the public investments that support the economy, they can increase potential GDP, thus supporting the transition from the extensive growth model of previous years, based on high resource utilization, to a more intensive, efficiency-driven model. The absorption of European funds projected this year (almost 2% of GDP) could contribute over one percentage point to economic growth, representing the main factor capable of preventing prolonged contractions. If this absorption materializes as expected, it will encourage private companies to invest alongside completed infrastructure projects and seize medium-term profit opportunities, partially offsetting the decline in current demand.

A key achievement in the second half of 2025 is the reduction of financing costs. In general, the economy cannot respond immediately, and uncertainty regarding the implementation of reforms and the impact of tax increases has postponed some investment decisions. Consequently, the slowdown in consumption resulting from fiscal consolidation could not be immediately and to the same extent compensated by the positive effect of investments. However, it is reasonable to assume that private investment has not disappeared, with many projects likely pending. As fiscal consolidation becomes more predictable, its effects more consistent, and OECD accession reinforces the pro-business direction, we will witness a more optimistic outlook on aggregate demand (pent-up demand), becoming increasingly visible from the second half of this year.

Another key positive element is that, despite unfavorable economic dynamics in previous quarters, the quality of assets in the banking system has remained largely stable. The banking system therefore remains solid, with liquidity and capitalization above the European average, ensuring that the lending engine remains capable of supporting the economy and meeting the demand for investment financing, which, in my opinion, will gradually resume as fiscal uncertainty diminishes.

The success of fiscal consolidation critically depends on the perception of fairness in budget adjustments and on improved fiscal management. Perceptions of inequity (such as tax increases in the private sector compared to waste in the public sector) can generate social tensions, undermine fiscal predictability, and erode consumer and investor confidence, with a significant impact on economic growth. Mitigating precautionary saving behavior depends on eliminating the risk of “fiscal surprise”, ensuring that disposable income, although affected by inflation, is not additionally reduced by ad-hoc fiscal burdens mid-year.

Therefore, improving tax and fee collection is not merely a solution to facilitate fiscal consolidation, but must contribute to reducing structural inefficiencies in the public sector, thereby ensuring a fair distribution of adjustment costs and genuine predictability for the business environment. Gaps between the rigor imposed on the private sector and the pace of reforms in the public sector can create significant distortions which undermine confidence in economic recovery, with negative effects on investment and consumption. In this context, improving fiscal governance and administrative digitalization are not only technical objectives, but essential mechanisms for anchoring economic expectations towards a zone of stability.

At the same time, the central pillar of structural reforms, in the context of OECD accession, aims to optimize the governance of state-owned enterprises, especially in the strategic energy and transport sectors. Enhancing their efficiency generates significant positive effects by reducing production costs across the economy and eliminating quasi-fiscal pressures on the budget deficit.

Simultaneously, addressing the structural labor shortage requires investments in human capital by reducing early school leaving and expanding dual education programs. These are essential measures to close skills gaps and support long-term growth potential, independently of consumption cycles.

A current challenge concerns financing through the Security Action for Europe (SAFE) program, under which the European Commission makes available 150 billion euros in long-term loans on favorable terms to Member States for investments aimed at improving endowments and reducing capability gaps. The loans are granted on a project basis, benefit from the credit rating associated with community loans, and all purchases must comply with an eligibility criterion – at least 65% of components (cost-based) must originate from EU, EEA-AFTA, or Ukraine. All ordered equipment must be delivered by 2030. An important consideration regarding the SAFE program is its budgetary impact. Many analyses focus solely on the direct effect on budgetary expenditures, but this perspective is incomplete, as it overlooks current geo-political realities. Drawing on the framework developed in the 1981 paper Some Unpleasant Monetarist Arithmetic by Nobel Laureate Thomas Sargent and economist Neil Wallace – where monetary policy is subordinated to fiscal policy – we may characterize the current context as one in which fiscal policy is subordinated to defence policy. As a NATO member, Romania must allocate at least 2.5% of GDP to defense. Compared to the period before the outbreak of the war in Ukraine, when the country’s governments could easily opt for defense budgets below 2.5% of GDP, this is no longer possible. Given the defense spending of at least 2.5% of GDP, we must optimize its financing, especially in the context of large budget deficits, systematically recorded in recent years. Therefore, the favorable terms and long maturities of SAFE-program loans provide positive externalities for the fiscal framework. Moreover, the second-round effects of these investments generate positive effects for the real economy and, implicitly, for the fiscal-budgetary situation.

Under the SAFE program, Romania received the second-largest allocation of 16.68 billion euros, surpassed only by Poland (43.7 billion euros). The funds will be available for the period 2026-2030, with repayment scheduled over a 30-year period, beginning in 2035. According to the approved projects, 4.2 billion euros will be allocated to infrastructure, while 12.4 billion euros will be allocated to military equipment.

The positive effects of the program are associated with the investment multiplier, particularly for infrastructure projects. At the European level, the program is expected to reduce external dependence of the EU by substituting military equipment imports in the medium term and, last but not least, to enhance the technological externality effect, which can increase economic growth potential.

Another strategic financial mechanism launched in February 2026 is the EastInvest Facility, designed to strengthen the resilience of the nine Eastern Flank Member States, by mobilising investments of over 28 billion euros. The programme aims to modernise critical infrastructure and energy networks, while supporting digitalisation and the integration of SMEs into key supply chains. Through collaboration between the European Commission and the European Investment Bank, the initiative places a particular emphasis on dual-use projects (both civilian and military), ensuring regional economic development, while enhancing collective security in response to new geopolitical challenges.

Naturally, all these developments occur within a broader external framework, shaped by global and regional trends that also affect Romania. This emphasizes the necessity of recalibrating the Romanian economic model, relying on increased European fund investments, as well as on improvements in the investment environment and public governance, given the known fact that fiscal consolidation programs aimed at correcting deficits can have a dampening effect on economic growth.