A budget deficit translates into a country’s government expenses surpassing its revenue in a given year, and has a multifaceted impact on growth and spending. However, a budget deficit has various solutions that can be implemented by the government.
This guide provides essential information about the budget deficit definition, its causes, effects, and solutions. including an extended overview of Romania’s budget deficit history compared to other countries in the EU, including France, Germany, Hungary, Poland, Spain, Italy, Bulgaria, and the US.
What does budget deficit mean?
A budget deficit occurs when a country’s government’s expenses surpass its revenue during the period of a year.
The deficit applies to the spending and revenue of a nation’s government, apart from businesses and individuals, and has multiple causes and effects, but also combating strategies.
A country’s budget deficit is an indicator of the nation’s economic health, and it influences national debt.
Budget deficit vs national debt/public debt
While a budget deficit refers to the governmental spending surpassing its revenue, national debt and public debt are two terms often used interchangeably to address the total money owed by a government, including accumulated deficits financed by borrowing from domestic and foreign lenders. Lenders include:
- Individuals
- Banks
- Foreign governments
- Other institutions
Even though the two terms are often used in similar contexts, pointing to a government’s total financial obligations to investors/institutions, they can be better explained as follows:
- The public debt can sometimes include debt from other public sector entities.
- The national debt is specifically focused on the federal level.
The national/public debt essentially translates into the total amount a government has borrowed over time in order to cover the deficits. The debt can be:
- Internal – Owed to domestic lenders
- External – Owed to foreign entities
For instance, a government can borrow funds from internal/external lenders to fund public services, infrastructure, investments, to manage an economic downturn via a fiscal stimulus, or to avoid raising taxes in the country. The US Treasury uses terms like “national debt”, “federal debt,” and “public debt” as synonyms, representing all the money that the US government owes, including to the Federal Reserve, domestic investors, or foreign entities like China or Japan.
Why do we have a budget deficit?
The main causes of a nation’s budget deficit include the following:
- Higher spending – Governments may increase their spending on programs like Social Security, Medicare, military spending, and elections, or targeted industries
- Low tax revenue – The government may implement tax cuts that decrease revenue, but offer corporations funds to boost employment
- Shocks, unanticipated events – Economic or global shocks could lead to unexpected government spending (the Covid crisis, for example, which led to healthcare-related spending for governments all over the world, or the 9/11 event in the US, which led to an increase in defense spending to counter terrorism)
- Low GDP – A lower gross domestic product results in lower tax revenue
- Currency debasement – Large deficits can lead to currency debasement fears
- Co-financing – For instance, in the case of EU co-financing, the EU funds require national spending first or alongside EU spending, which means that this co-financing doesn’t involve free money; EU grants can reduce net costs of projects, but don’t cancel out the national co-financing share, while EU loans increase public debt
Broader effects of a budget deficit
A budget deficit is a government concept, but it affects the entire nation’s economy indirectly, including individuals and businesses.
Effects of a budget deficit on individuals include the following:
- Taxes – Tax increases on income, VAT, capital gains or corporate taxes; removal of tax deductions or benefits can harm individuals’ personal cash flows
- Inflation – Governments may borrow/print money, which leads to higher inflation, reducing purchasing power and a loss of value in fiat savings if people’s wages don’t increase
- Interest rates – Governments borrow money, and central banks may raise interest rates, resulting in more expensive mortgages, higher credit, and loan-related costs
- Public services – Budget pressure can lead to reduced healthcare funding, education cuts, or lower social benefits for individuals
Effects of a budget deficit on businesses include the following:
- Higher operating costs – Businesses see higher taxes, interest rates on loans, and increased compliance or regulation
- Lower consumer demand – As people pay more taxes or face higher inflation, they tend to spend less, and businesses are faced with lower sales
- Currency effects – A budget deficit can lead to the weakening of the national currency, which is beneficial for exporters, but detrimental to companies that rely on imports
In conclusion, when a nation’s government is faced with a budget deficit, businesses and individuals are also impacted by its effects.
Best strategies to alleviate budget deficits
A nation’s government can tackle the country’s budget deficit by:
- Using fiscal policies that promote growth, reducing spending, and raising taxes
- Borrowing money by selling Treasury bonds, bills, and other securities to pay for government programs while under a deficit
Protection strategies for individuals and businesses
Individuals and businesses can also tackle the effects of a budget deficit by adjusting their balance sheet, risk exposure, and investment choices.
Advice to counteract the budget deficit for individuals
| Strategy | How individuals can counteract budget deficit effects |
|---|---|
| Inflation protection | Invest in inflation-linked bonds, hold real assets such as real estate and commodities, diversify portfolios with exposure to Bitcoin, and avoid holding excessive idle cash due to currency devaluation risks |
| Debt management | Avoid unnecessary loans, lock in fixed-rate loans when interest rates are lower, pay down variable-rate debt, and avoid overleveraging |
| Income diversification | Maintain multiple income streams through freelancing, dividends, staking, and rental income; develop transferable skills; pursue side businesses or remote work to improve cash flow stability |
| Tax efficiency | Use legal tax deductions and credits, make pension contributions, and allocate savings to tax-advantaged accounts |
| Consumption adjustment | Prioritize essential spending, build an emergency fund, and reduce exposure to price-sensitive goods such as fuel and energy |
Advice to counteract budget deficit for businesses
| Strategy | How businesses can counteract budget deficit effects |
|---|---|
| Pricing power and cost control | Focus on products with pricing flexibility, maintain long-term supplier contracts, and invest in energy-efficiency improvements to manage rising costs |
| Financial structure optimization | Shift toward fixed-rate financing, strengthen cash-flow forecasting, and maintain adequate liquidity buffers |
| Tax and regulatory planning | Anticipate tax changes in government budgets, use depreciation and investment credits, and structure operations efficiently across multiple jurisdictions |
| Currency risk management | Hedge foreign exchange exposure, source inputs locally where possible, and expand exports if currency depreciation is beneficial |
| Demand resilience | Diversify the customer base, focus on essential or resilient sectors, and offer flexible pricing models or subscription-based services |
| Asset reserve | Build reserves in hard assets (e.g. real assets or Bitcoin reserves, similar to Strategy’s BTC reserve approach) to protect balance sheets against currency debasement |
Romania budget deficit overview
Romania’s budget deficit may be reported in different figures, via cash or ESA methodology. However, EU rules rely on the ESA % of GDP figure.
The main source of data is the Ministry of Finance, which publishes monthly and quarterly figures that present the budget deficit in RON (the difference between revenue and spending) and % of GDP.
The cash methodology reporting involves the following:
- Used at the national level
- Measures actual cash inflows and outflows in a certain year
- Can be influenced by payment timing (including delayed expenses, advance revenues)
- Reported as % of GDP and in RON (nominal terms)
The ESA methodology (ESA 2010) involves the following:
- Used by the EU/Eurostat for figure comparisons between member countries
- Based on accrual accounting (records when obligations arise, not when cash is paid)
- Usually considered more accurate and transparent
- EU deficit is only expressed as % of GDP via this reporting method
% of GDP vs nominal deficit
The percentage of GDP shows the size of the deficit in relation to the economy. This is important for the EU fiscal rules.
The nominal deficit shows the absolute amount in RON. This is more useful for budget planning, but less useful for comparisons with other EU member states.
11-month reporting and full-year reporting
Romania’s Ministry of Finance usually reports the budget deficit data for the first 11 months of the year (January to November) first.
December is usually the most deficit-heavy month in Romania due to multiple factors, including:
- Capital expenditures
- Subsidy settlements
- Interest payments
- Clearing of arrears
This is the reason why the budget deficit between January and November is lower compared to the full-year budget deficit.
What budget deficit does Romania have in 2025?
The first eleven months of 2025 show a budget deficit of 6.4% of GDP. The nominal deficit was 121,77 billion RON.
The 2025 budget deficit of Romania was lower by 0.75% compared to the same period in 2024, according to the official data released by the Ministry of Finance.
Financial data at the end of November 2025 has confirmed the efficiency of the measures taken by the Romanian Government, highlighting a lower budget deficit compared to 2024, amidst:
- A consistent rise in revenue
- Channeling of resources towards investments and EU-funded projects
Between January and November 2025, the revenue of the country’s general budget was 591,91 billion RON, up by 13% compared to the same period in 2024. Total revenues increased by 1.34% of GDP.
Expenditures were 713.68 billion, rising 9.9% in nominal terms, compared to the same period in 2024. 2025 expenditures rose by 0.59% of GDP, reaching 37.52% of GDP, compared to the same period in 2024, when expenditures were 36.93% of GDP.
The Ministry of Finance highlighted that following an analysis of the evolution of the share of budget expenditures in GDP, the growth pace in 2025 slowed down compared to 2024. This indicates a deceleration in the expansion of public spending relative to GDP.
Budget deficit drivers
The main budget deficit drivers in 2025 (lower compared to the previous year) include:
- Strong revenue growth across key tax categories (income, VAT, dividends)
- More prudent spending, with better control over expenditure; however, there was still high social spending and personal costs
- Another spending round on new elections in May, following the cancellation of the previous elections in December 2024
- Interest costs became more burdensome amidst a rise in borrowing costs
Policy context
Policy context in 2025 included the following:
- A mix of measures adopted by the government, including a freeze on public wages and pensions, tax reforms, adjustments to VAT/tax brackets to support reducing the fiscal gap
- Continued efforts to comply with the EU deficit correction path
- EU funds and investment projects helped improve the revenue share of GDP
- Expectations are for a lower national budget deficit of 6.2% of GDP in 2026 and 5.9% in 2027.
Romania budget deficit recent history (2023-2024)
In 2025, Romania’s budget deficit in the first eleven months of the year was 6.4% of GDP, with expectations of 8.4% of GDP for the entire year. During the same period of 2024, the country’s budget deficit was 7.15% of GDP, and in 2023, Romania’s budget deficit was 5.1% of GDP between January and November.
Analysis of Romania budget deficit in 2023
Between January and November 2023, Romania’s budget deficit was 5.1% of GDP, a nominal deficit between 82-83 billion RON, according to the Ministry of Finance.
The full-year data for 2023 shows a budget deficit of 5.61% of GDP, a nominal deficit of 90.1 billion RON (or 6.6% of GDP according to Eurostat data).
The main budget deficit drivers in 2023 were:
- Higher public spending, especially on wages, pensions, and social benefits
- Slower revenue growth
- Catch-up spending following the post-pandemic fiscal support
Policy context includes the following:
- The government’s initial deficit target was set around 6.6% of GDP, but the actual results were better, at 5.61% of GDP, partly due to a better-than-expected revenue performance.
- Fiscal policy was expansionary, with limited consolidation efforts amidst economic uncertainty.
Analysis of Romania budget deficit in 2024
Between January and November 2024, the budget deficit in Romania was 7.15% of GDP, and the full-year budget deficit was 8.65% of GDP, a nominal deficit of over 152,72 billion RON (or 9.3% of GDP, according to EU data).
The main budget deficit drivers in 2024 were the following:
- Rapid expenditure growth, including public sector wage increases, pension indexations, and social transfers, interest payments on public debt
- General spending growing faster than revenue
Policy context in 2024 includes the following notes:
- Political pressures and pre-election spending
- The EC stepped up disciplinary action under the EU’s excessive deficit procedure as Romania repeatedly breached the 3% level
- A 7-year fiscal reduction plan was approved by the EU, aiming to lower the deficit to below 3% by around 2030-2031
Country budget deficit comparison: Romania vs France, Germany, Hungary, Poland, Bulgaria, Italy, Spain, and the US
Apart from Romania, we’ve also analyzed the budget deficits of the US and other countries in the EU for 2025.
Romania’s budget deficit as a percentage of the GDP is expected to be higher for the entire 2025 compared to the other countries in terms of percentage of GDP.
| Country | Expected Budget Deficit 2025 (% of GDP) |
|---|---|
| Romania | 8.4% |
| France | 5.5% |
| Germany | 3.1% |
| Hungary | 4.6% |
| Poland | 6.8% |
| Bulgaria | 3% |
| Italy | 3% |
| Spain | 2.5% |
| USA | 5.9% |
France budget deficit
France’s budget deficit for 2025 is expected to be 5.5% of GDP, with 136,2 billion Euros through October.
Key drivers of France’s budget deficit include:
- Structural imbalances in revenue vs spending – High government spending (social welfare, pensions, healthcare, public services), slower growth of tax revenue
- Legacy of post-pandemic and policy decisions – Pandemic fiscal support boosted debt without structural fixes, previous corporate tax cuts reduced revenue, and haven’t been fully reversed
- Political instability – Collapses of the French government in 2025, multiple prime ministers cycling through due to a fragmented parliament and difficulty passing budgets and reforms, as part of a broader crisis under Macron
- High public debt and interest payments – France has a public debt above 116% of GDP
- Slow economic growth – A sluggish economic growth of 0.7% forecast for 2025, which limits revenue increases
The recent direction of the country includes the following key aspects:
- France saw a moderate deficit reduction, but still above the EU’s 3% target.
- The country is trying to reduce deficits via tax increases and reforms (including taxing large corporations and high-income earners) and plans to trim public sector costs.
- Markets remain cautious about France’s fiscal trajectory and debt sustainability.
- Public debt is projected to rise further.
Germany budget deficit
Germany’s budget deficit for 2025 is estimated at around 3.1% of GDP, near EU’s 3% ceiling. Estimates are at around 100 billion Euros in nominal value for the country’s budget deficit.
The key drivers for Germany’s budget deficit for 2025 include:
- High defense spending, including for NATO commitments and Ukraine support
- Investments in climate and infrastructure (rails, energy transition)
- A weaker economic growth which leads to lower tax revenue
- Higher interest costs stemming from rising taxes and past borrowing
- Debt-brake adjustments, which allow more borrowing
- Negative impact of trade tensions which are expected to impact exports
After running a larger deficit to support security and investment, despite slower growth, the recent direction of Germany includes:
- A rebound of the country’s economy, with 1.2% of GDP growth in 2026 and 2027
- Expansionary fiscal policy and real wage growth are expected to boost private consumption
- The government debt ratio is expected to surge to 65.2% of GDP in 2026 and 67% of GDP in 2027 from 63.5% in 2025
- Economic activity is set to recover in 2026, following a prolonged economic stagnation since the pandemic
- Lower inflation is set to support real household incomes and sustain private consumption growth
- A recovery in corporate equipment investment is projected for 2026
Hungary budget deficit
Hungary’s government deficit for 2025 is projected to be around 4.6% of GDP, above the EU’s 3% target.
The key drivers of Hungary’s budget deficit include the following:
- High interest costs on public debt, especially a large foreign transaction-denominated debt
- A weaker economic growth leads to lower tax revenue
- Energy support and utility subsidies are weighing on spending
- High state investments and pre-financing of EU projects
- Delayed/reduced EU funds which force domestic borrowing
The current direction of Hungary includes:
- The country continues an expansionary budget policy.
- Budapest pursues tax cuts and fiscal measures, including family and social benefits that support consumption, but raise fiscal pressure.
- EU Council recommended that Hungary reduce its excessive deficit by 2026, which translates into fiscal discipline expected despite a high deficit.
- Weak growth constrains revenue, creating pressure on fiscal balances.
- Hungary heads into a major political year in 2026, and fiscal policies are influenced by political objectives.
Poland budget deficit
The budget deficit in Poland is 6.8% of GDP in 2025, according to the official forecast.
The main drivers of Poland’s budget deficit are the following:
- High public spending on social benefits
- High healthcare expenditures
- Rising public sector wages
- Higher defence investments
- Higher costs of servicing public debt
The country’s current direction includes the following key points:
- The economy is growing slowly, with a GDP growth in 2025 of around 3.2% due to private consumption and investment.
- Deficit is still high above the EU’s 3% target, leading to EU excessive oversight and plans for gradual fiscal consolidation in 2026 and 2027.
- Public debt is on the rise, with projections of 64.9% of GDP in 2026 and 69.2% in 2027 due to persistent deficits and investment spending.
- Consolidation of the fiscal stance is expected after 2026.
Bulgaria budget deficit
Bulgaria’s budget deficit is expected to be 3% of GDP for 2025, reaching the EU’s preferred limits.
Key drivers of Bulgaria’s budget deficit include the following:
- High public spending in areas including pensions, public-sector wages, and defence
- Public investment surges due to the accelerated implementation of EU Recovery and Resilience Plan projects
In Bulgaria, the current context includes the following key points:
- The budget deficit is expected to drop to 2.7% of GDP in 2026, amidst a growing economy.
- In 2026, the public debt is expected to rise from 28.5% of GDP to over 30% of GDP, with more rises expected in 2027 (over 32% of GDP).
- Inflation YoY is expected to decline from 3.5% in 2025 to 2.9% in 2026.
- Bulgaria joined the Eurozone in 2026, completing long-term convergence goals.
Italy budget deficit
Italy’s budget deficit for 2025 is expected to be at 3% of GDP, also in line with the EU’s preferred levels.
Italy’s budget deficit is fueled by the following:
- Public spending growth on social transfers, public wages, and healthcare
- High public investment, including in projects under the RRF (Recovery and Resilience Facility)
- Tax changes and revenue shifts, including personal reductions partially offset by higher VAT and financial tax receipts
- High debt servicing costs
The current context of Italy includes the following:
- The budget deficit is expected to decline to 2.8% of GDP in 2026 and 2.6% of GDP in 2027.
- Inflation is also expected to decline in 2026 YoY to 1.3% from 1.7% in 2025.
- The economic growth is expected to rise from 0.4% GDP to 0.8% GDP in 2026.
- The country’s public debt is expected to surge from over 136% of GDP in 2025 to almost 138% in 2026.
- Italy’s government mixes fiscal tightening with structural reforms and EU-funded investments to stabilize finances.
Spain
Spain’s budget deficit for 2025 is expected to be 2.5% of GDP, lower than the EU’s target of 3%.
The key drivers of the country’s lower budget deficit include the following:
- Phasing out of energy-related support measures and one-off disaster costs from flooding reduces temporary spending.
- Recent tax measures increased revenues.
- Rising interest payments and defense spending contributed to offsetting deficit gains.
- Deficit is lower due to boosting revenues due to strong economic growth and rising tax receipts.
The current context in Spain includes the following:
- A robust economic growth of 2.9% GDP in 2025, with a projection of 2.3% for 2026.
- Inflation is projected to decline from 2.6% YoY in 2025 to 2% in 2026 and 2027.
- The public debt is expected to decline from 100% of GDP in 2025 to a little over 98% in 2926 and 97% in 2027.
- Unemployment rates are expected to decline in 2026 and 2027.
- Fiscal policy moves towards a more sustainable path.
US
The budget deficit of the US in 2025 was $1,8 trillion or 5.9% of GDP, according to official data.
The US 2025 budget deficit’s main drivers include the following:
- Mandatory spending growth (social security, Medicare, and Medicaid)
- High interest costs, rising national debt (over $38,5 trillion)
- Defence and other spending
The current fiscal context in the US includes the following:
- The national public debt continues to rise.
- Spending grows faster than tax revenues, creating more persistent deficits.
- The country tries to diversify its investments with clearer regulations for the crypto industry.
- Many of Trump’s era tariffs implemented in 2025 are still active on imports, especially on steel, aluminum, automobiles, copper, and other goods.
- The inflation rate in the US for November was 2.6% YoY, the lowest in 2025.
- US attacked Venezuela and jailed President Maduro in New York, following the military operation, something that Hungary’s President Viktor Orban expects to be “good for energy markets.”
FAQ on Budget Deficit
What does budget deficit mean?
A national budget deficit happens when the government spending surpasses its revenue.
Why do we have a budget deficit?
The causes of a government budget deficit include the following: high spending, lower tax revenue, unexpected events/shocks, lower GDP, currency debasement, and co-financing (which doesn’t involve free money, as loans lead to debt).
What budget deficit does Romania have?
Romania has a reported budget deficit of 6.4% of GDP between January and November 2025 (approximately 121,77 billion RON). Estimates for the entire year point to a budget deficit of 8.4% of GDP.
What is Romania’s budget deficit in 2023 / 2024 / 2025?
In 2023, Romania’s budget deficit was 5.61% of GDP, a nominal deficit of 90.1 billion RON (or 6.6% of GDP according to EU data). In 2024, the budget deficit for Romania was 8.65% of GDP (or 9.3% of GDP according to EU data), a nominal deficit of over 152,72 billion RON, higher compared to 2023. In 2025, estimates for Romania’s budget deficit for the entire year point to 8.4% of GDP, lower compared to 2024, but higher compared to 2023.
How does Romania compare with the EU budget deficit?
For 2025, Romania’s budget deficit is higher in terms of GDP percentage compared to other countries from the EU, including Italy, France, Spain, Germany, Bulgaria, Poland, and Hungary.
What are the main budget deficit reduction measures?
The main budget deficit reduction measures that can be taken by a country’s government include using fiscal policies that promote growth, reducing spending, raising taxes, and borrowing money.
