(1)

A reformed EU economic governance framework entered into force on 30 April 2024. Regulation (EU) 2024/1263 of the European Parliament and of the Council on the effective coordination of economic policies and on multilateral budgetary surveillance, (1) together with the amended Regulation (EC) No 1467/97 on the implementation of the excessive deficit procedure, (2) and the amended Council Directive 2011/85/EU on the budgetary frameworks of Member States (3) are the core elements of the reformed EU economic governance framework. The framework aims at promoting sound and sustainable public finances, and sustainable and inclusive growth and resilience through reforms and investments, and preventing excessive government deficits. It also promotes national ownership and has a greater medium-term focus, combined with more effective and coherent enforcement of the rules.

(2)

The national medium-term fiscal-structural plans that Member States submit to the Council and to the Commission, are at the centre of the new economic governance framework. The plans are to deliver on two objectives: i) ensuring that, inter alia by the end of the adjustment period, general government debt is on a plausibly downward trajectory, or stays at prudent levels, and that the government deficit is brought and maintained below the reference value of 3 % of GDP over the medium term, and ii) ensuring the delivery of reforms and investments responding to the main challenges identified in the context of the European Semester and addressing the common priorities of the EU. To that end, each plan is to present a medium-term commitment to a net expenditure (4) path, which effectively establishes a budgetary constraint for the duration of the plan, covering four or five years (depending on the regular term of legislature in a Member State). In addition, the plan is to explain how the Member State will ensure the delivery of reforms and investments responding to the main challenges identified in the context of the European Semester, in particular in the country-specific recommendations (including those pertaining to the macroeconomic imbalances procedure (MIP), if applicable), and how the plan will address the common priorities of the Union. The period for fiscal adjustment covers a period of four years, which may be extended by up to three years if the Member State commits to delivering a set of relevant reforms and investments that satisfies the criteria set out in Regulation (EU) 2024/1263.

(3)

Following the submission of the plan, the Commission shall assess whether it complies with the requirements of Regulation (EU) 2024/1263.

(4)

Upon a recommendation from the Commission, the Council is to then adopt a recommendation to set the net expenditure path of the Member State concerned and, where applicable, endorses the set of reform and investment commitments underpinning an extension of the fiscal adjustment period.

(5)

On 25 October 2024, Romania submitted its national medium-term fiscal-structural plan to the Council and to the Commission. The submission took place following an extension of the deadline set out in Article 36 of Regulation (EU) 2024/1263, as agreed with the Commission. The submission deadline was extended as agreed with the Commission in view of the reasons provided by Romania.

(6)

To frame the dialogue leading to the submission of national medium-term fiscal-structural plans, on 21 June 2024 the Commission sent, according to Article 9 of Regulation (EU) 2024/1263, the reference trajectory (5) to Romania. The Commission published the reference trajectory on 25 October (6). The reference trajectory is risk-based and ensures that, by the end of the fiscal adjustment period and in the absence of further budgetary measures beyond the adjustment period, general government debt is on a plausibly downward trajectory or stays at prudent levels over the medium term, and that the general government deficit is brought below 3 % of GDP over the adjustment period and is maintained below that reference value over the medium term. The medium term is defined as the ten-year period after the end of the adjustment period. In accordance with Articles 6 point (d), 7 and 8 of Regulation (EU) 2024/1263, the reference trajectory is also consistent with the deficit benchmark, the debt sustainability safeguard and the deficit resilience safeguard. The reference trajectory of Romania sets out that, based on the Commission's assumptions underpinning the prior guidance transmitted in June 2024 and assuming a 7-year adjustment period, net expenditure should not grow by more than the values provided in Table 1. This corresponds to average net expenditure growth of 5,2 % over the adjustment period (2025–2031) and of 5,5 % over the period 2025–2028.

Table 1: Reference trajectory provided by the Commission to Romania on 21 June 2024

(7)

In line with Article 12 of Regulation (EU) 2024/1263, Romania and the Commission engaged in a technical dialogue between July and October 2024. The dialogue focused on the net expenditure path envisaged by Romania and its underlying assumptions, and on the envisaged set of reform and investment commitments underpinning Romania's request for an extended adjustment period. Discussions focused on the tax reform, the tax administration reform, the reform of the microenterprises tax regime, and spending reviews. It also touched upon the envisaged delivery of reforms and investments responding to the main challenges identified in the context of the European Semester and the common priorities of the Union regarding a fair and green digital transition, social and economic resilience, energy security and the build-up of defence capabilities.

(8)

In October 2024, in line with Article 11(3) and 36(1), point (c) of Regulation (EU) 2024/1263, according to the information provided by Romania in its plan, Romania engaged in a consultation process with civil society and social partners. According to the information provided by Romania in its plan, on 16 October 2024, the plan was put into public debate with business representatives and the civil society.

(9)

Romania is currently subject to an excessive deficit procedure (7). On 3 April 2020, the Council, acting upon a recommendation by the Commission, adopted Decision (EU) 2020/509 under Article 126(6) TFEU on the existence of an excessive deficit situation in Romania due to a planned non-compliance with the deficit criterion of the TFEU, and issued a Recommendation under Article 126(7) TFEU with a view to bringing an end to the situation of an excessive government deficit by 2022 at the latest. In light of the deep contraction in economic activity linked to the COVID-19 pandemic, on 18 June 2021 the Council adopted a revised Recommendation under Article 126(7) TFEU to Romania, extending the deadline for the correction to 2024. On 24 November 2021, the Commission concluded that Romania had taken effective action in response to the Council Recommendation of 18 June 2021 under Article 126(7) TFEU and considered that no additional steps in the excessive deficit procedure were then necessary. However, in 2023 all sub-components of the Council Recommendation addressed to Romania in 2021 were missed by a significant margin. The headline deficit was significantly higher (6,5 % of GDP vs 4,4 % of GDP in the Council Recommendation), the structural effort was much lower than recommended, and growth in net expenditure much higher than recommended.

(10)

Therefore, on 26 July 2024, the Council established that no effective action had been taken by Romania in response to the Council Recommendation of 18 June 2021 (8). The present Recommendation coincides with the revised Council Recommendation under Article 126(7) TFEU with a view to bringing an end to the situation of an excessive government deficit in Romania (9). The simultaneous adoption of those recommendations, which is tailored to and justified by the transition to the new economic governance framework, ensures consistency between the recommended adjustment paths.

(11)

On 19 June 2024, the Commission concluded that Romania is experiencing excessive macroeconomic imbalances. In particular, Romania faces vulnerabilities related to external accounts, mainly linked to large and increasing government deficits, while significant price and cost pressures have intensified and policy action has been weak (10).

(12)

On 21 October 2024, the Council addressed to Romania a series of country-specific recommendations (CSRs) in the context of the European Semester (11).

(13)

In line with Article 16 of Regulation (EU) 2024/1263, the Commission assessed the plan as follows:

(14)

Economic activity in Romania grew by 2,4 % in 2023, driven by domestic demand. According to the European Commission Autumn 2024 Forecast, the economy is expected to grow by 1,4 % in 2024, the deceleration reflecting softer developments in industrial production, residential construction, information technology and transport services. In 2025, real GDP is set to increase by 2,5 %, supported by resilient private consumption and an acceleration of private investment, both helped by more accommodative financial conditions. In 2026, real GDP is expected to increase by 2,9 % as EU-funded investment in public infrastructure should provide a strong stimulus to growth as the RRF programme enters its final stage. Over the forecast horizon (i.e., 2024–2026), potential GDP growth in Romania is expected to average 2,2 %, driven by capital deepening and growth in total factor productivity. The unemployment rate stood at 5,6 % in 2023 and is projected by the Commission to amount to 5,5 % in 2024, 5,5 % in 2025 and 5,4 % in 2026. Inflation (GDP deflator) is projected to decrease from 12,8 % in 2023 to 9,0 % in 2024, and to reach 5,9 % in 2025 and 5,3 % in 2026.

(15)

Regarding fiscal developments, in 2023 Romania's general government deficit amounted to 6,5 % of GDP. According to the European Commission Autumn 2024 Forecast, it is set to reach 8,0 % of GDP in 2024, 7,9 % of GDP in 2025 and, on a no-policy change basis, 7,9 % of GDP in 2026. The Commission forecast does not reflect Romania's draft budget for 2025, which has yet to be designed. General government debt was 48,9 % of GDP at end-2023. According to the Commission forecast, the debt ratio is expected to increase to 52,2 % of GDP at end-2024. It is projected to increase to 56,1 % of GDP at end-2025 and 59,7 % at end-2026. The fiscal forecast by the Commission does not consider the policy commitments in the medium-term plans as such until they are underpinned by credibly announced and sufficiently specified concrete policy measures.

(16)

Romania's national medium-term fiscal-structural plan covers the period 2025–2028 and presents a fiscal adjustment over seven years.

(17)

The plan contains all information required by Article 13 of Regulation (EU) 2024/1263.

(18)

The plan commits to the net expenditure path indicated in Table 2, corresponding to average net expenditure growth of 4,8 % over the years 2025–2028. In addition, Romania commits to a set of reforms and investments with the view to extending the adjustment period to 7 years (2025–2031), over which the average net expenditure growth is planned to be 4,4 %. The average net expenditure growth reported in the plan over the adjustment period (2025–2031) is lower than the average net expenditure growth in the reference trajectory transmitted by the Commission on 21 June 2024 (5,2 %). The plan assumes potential real GDP growth to decrease gradually from 2,7 % in 2024 to 2,0 % in 2031. In addition, the plan expects the growth rate of the GDP deflator to decrease from 7,2 % in 2024 to 5,0 % in 2025 and to gradually slow further to 4,4 % in 2031.

Table 2: Net expenditure path and main assumptions in Romania's plan

(19)

If the net expenditure path committed to in the plan and the underlying assumptions materialise, general government debt would, according to the plan, increase from 52,2 % of GDP in 2024 to 62,6 % of GDP in 2029, before declining to 61,4 % of GDP in 2031, as per the following table. It is then projected to continuously decline to levels well below 60 % of GDP during the 10 years following the end of the period covered by the plan.

Table 3: General government debt and balance developments in Romania's plan

Thus, according to the plan, the general government debt ratio would be brought below the Treaty reference value of 60 % of GDP over the medium term. This is plausible, as, based on the plan's assumptions, debt would be projected to stand below 60 % of GDP by 2041 under all deterministic stress tests of the Commission's Debt Sustainability Analysis. Therefore, based on the plan's policy commitments and macroeconomic assumptions, the net expenditure path put forward in the plan is consistent with the requirement for debt as set out in Articles 6(a) and 16(2) of Regulation (EU) 2024/1263.

(20)

Based on the plan's net expenditure path and assumptions, the general government deficit would decline from 7,9 % of GDP in 2024 to 2,5 % of GDP in 2031, the first year when it would be below 3 % of GDP. Thus, according to the plan, the general government balance would not exceed the 3 % of GDP reference value at the end of the adjustment period (2031). In addition, in the ten years following the adjustment period (i.e. until 2041), the government deficit would not exceed 3 % of GDP. Therefore, based on the plan's policy commitments and macroeconomic assumptions, the net expenditure path put forward in the plan is consistent with the requirement for the deficit as set out in Articles 6(b) and 16(2) of Regulation (EU) 2024/1263.

(21)

The time profile of the fiscal adjustment, measured as the change in the structural primary balance, as described in the plan, is linear, as required by Article 6, point (c) of Regulation (EU) 2024/1263. As a result, the fiscal adjustment over the first four years of the plan is proportional to the total adjustment effort. Therefore, based on the plan's policy commitments and macroeconomic assumptions, the net expenditure path put forward in the plan is consistent with the no-backloading safeguard clause set out in Article 6, point (c), and the transitional provision in Article 36(1), point (e), of Regulation (EU) 2024/1263.

Table 4: Structural primary balance developments in Romania's plan

(22)

The net expenditure path set out in the plan is in line with the requirements under the excessive deficit procedure (in particular with the minimum annual structural adjustment established in Article 3(4), third subparagraph of Council Regulation (EC) 1467/97).

(23)

The requirement of the preventive arm set out in Article 8 of Regulation (EU) 2024/1263 regarding the deficit resilience safeguard, which aims to provide a common margin relative to the deficit reference value of 3 % of GDP, does not apply to Romania, as the deficit is planned to be brought below 3 % of GDP only in the last year of the adjustment period.

(24)

According to the plan, government debt will be between 60 % and 90 % of GDP between 2027 and 2031. However, as according to the plan the government deficit would go below 3 % of GDP in 2031, which would result in an abrogation of the decision establishing the existence of an excessive deficit in the year after the end of the adjustment period, the debt sustainability safeguard does not apply during the period covered by the plan.

(25)

The plan is based on a set of assumptions which differs from the Commission's assumptions transmitted to Romania on 21 June. In particular, the plan uses different assumptions for five variables, namely the starting point (structural primary balance in 2024), potential and real GDP growth, GDP deflator growth and it takes into account the assumed depreciation of the national currency. An assessment of these differences in assumptions is provided below. The differences in assumptions with the most significant impact on average net expenditure growth are listed below, together with an assessment of each difference considered in isolation.

The remaining difference in assumptions does not have a significant impact on average net expenditure growth compared to the Commission's assumptions. Overall, all the differences in assumptions taken together lead to an average net expenditure growth in the plan that is lower than the reference trajectory. The Commission will take into account the above assessment of the plan's assumptions in future assessments of compliance with this recommendation.

(26)

According to the indicative fiscal strategy in the plan, the commitments on net expenditure will be delivered mainly through expenditure restraint. The ratio of government primary expenditure to GDP is projected to decline from 40,6 % in 2024 to 34,6 % in 2031, i.e., 6 pps. over 7 years. All expenditure categories are projected to decline as a share of GDP. This commitment is supported to some extent by the expenditure reforms presented in the plan (spending reviews, pension reforms, reform of state-owned enterprises governance) but rigorous implementation, and additional measures relative to those included in the plan, will be necessary to achieve the targets. The specification of the policy measures is to be confirmed or adjusted and quantified in the annual budgets.

(27)

At the same time, there are risks to the implementation of the indicative fiscal strategy in the plan. Most of these commitments will have to be implemented by a new government. Moreover, on 20 November 2024, the Minister of Labor and Social Solidarity announced an increase of 12,1 % in the reference point value for pensions. This announcement implies a much larger (about 1 % of GDP) increase in pensions than seems to be assumed in the plan, i.e. a nominal freeze in pensions in 2025.

(28)

In the plan, Romania commits to a set of reforms and investments aiming to improve potential growth and fiscal sustainability, to underpin an extension of the fiscal adjustment period from 4 to 7 years. The set of reforms and investments underpinning an extension of the adjustment period is composed of several commitments from the recovery and resilience plan (RRP); some commitments from the RRP with additional specifications; as well as some new reforms. This includes the following measures (see also Annex II):

(29)

In line with Article 14 (3) of Regulation (EU) 2024/1263, each reform and investment underpinning an extension of the adjustment period is sufficiently detailed, front-loaded, time-bound and verifiable.

(30)

The RRP commitments underpinning the extension contain significant reforms and investments aimed at improving fiscal sustainability and enhancing the growth potential of the economy. In addition, Romania commits to continuing the reform effort over the period covered by the medium-term fiscal-structural plan and maintaining the nationally financed investment levels realised over the period covered by the RRP (see below, Table 5). The commitment will be monitored throughout the implementation phase of the plan. Accordingly, commitments under the RRP can be taken into account for the extension of the adjustment period as provided by Article 36 (1), point (d) of Regulation (EU) 2024/1263.

(31)

The set of reforms and investments underpinning the extension is expected to improve the growth and resilience potential of Romania's economy in a sustainable manner as required by Article 14(2), point (a) of Regulation (EU) 2024/1263. The plan does not provide quantified estimates of the impact of reforms and investments on potential growth. However, pension reforms (general system and special pensions) should over time contribute to a larger labour force relative to the non-reform scenario and therefore increase potential GDP. Moreover, the plan foresees a large increase in public investment, especially in the early years of the period covered by the plan, from 5,4 % of GDP in 2023 to 7,1 % in 2025 and 7,3 % in 2026. These investments, in all areas including key infrastructure, will help increasing the growth potential and resilience of the economy. Spending reviews should also help reallocation of resources within the budget towards growth enhancing priorities.

(32)

The set of reforms and investments underpinning the extension is expected to support fiscal sustainability as required by Article 14(2), point (b) of Regulation (EU) 2024/1263. Reforms related to the revenue side of the budget will generate significant additional revenue for the government. The cumulative effect of the tax reform, the reform of tax administration, and the reform of the tax regime for microenterprises should, when fully implemented, yield additional revenue of the order of 2,0 % to 2,5 % of GDP. On the expenditure side, reforms aimed at strengthening spending reviews and the management of state/local economic operators (SOEs) are expected to generate savings worth 0,5 % to 1,0 % of GDP, even if some of the estimates in the plan seem on the high side. Also, the unitary pay law for public sector employees should, if implemented within the envelope foreseen in the plan, allow for a meaningful reduction of the public wage bill as a share of GDP by 1,5 % of GDP between 2024 and 2031 according to the plan. Finally, the pension reforms (general system and special pensions) will already generate savings by the end of the 7-year period covered by the plan, but the bulk of the savings will materialise over the longer term.

(33)

The set of reforms and investments underpinning the extension contributes to the common priorities of the EU as required by Article 14(2), point (c) of Regulation (EU) 2024/1263. Most of the reforms underpinning the extension request contribute to social and economic resilience, by ensuring fiscal stability, improving the efficiency of the public sector and promoting sustainable economic growth. Commitments in the area of improving tax administration and implementing thorough spending reviews should over time allow to reallocate resources towards priorities favouring economic performance and social improvements. The reform of the minimum wage setting mechanism should secure an appropriate level for the minimum wage that respects social and economic priorities. Pension reforms (general system and special pensions) will secure the sustainability of the system and increase equity and fairness in the level of pensions. Finally, improvements in the digitalisation of the tax administration should contribute to the digital transition. The other common priorities of the EU, namely ensuring energy security and the build-up of defence capabilities, are not directly addressed by the set of reforms and investments underpinning an extension, though the former is addressed in Romania's RRP.

(34)

The set of reforms and investments underpinning the extension addresses some of the relevant (12) CSRs issued as part of the European Semester as required by Article 14(2), point (d) of Regulation (EU) 2024/1263. In particular, reforms are expected to contribute to the CSR issued in 2023 on addressing the fiscal recommendation requesting Romania to correct its excessive deficit and addressing excessive imbalances. In the macroeconomic scenario underpinning the plan, the current account deficit is projected to narrow from 7,7 % of GDP in 2024 to 4,1 % of GDP in 2031. Most of the impact comes from the reduction in the government deficit, supported by the reforms underpinning the request for an extended adjustment path. Slower growth in government spending and prudent income policies (moderate increases in pensions and public wages, minimum wage reform) are expected to support competitiveness.

(35)

The minimum wage reform and the pension reform are expected to help address CSR recommendations from 2019 on the need to ensure minimum wage setting based on objective criteria, consistent with job creation and competitiveness. Reforms on restructuring of the public expenditure system (spending reviews) and the reform of the public sector wage system are expected to help address CSR recommendations from 2019 and 2020 on the need to improve the efficiency of public procurement and the quality and effectiveness of public administration. Moreover, the pension reform and the reform of special pensions will help address the CSR issued in 2019 on ensuring the sustainability of the public pension system and the long-term viability of the second pillar pension funds, while the tax reform and the reform of the tax administration will contribute to addressing CSRs from 2019, and 2020 on ensuring fiscal sustainability and strengthening tax compliance and collection. Most measures underpinning the extension of the adjustment period should also help address CSR recommendations from 2022 and 2023 on pursuing fiscal policies with a view to bringing an end to the situation of an excessive government deficit.

(36)

The plan ensures that the planned overall level of nationally financed public investment realised on average over the period covered by the RRP is maintained, as required by Article 14(4) of Regulation (EU) 2024/1263.

Table 5: Nationally financed public investment in the plan (% of GDP)

(37)

Finally, the set of reform and investment commitments underpinning an extension can be regarded as consistent with the commitments in the RRP and the Partnership Agreement agreed under the Multiannual Financial Framework as required by Article 14(2), point (d) of Regulation (EU) 2024/1263. Namely, in accordance with the requirements of Regulation (EU) 2024/1263, each commitment is expected to operate in continuity and complementarity with the RRP or the Partnership Agreement of Romania's European cohesion policy, and to respond to the CSRs, and to one or more common EU priorities.

(38)

In conclusion, the set of reforms and investments underpinning the extension of the adjustment period is assessed as fulfilling, taken altogether, the criteria in Article 14 of Regulation (EU) 2024/1263. As a result, the adjustment period can be extended from 4 to 7 years, as put forward in the plan.

(39)

Besides the set of reforms and investments underpinning an extension of the adjustment period, the plan describes policy intentions concerning other investments to respond to some of the challenges identified in the context of the European Semester, especially the CSRs, including those pertaining to the MIP, and to address the common priorities of the EU.

(40)

Concerning the common priority of a fair green and digital transition, including the climate objectives set out in Regulation (EU) 2021/1119, the plan includes reforms and investment to support the decarbonisation of large industries (steel and chemicals), through electrification of production processes and switching to the use of renewable hydrogen or renewable hydrogen fuels. The total budget of the scheme is EUR 1 bn, with payments to be made in the period 2025-2031. The financing of this scheme is to be achieved through the sale of greenhouse gas emission allowances (CO2 allowances). The plan also includes an investment programme for the rehabilitation of main irrigation infrastructure (EUR 2,3 bn) and drainage infrastructure (EUR 34 mn). These measures will help addressing CSRs issued in 2022 and 2023 related to the need to reduce reliance on fossil fuels and accelerate the energy transition, by deploying renewable energy faster and improving grid capacity to allow new capacity to operate in the market. Aspects related to the fairness of the green and digital transition are not described in the plan.

(41)

Concerning the common priority of social and economic resilience, including the European Pillar of Social Rights, the plan includes a new State Support scheme for investments to support regional development, through large scale investment projects targeting high-end sectors and supporting the diversification of economic activities in the least favoured regions. The total allocated budget is EUR 450 mn. The plan also includes a State aid scheme for strategic investments, with grants, tax breaks and administrative simplification measures (shortening of deadlines for permits, direct award of land for the implementation of investments in the public or private domain owned by the state/local public authorities, provision of transport infrastructure and utilities necessary for the investments). The total budget of the scheme is EUR 1 bn, with payments to be made in the period 2025–2031. The sectors that will be able to benefit from this scheme are: the food industry, the chemical industry, the pharmaceutical industry, the metallurgical industry, the defence industry, the metal construction industry, construction of machinery and installations, manufacture of machinery and equipment, and electrical equipment. These measures will help address the CSR on the provision of liquidity support to the economy for businesses issued in 2020.

(42)

Concerning the common priority of energy security, the plan mentions Romania's participation in trans-national energy transport infrastructure initiatives aimed at increasing Europe's energy security, including the Southern Corridor, the BRUA Corridor (Bulgaria-Romania-Hungary-Austria) and the Trans-Balkan Corridor.

(43)

Concerning the common priority of defence capabilities, the plan refers to new initiatives to regulate the general legal framework for granting facilities to investments with a significant impact in the field of manufacturing. One of these facilities is a state aid scheme aiming at covering, inter alia, the defence industry.

(44)

The plan provides some information on the consistency and, where appropriate, complementarity, with the cohesion policy funds and Romania's RRP. cohesion policy funds and their benefits for Romania, and stresses the complementarity between national and European funds, especially regarding major infrastructure and rural development projects, and that the success of the use of European funds depends on the efficient management of European funds and funds allocated through Romania's consolidated general budget.

(45)

The plan provides an overview of the public investment needs of Romania related to the common priorities of the EU. Concerning a fair, green and digital transition, the plan refers to the aid scheme for the decarbonisation of industrial production processes by electrification of production processes and switching to the use of renewable hydrogen or renewable hydrogen fuels. In relation to social and economic resilience, including the European Pillar of Social Rights, the plan reports in particular the need to implement an investment programme for the rehabilitation of the main irrigation infrastructure, the state aid scheme to support investment projects in the manufacturing sector, and investments to ensure the regional development including large scale investment projects. On the build-up of defence capabilities, the plan reports the need to fully implementation the state aid scheme for strategic investments, with grants, tax breaks and other forms of support, which will support the defence sector, among others.

(46)

Overall, the Commission is of the view that Romania's plan fulfils the requirements of Regulation (EU) 2024/1263.

(47)

The Council welcomes the medium-term fiscal-structural plan of Romania and considers that its full implementation would be conducive to ensuring sound public finances and supporting public debt sustainability as well as sustainable and inclusive growth.

(48)

The Council takes note the Commission's assessment of the plan. However, the Council invites the Commission to present its assessment of future plans in a separate document from the Commission recommendations for Council recommendations.

(49)

The Council takes note of the Commission assessment of the net-expenditure path and the main macroeconomic assumptions in the plan, including in relation to the prior guidance by the Commission, as well as the implications of the plan's net expenditure path for government deficit and debt. The Council takes note of the Commission assessment that the macroeconomic and fiscal assumptions, while differing in some instances from the Commission's assumptions, including to cater for updated macroeconomic and fiscal data, are overall duly justified and underpinned by sound economic arguments. The Council takes note of the broad fiscal strategy of the plan and the risks to the outlook, which could affect the materialisation of the macroeconomic scenario and the underlying assumptions and the delivery of the plan's net expenditure path. The Council also notes that geopolitical risks may put pressure on defence expenditures.

(50)

The Council expects Romania to stand ready to adjust its fiscal strategy as needed to ensure delivery of its net expenditure path. The Council resolves to monitor closely economic and fiscal developments, including those underlying the scenario of the plan.

(51)

The Council considers that further discussions to find a common understanding on the annual surveillance implications of the cumulative net-expenditure growth rates is warranted in time for the next round of fiscal surveillance.

(52)

The Council endorses the set of reform and investment commitments presented by Romania in its medium-term plan underpinning the extension of the adjustment period and welcomes efforts to quantify the impact on growth and fiscal sustainability. The Council agrees with the Commission that the set of reform and investments commitments presented by Romania justify an extension of the adjustment period from 4 to 7 years. The Council takes note of the Commission's assessment pointing to the fulfilment, taken altogether, of the criteria in Article 14, also taking into account the transitional provision of Article 36 (1d), of Regulation (EU) 2024/1263 by the set of reforms and investments underpinning the extension. The Council takes note of the Commission's assessment indicating that the reform and investment commitments are expected to improve the growth potential and the resilience of the economy in a sustainable manner and support fiscal sustainability. The Council recommends Romania to fully implement the set of reforms and investments commitments to preserve the extension of the adjustment period.

(53)

The Council takes note of the Commission description of the reforms and investment needs and intentions, besides the assessment of the set of reforms and investment commitments underpinning an extension of the adjustment period, responding to the main challenges identified in the context of the European Semester, and stresses the importance of ensuring the delivery of such reforms and investments. The Council will, on the basis of reports submitted by the Commission, assess such reforms and investments and monitor their implementation within the framework of the European Semester.

(54)

The Council looks forward to the annual progress reports from Romania that shall contain, in particular, information about the progress in the implementation of the net expenditure path as set by the Council, and the implementation of broader reforms and investments in the context of the European Semester, as well as the implementation of the set of reforms and investments underpinning an extension of the adjustment period.

(55)

In accordance with Article 17 of Regulation (EU) 2024/1263, the net expenditure path as set in the plan should be recommended by the Council to Romania and the set of reforms and investments underpinning the extension of the adjustment period to 7 years should be endorsed.

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