EC warns Romania over widening budget deficit - report

The third disbursement of EU funds under the bloc’s Recovery and Resilience Facility (RRF) is threatened by Romania’s sluggish implementation of its National Resilience and Recovery Plan (NRRP) and its inability to curb the fiscal deficit within deadlines, Commission representatives said, the Agerpres news agency reported on Wednesday.

“The third payment […] is delayed compared to where we should have been and it is essential to make use of 2024 to accelerate the implementation,” Commission RRF taskforce director Celine Gauer said.

Romania has received about 9 billion euro ($9.76 billion) out of a total package of 28.5 billion euro in funds available until 2026 through RRF. The release of funds is linked to a set of reforms, including fiscal adjustments.

Gauer warned that not meeting NRRP targets by August 2026 could lead to financial losses for Romania, potentially requiring the return of already disbursed funds.

"The last time we looked at the numbers last year, we were expecting a deficit of over 6%, and it was expected to decrease this year. We see the trend going in the wrong direction. [...] At the moment, I expect the deficit to be closer to, if not above 7% of GDP this year," Declan Costello, the deputy head of the Commission's directorate for economic and financial affairs, was cited as saying by Romanian news platform Economedia.

Romania’s Fiscal Council also forecasts that the 2024 deficit cannot fall below 6% of GDP, arguing that drastic cuts in capital expenditure, as seen last year, are ineffective. Current fiscal measures will be offset by other permanent spending increases, Daniel Daianu, chairman of the Fiscal Council, was quoted as saying by Agerpres.

Romania, which has been subject to the EU’s excessive budget deficit procedure since 2020, initially committed to aligning its budget gap with the EU’s 3% ceiling by 2024. However, the country’s budget plan for 2024 projects a budget deficit equivalent to 5% of GDP and higher revenues driven by expected economic growth of 3.4%. In 2023, the country’s consolidated budget deficit stood at 5.68% of GDP.

In February, the International Monetary Fund (IMF) projected fiscal deficits exceeding 6% of GDP for Romania in the next few years, urging the country to boost its fiscal consolidation efforts to restore the soundness of government finances by enacting substantial policy reforms.