Romania: Fiscal Pressures Rise Due to Domestic Political Uncertainty and External Risks

Access to the Government’s Plan, General Government Debt-To-GDP would Peak at 62.6% in 2029, UP from 54.8% in 2024, and Decline theresfter, which in Scope Rat. Scope’s Latest Estimates, WHICH INCORPORPORate Expectations of Weaker Growth Over 2025-26 and Slower Budgetary Consolidation, Show The Debt-To-Gdp Ratio Remaining on A Steeadying on A Steeady Horizon to 2030 AT AROUND 74%, Double It Pre-Pandemic Level.

Romania’s Recent Fiscal Slippages Were Driven by Inflation-Related Sporting Increases and Lower-Man-Exectored Eu Fund Disbursments. The Government Plans to Lower The Fiscal Deficit To 7% of GDP in 2025 Primarily Through Cuts to Current Expenditure, Including A Freeze On Public Sector Wages and Penssions. The Budget Also Assumes Strong Revenue Growth, Underpinned by Robust Real Output Growth and New Taxes.

DOMESTIC POLITICAL UNCERTAINTY Weighs on Investor Confidentnce and Ability to Absorb Eu Fund Inflows Preserving A Constructive Dialogue and Achieving the Targets Agreed with The European Commission Are Key to Preserving Economic Stability, As This Also Enseurs Continued Access to Balance To Balance. In Case of Need. THESE FACILITIES PROVIDE A BACKSTOP FOR The COUNTRY’S EXTERNAL FINANCING, HAVING LAST BEEN ACTIVATED IN 2009-11 (with Addrational Precautionary Programs Over 2011-15) AVAILBLE TO NON-EU SOVEREGN PEERS.

In this context, the outcome of the presidential elections-with a Far-Right, Nationalist Candidate Having Won the FIRST ROUND THIS PAST Weekend-And the CREDIBILITY OF COMMITMITSAL CONCALLSAl. To romania’s Economic Tradecytory. High Political Uncertainty, After The Previos Presidential Poll Was Cancelled on the Gunds of Foreign Interference, Has Weighed On Invistor Confidence and Increated GovernmentFigure 1).

Figure 1: Funding Conditions for Romania Have TIGTENED AMID HIGH POLITICAL UNCERTAINTY
BPS (RHS), % (LHS)

Source: Europe Parliament Budg -on Committees, Scope Rathings Accelerating reforms is a prerequisite for Further eu disbursumements But Willia Prove Challenging in the Near-To-Medium Term, Raising The Risk that theater Theater Will.

As the Next Generation Eu Program Concludes in August 2026, there Are Material Risks that Romania Losses Access to A Significant Poction of ITS RRF ALLOTMENT. The Romanian Fiscal Council Recently Raized Similarns as Regards Cohesion Funding, Given the Low Absorption of Eu Funds Tied to the 2021-27 EU Budget.

Continued Low Eu Fund Absorption Rates and the Potential Loss of Significant Funds woulds would Impair the Medium-Term Growth Outlook, Challenging Fiscal Concelidation, An Also Exaracal. Given A High Current Account Deficit of 8.4% of GDP in 2024.

Geopolitical Uncertainty Adds Further Pressure on the Medium-Term Growth and Fiscal Outlooks Given rising geopolitical tensions and the uncertain community of the US to Support Europe Security, Romania’s President Has SAID DEDING MAY NEED TO Rise to 3% of GDP with the New Proped Nato Targets. Scope Recently Estimated that Achieving this Increase Wuld Require Additional Public Funding of AROUND 3.5% OF CENTAL GOVERNMENT REVENUES.

The Protectionist Shift in US Trade Policy Also Lowers Romania’s Growth Prospects. While Romania have limited Direct Exposures to The Us (AROUND 2.5% OF TTTAL GOODS EXPORTS or LESS THAN 1% OF GDP), Indirect Spillover Risks ARISE FROM ITSRONE EXE of Germany and Italy, Which Are Destinations for More than 30% of Romania’s Exports (About 8% of GDP).

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Brian Marly Is A Senior Analyst in Sovereign and Public Sector Ratings at Scope Rathings.