Erste warns political crisis in Romania puts at risk absorption of RRF funds

The political crisis in Romania and the difficulty of forming a new pro-European government pose major risks to fiscal consolidation, foreign exchange market stability, and absorption of European funds, Erste analysts warned in a report cited by Economedia.ro.

Erste’s current forecast indicated economic growth of only 0.3% in 2026 and an increased risk of a full-blown recession if there is a lower absorption rate of EU funds.

Rating agencies keep Romania on the verge of losing investment grade status, and funds of about EUR 7.3 billion under the Resilience Facility (RRF/PNRR) are considered “at risk” if the necessary reforms and legislation are not adopted on time. The bank emphasised that the lower absorption of EU money increases the risk of a full-fledged recession.

On a positive note, Erste believes that the country’s rating will likely remain unchanged this year, due to the favourable budget execution in the first quarter, which provides some space to achieve the deficit target of 6.2% of GDP in 2026. 

However, an upgrade in the country’s outlook to stable requires further progress on the fiscal consolidation path and strong and consistent political commitment to deficit reduction – two conditions that can not be secured under the current political situation.

Analysts warned that as Romania approaches the 2028 election year, the prospects for continued fiscal adjustments are diminishing.

On the political front, Erste analysts do not expect a quick resolution of the ongoing deadlock. Bank’s analysts explained that the increased hostility between the four parties that formed the governing coalition does not indicate a quick resolution of the political crisis. PNL and USR have adopted internal resolutions that rule out restoring a majority with PSD. The end of June, before the parliamentary recess, is seen as the deadline for a political agreement.

In any scenario, the future government will have a difficult task: achieving medium-term fiscal consolidation targets with as little impact on economic growth as possible.

iulian@romania-insider.com

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