Romania's Fiscal Challenge: Navigating Political and Economic Risks

Romania faces mounting challenges in reducing its EU-leading budget deficit. Political instability and potential loss of investment-grade status from major rating agencies threaten to increase borrowing costs. Amid re-run elections and fiscal pressure, the government aims for significant deficit reduction by 2031 without major tax hikes.

Romania's efforts to regain investor trust and reduce its budget deficit, the highest in the EU, face significant obstacles this year amidst political uncertainty and the threat of losing its investment-grade status.

The upcoming presidential election re-run complicates efforts to reduce the deficit to 7% of GDP. Plans include raising €13 billion via international bonds, one of the largest in emerging markets.

Major ratings agencies are considering downgrades, potentially increasing borrowing costs. Despite below-average EU debt levels, Romania has seen a rapid rise in borrowing and must act fast to manage risks and retain fiscal credibility.

(With inputs from agencies.)