European Commission warns Romania risks losing funds over slow reforms

European Commission warns Romania risks losing funds over slow reforms
Officials say they are “very concerned” about fiscal slippage and lack of reform progress by Bucharest.
By Iulian Ernst in Bucharest March 21, 2024

European Commission (EC) officials have warned Romania may lose some of its Resilience Facility money because the reforms behind the disbursement requests are advancing so slowly.

Members of an EC delegation visiting Bucharest on March 18-21 said they are “very concerned” about Romania’s expected fiscal slippage this year, and urged the government to take action before the end of the year. 

The fiscal slippage and the sluggish implementation of the National Recovery and Resilience Plan (PNRR), particularly the targets linked to the third disbursement request (corporate governance in state companies and several green energy projects), were on the agenda.

The very serious warnings made in Bucharest by the EC officials are largely ignored by the Romanian government officials, who say that the fiscal consolidation is under control (although not in the short run), refuse to take any fiscal corrective measures this year and claim that the Resilience Facility reforms and projects are being implemented in a timely manner – at least not worse compared to other EU member states. 

The electoral year and the bipolar structure of the ruling coalition – formed by parties following at least in principle different economic strategies and addressing different electorates – complicate the mission of conducting fiscal reforms that could prevent fiscal slippage this year. 

EC officials warned that the fiscal deficit may exceed 7% of GDP this year and urged Romania’s government to take immediate steps. Restricting the facilities extended to microenterprises, a controversial reform linked to the third Resilience Facility disbursement currently under review, was specifically mentioned as necessary. Recently, Liberal (PNL) leader Nicolae Ciuca openly refused such an option, at the risk of having to reopen the negotiations on the PNRR with the European Commission.

"We are worried. Actually, let me rephrase: we are very worried about the fiscal situation in Romania," said Declan Costello, deputy director general for economic and financial affairs DG ECFIN.

“The last time we looked at the numbers last year, we were expecting a deficit of over 6% and it was supposed to go down this year. We see the trend going in the wrong direction.

“We see a weak budget execution in the first part of the year, and large increases in public spending. At the moment, I expect the deficit to be closer to, if not above, 7% of GDP this year," he said

He recommended Romania spend the money already received under the Resilience Facility and implement the reforms linked to the third disbursement, especially those related to the micro-enterprises.

Celine Gauer, general manager SG RECOVER, responsible for managing national resilience plans at the European level, warned in her turn about the delay seen in the implementation of the projects.

"The third payment request under PNRR is delayed compared to the initial schedule. Many activities are delayed, many investment projects have not even really started, and 29 months is a very short time to complete everything.

“Any payment request that has not been submitted, any milestone that has not been reached by August 2026 will not be paid. My message is one of urgency and a call for support," Gauer said in Bucharest, quoted by Economedia.