Romania curbs debt sale plan as presidential favourite rules out tax hikes

By Luiza Ilie, Libby George and Gergely Szakacs

BUCHAREST/LONDON (Reuters) - Romanian debt managers curbed local debt sale plans on Wednesday amid a slide in the leu currency since hard-right presidential candidate George Simion took the lead in the first round vote and ruled out tax hikes to fix the country's ailing finances.

The leu has lost nearly 3% and Romania's 10-year bond yields surged by some 60 basis points since eurosceptic Simion decisively swept a first ballot on Sunday, triggering the resignation of leftist Prime Minister Marcel Ciolacu and the collapse of the pro-Western coalition government.

With a run-off scheduled to take place on May 18, Simion has "categorically" ruled out tax hikes if he wins the election, but offered no alternative to cutting the European Union's largest budget deficit and avoiding a ratings downgrade.

After a Monday bond sale failed due to weak demand, Romanian debt managers scrapped another bond tender scheduled for Thursday and will offer only shorter-dated Treasury bills.

Bucharest has also lowered its domestic debt issuance target for May by about a quarter, to 4.38 billion lei ($971.13 million), as political uncertainty fuelled by the presidential election hurt demand.

Romania, whose debt is still well below EU average levels, has been under the EU's fiscal surveillance procedure since 2020. The country held four elections last year, with its deficit rebounding to 9.3% of output, exceeding levels seen during the COVID-19 pandemic.

While Romania's revenue as a percentage of output is among the lowest in the EU, politicians have repeatedly ruled out tax hikes with income levels languishing well below the EU average.

"Any tax hike means recession," Simion told private television station Digi24 on Tuesday. "That is not the solution. I will advocate lower taxation for the minimum wage."

He said he had a five-year plan to cut 500,000 administrative jobs in the public sector, excluding doctors, teachers and soldiers.

Simion was speaking after the political instability sparked a market sell-off, driving down the leu currency more than 2% on Tuesday, beyond the key level of five to the euro for the first time, while debt yields surged and shares tumbled.

The currency extended its losses on Wednesday in a third session of unusually high turnover, easing past the 5.10 per euro mark, which Erste Group economists described as the new "line in the sand" for the Romanian central bank, which had kept a firm grip on the currency over the past years.

"Given the fiscal situation and given that it's crunch time for Romania to pass a very ambitious fiscal bill raising taxes, I think it's a very vulnerable time for Romania right now," said Nikola Apostolov, emerging markets strategist with Citi.

"It will be difficult to have a very stable political majority...So it's not a great time to be passing unpopular reforms."

CONCERN

Romania, whose 354 billion euro economy is central Europe's second largest behind Poland, is rated on the lowest investment grade by all three main agencies with a negative outlook.

The country's budget deficit widened further in the first quarter of 2025 and the lack of a functioning government will now create further delays in action to rein in the shortfall.

Simion said the former prime minister had fuelled the deficit. "I've been accused of being to blame for the leu depreciation, stocks falling, let's be serious, who was in charge?" he said.

Simion vowed to work closely with the new prime minister, who will have to form a ruling majority in a highly fragmented parliament, where the far-right holds more than a third of seats.

Simion reiterated plans to, if elected, nominate as prime minister banned presidential contender Calin Georgescu, the far-right pro-Russian frontrunner in the last presidential election, banned in December on suspicion of Russian meddling, denied by Moscow.

On Tuesday Simion said he did not rule out snap elections if a parliamentary majority did not approve a Georgescu-led cabinet.

"I believe I will nominate Mr. Georgescu and we will find 50% plus one lawmakers to vote for him."

Georgescu has repeatedly said he favoured nationalisations and preferential treatment for Romanian companies.

Simion will face Bucharest Mayor Nicusor Dan, an independent centrist, in the May 18 run-off. On Tuesday, Dan tried to reassure markets.

"There is no reason for financial panic on Romania," Dan said. "Together we must project a message of calm and stability."

($1 = 4.5102 lei)

(Reporting by Luiza Ilie and Libby George; Writing by Gergely Szakacs; Editing by Ros Russell)