Romania must approve credible plan to lower deficit by end-June, president says

By Luiza Ilie

BUCHAREST (Reuters) -Romania must present a credible plan to lower the EU's highest budget deficit by the end of June, President Nicusor Dan said on Wednesday, as many state spending cuts being discussed would need at least six months to be enacted.

Centrist Dan, who won a divisive presidential vote last month at the expense of the hard right, must nominate a prime minister who would be able to reduce the deficit from last year's whopping 9.3% of output to avoid a ratings downgrade to below investment level.

Dan and the four pro-European parties who are engaged in talks to form a ruling majority are reluctant to enforce unpopular tax hikes that may boost the hard right, which controls around a third of parliament, focusing instead on cuts to state spending.

But the EU and NATO member state is racing against the clock to announce credible measures to lower the deficit below the EU's 3% of output limit over seven years, or risk having access to EU funds blocked and its already high borrowing costs spiral following a downgrade.

"The problem is that we need at least six months to enact many of these technical issues (spending cuts)," Dan told a news conference. "But a package of laws that gives the financial sector the guarantee that we are serious about lowering the deficit must come by June 30."

"We have been paying for a medium pizza but eating a large pizza for years, someone must pay for the difference."

While his comments opened the way for the tax hikes analysts and ratings agencies say are needed, Dan remained resistant to imposing a higher value-added tax, seen as the quickest fix to boost budget revenue.

A London source with knowledge of talks between Romania, the European Commission and ratings agencies, said the fiscal correction must be three percentage points, with 2.5 percentage points coming from higher tax revenue and 0.5 point from spending cuts.

Dan, who said he saw a new government formed in two weeks, said he expected a first draft of measures agreed by parties to come by Monday.

Romania's growth has steadily slowed since a post-pandemic surge in 2021, and Brussels forecasts a budget deficit of 8.6% this year and 8.4% next year, well above the 7% target for 2025 outlined in a seven-year plan approved by the Commission.

Romania is rated on the lowest investment rung by S&P, Fitch and Moody's, with a "negative" outlook.

An opinion survey released this week by pollster INSCOP Research showed the hard right opposition Alliance for Uniting Romanians (AUR) would win 38% of votes in an election, whereas the Social Democrats, currently the largest party in parliament, would get 17%.

(Reporting by Luiza Ilie, Editing by Bernadette Baum)