By Gergely Szakacs
(Reuters) -Romania’s political crisis and possible delays in a policy response to economic imbalances following the collapse of the coalition government this week could undermine some external financing sources, S&P Global said.
Romania’s central bank stepped in to prop up the leu on Thursday amid a surge in borrowing costs after hard-right presidential candidate George Simion’s victory in a first-round vote deepened a political crisis in central Europe’s second-largest economy.
The eurosceptic Simion decisively swept the first round of the ballot on Sunday, triggering the resignation of leftist Prime Minister Marcel Ciolacu and the collapse of the pro-Western coalition government.
S&P Global said the key risk for Romania, which runs the European Union’s highest budget deficit, exceeding 9% of output, was how it will finance its large twin deficits moving into 2026 amid a prolonged political impasse and weakening growth.
“The government’s access to the Eurobond market has weakened, leading to pressure on the exchange rate and the domestic bond market,” it said. “In addition, ineffective policymaking could make EU funds, especially from the Recovery and Resilience Facility, less forthcoming.”
Romania’s economy grew just 0.8% last year, the slowest pace since the COVID-19 pandemic, with growth slowing each year since 2021. On Thursday a large employers’ group said the political crisis raised the risk of pushing the country into recession.
The leu, which crashed out of the tight ranges it had held onto for much of the past three years on Tuesday, trimmed its losses for the week below 3% on Thursday, but was still trading past the key 5 mark per euro.
The 10-year bond yield rose by some 100 basis points from the start of this week to its highest level since November 2022.
Poll shows hard-right contender Simion winning the May 18 run-off, but, regardless of the ballot’s outcome, policymaking in Romania would become more fragmented, less stable, and less effective over the next few months, S&P Global said.
“(This) could lead to weaker growth, fiscal, and external outcomes than our already pessimistic assumptions,” it said.
S&P Global said its post-election scenarios included an unstable minority government, which could attempt to move ahead with fiscal consolidation measures.
A decision to call early parliamentary elections would further delay budget cuts and pressure refinancing efforts, while a third scenario saw the formation of a unity government with sufficient backing for fiscal stabilisation.
(Reporting by Gergely Szakacs; Editing by Jacqueline Wong and Leslie Adler)
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