BUCHAREST, March 19 (Reuters) - Romania's ruling coalition has found a workaround to accommodate welfare spending sought by a leftist party without raising the deficit, Prime Minister Ilie Bolojan
Romania's ruling coalition makes last-ditch compromise to push 2026 budget through
Government Struggles and Economic Impact
By Luiza Ilie and Gergely Szakacs
BUCHAREST, March 19 (Reuters) - Romania said on Thursday it had found a compromise to approve the 2026 budget and avert a government crisis as debt managers scrapped the seventh successive debt sale amid market volatility from the Iran war.
Coalition Tensions and Welfare Disputes
The nine-month-old coalition of four pro-European Union parties came under strain on Wednesday after the leftist Social Democrats failed to push through welfare handouts and threatened to block approval of the 2026 budget.
Deficit Reduction Measures
Romania's government has had to implement tax hikes and state spending cuts to lower the EU's highest budget deficit, which exceeded 9% of national output in 2024, and prevent a credit rating downgrade to below investment level.
The tax hikes and spending cuts have lowered the deficit but pushed inflation to near double digits and the economy into technical recession, while boosting support for the far right.
Compromise Reached
Prime Minister Ilie Bolojan said the coalition had agreed to fund one-off aid to pensioners and other welfare aid worth some $250 million by delaying court-approved payouts to judges and prosecutors.
A final vote on the budget, which aims to lower the deficit to 6.2% of national output, has been delayed to Friday.
"Given the budget situation, the crisis related to the Gulf war and the entire context we are in, a formula was found for the coalition to support the proposal for higher social spending," Bolojan told reporters.
Even so, the Social Democrats, whose support is vital for the ruling coalition but have been bleeding support to the far right, said they would still evaluate whether to remain in government.
Debt Market Challenges
Seventh Debt Tender Scrapped
SEVENTH DEBT TENDER SCRAPPED
Just before Bolojan announced the compromise, Central Bank Governor Mugur Isarescu urged politicians to stay the course on deficit cuts or lose credibility, access to foreign markets or Romania's investment-grade credit rating.
The delays in the budget approval, compounded by market pressures from the Iran war, have forced Romanian debt managers to scrap seven debt tenders in the past weeks worth a combined 3.7 billion leu ($833 million), including a Thursday bond sale.
Debt Agency Response and Economic Outlook
The head of Romania's debt agency has said the country is in a good position to navigate bond-market fallout from the Iran war, citing a strong foreign currency buffer, access to non-market financing and a well-timed February Eurobond issue.
"The understanding from their public comments is that the buffer is sufficient or even above target, which enables them to tap it at moments of market stress," BCR Bank chief economist Ciprian Dascalu said.
($1 = 4.4404 lei)
(Reporting by Luiza Ilie and Gergely SzakacsEditing by Gareth Jones)
