European Commission warns Romania that reform delays put recovery funds at risk

BUCHAREST (Reuters) - The European Commission warned Romania on Wednesday that it had fallen behind with the reforms it must make in exchange for EU recovery funds and its fiscal deficit in a busy election year was concerning, putting billions of euros for Bucharest at risk.

The European Union state, which has struggled to rein in its budget deficit since before the COVID-19 pandemic, holds local, presidential, parliamentary and European elections this year.

It has so far received roughly 9 billion euros ($9.76 billion) out of a total package of 28.5 billion euros worth of grants and loans available until 2026 under the EU's Recovery and Resilience Facility (RRF).

The payments are conditional on a series of reforms, including fiscal changes, and Romania's progress has stalled.

The Black Sea state sent a third disbursement request in December and Commission representatives are in Bucharest this week to discuss missed targets and deadlines.

"The third payment ... is delayed compared with where we should have been," the Commission's RRF taskforce director Celine Gauer told a conference.

"We see many investments haven't actually started. My message is one of urgency."

Declan Costello, the deputy head of the Commission's directorate for economic and financial affairs said Brussels was very concerned about Romania's fiscal stance.

"The deficit should have been corrected by this year," Costello told the same conference. "We see the trends are all going in the wrong direction. At the moment I would expect the deficit to be closer to, if not above 7% of GDP this year."

Romania initially committed to bringing its budget deficit below the EU's 3% of GDP ceiling by 2024. However, it currently expects to meet that target only by 2027, assuming it does not change its tax system. Romania, which has been under the EU's excessive deficit procedure since 2020, targets a deficit of 5.0% of GDP this year and it collects tax revenue of 27.5% of GDP versus the EU average of 41%.

($1 = 0.9225 euros)

(Reporting by Luiza Ilie; editing by Alexandra Hudson)