Political instability has a direct and measurable economic cost, visible in the interest rates at which the state borrows, in the exchange rate, in loan repayments and in the National Resilience and Recovery Plan (PNRR) funds that Romania risks no longer accessing, according to the Concordia Employers' Confederation.

'First of all, political instability has a direct and measurable economic cost. It can be seen in the interest rates at which the state borrows, in the exchange rate, in loan repayments and in the PNRR funds that Romania risks no longer accessing. Romania is already paying a daily penalty for the instability and overlapping crises it is going through. The interest rates at which the state borrows have risen sharply, by almost one percentage point compared with the level in February, from 6.4% to 7.31%. If instability persists, these increases may deepen further, which means higher costs for companies and higher monthly repayments for households,' the organisation said in a press release on Tuesday.

According to the quoted source, the euro exchange rate may rise by 1-2%, from 5.09 lei towards 5.20 lei, and Romania, which has one of the highest levels of exchange rate pass-through to inflation in the region, will immediately feel this movement in consumer prices. At the same time, loan repayments may increase by around 7.5-10%, meaning lower disposable incomes and additional pressure on consumption.

In the medium and long term, however, the stakes are much higher because, if this crisis compromises the reduction of the budget deficit, Romania risks losing its investment grade country rating. 'Hungary has gone through this scenario and paid for it with a three percentage point increase in financing costs. Applied to Romania, such a scenario would generate additional interest expenditure of plus four billion lei in 2026, plus twelve billion lei in 2027, plus twenty-two billion lei in 2028, plus thirty billion lei in 2029 and plus thirty-three billion lei in 2030, that is over one hundred billion lei in five years,' Concordia underlined.

In order to cover these additional costs and keep the state budget within the parameters agreed with European partners, Romania would have to increase VAT by a further three percentage points or raise all other taxes. This is a scenario Romania cannot afford, employers' organisations say.

According to Concordia's analysis, in the optimistic scenario Romania loses at least 30% of the PNRR funds expected in 2026, around three point five billion euro. In this case, there are two possible options. If projects are halted, economic growth falls by 0.2-0.3 percentage points, the state loses six hundred to seven hundred million euro in unrealised tax revenues and the budget deficit reaches 6.43% of GDP, accompanied by higher unemployment and companies going bankrupt. If, instead, the state covers the gap from its own budget in order to continue investments, the deficit rises to 6.9% of GDP, a level that is difficult to finance in the context of rising borrowing costs.

In the negative scenario, the loss reaches 50%, approximately five point seven billion euro. Without budgetary compensation, economic growth falls by 0.35-0.40 percentage points, the state loses one point four to one point five billion euro in tax revenues and the deficit increases to 6.61% of GDP. With compensation from public funds, the deficit exceeds 7.2%, a level that directly endangers the country rating.

'In the critical scenario, most of the reforms undertaken through the PNRR are missed and losses reach 70%, around eight billion euro. Without compensation, GDP falls by 0.6-0.7 percentage points, fiscal losses reach one point nine to two point zero billion euro and the deficit rises to 6.75%. With coverage from national funds, the deficit reaches 7.8% of GDP, with a high probability of being downgraded to junk status. The cost of political instability is borne by companies and citizens. Political decision-makers have a duty to restore, as quickly as possible, the confidence of the private sector, investors and citizens in Romania's direction, stability and predictability,' the afore-mentioned release reads.

The Concordia Employers' Confederation represents 20 of the most important sectors of the Romanian economy, contributing 30% of GDP and employing nearly half a million people in over 4,200 large and small companies with Romanian and foreign capital. The employers' confederation is the only organisation in Romania that is a member of BusinessEurope, the International Organisation of Employers (IOE) and Business at OECD (BIAC). AGERPRES (RO - writing by: Andreea Marinescu; EN - writing by: Adina Panaitescu)