Recovery and Resilience Plan: Help or just another burden?

Romania’s Recovery and Resilience Plan (RRRP) has been in the headlines for weeks, with politicians and the media discussing the possible investments to be financed by Romania’s EUR 30.5 billion allocation. However, according to Hungarian news portal, maszol.ro, neither the media nor the politicians are talking about the financial dimension of the plan. Maszol.ro interviewed several economic experts to give an insight about the possible consequences of the plan.

Romania could receive some EUR 30.5 billion; out of this, 13.8 billion would be non-refundable grants and 16.7 billion would be support in the form of a loan, which would have to be repaid starting in 2028. According to maszol.ro, the latter is an astronomical sum, almost equal to Romania’s planned budget deficit for 2021, which is RON 80 billion. The portal points out that at the end of February, state debt was RON 506 billion, 48 percent of this year’s GDP; so if Romania would have requested the loan in March, the state debt would have increased to 55.5 percent of GDP, to approximately RON 587 billion.

As to the non-refundable grants, those are made up from contributions of member states. If Romanian’s contributions are not considered, the net amount is around EUR 13 billion.

Jácint Juhász, associate professor at Babeș–Bolyai University, told maszol.ro that the loan granted through the EU is a discount loan, but its interest rate is not yet known, so it will be a negligible burden on the budget. However, the associate professor thinks it is a positive step that the EU is taking out the loan, as it is the first joint commitment of this kind, another step towards integration.

“It is a very smart decision to use the full amount. Romania cannot pass on such a discount loan,” Lóránd Králik, associate professor at Partium Christian University told maszol.ro. The university teacher said: All the investments included in the Resilience Plan should be implemented. Romania is in the lowest class recommended for investment according to credit rating agencies, so it is much more expensive to take out loans than it is for the European Union.

However, Ilie Șerbănescu, former Minister of Reform said that RRRP is not a great help for Romania, as it does not fund projects that the country needs. “Romania needs irrigation equipment, but the European Union wants wind turbines,” Ilie Șerbănescu said as an example for maszol.ro. According to the former minister, Romania won’t be able to access all the funds because some of the projects cannot be implemented in the country, while the EU won’t fund really important investments, like motorway construction or the modernization of railway infrastructure.

10 percent of the Recovery and Resilience Plan to be spent on education

“Naturally, it would be ideal if all amounts would be non-refundable grants, but it is also important to take advantage of this option under the given conditions. These projects should be done either way, and the country would [otherwise] look for funding on the international market,” Csilla Hegedüs, member of the Democratic Alliance of Hungarians in Romania (known by the acronym RMDSZ) and state secretary at the Ministry of European Funds, told maszol.ro.

The national recovery plan was based on the country report of 2019 and 2020. These reports outlined the needed reforms and conditions of implementation. In addition to these, the proposals of towns, municipalities, the association of counties, and civic and professional organizations were also considered. In the beginning, the total amount of investments was EUR 70 billion, which was then reduced to EUR 41 billion, included in the Recovery and Resilience Plan and sent to Brussels.

Csilla Hegedüs thinks it is a great achievement that more 10 percent of the RRRP will be spent on education, while several hundreds of general practitioner offices will receive echography equipment, which could help the early diagnosis of a range of serious diseases. “Several large-scale, forward-looking projects are included in the national recovery plan. A large amount will be coming in at once; it is like emergency assistance, as if the economy would receive a blood transfusion,” Hegedüs told maszol.ro.

Title image: Romania could receive an allocation worth EUR 30.5 billion, of which 13.8 billion would be made up of non-refundable grants and 16.7 billion would be in the form of a loan. Photo: business-review.eu

Author: Orsi Sarány