The US State Department announced that it has allocated $920m (4.1bn lei) in a Foreign Military Financing (FMF) direct loan to Romania, a strategic partner located on Nato’s Eastern Flank next to the Black Sea.
This decision is the latest move that the US government has made to help strengthen the defence inventory of the key Nato member. Since 2016, the country housed a US Aegis ballistic missile defence system as well as US troops.
Now, Romania is also undertaking a major military modernisation programme that includes purchasing US defence equipment, for which US State Department approval is crucial to success. So far, Romania has acquired Abrams main battle tanks, Sidewinder missiles and co-production of ammunition, among other things.
Romanian foreign policy has aligned closely with the US in repsonse to Russia’s full-scale invasion of Ukraine. The Eastern European country has even trained fighter pilots from neighbouring Ukraine to operate the American-made F-16 Fighting Falcon since a number of units were gifted to the war-torn nation.
What will the FMF deal do for Romania?
The FMF mechanism offers an efficient and advantageous way of diversifying the financing sources of the Romanian government, from the perspective of maturity and costs associated with this financing compared to other financing sources Romania uses, simultaneously with the development of certain strategic military capabilities.
It is said that the latest provisions in the agreement will benefit the Ministry of National Defence, up to the amount of $700m, and the Ministry of Economy, Entrepreneurship and Tourism up to the amount of $220m.
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By GlobalData
The agreement provides for lower interest rates than those at which Romania usually borrows.
In addition, the State Department added that the deal also provides $60m in FMF grant funds (meaning these particular funds are non-repayable).
Romania picks up the pace in defence
“The armed forces’ modernisation is a strategic priority for Romania, and the support and expertise offered by the American partner are crucial in this process,” stated Angel Tîlvăr, Romania’s Minister of National Defence, during the talks with the US Defense Security and Cooperation Agency.
As with most European countries, GlobalData intelligence suggests that the Russian invasion of Ukraine has had a dramatic effect on the growth of Romania’s defence budget.
Having seen a modest decrease between 2020–22, Romania significantly increased spending after 2023, with a year-on-year increase of 53.3%.
After this sharp rise, the forecast for the 2025–29 period is expected to see a steadier compound annual growth rate of 2.4%, seeing the budget grow to $9.7bn in 2029. This makes the cumulative spend in 2025–29 $46.3bn, compared to $33.7bn for 2020–24.
Relative to the overall size of its economy, the percentage of GDP that Romania spends on its military will be consistently above 3% for this period, comfortably exceeding the 2% Nato minimum target.
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