EUROPEAN COMMISSION Brussels, 27.9.2021 SWD(2021) 276 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Romania Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Romania {COM(2021) 608 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the green and digital transition Green dimension Digital dimension 3. Objectives, structure and governance of the Plan 3.1. Overall strategy of the Plan 3.2. Implementation aspects of the Plan 4. Summary of the assessment of the Plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition 4.7. Lasting impact of the Plan

4.8. Milestones, targets, monitoring and implementation 4.9. Costing 4.10. Controls and audit 4.11. Coherence ANNEX: Climate tracking and digital tagging



1.Executive summary The COVID-19 pandemic had and continues to have a strong economic, social and sanitary impact on Romania, amplifying further some of its structural weaknesses. Private consumption collapsed during the spring lockdown in 2020 and external demand shocks and supply chain disruptions hurt exports. Despite this, real GDP contracted only by 3.9% in 2020, one of the lowest contractions in the EU. The employment support schemes put in place at the onset of the pandemic have mitigated the pandemic’s impact on the labour market, with unemployment increasing only moderately from 3.9% in 2019 to 5% in 2020. The government implemented several fiscal consolidation measures in 2021 and the budget deficit increased to 9.2% of GDP in 2020 and is set to decline thereafter. In 2021, the economy has started to recover swiftly. The Commission 2021 Summer Forecast expects real GDP to grow at 7.4% and 4.9% in 2021 and 2022 respectively, while the Commission 2021 Spring Forecast estimates unemployment to peak at 5.2% in 2021 before declining to 4.8% in 2022. Romania’s Recovery and Resilience Plan amounts to EUR 29 181 842 750. Romania has requested EUR 14 239 689 750 of non-repayable financial support and EUR 14 942 153 000 in loans under the Recovery and Resilience Facility. Together, this represents 13.09% of 2019 GDP. The Plan contains 171 measures (64 reforms and 107 investments), structured around six pillars and fifteen components. The Plan addresses a significant subset of long-standing structural challenges as identified in relevant country-specific recommendations (CSRs) addressed to Romania by the Council in 2019 and in 2020. The full digitalisation of the tax administration and gradual phase out of excessive tax incentives are aimed at improving the quality and sustainability of public finances. The Plan also contributes to ensuring the sustainability and fairness of the public pension system. Healthcare reforms, accompanied by digitalisation investments, are expected to improve access, cost-efficiency and resilience of healthcare. Evidence-based decision making, long-term planning and public consultations and measures aimed at improving the public procurement process will contribute to improving the quality and effectiveness of the public administration leading to better absorption of EU funds. By strengthening the independence and increasing the efficiency of the judiciary, improving access to justice, and stepping up the fight against corruption, the plan aims to address the main issues related to respect of the rule of law in the country in accordance with the relevant case-law of the Court of Justice of the European Union and taking into account recommendations made in the Cooperation and Verification Mechanism (CVM) reports, the GRECO reports and the opinions of the Venice Commission, and the Rule of Law Reports. Key reforms on minimum wages setting, on strengthening corporate governance of state-owned enterprises and on social dialogue also address long-standing CSRs. The Plan also introduces a unitary, inclusive and quality early-childhood education and care system accompanied by investments in childcare. The Plan promotes sustainable and digital investments and supports research and development activities. Key reforms on decarbonisation, on the establishment of a government cloud and the deployment of the electronic identity card contribute to supporting the twin green and digital transition. The Plan represents to a large extent a comprehensive and adequately balanced response to the economic and social situation of Romania, therefore contributing appropriately to the six policy pillars referred to in Article 3 of the Recovery and Resilience Facility Regulation. The Plan and its components are built around the six policy pillars and the financial allocation is evenly distributed. Taking into account the specific challenges and the financial support to Romania, the Plan represents a comprehensive, and adequately balanced response to the economic and social situation. By tackling long-standing vulnerabilities and structural deficiencies, the Plan is expected to contribute to the economic and social recovery and the long-term development of the country. Measures to support private investments, particularly for SMEs, have the potential to attract investment and foster jobs and a stronger business environment. The Plan’s focus to address education challenges and promoting green and digital skills is expected to improve Romania’s long term growth potential and foster inclusive growth by reducing disparities, with potential spill-over effects into the labour market. The Plan aims to contribute to the implementation of the European Pillar of Social Rights, through the promotion of policies for children and youth. Reforms and investments are expected to respond to structural problems in areas where the pandemic crisis has taken its toll, with a focus on health, education, and the business environment. In addition, investments in basic transport infrastructure in currently poorly connected regions and digital connectivity in rural areas will be key to bringing the country closer together. The Plan has a strong focus on the green transition, with flagship reforms on the phasing-out of coal and the decarbonisation of road transport. The reforms and investments are expected to significantly decarbonise the energy sector and unlock the potential for renewables deployment. The strong focus on energy and resource efficiency of private and public buildings, greening of road and rail transport, sustainable urban mobility and the deployment of charging infrastructures for electric vehicles, climate change adaptation and circular economy, will also facilitate the green transition in all sectors of the economy. Measures supporting climate change objectives account for 41% of the Plan’s total allocation. With several reforms and investments in the forestry sector, such as the adoption of the National Forest Strategy and the ecological reconstruction of habitats and the conservation of species, the Plan is also expected to contribute to biodiversity conservation and restoration. All measures in the Romanian Plan have passed the ex-ante assessment of the ‘do no significant harm’ principle. In addition, for some measures, the ‘do no significant harm’ principle has been reflected in the milestones and targets specified in the Annex to the Commission Proposal for a Council Implementing Decision. As regards the digital transition, the measures contributing to digital objectives account for 20.5% of the financial allocation, which is above the 20% minimum requirement of the RRF Regulation. While component 7 (Digital transformation) is fully dedicated to the digitalisation of the public administration (both horizontally and by sectors), connectivity, cybersecurity and digital skills, including large scale deployment of electronic identity cards, reforms and investments on the digital transition are found throughout the Plan across the different components. In particular, the digitalisation of education is expected to contribute to developing the skills of both students and teachers, doubled by the efforts to modernise school laboratories and to create smart labs. Investments in the digitalisation of road and rail transport are also expected to contribute to the digital transition. Furthermore, the digitalisation of businesses plays a prominent role in the Plan and is expected to increase the competitiveness and innovation potential of both SMEs and large companies. The Plan also has a significant cross-border dimension, as Romania aims to support companies participating in a multi-country project on microelectronics, which is planned to be implemented as an Important Project of Common European Interest (IPCEI). Reforms and investments in the Plan are expected to have lasting environmental and socio-economic impacts. In particular, they are aimed at introducing structural changes to the functioning of the public administration in Romania. The Plan is also expected to have a lasting impact in terms of policy design, implementation and monitoring, especially for policies that regulate the use of natural resources and the environment. The pension and social reforms should also contribute to reducing disparities and inequality. The Plan adequately describes the arrangements for its implementation and monitoring. Milestones, targets and indicators of the Romanian Plan are of sufficient quality to enable an effective monitoring of the Plan’s implementation. Overall, milestones and targets are sufficiently specific, clear and comprehensive to ensure that their completion can be traced and verified. The large number of milestones and targets is commensurate to the size of the reform and investment package. However, the implementation of the plan will crucially hinge on the administrative and implementation capacity of the implementing bodies which will need to be closely monitored. Romania has provided individual cost estimates for the measures in the Plan. The information and evidence submitted by Romania, following additional information requested by the Commission during the assessment phase of the Plan, show that the justification on the amount of the estimated total costs is “to a medium extent” reasonable, plausible, commensurate, and in line with the principle of cost-efficiency. Romania provided sufficient information and evidence that the amount of the estimated total costs of the Plan to be financed under the Facility is not covered by existing or planned Union financing. The Plan provides sufficiently detailed information on the national set-up for the RRF internal control system. The Plan shows a well-defined structure of the internal control system and the outline of the control system seems appropriate. Mechanisms and tools to address double funding appear adequate. Pending actions shall be completed prior to the first instalment. The Romanian Recovery and Resilience Plan is structured around six coherent pillars supporting the common objectives of the Plan and the recovery of Romania’s economy. Each pillar is built around components including consistent packages of mutually reinforcing and complementary reforms and investments.

Chart: Assessment scheme (1)

Balanced Response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)

M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report Romania’s economy grew robustly in recent years and weathered the downturn in 2020 relatively well. Past economic growth relied mostly on private consumption stimulated through repeated tax cuts and increases in the minimum and public wages, resulting in high and growing current account and budgetary deficits already before the onset of the COVID-19 pandemic. In 2020, private consumption collapsed during the spring lockdown and external demand shocks and supply chain disruptions hurt exports. Despite this, real GDP contracted only by 3.9 %, one of the lowest contractions in the EU. As in most countries, the evolution of economic activity throughout the year was very volatile: following an increase of close to 1 % in the first quarter, real GDP sank by 11.8 % in the second quarter before rebounding in the third and fourth quarters by 5.5 % and 4.6 % respectively. The limited number of restrictions in the second half of the year and the relatively robust evolution of wages, supporting consumption, were behind the relatively moderate downturn in economic activity in 2020. The budgetary deficit widened further to above 9 % of GDP, while the current account deficit increased to around 5 % of GDP. Following two years of growing inflationary pressures, inflation declined in 2020 to 2.3 %, mainly as a result of a sharp drop in energy prices. The macroeconomic scenario contained in Romania’s Recovery and Resilience Plan assumes a quick recovery of the economy. According to the Plan, real GDP is set to increase by 4.9 % in 2021 and accelerate further to 5.2 % in 2022 and 5.6 % in 2023, before slightly decelerating to 5.2 % in 2024. Over the lifetime of the Plan, the Romanian RRP envisages an average annual growth of real GDP of 4.8 %, which is comparable to the average growth of the Romanian economy in the five years preceding the COVID-19 crisis. The main growth drivers are a strong increase in investment and, to a lesser extent, a recovery in private consumption. Net exports will reduce growth. Following the decline in 2020, inflation is set to increase to an annual average of 3.1 % in 2021 and decline to 2.4 % in 2024. The macroeconomic scenario expects unemployment to have peaked in 2020. The employment support schemes put in place at the onset of the pandemic have mitigated the pandemic’s impact on the labour market, with unemployment increasing only moderately from 3.9 % in 2019 to 5 % in 2020. In 2021, unemployment is forecast to decline to 4.8 % and continue falling to 4 % in 2022 and to 2.8 % in 2026 (see Table 1, below). After a reduction of 1.8 % in 2020, the number of employees is forecast to pick up in 2021 by 0.2 % and increase further by some 0.7 % in 2022, according to the Commission’s Spring Forecast. The share of people at risk of poverty or social exclusion (31.2 % in 2019) is among the highest in the EU and significantly above the EU average (20.9 %). Vulnerable groups are more likely to be at risk of poverty or social exclusion, including children, the rural population, Roma, low-skilled workers and people with disabilities. The crisis is expected to have further accentuated those inequalities. Regional disparities in Romania are among the highest in the EU. Significant gaps across regions persist in investment, productivity, competitiveness and employment. The socio-economic consequences of the pandemic are likely to have reversed a trend of slightly reducing disparities between the capital and the rest of the regions and between urban and rural areas. The general government budget deficit was at 9.2% of GDP in 2020 and is set to decline thereafter. The 2021 budget targets a deficit of 7.13% of GDP in cash terms (which should be around 8 % of GDP in European System of Accounts terms). The government implemented several fiscal consolidation measures in 2021, such as postponing an increase in pensions, freezing public-sector wages and cancelling certain public sector bonuses and holiday vouchers. These measures have been the starting point for a much-needed fiscal consolidation to stem growing risks to fiscal sustainability. At the same time, fiscal policy will support the economic recovery. According to the medium-term budget strategy, the government plans to gradually bring the headline deficit to below 3% of GDP by 2024 in line with the Council recommendation to Romania under the Excessive Deficit Procedure. Macroeconomic imbalances have increased in the aftermath of the crisis. In February 2020, the Commission concluded that Romania was experiencing macroeconomic imbalances, in particular involving risks to cost competitiveness, a deteriorating external position and a widening current account deficit, in a context of expansionary fiscal policy and an unpredictable business environment. The current account deficit widened further in 2020 to around 5% of GDP and is set to remain elevated in 2021 and 2022. After years of improvement, the net international investment position (NIIP) worsened to some - 47% of GDP in 2020, and is projected not to improve this year or next on account of the continued elevated current account deficits. The COVID-19 crisis also led to a significant increase in the government debt, which is expected to continue in spite of the planned fiscal consolidation. On the other hand, cost competitiveness pressures eased to some extent, despite the relatively robust performance of wages in 2020. Turning to the financial sector, most of the risks to financial stability had already abated before the onset of the pandemic due to the amendment of Government Emergency Ordinance 114/2018 adopted in January 2020. Romanian banks, which are largely foreign owned, remained well-capitalised and liquid throughout 2020. However, the roll-back of support measures could result in an increase in the number of bankruptcies and in the level of non-performing loans, with negative implications for banks’ balance sheets. Debt sustainability risks remain elevated. Following the onset of the COVID-19 crisis, government debt ratios increased (47.3% of GDP in 2020 and 49.7% of GDP forecast in 2021), albeit from a relatively low level (35.3% of GDP in 2019). Policy unpredictability remained a concern in 2020, particularly in the light of legislation with significant consequences for fiscal sustainability in the medium and long term, in particular the Law 217/2019 on pensions. The standard fiscal sustainability indicators were showing high risks already prior to the COVID-19 crisis, due to high budget deficits and the projected significant rise in ageing costs, from pensions. Despite the relatively low government debt-to-GDP ratio compared to EU average, Romania faces fiscal sustainability risks in the short term (i.e. the S0 indicator is exceeding its critical threshold). In spring 2020, the yields of the Romanian sovereign debt spiked to around 6%, raising concerns about market access. Yields have, however, decreased since then and were around 3.2% in July 2021. The Romanian sovereign debt is rated at the lowest investment grade and in 2020 all three rating agencies revised the outlook for Romanian sovereign debt from stable to negative. However, in spring 2021 the three rating agencies revised the outlook of the Romanian sovereign back to stable, on account of decreasing fiscal risks, while maintaining the rating. Overall, Romania is deemed to face high fiscal sustainability risks also in the medium term. Under a baseline scenario, the government debt level is expected to increase until 2031 unless there is a change in policies. Moreover, there are risks stemming from the high share of government debt held in foreign currency (52.1% of total, out of which 44.1% in EUR as of June 2021). Compared with the latest Commission forecast, the macroeconomic scenario underpinning the RRP is less optimistic. The Commission 2021 Summer Interim Forecast expects real GDP in Romania to grow at 7.4% and 4.9% in 2021 and 2022 respectively. Both the Romanian authorities’ forecast and the Commission one include the full impact of the Recovery and Resilience Facility (RRF). For net exports, both the Commission and the Romanian authorities expect a negative contribution to growth in 2021 and 2022. Labour market projections differ somewhat as the RRP sees the peak in unemployment in 2020 (4.9%) with a progressive decline thereafter. In contrast, the Commission Spring forecast expects unemployment at 5.2% in 2021 with a decline to 4.8% in 2022. Inflation projections are very similar for 2021 while for subsequent years the available data do not allow to make a comparison. In its Spring 2021 forecast, the Commission projected a general government deficit of 8% of GDP in 2021 and 7.1% of GDP in 2022, while public debt was set to reach 49.7% of GDP and 52.7% of GDP respectively. Years beyond 2022 are currently not covered by the Commission forecast. The Romanian RRP does not include estimates for the evolution of the budgetary deficit and the government debt. The macroeconomic scenario of the RRP was plausible at the time of the submission of the Romanian RRP. The economic scenario contained in the Plan was the basis for the preparation of the 2021 budget, the National Reform Programme, Stability and Convergence Programme and was developed by the National Commission for Strategy and Prognosis. For 2021 and 2022 it was similar to the Commission Spring forecast. Due to the better-than-expected performance of the economy in the first quarter of 2021, these RRP estimates appear now rather cautious. The macroeconomic and fiscal outlook continues to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. 2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation The COVID-19 pandemic had and continues to have a strong economic, social and sanitary impact on Romania, amplifying further some of its structural weaknesses. Smart, sustainable and inclusive growth

Several challenges persist in the Romanian business environment that should be addressed in order to support sustainable growth. Excessive red tape and the insufficient capacity of public authorities to deliver quality services, including digital services, negatively affect citizens and businesses, especially SMEs. Regulatory requirements for service providers, including regulated professions, further impede market development. 89% of Romanian businesses find that the complexity of administrative procedures is a problem when doing business, while 96% consider fast-changing legislation a hurdle. Corruption also remains a major problem for the business environment. Business licencing suffers from multiple and overlapping procedures. Romania has a small share of high-growth enterprises (HGEs), at around 3-4%, well below the 11% EU average. These HGEs are highly concentrated (almost exclusively in services) and face several financing constraints, especially in terms of equity and debt financing. The venture capital market is underdeveloped and only 2.1% of enterprises engage in research and development activities that are far below the EU average (22.6%). It is restrained to a small number of deals and sectors and concentrated in only two regions. Regulatory barriers also hamper academia-business cooperation and contributes to the low R&D innovation capacity of the private sector. Romania should support the creation of an entrepreneurial ecosystem both at local/regional and national level, while simplifying regulatory requirements for businesses through implementing principles such as ‘silence is consent’, ‘only-once’, ‘one-in, one-out’ and online accessibility of licencing procedures. The delivery of major reforms and public investments is strongly linked to good governance, which still needs to be improved. Decision-making has been in a number of situations unpredictable, often resorting to government emergency ordinances, which circumvent the regular decision-making process. The quality and effective use of regulatory impact assessments and ex post evaluations still needs to become common practice, while a stronger framework for strategic and budgetary planning and more effective public procurement are necessary. Public consultations and the integration of feedback received from civil society are not systematic. Better prioritisation and developing high-quality projects remain a challenge, constraining the uptake of EU funds. Public procurement efficiency remains a concern. State-owned enterprises (SOEs), some key for carrying out EU investments, often do not follow existing corporate governance rules, and political appointments of interim boards have become a standard practice. Their financial performance has deteriorated over the years, with negative implications for the state budget. Tax compliance and collection remains a challenge, as is the completion of the administrative reforms to improve the performance of the National Agency for Fiscal Administration. The weak and under-funded research and innovation (R&I) system hampers the country’s prospects of economic upgrade and improved competitiveness. The institutional fragmentation of the public science base, the low public R&D funding and poor R&I policy governance have resulted in a lack of critical R&D mass, dwindling human resources, brain drain and poor science and technology performance. With R&D expenditure of just 0.48% of GDP in 2019, compared to its Europe 2020 country target of 2%, Romania remains among the worst performers in the EU. Public R&D investment was 0.2% of GDP, while private R&D expenditure was only 0.28% of GDP. Weak academia-business cooperation and low R&D absorption capacity among firms further hinder innovation diffusion and technological catch-up, notably among domestic firms. The quality of the research system could be improved by reforming the public science base and allocating sufficient public R&D funding in a competitive manner, while providing researchers attractive careers and opportunities. Targeted reforms and funding incentives supporting academia-business cooperation, innovative start-ups and technological catch-up among SMEs are essential for increasing competitiveness and supporting the green and digital transition. The implementation of Research and Innovation Strategies for Smart Specialisation (RIS3) strengthened connections between various levels of governance (national, regional) and policy domains (R&I, industrial policies, regional development, higher education). Definition of investment priorities through the RIS3 Entrepreneurial Discovery Process facilitated institutional capacity-building at both national and regional level. It is important to keep on with the implementation of regional RIS3 by highlighting regional needs, and facilitating the emergence of new structures for innovation governance (e.g. regional consortia). Social and territorial cohesion The COVID-19 pandemic outbreak affected the Romanian labour market negatively and deepened existing challenges. The unemployment rate rose in 2020, particularly affecting low-skilled people (8.1% in 2020 compared to 6.3% in 2019) and the young (youth unemployment was at 16.8% in 2020). Services targeted at decreasing inactivity and at easing access to labour market, including for vulnerable groups, remain limited. Reforms are needed to strengthen public employment services offering adequate activation measures and target upskilling and reskilling programmes while gradually phasing out short-time work schemes. Poverty and income inequality deepened during the pandemic outbreak, and regional disparities persist, with vulnerable groups being more affected. Emergency policy measures to protect incomes during the crisis, together with the pre-existing tax-benefit system, cushioned around 86% of households’ income loses, with more than two-thirds due to the temporary wage-subsidy schemes. However, coverage and adequacy of social assistance is low, while the availability, quality and integration of employment, education, health and social services are limited. In addition, people with disabilities do not receive enough support for independent living and access to employment. The situation of the Roma community shows very little progress, with significant problems faced in accessing basic services (healthcare, education and housing), leading to a growing divide in a context of generally growing labour market needs for skilled labour. Housing deprivation is the highest in the EU and is detrimental to social inclusion. The social reference index remained unchanged for many years and depreciated considerably in relation to the minimum wage. One in three atypical workers is at risk of severe material deprivation, while daily and seasonal workers do not have formal access to social security rights covering unemployment, maternity leave, accidents and occupational injuries. Romania would profit from increasing the coverage and adequacy of social assistance by implementing the minimum inclusion income reform initiated in 2016. It should also ensure availability of social and protective housing solutions with matching services for vulnerable groups and ensure access to social security rights for atypical workers. The socio-economic consequences of the COVID-19 pandemic will differ across the regions of Romania due to significant investment and productivity gaps and different specialisation profiles. This entails a considerable risk of widening regional disparities. The existing challenges are likely to increase due to higher unemployment and inactivity. Large regional disparities and low productivity of some sectors have a negative impact on long-term sustainable growth. The lack of opportunities, access to services and the search for better living conditions are the main cause of rural-urban divide, regional disparities and inequalities and emigration. Specific policy actions should be implemented to improve the business environment, access to basic public services in health, education and social-leisure, access to connectivity and digital skills, innovation and technology, and transport infrastructure. Complementarity with the Cohesion policy and other EU funds will be important to ensure implementation of the reforms and investments in a mutually reinforcing way. Health, economic and social/institutional resilience The current pandemic has exacerbated the structural weaknesses of the Romanian healthcare system. The resilience of the health system has been weakened by considerable health workforce shortages, by an acute need for medical infrastructure and equipment, insufficient training for health workers and limited continuity and integration between different levels of care. The pandemic further exposed regional disparities and the limited healthcare coverage for low-income groups, the elderly and the uninsured. Reforms and investments will be needed to strengthen the health system. Health system reform should be enacted in two main directions. Hospital departments (especially COVID-related ones), health workers and equipment need to be maintained and expanded. The coverage and accessibility of health services for all citizens need to be improved, reflecting the demographic trends and the urban-rural divide. This will also require improvements to primary care, outpatient care and long-term care, and to the use of e-health and telemedicine services. The amendments to the justice laws introduced between 2017 and 2019 raised challenges to the efficiency, quality and independence of the justice system. The current government has committed to amend the relevant legislation rapidly in line with the recommendation of the 2019 report under the CVM and to adopt concrete measures to ensure the independence of the judiciary and reverse the increasing problem of understaffing in the justice system. A first step in the direction of reversing past measures was taken by mid-February 2021 when the government approved draft legislation to dismantle the Section for the Investigation of Offences in the Judiciary. However, this draft legislation is still pending in Parliament. Independently from Romania’s RRP, and in accordance with Court of Justice of the European Union (CJEU) case law, Romania has an obligation to implement its commitments under the CVM. Romania shall take due account, under the principle of sincere cooperation laid down in Article 4(3) TEU, of the reports drawn up by the Commission on the basis of that decision, and in particular the recommendations made in those reports. The timeline of the CVM is independent and the commitments agreed in the CVM process need to be met before the CVM can be closed. Policies for the next generation Improving the quality, equity and labour market relevance of education and training, and advancing basic and digital skills are crucial for economic recovery and building resilience. There is a mismatch between the labour market needs and the skills available, in a context of demographic decline. While the employment rate increased between 2016 and 2020 from 61.6% to 65.6%, over the last five years, the working age population (15-64) and the labour force shrank respectively by 6% and 2%, making it even more important to capitalise on existing human resources. These trends are likely to lower the contribution of labour to GDP growth, with companies being challenged in filling vacancies and finding relevant skills. The skills of graduates from vocational and higher education are not sufficiently aligned with the labour market, which also contributes to the high percentage of young people not in education, employment or training (14.7% in 2019, the second highest in the EU). The rate of early leavers from education and training is still high. The level of basic skills in reading, mathematics and science as measured by PISA, and digital skills of young people is also among the lowest in the EU. Moreover, digital infrastructure in schools needs urgent improvement, while the rural-urban gap in education and the challenges for Roma inclusion in education persist. Despite measures taken by authorities, the closure of schools due to COVID-19 and the ensuing shift to distance learning, as well as the disruption of work-based learning modules for vocational and educational training (VET) students risk worsening educational outcomes and increasing already high inequalities. In this context, the national implementation of a comprehensive skills forecasting mechanism (currently being developed as part of an EU-funded project) is crucial. Significant investment in skills development across all areas is also urgently needed. 2.3.Challenges related to the green and digital transition Green dimension The Recovery and Resilience Plan should contribute to the green transition and at least 37% of the financial allocation needs to contribute to climate objectives. The measures in the Plan shall contribute to achieving the 2050 climate neutrality objective, and the 2030 energy and climate targets, taking into account Member States’ National Energy and Climate Plans. The measures should also contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, afforestation/reforestation, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy as appropriate, while ensuring that nobody is left behind as a result of the transition. Romania has some of the highest rates of carbon intensity and energy poverty in the EU. Based on the Commission’s assessment of Romania’s final National Energy and Climate Plan, the country is on track to meet its 2020 energy and climate targets, but not the 2030 targets on renewable energy and energy efficiency. Moreover, as of 1 September 2021, Romania has not notified its national long-term strategy to the Commission as required under Article 15 of the Governance Regulation. Implementing the National Energy and Climate Plan will therefore require significant efforts to promote clean production and use of energy, foster building renovation and increase the energy efficiency of district heating networks. In this context, Romania will need to ensure a just and fair transition, given possible negative impacts on the country’s coal-mining regions and the existing high level of energy poverty, which makes protecting vulnerable consumers essential. Romania’s renewable energy contribution to the 2030 EU level target falls below the renewable share resulting from the calculation under the Energy Union Governance Regulation. Steps should be taken to increase the share of renewables in Romania’s energy mix, including through improved infrastructures, as these could increase Romania’s potential for renewable power generation. Investment in energy and resource efficiency is still very low, and Romania’s building stock is energy inefficient. Romania has indicated its intention to go beyond a 3-4% renovation rate in its National Energy and Climate Plan. At the same time, the pricing of externalities stemming from fossil fuel use, for example through a greener tax system, would provide additional support to the transition to a carbon neutral economy and contribute to higher resource efficiency in the economy. Consideration of resource efficiency in the production cycle and life cycle of products is not developed in the country.

Given the structure and evolution of the Romanian transport system, making it more sustainable and safer remains a challenge. The GHG emissions from the transport sector increased in Romania by 52% (vs an overall decrease of 65% across all sectors) over 1990-2019. In Romania, the external costs (emissions, pollution, safety, congestion) related to road, rail and inland waterway transport were estimated at EUR 22 billion annually in 2016, 97% of which were generated by road users. According to the European Transport Scoreboard 2019, the Romanian transport sector scores below the European average in all aspects of investment and infrastructure. The general condition and reliability of the road and rail networks are very poor. The infrastructure is not keeping up with the traffic demand generated by an expanding economy. The road network is among the least developed in the EU and registers one of the poorest road safety records. The reform of the railway sector is stalling. Moreover, heavy underinvestment in maintenance has reduced train speed and affected delivery times of rail freight transport. Urban transport suffers from chronic under-financing, poor sector organisation and the weak administrative capacity of local providers. The high environmental and social costs and the low efficiency of the country’s transport system require significant actions to: (i) promote a modal shift from road to rail and waterborne transport; (ii) expand electrification of the rail network; (iii) reduce emissions from road transport by promoting zero-emission vehicles and infrastructure and introducing measures in line with the “polluter pays principle”; (iv) develop sustainable urban mobility including modernisation and expansion of public transport services; and (v) increase digitalisation of all transport modes. Since Romania ranks low in the EU on road safety performance (with 96 deaths per million inhabitants vs EU average of 51 in 2019), major reforms and investments are required to improve road safety, particularly in urban and inter-urban areas. Poor air quality in Romania has a significant impact on human health in the country and Romania has so far failed to adopt and submit a national air pollution control programme, which was due by April 2019. Moving towards cleaner energy and more sustainable transport could also be one of the main means to tackle Romania’s challenges on air quality. In this context, steps should also be taken to reduce and control air pollution from biomass, while continuing to ensure that energy poverty decreases. Progress on improving the air monitoring network will be important, given its serious structural shortcomings. Romania’s circular economy has potential, but the country is lagging behind in this area, particularly in the area of waste management. Romania has not yet developed a Circular Economy Strategy and Action Plan. The country also has very low rates of municipal waste recycling (14%) and needs to invest heavily in recycling in the next few years to reach the 2020 municipal waste recycling target of 50%. Overall, Romania continues to rely heavily on mechanical biological treatments and landfills (73.5% landfilling rate), including substandard and illegal landfills, while higher waste hierarchy projects are underdeveloped. A number of investments in the sector had to be phased from one programming period to the other. Romania has adopted its National Waste Management Plan in December 2017, and has recently adopted 41 county waste management plans and the waste management plan for the Bucharest Municipality that are expected to be in line with the circular economy package. These are very important planning/programmatic documents. Romania has one of the lowest compliance rates with EU water legislation (6%) and faces the highest investment needs to reach and maintain compliance. Efforts need to be stepped up to extend and modernise drinking water and wastewater infrastructure, to ensure a sustainable service at a reasonable price. Although there has been progress in recent years, water leakages in the public network and lack of urban wastewater treatment are ongoing problems. Romania has a diverse landscape and rich ecosystems, translating into an abundance and diversity of species, but has suffered from biodiversity loss and ecosystem degradation. Only 68.2% of its habitat types and 45.7% of its species of Community interest were in favourable conservation status in 2013-2018. Throughout the last two decades, Romania has been affected by severe inland and coastal floods, droughts and land degradation, in part due to climate change. Protecting nature and reversing the degradation of ecosystems while putting in place a green infrastructure strategy is therefore necessary to preserve Romania’s ecosystem and build resilience to threats like adverse effects of climate change. The current lack of integration between nature policy and other policy areas, especially in the farming sector, are obstacles to nature protection and contribute to ongoing biodiversity loss. In addition, intensive illegal logging of Romanian forests is an ongoing problem, leading to a reduction in the natural carbon sink of forests, a significant loss of biodiversity and an increase in disaster risks. Green taxation is relatively low and Romania has not yet used green budgeting. Revenues from environmental taxes as percent of GDP are low (2.1% of GDP vs. the EU average of 2.4% of GDP in 2018). This relates to transport taxes excluding fuel (0.14% of GDP vs. the EU average of 0.46% of GDP in 2018) and taxes on pollution/resources (0% of GDP vs. the EU average of 0.1% of GDP in 2018). In 2018, Romania had no carbon emission-based vehicle taxation. The table below gives an overview of Romania’s objectives, targets and contributions under Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. Table 2: Romania’s objectives, targets and contributions under the Governance Regulation National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) 14% (2018 preliminary – based on EEA estimates) 24% 30.7% Unambitious (34% is the result of the RES formula) National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 23.9% (2018) 24% 30.7% Unambitious (34% is the result of the RES formula) National contribution for energy efficiency: Primary energy consumption (Mtoe) 32.6 43 32.3 Low ambition Final energy consumption (Mtoe) 23.6 30.3 25.7 Very low ambition Level of electricity interconnectivity (%) 9.3% 10% 15.4% N.A. Source: Assessment of the final National Energy and Climate Plan of Romania, SWD (2020) 922 final. Digital dimension The Recovery and Resilience Plan should contribute to the digital transition and at least 20% of the financial allocation needs to contribute to digital objectives. The measures in the Plan should, inter alia, contribute to the digital transformation of the economic and social sectors (including public administration, public services, and the justice, health or education systems). The objective of the measures in the Plan should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness. Romania ranks 26th among the 27 EU Member States in the Digital Economy and Society Index (DESI) 2020. On connectivity, Romania performs better than the EU average, ranking 11th in the EU. However, an urban-rural divide exists in digital infrastructure: while 38% of households in rural areas benefit from very-high-capacity networks (EU average of 20%), broadband take-up stalled at 66% of households and is well below the EU average of 78%. Meanwhile, the 5G pioneer bands should be assigned on a timely basis, under conditions conducive to investment, although key legislation still needs adopting in order to safeguard 5G networks security. Romania needs to improve the digital skills of its population and labour force, while reducing the urban-rural digital divide. Despite several initiatives to digitalise the education system, the need to improve the acquisition of digital skills remains high. There is a significant digital divide between urban areas (where 5% of schools are not connected) and rural areas (where 24% of schools are not connected). Although the academic education offer of advanced digital skills is well represented in Romania in the domains of artificial intelligence (AI), high performance computing, cybersecurity and data science, at Bachelor and Master levels, the education and training system, which includes vocational and educational training as well as higher education, does not facilitate adequate acquisition of digital skills. Due to insufficient availability of digital devices and the digital skills gap among pupils and teachers, the COVID-19 shift to distance learning posed challenges, especially for disadvantaged groups, including from rural areas and Roma. However, Romania is performing well with regard to ICT graduates, ranking 5th among EU Member States, with 5.6% of all graduates receiving a degree in this field. However, due to the low number of tertiary graduates, the availability of tertiary educated professionals, including in ICT, is insufficient. Romania continues to have the lowest rate of adult learning in the EU (1% in 2020), exacerbating the insufficient digital skills among the labour force. Adoption of digital technologies in Romanian businesses is below the EU average. 31% of them use at least two AI technologies (above the EU average of 25%) and 48 % are using at least one AI technology (above the EU average of 42% as well). While cloud computing, smart devices and high-speed infrastructure show the largest gaps compared to the EU average, the adoption of robotics and blockchain compares to the EU average. In addition, the share of firms expecting higher levels of growth as a result of increased digitalisation is also far below the EU average, i.e. 20% versus 31%. Consequently, Romania should also improve the digitisation of businesses, with a national strategy focusing on the digital transformation of enterprises and promoting digital interactions between the State and private companies as much as possible. Targeted measures are needed to support the digitalisation of SMEs and raise awareness on the relevance and benefits of adopting digital technologies. On performance of digital public services, Romania has ranked low among EU Member States during the past 3 years, a fact that was particularly highlighted by the pandemic. Against this background, the main barriers to achieving functional digital public services in Romania are: (i) the lack of coordination between public institutions in setting up such services; (ii) the migration of IT specialists from the public sector to the private sector or to other countries; and (iii) the overall lack of digital skills. Moreover, while digital public services should be expanded, special attention should be paid to interoperability, which has been a recurring issue in recent years. In addition, the actions on eIDAS (electronic identification, authentication and trust services) have not yet been finalised. The low level of digitalisation of Romania’s research system constitutes a significant obstacle to the digital transition. Insufficient R&D investments in the digitalisation of research organisations, particularly to develop national data infrastructures compatible with the European Science Cloud, are limiting the country’s science and technology performance. Although the ICT sector has a large innovation potential and is one of the few economic sectors with a high number of innovative start-ups and scale-ups, its R&D investment intensity is among the lowest in the EU. Addressing this issue requires funding measures aimed at increasing firms’ R&D absorption capacity and their management/organisational capacities to carry out innovation activities. Romania’s involvement in multi-country projects could be further enhanced. The country is the co-signatory of several declarations and initiatives at EU level (e.g. on next generation for cloud for business and the public sector, processors and semiconductor technologies, European Blockchain Partnership, quantum communication infrastructure and cooperation on artificial intelligence) and a member of the European High Performance Computing Joint Undertaking. Romanian enterprises are adopting artificial intelligence. Romania still lags behind the EU average in greening the digital sector. The transition to a digitalised administration, economy and society should not hinder the country’s environmental objectives. In 2018, Romania was among the worst performers at EU level for CO2 emissions by information industries, with the figure reaching 24.4 tons/million of GDP. Investing in key digital technologies such as ultra-low-voltage (ULV) processors will enable Romania to achieve large improvements in energy efficiency and will help reduce greenhouse gas emissions. At the same time, data centres account for the largest share of greenhouse gas emissions in the ICT sector (45%). Investing in greener data centres will therefore yield positive results in terms of reducing Romania’s carbon footprint.

Romania’s ranking in the Digital Economy and Society Index 2020. https://ec.europa.eu/digital-single-market/en/scoreboard/romania Note: EU aggregate corresponds to EU28, based on 2020 DESI report. Box 1: Progress towards the Sustainable Development Goals Sustainable Development Goals and the four dimensions underpinning the Annual Sustainable Growth Strategy. The objectives of the Sustainable Development Goals are integrated in the European Semester since the 2020 cycle. This provides a strong commitment towards sustainability in coordination of economic and employment policies in the EU. In that respect, this section outlines Romania’s performance with respect to SDGs with particular relevance for the four dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the Recovery and Resilience Plans (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the Facility could further accelerate the progress on the SDGs. Green Transition The performance on SDGs related to the green transition is mixed. For instance, Romania is well below the EU average on greenhouse gas emissions in 2018, with an index of 46.8 vs 79.3 for the EU. On sustainable cities and communities, Romania displays an overcrowding rate of 46.3%, well above the EU average of 17.1%. The country’s primary energy consumption is close to the EU average with an index of 90.3. Fairness Romania displays a critical, although improving, situation regarding the fairness of society and economy. The performance on SDG 1 ‘No poverty’ improved until 2018, when the rate of people at risk of poverty or social inclusion dropped to 32.5%, still considerably above the EU average of 21.6%. Romania is performing well below the EU average in terms of good health and well-being, with a life expectancy for men and women of 71.7 and 79.9 years respectively in 2018. The rate of early leavers from education and training dropped from 19.1% in 2015 to 15.6% in 2020. The gender pay gap is improving, having reached 2.2% in 2018, down from 5.6% in 2015 and well below the EU average (14.1% in 2018). Digital transition and productivity As regards SDG 9 ‘Industry, innovation, and infrastructure’, Romania scores very low on the gross domestic expenditures on R&D ranking, with 0.6% in 2018 compared to the EU average of 2.2%. The country is also lagging behind in patent applications, with only 100 sent to the European Patent Office in 2017. The performance on SDG 8 ‘Decent work and economic growth’ is weak regarding ‘real GDP per capita’ and ‘resource productivity’ in 2018. Romania is slightly over the EU average for the ‘investment share of GDP’ (21% in 2018), but faced a notable drop compared to 2013 levels. The share of ‘young people neither in employment nor in education and training’ remained high in 2018 (17%) vs the EU average (12.9%), although it has improved since 2013. The employment rate increased in recent years, approaching the EU average (69.9% vs 73.2% at EU level) in 2018, while the long-term unemployment rate remains lower than the EU average. Macroeconomic stability Romania achieves worse-than-EU-average scores on SDG 16 ‘Peace, justice, and strong institutions’. Particularly, for access to justice, the general government expenditure on law courts has progressively improved in the last 15 years, whereas the perceived independence of the justice system among the general public has varied considerably in the past five years: the share of Romanians grading the justice system as very/fairly good was 51% in 2016, decreased to 40% in 2019 and increased back to 51% in 2020, still below the 54% EU average for this last year. 3.Objectives, structure and governance of the Plan 3.1.Overall strategy of the Plan The Romanian Recovery and Resilience Plan aims to support Romania’s socio-economic recovery and long-term development after the COVID-19 pandemic. It also aims to increase the growth potential while addressing long-standing challenges. The reforms and investments are structured around six pillars: i) Green Transition, ii) Digital Transformation, iii) Smart, sustainable, and inclusive growth, iv) Social and territorial cohesion, v) Health and economic and social resilience, and vi) Next Generation. The Green Transition pillar includes key measures to decarbonise the energy and transport sectors. It includes reforms to phase-out coal power production by 2032, unlock renewable energy and energy renovation potential, sustainable mobility, water and waste management and biodiversity, which are essential steps for decarbonisation and to strengthen the circular economy. Investments in RES, energy and resource efficiency of public and private buildings, environment, and dedicated measures on the circular economy will also enable the green transition in key sectors of the economy. The significant amount of investments in sustainable transport is accompanied by reforms to promote road decarbonisation, zero-emission transport, road safety and modal shift towards railways and waterways. A large share of the proposed measures for sustainable transport aim to contribute to the reduction of GHG emissions and pollution through investment in rail infrastructure and rolling stock, in sustainable urban transport, as well as in electric vehicle (EV) recharging infrastructure and flanking measures proposed to reduce the impact of new motorways. The Digital Transformation pillar focuses on digital public services for citizens and companies, connectivity, cybersecurity and digital skills. Reforms and investments target governmental cloud, large scale electronic identity card deployment, digitalisation of crucial activities and sectors such as public procurement, environmental policy, the justice system, healthcare provision and labour market integration. The investments, going well beyond the mere acquisition of equipment, aim for the development and implementation of advanced technologies, which are expected to lead to process optimisations and increased accessibility and availability of interoperable public services that are compliant with the once-only principle. Beyond the Digital Transformation pillar, each of the Plan’s 15 components includes digital-related measures, notably component 9 (Business support and R&D&I) which focusses on the digitalisation of companies and component 15 (Education).

The pillar on ‘Smart, sustainable, and inclusive growth’ aims at addressing key challenges in the tax administration, tax system, government budgetary framework, and pension system, at strengthening the business environment in Romania, including the research, development and innovation sector. It includes key measures aimed at a more efficient and fair tax system, increasing the revenue collection capacity of the State budget, digitalising the National Agency of Fiscal Administration, improving the budgetary programming mechanism, as well as correcting inequities in the pension system and ensuring the sustainability and predictability of the pension system. For the private sector, it focuses on the simplification and digitalisation of regulatory requirements. Significant financial support is foreseen for the digitalisation and the increase of energy efficiency of SMEs, and for a multi-country project in microelectronics, contributing to the objectives of the new Industrial Strategy for fostering the twin transition, and to increased open strategic autonomy. On R&D&I, Romania aims to address the unclear governance, the fragmentation and effectiveness of the R&D&I system and to promote its cooperation with the private sector. The pillar on ‘Social and territorial cohesion’ aims to implement urban policies, including urban mobility, focusing on green and digital investments and on reducing regional disparities. It also aims at developing the tourism sector and supporting the digital transition of the cultural and creative sectors. The pillar on ‘Health and economic and social resilience’ covers a broad array of measures including health, social and public administration. More concretely, it focuses on measures directed at increasing access to health services for the vulnerable, developing the outpatient care dimension and improving the quality of care, while also upgrading health infrastructure. On social aspects, the aim is for a new regulatory framework to cover families living in poverty with dependent children, elderly and adults with disabilities. It also includes the operationalisation of the minimum inclusion income and a voucher system for the formalisation of domestic work. As regards public administration, the pillar includes a broad set of reforms and investments aimed at improving governance through a predictable, informed and participatory decision-making system with quality civil servants and more efficient justice and anti-corruption systems. Finally, the pillar also addresses the governance and efficiency of state-owned enterprises. The ‘Next Generation’ pillar aims at facilitating large scale investments, backed by tailored reforms, in the education and training system in view of improving quality, equity and labour market relevance. Investments will be backed by reforms setting the appropriate legal frameworks for the investments to be properly implemented. Key reforms focus on improving early childhood education and care, reducing early school leaving, setting-up a full professional route for dual education and the digitalisation of education and training. It also aims at improving environmentally-friendly safety and quality standards at all education levels. Component Costs (EUR million) Total Costs (EUR million) Non-repayable support Loans Pillar “Green Transition” 1.Water management 1 462.00 1 462.00 2.Forests and Biodiversity protection 781.00 392.00 1 173.00 3.Waste management 1 239.00 1 239.00 4.Sustainable transport 3 906.00 3 714.00 7 620.00 5.Renovation Wave 2 200.00 2 200.00 6.Energy 460.00 1 160.00 1 620.00 Pillar “Digital Transformation” 7.Digital transformation 1 827.06 57.90 1 884.96 Pillar “Smart, sustainable, and inclusive growth” 8.Fiscal and pension reforms 456.93 456.93 9.Business support and R&D&I 2 558.63 2 558.63 Pillar “Social and territorial cohesion” 10.Local fund 1 200.00 900.00 2 100.00 11.Tourism and culture 449.00 449.00 Pillar “Health and economic and social resilience” 12.Healthcare 2 450.01 2 450.01 13.Social reforms 107.69 89.05 196.74 14.Good governance 165.60 165.60 Pillar “Next Generation” 15.Education 2 885.39 720.57 3 605.97 Total 14 239.69 14 942.15 29 181.84 3.2.Implementation aspects of the Plan Romania’s Recovery and Resilience Plan provides justifications for its consistency with the objectives and priorities of other European and national programmes. The Plan aims to provide detailed justification for its consistency and alignment with the objectives and priorities of the Just Transition Fund and other funds and initiatives under the Common Provision Regulation, as well as other initiatives such as the National Reform Programme of Romania, the European Digital Strategy and the National Energy and Climate Plan. The reform linked to the coal phase-out constitutes a key element to define the transition process towards a climate-neutral economy, a step necessary to program further resources under the Just Transition Mechanism. The Multiannual Financial Framework 2021-2027, the Partnership Agreement with Romania and the Programmes to be developed for the implementation of the Structural Funds are still at very preliminary stages of preparation. The Plan acknowledges significant complementarities with cohesion policy funds of which Romania is among the main beneficiaries in the 2021-2027 financing period both in absolute terms and as in percentage of GDP. In particular, the Romanian Recovery and Resilience Plan stipulates that its structure shall complement the projects supported by the Cohesion policy in order to optimise the use of EU funds allocated to Romania. Given that the 2021- 2027 Partnership Agreement and programmes are still pending finalisation and adoption, all potential areas of support under the Cohesion policy funds indicated in the plan are still subject to negotiations with the Commission and as such cannot be prejudged. Complementarities are particularly relevant for areas where reforms or investments that will be kick-started with the Recovery and Resilience Facility support could at a later stage benefit from support under ERDF, the Cohesion Fund and ESF+ in order to ensure their impact in the long-term, such as the circular economy, energy, sustainable transport, digitalisation, health, education, social inclusion and protection and employment policies, and health sector. Romania will use the Technical Support Instrument for the development of the Circular Economy Strategy and the improvement of the efficiency of the public procurement system. The Social Reforms and Investments (component 13) are complementary to investments financed by the Structural Funds, in particular in the provision of services for Integrated Community Centers for those at risk (including children and persons with disabilities). While the Partnership Agreement for the 2021-2027 period has not yet been finalised, synergies are also expected to be created between investments from the Cohesion funds and the Plan measures taken in education, healthcare and employment. This is particularly the case in component 15 (Education), which focuses on reducing early school leaving or improving the participation rate in early childhood education and care. The Plan explains, for example, how investments in expanding the capacity of Early Childhood Education and Care facilities will be matched with building the methodological norms for training the necessary staff (financed from other EU-funding sources). Complementary measures to the Early School Leaving investments in the Plan are also intended to be included in the Programmes, tackling the broad array of causes leading to school abandonment. Measures aiming to increase the digital competence of the population will be complementary to interventions planned under the 2021-2027 Programmes. The Plan indicates complementarities with those measures, targeting quality of primary, community-based and outpatient care services, including trainings of healthcare staff (See Annex 3.2.10.). A multi-level governance is envisaged for the implementation and monitoring of the Recovery and Resilience Plan. This includes in particular: at central level, the coordination is ensured by the Inter-ministerial Committee for the Coordination of the Plan, responsible for examining progress in the implementation of the Plan, in close cooperation with the Ministry of Investment and European Projects (‘MIEP’). MIEP is appointed as national coordinator for the preparation, negotiation and approval of the Plan, assisted by the Ministry of Public Finances. Throughout the implementation, it will be important to ensure appropriate coordination between the Recovery and Resilience Plan and the programmes co-financed by the Cohesion and Regional funds as well as other funds, such as the Innovation Fund and Modernisation Fund under the EU Emissions Trading System. As regards gender equality and equal opportunities for all, the Plan describes existing national challenges and outlines which reforms and investments are expected to contribute to furthering these aims across the different pillars of the Recovery and Resilience Facility, such as the introduction of a mandatory minimum threshold for women’s participation in training, education or digital literacy programmes of 50% in the Digital transformation pillar, and investments in social housing for disadvantaged or vulnerable people in the Social and territorial cohesion pillar. Romania foresees that, for the purpose of monitoring and reporting, data on participants benefiting from interventions or institutional or policy implementation developments will be disaggregated by variables such as sex, age, disability and, where possible, membership of a minority group. Romania carried out stakeholder consultations with local and regional authorities, social partners, civil society organisations, the business community and other relevant stakeholders before the submission of the Recovery and Resilience Plan. The Ministry of Investments and European Projects organised 12 public consultation events in February 2021, as well as 20 inter-ministerial meetings to prioritise the investments and reforms to be included in the national Recovery and Resilience Plan. The Romanian authorities indicate they received 1,939 proposals as a result of consultations, which have been filed and used in the preparation of the Plan, with a special emphasis on environment, public administration reform, and social components. Following the stakeholder and inter-ministerial consultation meetings, the draft Plan was published for public consultation and briefly presented to the Parliament before being adopted by the Government and subsequently officially submitted to the Commission on 31 May. For the Plan implementation, consultations with relevant stakeholders and social partners are foreseen for key reforms (e.g. for the minimum wage setting and the pension reforms, the Social Dialogue law, for the phase-out of coal power production, for the reforms in the field of water and waste management, and for the development of the National Hydrogen Strategy). Romania has included in its Recovery and Resilience Plan the estimated cost for additional technical support, under the Technical Support Instrument, in accordance with Article 7(2) of the RRF Regulation, for the implementation of two reforms. In particular, the additional support for reform 4, component 6 (Energy) shall aim to develop a legislative and regulatory framework conducive to future technologies, in particular hydrogen and storage solutions. The support will thus contribute to the development of the National Hydrogen Strategy and Action Plan. It will do so by carrying out a strategic environmental assessment and a public consultation for the strategy; assessing the hydrogen production potential from renewable energy sources; analysing and developing proposals for improving the legislative framework for hydrogen and developing effective governance structures for implementing the hydrogen strategy. Moreover, the additional technical support for reform 9, component 14 (Good governance) shall aim to improve the procedural framework for the implementation of corporate governance principles in state-owned enterprises (SOEs). Recommendations should be provided to support the work of the SOE governance structure which will be created. Specific areas of advice include legislative review, analysis of SOEs by functional area, review of the state ownership policy, operationalisation of the structure/task force, and selection of key performance indicators to monitor activities of SOEs. In addition, the Technical Support Instrument provides expertise in building capacities to monitor the implementation of the entire Plan and coordination with other EU and non EU support instruments, as well as in a number of areas it covers, such as policy coordination and coherence, digitalisation, public procurement, circular economy, energy market, establishment of the National Development Bank and implementation of a mechanism preventing early school leaving. Support for the design and implementation of R&I policy reforms under component 9 is currently provided through a project of the Horizon Policy Support Facility launched in June 2021. In accordance with Article 18(4), point (g) of the RRF Regulation, the Plan includes a security-self assessment for investments related to the government cloud and 5G networks. For cloud, Romania identifies the risks related to governance, service delivery strategy, architecture implementation, infrastructure security, access control and identity management, information (data) management, IT operations, management of technology providers, sustainability, including possible mitigation risks. As regards connectivity measures, in particular for the use of 5G networks, risk scenarios are related to insufficient security measures, 5G supply chain, risk scenarios related to modus operandi of key threat actors, risks in relation to interdependencies between 5G networks and other critical systems, end-user risk scenarios of devices. Mitigation measures include the development of a national cybersecurity regulatory framework and a defence and cybersecurity act, among others. Under the reforms in component 7 (Digital transformation), Romania is expected to implement 12 out of the 39 recommendations of the Common Union Toolbox for Connectivity. Moreover, a flagship reform includes the entry into force of the 5G network security law which shall foresee special authorisation requirements for manufacturers of 5G equipment and software. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the Plan. Romania’s Plan includes participation in a multi-country project in the digital sector on Low Power Processors and Semiconductor Chips, expected to be implemented mainly through participation or association to a planned Important Project of Common European Interest (IPCEI). Romania is expected to be involved at European level through the participation or association of at least ten members of the national ecosystem to this project. Moreover, under this project, the Plan includes measures for skills development for the design, manufacture and application of microelectronic components and systems and for securing intellectual property. The Plan also includes investments along the Trans-European Transport (TEN-T) corridors, such as the development of at least 315 km of the European Rail Transport Management System, which should allow the interoperability with the rail systems of other Member States. The Recovery and Resilience Plan sets out Romania´s communication plans. The objectives of the communication strategy are in line with the RRF Regulation and aim to raise awareness about the Plan’s contribution to the Romanian and European recovery and to the twin transition. The described communication strategy objective is to raise awareness of the financial contributions from the Recovery and Resilience Facility for fostering reforms and investments that are instrumental for the economic and social recovery and resilience. Communication activities will be targeted to the general public, potential and final beneficiaries, media and other stakeholders and will be closely correlated to the six pillars of the Recovery and Resilience Mechanism, which are also the six pillars of Romania’s Recovery and Resilience Plan. Specific key messages will be included in the communication campaign, around the central idea of a reformed and modernised Romania with the help of the Plan.

The strategy indicates that communication activities will be organised both at central and project/beneficiaries level. Visual Identity Guide with mandatory communication rules for beneficiaries will be developed. Romania plans to use the following communication channels: Websites and social networks, public online and offline events, interviews in print, TV and radio media, and online publications, newsletters, as well as outdoor publicity and stories/reports at project level. Key reforms and investments for communication have been identified, based on the following criteria: green/digital content; essential reforms for the modernisation of Romania; and the maturity of the initiative. A list of minimum communication activities to be carried out will be stipulated and costs will be part of the costs of projects/reforms. The communication strategy will be monitored based on a number of indicators specified in the communication plan periodically evaluated. It is essential that the described communication plan is implemented. Coordination between EU and national authorities is specified in the strategy and should be pursued to maximise the impact and effectiveness of communications. State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Romania in the Recovery and Resilience Plan cannot be deemed a State aid notification. In as far as Romania considers that a specific measure contained in the Recovery and Resilience Plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Romania to ensure full compliance with the applicable rules. 4.Summary of the assessment of the Plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Plan presents to a large extent a comprehensive and adequately balanced response to the economic and social situation, and appropriately contributes to all six pillars referred to in Article 3 of the RRF Regulation. The Plan follows a holistic approach to achieve recovery and increase potential growth, while enhancing socio-economic and institutional resilience. The Plan explains in detail how it addresses the six pillars, namely: (i) green transition, (ii) digital transformation, (iii) smart, sustainable and inclusive growth, (iv) social and territorial cohesion, (v) health and economic, social and institutional resilience, and (vi) policies for the next generation. The Plan contains 171 measures (64 reforms and 107 investments) that refer to policy areas of European relevance structured in the six pillars, which define the scope of the RRF. The Plan is expected to contribute to tackling key structural challenges and to contribute to the green and digital transitions. The coverage of the six pillars by the Romanian Plan’s components is summarized in Table 4. Romania submitted its National Reform Programme on 11 June. The information provided in the National Reform Programme is being considered and taken into account in this Staff Working Document in assessing the Recovery and Resilience Plan. Table 4 Coverage of the six pillars of the Facility by the Romanian RRP components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation Pillar I - Green transition 1 —Water management ● ○ ○ 2 — Forests and Biodiversity protection ● 3 — Waste management ● ○ ○ 4 — Sustainable transport ● ● ● ○ 5 — Renovation Wave Fund ● ○ ○ 6 — Energy ● ○ Pillar II – Digital transformation 7 — Digital transformation ● Pillar III

Smart, sustainable and inclusive growth 8 — Tax pension reforms ○ ○ ● ● ○ 9 — Business Support, research, development and innovation ● ● Pillar IV – Social and territorial cohesion 10 — Local Fund ● ○ ● 11 — Tourism and culture ○ Pillar V - Health, and economic, social and institutional resilience 12 — Healthcare ○ ○ ○ ● 13 — Social reforms ○ ● ● 14 — Good governance ● Pillar VI – Policies for the next generation 15 — Education ○ ● ○ ○ ● Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar Green transition Green challenges are addressed in the Plan mostly under components 1 to 6 – dealing with water and waste management, forests and biodiversity, sustainable transport, renovation and energy. Investments and reforms in energy and resource efficiency and building renovation, sustainable transport, circular economy and waste management, water and wastewater management, renewable energy, afforestation and reforestation are expected to contribute to Romania’s climate and energy objectives. In particular, significant reforms and investments in component 4 (Sustainable Transport) are dedicated to the modernisation and decarbonisation of road transport and to improving road safety, the modernisation of railway transport infrastructure (EUR 3.48 billion), acquisition of zero-emission and renewal of rolling stock (EUR 412 million), and development of underground infrastructure in Bucharest and Cluj-Napoca (EUR 600 million). Similarly, under component 10 (Local Fund), the measures to support sustainable urban mobility, the renewals of public transport fleets (EUR 580 million), the energy renovation of public buildings (EUR 575 million) and infrastructure for more sustainable and more secure urban mobility (EUR 620 million in total), are also expected to contribute to the green transition. Measures fostering the green transition included in component 6 (Energy) entail the phase out of coal and lignite power production and the deployment of renewables (EUR 460 million) and green (hydrogen produced from renewable electricity) hydrogen (EUR 115 million), as well as investments in batteries, photovoltaic cells and electricity storage to support the flexibility of the electricity grid to cater for increased renewables production (EUR 280 million) and measures to promote private investments in energy efficiency of the industry (EUR 64 million). A very important contribution to the green transition is also envisaged in component 5 (Renovation Wave), where a substantial allocation is planned for the acceleration of the energy renovation of both private and public buildings (EUR 2.15 billion). Under component 1 (Water management) reforms and investments (EUR 1.46 billion in total) are expected to improve water and wastewater systems, including drinking water, and also develop flood protection measures, such as the extension of the coverage of water and wastewater collection systems in municipalities of more than 2 000 inhabitants. Component 2 (Forests and Biodiversity protection) includes important reforms and investments on reforestation (EUR 1.17 billion) to increase the forest coverage in the country that has been subject to illegal logging, and to further develop measures in favour of biodiversity, such as restoration measures and designation of strict protection areas. Component 3 (Waste management) includes a reform aimed at improving waste management governance to accelerate the transition to the circular economy, as well as accompanying investments to develop, modernise and complete integrated municipal waste management systems (EUR 956 million), which are expected to promote a circular economy and enhanced waste recycling. Other components indirectly contribute to the green transition. For instance, to some extent, measures under component 11 (Tourism and culture), such as the development of cycling routes are expected to contribute to the green transition. Similarly, investments under component 12 (Healthcare), for example, entail major healthcare infrastructure projects such as hospitals, networks of outpatient centres, integrated community centres, family planning offices and primary care practices complying with the nearly zero-energy standards (NZEB), ensuring the climate neutrality of the said buildings and, for some buildings, achieving a Primary Energy Demand that is 20% lower than NZEB standards. Component 14 (Good governance) includes support for strengthening coordination at the government level of an integrated and coherent approach to climate change and sustainable development initiatives. Digital transformation The Plan’s reforms and investments related to digital transformation tackle a large range of challenges faced by Romania in this area. Romania ranks low in the DESI when it comes to human capital, integration of digital technology by businesses and digital public services, as well as on the use of internet services, which is correlated with the level of skills. Thus, the Plan rightfully targets these areas and aims at reducing or closing the gaps compared to the EU average. Digital measures are included in component 7 (Digital transformation), as well as in all other components of the Plan, reflecting the cross-cutting nature of the envisaged digitalisation efforts. Investments to develop an integrated e-Health and telemedicine system (EUR 470 million), and to improve the digitisation of public employment services and social protection, have the potential to increase access to and the quality of these services. The measures are also expected to further strengthen the resilience of the healthcare system. Important investments are foreseen in the deployment of the electronic identity card for Romanian citizens (EUR 200 million) and for building a governmental cloud infrastructure (EUR 374 million). Significant contributions to the digital objectives are also included in component 4 (Sustainable Transport), with investments in the digitalisation of road (EUR 254 million) and rail transport (EUR 610 million), component 10 (Local Fund) with investments in ITS systems for urban mobility (EUR 275 million), as well as in component 9 (Business support and R&D&I), with investments in the digitalisation of businesses (EUR 550 million) and in a digital multi-country project in the area of ‘Low-power processors and semiconductor chips’ (EUR 500 million). Furthermore, component 15 (Education) includes measures such as modernising computer laboratories in schools and the provision of additional IT equipment (EUR 478.5 million), and trainings for teachers; other targeted investments are expected to accelerate the digitalisation of higher education institutions and to facilitate advanced skills development, which can should in turn support the digital transformation. All together, the Education component makes a significant contribution to the digital objectives (a total of EUR 1 129.50 million). Other components indirectly contribute to the digital transition. Investments to facilitate taxpayer compliance and tax collection through the development of digital services (e.g. digital communication, simplification and digitalisation of forms, redesign of the IT systems, creation of a platform for online auctions), improving tax administration processes (including the revision of the taxation framework), updating the IT systems and applications used by fiscal and customs authorities, and supporting the digitalisation of the pensions system are all part of the tax and pension reform component, with a total digital contribution of EUR 386.7 million. Finally, the investments aimed at increasing digital access to spatial and urban planning documents under component 10 (Local Fund and the digitalisation of cultural routes and film production and distribution), the investments in digitised eco-islands under component 3 (Waste management), and the development of a digital system for cultural funding under component 11 (Tourism and Culture) are also expected to contribute at least to some extent to the digital transition. Smart, sustainable and inclusive growth Several components in the Plan have the potential to foster smart and sustainable growth. The Plan contains a series of measures that are expected to directly or indirectly support private investments, including for SMEs, increase the capacity of the country to attract investment and create new businesses and jobs. For instance, under component 9 (Business support and R&D&I), there are a set of reforms and investments to strengthen the Romanian business environment including the research, development and innovation sector. The reforms supporting the investments include regulatory changes to reduce the administrative burden for firms by simplifying legislation/start-up/exit procedures, as well as obtaining licenses, supported by investments in digital platforms on legislative transparency, de-bureaucratisation and procedural simplification for business (EUR 14 million). Reforms also address the fragmentation and effectiveness of the research, development and innovation system and promote its cooperation with the private sector, for instance, through the legislative reform to simplify the cooperation between business and public research. Enhanced synergies with Horizon Europe will foster internationalisation of Romanian R&I system. Investments under this pillar also cover the creation of a digital platform for providing simplified public services for businesses, including for obtaining licences, and access to finance to small and medium size enterprises and companies through financial instruments and grants, as for instance, the establishment and operationalisation of the National Development Bank (EUR 10 million) under component 8 (Tax and Pension reforms), and the portfolio guarantee for resilience (EUR 300 million) and the Recovery venture capital fund (EUR 400 million) under component 9. These measures will promote economic development and competitiveness, especially by providing access to finance for economically viable infrastructure projects, ensure access to finance for SMEs and improve the absorption of EU funds. Complementary investments will relate to funding research competence centres and research projects led by internationally reputed researchers, as for instance, the funding of EUR 500 million to provide support to the scale-up of the national capabilities up to the first industrial development and the participation in or association to a multi-country project (planned as an Important Project of Common European Interest on Microelectronics). The Plan also aims to reinforce fiscal sustainability through important reforms of the tax administration, fiscal management and the public pension system. The reform of the tax administration included in component 8 (Tax and Pension reforms) is aimed at increasing tax collection and compliance, enhancing the relationship between tax administration and taxpayers also through increased transparency, mainly through the digitalisation of the tax administration (about EUR 291 million spread over different investments in centralisation of databases with taxpayers information, digitalisation and smart and massive use of data), and gradually withdrawing the existing excessive tax incentives. This reform shall support the improvement of the business environment and increase the ability of the government to respond to the high level of income inequality and of poverty rates by redistributing incomes or providing more public goods and services more efficiently, also thanks to the implementation of systematic spending reviews. The reform of the pension system aims to ensure an adequate level for those on low incomes and the sustainability of the public pension system in the medium to long-term, contributing to preserve the stability of public finances. Several other measures will support at least partially the objective of smart, sustainable and inclusive growth. Those include, inter alia, measures in the field of transport (e.g. roads and railways investments enabling the flow of people and of goods between regions and with neighbouring countries, digitalisation of transport which supports more efficient mobility and safer transport), tourism (e.g., the Mapping/Identification of all the optimum destination areas for regional Destination Management Organisations and the Adoption of the Action Plan for the use of cultural heritage, both promoting sustainable and inclusive growth), education (e.g., to boost the availability of services for children education and to reduce the drop-out rate from compulsory education), renovation wave (e.g., trainings on energy efficiency skills supporting sustainable growth) and energy (e.g., reform to reduce the energy intensity of industry, and investment in new capacity for electricity generation from renewable sources). Social and territorial cohesion

Several components will contribute to the objective of social and territorial cohesion. In particular, all reforms and investments in component 10 (Local Fund) targeting both urban and rural development, are expected to reduce territorial disparities at regional, intra-regional and intra-county level. The Plan recognises the need to invest in modernising the Romanian social benefits system by implementing the minimum inclusion income, which is covered in component 13 (Social reforms). The implementation of the legislation on introducing the minimum inclusion income is an essential step towards addressing the low adequacy of support payments and incentivising labour market activation. Those measures would be vital in the context of the negative demographic changes in the country. The pension reform included in component 8 (Tax and Pension reforms) would also contribute to a fairer and more sustainable social support and intergenerational cohesion. The Plan envisages to further strengthen social cohesion through structural measures on the labour market. Already indicated in the “Digital transformation” section, the Plan puts forward measures to improve the employment and social protection digital systems. The interventions have the potential to enhance the service provision to the unemployed and the beneficiaries of benefits, the communication processes within the institutions, and the level of digital skills of the staff. Other components indirectly contribute to the social and territorial cohesion pillar. For instance, investment under component 11 (Tourism and Culture) are expected to increase access to culture in culturally deprived areas (EUR 7.8 million). Many of the measures taken under component 12 (Healthcare) are directed towards providing medical (especially pre-hospital) care for the underserved communities, including Roma community, by providing medical units and building or rehabilitating the networks of family care practices, outpatient units or integrated community centres, in the marginalized areas. At least 20% of the sizeable allocation dedicated to the energy renovation of residential buildings will be dedicated to communities at risk of poverty and social exclusion and the support will be made available to all local administrations, based on the number of buildings and the total population (EUR 177.5 million). Integrated seismic and energy renovation projects will also prioritise communities at risk of poverty and social exclusion. The broadband investment included in component 7 (Digital transformation) will provide coverage of very high-speed internet access (at least 100 Mbps upgradeable) to rural areas (EUR 94 million). Finally, investments in the expansion of water and wastewater infrastructure under component 1 (Water management) is also expected to contribute to social cohesion through investments in less developed areas in this respect, while investments in road, rail and urban mobility infrastructure are likely to improve connectivity and cohesion at local and regional level. Health, and economic, social and institutional resilience The key measures contributing to the health, social and institutional system’s resilience are included in component 12 (Healthcare) and component 7 (Digital transformation), component 13 (Social reform) and component 14 (Good governance) of Romania's Recovery and Resilience Plan. The proposed reforms and investments in component 12 (Healthcare) have the potential to strengthen the overall resilience of the health system, by improving access to healthcare, ensuring the availability of health workers and achieving a shift to outpatient care. In particular, the reforms aim to improve the performance of healthcare providers, to achieve more effective management of health infrastructure projects by establishing a dedicated government agency, and to professionalise healthcare management as well as human resource management in healthcare. The reform concerning human resources also aims to strengthen anti-corruption measures in the health system. The objective of component 13 (Social reform) is to contribute to social resilience by increasing access to social services for the most vulnerable, including workers, children, persons with disabilities, the inactive and the elderly. By ensuring the delivery of quality public services by a pool of professional and well-trained civil servants that adequately respond to the challenges, needs and expectations of citizens and businesses, reforms included in component 14 (Good governance) are also expected to strengthen institutional resilience. The most important investments contributing to this pillar are included in component 12 (Healthcare). The investment in pre-hospital medical infrastructure will help upgrade and update existing medical infrastructure, including buildings and equipment, in primary care, community care and outpatient settings (EUR 314.8 million). Public hospital infrastructure investments aim to ensure patient safety in new or upgraded hospitals and reduce the risk of healthcare associated infections in hospital settings (EUR 1 954 million). It includes upgrading medical equipment as well as investing in neonatal critical patient infrastructure (EUR 865 million). E-Health also features in the Romanian Plan. Included both in the Digital component and the Health component, the proposed investments cover the standardisation and optimisation of the Health Insurance Information Platform, the digitalisation of health institutions at central and regional level, the acquisition of IT systems and digital infrastructure for health services, and the development of telemedicine and mobile patient monitoring systems (EUR 470 million). Policies for the next generation The Romanian Plan includes reforms and investments to tackle some of the main challenges found in the education system. Each of these reforms will be accompanied by complementary investments, and several targets will be set to track and ensure their appropriate implementation. Upgrading school and university infrastructure in urban and rural areas, by amending and streamlining the regulatory framework to ensure environmentally-friendly safety and quality standards (EUR 1 315 million) will be one of the objectives of component 15 (Education). Particularly important within this objective shall be the provision of facilities for pre-university classrooms and school laboratories/workshops (EUR 600 million). Secondly, the digitalisation of education (EUR 1 129.50 million), is to be promoted through changes in the legal framework, to enable integrated approaches and improve the digital skills of students and teachers, and a scheme to finance digital technology equipment and resources for schools (EUR 478.5 million). In terms of early school leaving, an uncompetitive grant scheme for educational establishments at high risk of drop-out (EUR 400 million) will allow for higher independence of schools in tackling this issue. Taking into consideration all reforms and investments envisaged by Romania, its Recovery and Resilience Plan represents, to a large extent, a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Romania into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V of the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester Overall, the Plan provides an adequate response to a large set of economic, social and environmental challenges faced by Romania. The Recovery and Resilience Plan of Romania is expected to contribute to addressing a significant subset of challenges identified in the relevant country-specific recommendations (CSRs), including fiscal aspects thereof, addressed to Romania in the context of t