Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Romania and delivering a Council opinion on the 2016 convergence programme of Romania
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: Romania, economic policy, economic reform, health care system, labour market, public service, retirement conditions, school attendance, stability programme, tax collection

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 343 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Romania  and delivering a Council opinion on the 2016 convergence programme of Romania  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of Romania 

and delivering a Council opinion on the 2016 convergence programme of Romania 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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On  26 November 2015,  the  Commission  adopted  the  Annual  Growth  Survey4, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  17-18 March 2016.  On  26 November 2015,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report5,  in  which  it 
identified Romania as one of the Member States for which an in-depth review would 
be carried out.  
The  2016  country  report  for  Romania6  was  published  on  26 February 2016.  It 
assessed  Romania’s  progress  in  addressing  the  country-specific  recommendations 
adopted by the Council on 14 July 2015 and Romania's progress towards its national 
Europe  2020  targets.  It  also  included  the  in-depth  review  under  Article  5  of 

OJ L 209, 2.8.1997, p. 1. 
COM(2016) 343 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 
SWD(2016) 91final. 

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(3) 

(4) 

(5) 

(6) 

Regulation  (EU)  No 1176/2011.  On  8 March 2016,  the  Commissionpresented  the 
results of the in-depth review.  7 The Commission's analysis leads it to conclude that 
Romania is experiencing no macroeconomic imbalances.  

On  28  April  2016,  Romania  submitted  its  2016 national reform  programme  and  its 
2016  convergence  programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

recommendations  have  been  addressed 

Relevant  country-specific 
the 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period.  As  foreseen  in  Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations,  the 
Commission may request a Member State to review and propose amendments to its 
Partnership  Agreement  and  relevant  programmes.  The  Commission  has  provided 
further  details  on  how  it  would  make  use  of  this  provision  in  guidelines  on  the 
application  of  the  measures  linking  effectiveness  of  the  European  Structural  and 
Investment Funds to sound economic governance.8 

in 

The third balance-of-payments financial assistance programme (2013-2015) ended in 
September 2015  without  any  completed  review.  The  third  formal  review  mission 
(16-30 June 2015)  to  assess  implementation  of  the  programme's  conditions  has  not 
been  concluded.  While  some  progress  was  achieved  in  several  areas,  current  and 
former  programme  achievements  were  undermined  in  key  policy  areas.  Post-
programme surveillance started on 1 October 2015 and it will continue until at least 
70%  of  the  loan  granted  under  the  first  balance-of-payments  programme  has  been 
repaid, i.e. at least until spring 2018. 

Romania is  currently in the preventive arm of the Stability and Growth Pact. In  its 
2016 convergence programme, the government plans a deterioration of the headline 
balance  from  -0.7%  in  2015  to  -2.9  %  of  GDP  in  2016  and  2017.  The  structural 
balance is expected to deteriorate as well. The programme plans to depart from the 
medium-term budgetary objective - a structural deficit of 1 % of GDP  - which had 
been  achieved  in  2014  and  2015  and  does  not  plan  to  return  to  it  within  the 
programme period. According to the convergence programme, the government debt-
to-GDP  ratio  is  expected  to  remain  below  40%  over  the  programme  horizon.  The 
macroeconomic  scenario  underpinning  these  budgetary  projections  is  plausible  for 
2016  and  slightly  favourable  for  2017.  Based  on  the  Commission  2016  spring 
forecast, there is a risk of a significant deviation both in 2016 and, under unchanged 
policies, 2017. In addition, the Commission 2016 spring forecast projects a general 
government deficit of 3.4% of GDP for 2017, above the 3% of GDP reference value 
of the Treaty. Based on its assessment of the convergence programme and taking into 
account the Commission 2016 spring forecast, the Council is of the opinion that there 
is  a  risk  that  Romania  will  not  comply  with  the  provisions  of  the  Stability  and 
Growth  Pact.  Therefore  further  measures  will  be  needed  to  ensure  compliance  in 
2016 and 2017.  

(7) 

The  fiscal  framework  in  Romania  is  sound  in  its  provisions,  but  is  not  applied 
effectively  in  practice.  None  of  the  recent  deficit-increasing  fiscal  measures  was 
initiated  and  adopted  as  part  of  the  standard  budgetary  process.  In  2015,  the 
requirement  to  include  a  Ministry  of  Finance-verified  impact  assessment  for  new 

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COM(2016) 95 final. 
COM(2014) 494 final. 

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(8) 

(9) 

(10) 

(11) 

(12) 

(13) 

legislative  initiatives  that  increase  public  spending  or  reduce  public  revenues,  to 
respect  expenditure  ceilings,  and  to  propose  compensatory  measures  for  revenue 
reductions was  breached.  In  practice,  the  Fiscal  Council  is given  very  little time  to 
react  to  budgetary  proposals  and  its  opinions  and  recommendations  are  not 
sufficiently  taken  into  account.  The  2016  Budget  Law  targets  a  fiscal  deficit  of 
2.95 % of GDP, leading to a significant  deviation from the medium-term objective. 
This is a departure from the national fiscal framework. 

A number of measures are being implemented to improve tax collection and increase 
tax compliance. These include mandatory cash registers, strengthened cash-payment 
rules,  a  new  VAT  registration  procedure,  intensified  auditing  by  the  tax  authority 
(ANAF) and the authority’s ongoing reorganisation. However, high tax evasion and a 
low level of tax compliance remain a challenge. Undeclared work and under-declared 
earnings  continue  to  weigh  on  tax  revenue  and  distort  the  economy.  The 
effectiveness  of  measures,  including  those  by  the  Labour  Inspectorate,  to  curb 
undeclared work remains limited. 

The  law  on  equalisation  of  the  pensionable  ages  for  men  and  women  has  been 
pending  before  the  parliament  since  2013.  Its  adoption  would  increase  the  labour 
market participation of older women considerably, narrowing the pension gender gap 
and mitigating their risk of old-age poverty.  

Labour  market  conditions  improved  in  2015.  Unemployment  is  low  and  the 
employment  rate  has  been  increasing.  Long-term  unemployment  is  below  the  EU 
average.  However,  significant  challenges  remain,  especially  in  relation  to  the  high 
rate  of  young  people  not  in  employment,  education  or  training  and  there  is  limited 
outreach to activate them effectively.  

The  National  Employment  Agency  is  lagging  behind  in  offering  personalised 
services  to  jobseekers  and  has  limited  services  for  employers,  despite  mandatory 
referral  of  vacancies  to  the  National  Employment  Agency.  A  procedure  has  been 
adopted to offer tailor-made support to the various categories of unemployed people, 
but  has  not  yet  been  implemented.  Cooperation  between  employment  and  social 
services is very limited, making the activation of social assistance beneficiaries even 
harder. 

The  minimum  wage,  which  is  among  the  lowest  in  the  EU,  has  increased 
substantially  since  2013  and  the  lack  of  objective  criteria  for  its  setting  creates 
uncertainty.  A  tripartite  working  group  has  been  set  up  to  work  on  the  reform  of 
minimum wage setting, but there continues to be no clear guidelines or criteria that 
would  take  into  account  its  impact  on  job  creation,  social  conditions  and 
competitiveness. Overall, social dialogue remains weak. 

Romania has one of the highest risks of poverty or social exclusion in the EU. The 
labour market activation of people on social assistance is very limited, especially in 
rural areas. The social reference index, on which social benefit amounts are based, is 
not  regularly  updated  in  line  with  the  economic  context,  which  may  affect  the 
adequacy  of  benefits  over  time.  The  Minimum  Inclusion  Income  Law,  which  is 
expected  to  improve  the  targeting  and  adequacy  of  benefits  and  the  labour  market 
activation of minimum inclusion income recipients, has been sent to the parliament 
for adoption. However, several measures in the government's 'anti-poverty package' 
aim at tackling this issue, using an integrative approach (education, health, housing, 
social protection, transport). 

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(14) 

(15) 

(16) 

(17) 

Romania still faces education challenges. Several strategies cover lifelong learning, 
vocational  education  and  training,  tertiary  education  and  early  school  leaving. 
However, the early school  leaving  rate remains well above  the EU average,  in  part 
due  to  significant  implementation  delays  of  the  strategy  approved  in  2015. 
Prevention and remedial programmes are limited. Vulnerable groups such as Roma 
and  children  from  poor  families  continue  to  face  obstacles  in  accessing  and 
completing quality education, especially in rural areas. In early childhood education 
and  care,  Romania  has  taken  action  to  support  the  participation  of  disadvantaged 
pupils in kindergarten (4-6 year-olds). Provision of early childhood services for 0-3 
year-olds  remains  limited.  Recent  legislation  to  extend  parental  leave  provisions, 
together with insufficient work incentives, may increase barriers for the participation 
of  women  in  the  labour  market.  Participation  in  upper  secondary  vocational 
education and training is above  the EU average, but  the dropout  rates  remain high. 
The tertiary attainment rate is increasing, but the quality and labour market relevance 
of higher education is limited. Participation in adult education is very low. 

Health outcomes in Romania are poor. Life expectancy at birth is well below the EU 
average for both men and women. Access to healthcare and over-reliance on hospital 
care  remain  major  concerns.  Widespread  informal  payments  reduce  access  to 
healthcare for people with low incomes. Romania has adopted measures to improve 
access  to  healthcare  for  low-income  pensioners  and  people  in  remote  and  isolated 
communities.  A  network  of  social  and  health  mediators  is  being  developed  and  a 
draft  law  on  community  services  has  been  proposed.  The  deinstitutionalisation  of 
people with disabilities remains a challenge.  

Romania has taken action to address the low funding of the healthcare system and its 
inefficient  use  of  public  resources.  These  reforms  included  clearing  arrears  in  the 
health sector, increasing the sustainability of pharmaceutical spending, implementing 
e-health solutions, improving the funding of the health system, devising a strategy to 
shift  resources  from  hospital-based  care  towards  preventive  and  primary  care,  and 
centralised procurement procedures. However, the lack of administrative capacity is 
delaying implementation of the 2014-2020 national health strategy. In particular, the 
efficiency of the health system is constrained by delays in streamlining the hospital 
sector and switching from inpatient to more cost-effective outpatient healthcare. 

Romania's  key  development  disparities  are  between  urban  and  rural  areas. 
Employment, social, health-care and educational outcomes are lower in the latter and 
people  face  much  lower  access  to  education,  medical  services,  basic  utilities,  and 
public services due to low and fragmented local administrative capacity. Meanwhile, 
the  socio-economic  development  of  rural  areas  is  limited  by  under-developed 
transport  infrastructure  and  limited  public  and  private  transport,  coupled  with  high 
commuting costs and limited access to broadband infrastructure. Low added value in 
agriculture  and  a  lack  of  economic  diversification  in  rural  areas  constrain  the 
development  of  a  sustainable  rural  economy.  A  high  proportion  of  the  rural  labour 
force  works  in  subsistence  or  semi-subsistence  agriculture  associated  with  hidden 
unemployment  or  non-remunerated  family  work,  low  productivity  and  poverty.  An 
anti-poverty  package,  to  be  financed  mainly  with  EU  funds,  provides  for  an 
integrated approach to fighting poverty, including in rural areas. There are plans to 
set  up  integrated  community  teams,  offering  several  integrated  services  to 
disadvantaged communities, but they have not been implemented yet. 

(18) 

The  strategic  framework  for  public  administration  reform  has  been  in  place  since 
2014,  but  its  implementation  was  slow  in  2015.  Some  key  initiatives  have  been 

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adopted in 2016 to increase the transparency and effectiveness of the functioning of 
public  administration.  However,  the  delays  in  adopting  a  general  and  transparent 
human  resources  management  approach,  in  particular  on  recruitment/appointment, 
appraisal, salaries, career progression across all staff categories and training, leaves 
room  for  an  arbitrary  approach  to  key  procedures  and  decisions.  This,  alongside 
unstable  organisational  structures,  has  a  negative  impact  on  the  civil  service's 
independence and professionalism and, therefore, on its effectiveness and efficiency. 
Complicated  administrative  procedures,  an  inefficient  public  procurement  system 
and  widespread  corruption  constrain  the  delivery  of  services  (including  e-
government  services),  both  to  the  public  and  to  businesses.  Strategic  planning, 
programme  budgeting,  consultation  practices,  and  evidence-based  policy-making 
remain  under-used.  These  challenges  hamper  the  implementation  of  important 
policies across many areas, including the effective uptake of available EU funds and 
other financing support.  

State-owned  enterprises  dominating  key  economic  sectors  tend  to  underperform. 
These  are  especially  prevalent  in  key  infrastructure industries,  accounting  for  44 % 
of  turnover  and  77 %  of  employment  in  the  energy  sector  and  24 %  and  28 % 
respectively in the transport sector. Government Emergency Ordinance 109/2011 on 
the corporate governance of state-owned enterprises has been converted into a law on 
10 May 2016 with amendments that better align it with international good practices. 
Romania  has  resumed  hiring  professional  managers  to  replace  the  interim 
management  in  several  state-owned  enterprises  but  progress  has  been  slower  than 
initially  announced. The transparency and  accountability  of state-owned enterprises 
would benefit from accelerating the adoption of annual budgets and the approval and 
publication  of  audited  annual  accounts.  A  new  privatisation  law  is  in  preparation. 
However,  it  may  include  provisions  that  conflict  with  corporate  governance 
legislation.  Of  particular  concern  are  likely  overlaps  in  the  responsibilities  of  the 
privatisation's special administrator and the company's management. 

In  spite  of  the  efforts  of  the  judicial  institutions  to  address  high-level  corruption, 
corruption  is  still  present  in  many  economic  sectors  and  involves  appointed  and 
elected officials at all levels of government as well as civil servants and employees 
of  public  institutions.  Major  judicial  reforms  are  being  implemented,  but  concerns 
remain about the high workload in courts, the predictability and proper enforcement 
of court decisions and external pressure on the judiciary. Under the Cooperation and 
Verification Mechanism, Romania receives recommendations in the areas of judicial 
reform and the fight against corruption. These areas are therefore not covered in the 
country-specific recommendations for Romania.  

The  soundness  of  the  financial  sector  has  improved.  However,  the  sector  remains 
vulnerable to domestic legal intiatives.  The recently adopted law on debt  discharge 
with retroactive application on the existing stock of loans may constitute a challenge 
for  several  credit  institutions  and  lead  to  weaker  credit  activity.  The  law  may 
increase risks for financial sector stability with implications for the whole economy. 
Other developments that may have a negative impact on banks include the proposal 
to convert foreign currency loans into local currency loans and some court decisions 
on unfair contract terms in loan contracts. 

(19) 

(20) 

(21) 

(22) 

Insufficient  or  low-quality  infrastructure  is  among  the  most  problematic  factors  for 
doing  business  in  Romania  and  represents  a  barrier  to  trade  and  economic 
development. In spite of a recent slight improvement, Romania still ranks last among 
its  regional  peers  in  the  perceived  quality  of  transport  and  communication 

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(23) 

(24) 

(25) 

infrastructure.  Its  roads  and  motorways  network  is  small  compared  with  that  of  its 
peers  and  the  size  of  the  country.  Adoption  of  the  transport  master  plan  and  the 
accompanying railway reform have been repeatedly delayed. 

Romania has the second lowest level of public investment among peer countries and 
is  alone  among  its  peers  in  that  public  investment  has  decreased  every  year  since 
2008.  It  has  made  recent  and  ongoing  efforts  to  strengthen  inter-ministerial 
cooperation, reorganise the public procurement system and improve the planning and 
implementation  of  investment  projects.  Nevertheless,  the  preparation  of  public 
investment projects is still insufficient and remains susceptible to external influence. 
Project  selection  remains  hampered  by  the  lack  of  medium-  to  long-term  planning 
and  strategic  priorities,  the  need  to  achieve  an  agreement  between  numerous 
decision-makers, the limited enforcement power of the Public Investment Evaluation 
Unit  in  the  Ministry  of  Public  Finance,  and  the  lack  of  selection  criteria  in  the 
national programme for local development.  

In spite of significant improvements in cost competitiveness and trade performance, 
Romania's  non-cost  competitiveness  remains  a  challenge.  Structural  barriers  are 
hindering  the  transition  to  a  higher  value  added  economy  and  limiting  Romania's 
ability to foster sustainable growth. The complexity of administrative procedures, the 
volatility  of  fiscal  and  tax  policies  and  the  weak  business  environment  continue  to 
weigh  on  investment  decisions.  High  tax  evasion  and  undeclared  work  reduce  tax 
revenue  and  distort  the  economy.  Access  to  financing  for  small  and  medium  sized 
enterprises remains limited.  

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of Romania’s economic policy and published it in the 2016 
country  report.  It  has  also  assessed  the  convergence  programme  and  the  national 
reform  programme  and  the  follow-up  given  to  the  recommendations  addressed  to 
Romania  in  previous  years.  It  has  taken  into  account  not  only  their  relevance  for 
sustainable  fiscal  and  socio-economic  policy  in  Romania  but  also  their  compliance 
with EU rules and guidance, given the need to strengthen the EU’s overall economic 
governance  by  providing  EU-level  input  into  future  national  decisions.  The 
recommendations under the European Semester are reflected in recommendations 1 
to 4 below. 

(26) 

In  light  of  this  assessment, the  Council  has  examined  the  convergence programme, 
and its opinion9 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that Romania take action in 2016 and 2017 to: 

1. 

2. 

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Limit the deviation from the medium-term budgetary objective in 2016 and achieve 
an  annual  fiscal  adjustment  of  0.5  %  of  GDP  in  2017  unless  the  medium-term 
budgetary  objective  is  respected  with  a  lower  effort.  Ensure  the  application  of  the 
fiscal  framework  and  strengthen  further  tax  compliance  and  collection.  Ensure  that 
legislative initiatives do not undermine legal certainty and do not put at risk financial 
stability. If necessary, adopt measures that mitigate such risks.  

Strengthen the National Employment Agency's services to employers and jobseekers, 
in  particular  by  tailoring  services  to  jobseeker  profiles,  better  linking  them  with 
social  services  and  reaching  out  to  unregistered  young  people.  Establish,  in 
consultation  with  social  partners,  objective  criteria  for  setting  the  minimum  wage. 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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3. 

4. 

Take  action  to  prevent  early  school  leaving  and  increase  the  provision  of  quality 
education, in particular among Roma. Adopt the equalisation of the pension age for 
men and women. 

Curb  informal  payments  in  the  healthcare  system  and  increase  the  availability  of 
outpatient  care.  Strengthen  the  independence  and  transparency  of  human  resources 
management  in  the  public  administration.  Simplify  administrative  procedures  for 
business and the public. Strengthen corporate governance of state-owned enterprises.  

Improve  access  to  integrated  public  services,  extend  basic  infrastructure  and  foster 
economic  diversification,  in  particular  in  rural  areas.  Adopt  and  implement  the 
transport  master  plan.  Strengthen  public  investment  project  prioritisation  and 
preparation.  

Done at Brussels, 

For the Council 
The President 

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