COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Romania, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 88 final   COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 

3.2.  Financial sector 

3.3.  Labour market, education and social policies 

3.4.  Investment 

3.5.  Sectoral policies 

3.6.  Public administration 

A.  Overview Table 

B.  MIP scoreboard indicators 

C.  Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

B.1. 

Key macroeconomic, financial and social indicators 

Summary table on 2016 CSR assessment 

The MIP scoreboard for Romania 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

1.4. 

GDP and components and output gap 

Gross value added distribution (current prices) 

Gross fixed capital formation (2005-2018) 

Consumption of fixed capital by sector and gross value added (2006-2015) 

1 

3 

10 

14 

14 

17 

20 

27 

34 

37 

39 

51 

52 

57 

9 

12 

51 

52 

53 

54 

55 

56 

3 

4 

4 

4 

 
 
 
 
1.5. 

1.6. 

1.7. 

1.8. 

1.9. 

Net international investment position 

Harmonised index of consumer prices inflation in constant taxes 

Population, natural increase and net migration 

Nominal compensation per employee 

GDP per capita in PPS in 2015 vs income quintile ratio (S80/S20) for the EU-countries. 

1.10. 

Fiscal balance and output gap 

1.11. 

Loans to households and non-financial corporations 

3.1.1. 

Income inequality (2015) 

3.1.2.  VAT gap 

3.1.3.  Public debt sustainability 

3.1.4.  Annual rate of change in gross debt ratio, baseline scenario 

3.2.1.  Return on equity 

3.2.2.  Non-performing loans 

3.3.1.  Employment by sector 

3.3.2.  Activation potential* 

3.3.3.  AROPE for selected groups 

3.3.4.  Proportion of low achievers among 15-year-olds in PISA 2015 

3.4.1.  Geographical specialisation in the 10 largest export destinations in 2015 

3.4.2.  Breakdown of export performance 

3.4.3. 

Labour cost index 

3.4.4.  Minimum and public wage growth vs inflation and productivity developments (2009-2016) 

3.4.5.  Global Competitiveness Index 

3.4.6.  Public investment spending and quality of infrastructure 

3.4.7.  Financial execution of Structural and Cohesion funds 2007-2013 

3.4.8.  Global Competitiveness Indicator 

3.5.1. 

Innovation performance of EU Member States in 2015 

3.5.2.  Evolution of business R&D intensity and public R&D intensity in Romania, 2000-2015 

3.5.3.  Quality of scientific output and public R&D investment levels 

3.5.4.  Digital intensity score for enterprises 

3.6.1.  Executive capacity, 2016 (1) 

LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in Romania 

3.4.1. 

Investment challenges and reforms in Romania 

5 

6 

6 

7 

7 

8 

8 

14 

15 

16 

16 

17 

17 

20 

21 

22 

24 

27 

28 

28 

28 

29 

29 

30 

31 

34 

34 

35 

35 

37 

13 

33 

 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Romania's  economy  in  the 
light  of 
the  European  Commission's  Annual 
Growth  Survey  published  on  16 November 2016. 
In the survey the Commission calls on EU Member 
States to double their efforts on the three elements 
of  the  virtuous  triangle  of  economic  policy  – 
boosting  investment,  pursuing  structural  reforms 
and  ensuring  responsible  fiscal  policies.  In  doing 
so,  Member  States  should  focus  on  enhancing 
social fairness to deliver more inclusive growth. 

The  Romanian  economy  has  been  on a  cyclical 
upswing  for  the  past  two  years.  Growth  hit  a 
post-crisis  peak  in  2016  (at  4.9 %),  fuelled  by 
strong  domestic  demand  on  the  back  of  pro-
cyclical  fiscal  policies.  Growth  is  set  to  remain 
robust  over  the  forecast  horizon  at  4.4 %  in  2017 
and  3.7 %  in  2018.  The  current  account  deficit 
deteriorated  in  2016  and  is  expected  to  widen 
further  driven  by  import  growth  due  to  strong 
domestic  demand.  Private  consumption  continued 
expanding, boosted by wage hikes and indirect tax 
cuts.  While  private  investment  was  supported  by 
low  interest  rates  and  stable  investor  confidence, 
public  investment  declined  in  2016  due  to  a  low 
implementation of EU funds. 

The labour market strengthened further driven 
by robust economic growth. The tightening of the 
labour  market  has  been  associated  with  robust 
wage  growth.  Unemployment  is  approaching  its 
pre-crisis  low  and  is  forecast  to  decline  further  in 
2017-2018.  Employment  decreased  slightly  in 
2016 and is expected to grow at a moderate pace. 

Reversing  past  consolidation, 
fiscal  policy 
turned  pro-cyclical  in  2016  and  the  deficit  is 
widening.  Driven  by  significant  tax  cuts  and 
expenditure  hikes,  the  general  government  deficit 
increased  to  2.8 %  of  GDP  in  2016  and  is 
projected to increase further to 3.6 % in 2017 and 
3.9 % in 2018. The structural deficit is projected to 
widen  from  below  1 %  in  2015  to  around  4 %  in 
2017, above its medium-term objective. The public 
debt  ratio  is  expected  to  deteriorate  but  to  remain 
below 60 % of GDP. 

Financial  stability  has  improved  but  some 
challenges  remain  in  the  sector.  The  overall 
health of the banking sector continued to improve 
in  2016  with  comfortable  levels  of  capital  and 
rising  profitability.  Non-performing  loans  have 
come  down  markedly  and  credit  is  beginning  to 

1 

pick  up  again.  However,  the  high  level  of  non-
performing  loans  is  a  challenge  and  recurrent 
legislative  initiatives  could  undermine  stability, 
legal predictability, and investor sentiment. 

particularly 

Structural challenges may dampen the medium-
term outlook. For the first time since 2008, actual 
output  was  above  potential  and  is  expected  to 
remain  so  in  2017-2018.  Expansionary  fiscal 
policy  is  boosting  domestic  demand.  Although 
Romania  made 
in 
progress, 
governance,  employment  policies  and  poverty 
reduction, these reforms are not yet anchored in a 
sustainable manner. While some of these structural 
reforms  are  at  risk  of  being  reversed,  others  have 
stalled  and  the  irreversibility  of  progress  in  the 
fight against corruption was recently put at risk. In 
the  absence  of  an  impetus  in  Romania's  structural 
reform  agenda,  non-price  competitiveness  and 
potential growth will be constrained. 

in 

that 

legislative 

strengthening 

tackling  early  school 

Romania has made some progress in addressing 
the 2016 country-specific recommendations. No 
progress  was  made  in  ensuring  that  the  national 
fiscal  framework  is  implemented  and  there  was 
limited  progress  in  strengthening  tax  compliance 
and  collection.  There  was  some  progress  in 
ensuring 
initiatives  do  not 
undermine  legal  certainty  and  do  not  put  at  risk 
financial  stability.  Substantial  progress  was  made 
in 
the  National  Employment 
Agency's  services  and  limited  progress  was  made 
in  minimum  wage  setting.  Some  progress  was 
made 
leaving  and 
increasing  the  provision  of  quality  education, 
including for Roma, whilst this still needs to bear 
fruits  on  the  ground.  No  progress  was  made  on 
equalising  the  pensionable  age  for  men  and 
women.  Some  progress  was  made  in  curbing 
informal  payments  in  the  healthcare  system  and 
there  was  limited  progress  in  increasing  the 
availability  of  outpatient  care.  There  was  some 
progress  in  simplifying  administrative  procedures 
for businesses and the public and limited progress 
in 
and 
the 
transparency  of  human  resources  management  in 
the  public  administration.  There  was  substantial 
progress in strengthening the corporate governance 
of  state-owned  enterprises.  Some  progress  was 
made in improving access to integrated services in 
rural areas and fostering economic diversification, 
and  some  progress  was  made  with  the  transport 
in 
master 

plan,  which  was 

independence 

strengthening 

adopted 

 
 
Executive summary 

integrity  of  healthcare  were  launched  in  2016.  In 
the absence of a national strategy on the workforce 
in  healthcare,  however,  access 
to  healthcare 
to  shortages  of  health 
limited  due 
remains 
professionals,  affecting  mainly 
rural  areas. 
Persistently  low  funding  and  over-reliance  on 
hospital-based healthcare  limit access  to  universal 
quality care and impair the efficiency of the health 
system.  Recent  policy  action  notwithstanding, 
corruption  remains  prevalent,  impacting  on  the 
quality of public health services. 

capital 

human 

The  unequal  provision  of  quality  education 
weakens 
potential. 
Underachievement in basic skills and the provision 
of  quality  education  to  disadvantaged  groups,  in 
particular  students  in  rural  areas  and  Roma, 
remains problematic. Persistently high early school 
leaving and low tertiary attainment do not meet the 
increasing need for a skilled labour supply against 
the background of persistent emigration. Measures 
to prevent drop-out are being implemented, but the 
availability  of  second  chance  programmes  is  not 
yet sufficient to reduce early school leaving. 

Public  investment  spending  is  high,  but  low 
infrastructure efficiency is constraining growth. 
Public  investment  spending  has  been  among  the 
highest  in  the  EU  in  the  last  decade  but  the 
perceived quality of infrastructure ranks among the 
lowest in the EU. Inefficient public investment and 
public  procurement,  high  administrative  burdens 
and  low  provision  of  e-government  services  are 
major  obstacles 
and 
productivity. 

to  boosting  growth 

for  effectively 

Public  administration  reform  accelerated  in 
2016,  but  is  not  yet  complete.  The  Government 
renewed  national  anti-corruption 
adopted  a 
strategy 
corruption 
tackling 
prevention  in  public  administration.  Measures  to 
strengthen transparency and take proper account of 
consultations  with  the  relevant  authorities  and 
stakeholders  in  decision-making  and  legislative 
activities were put in place. Civil service and staff 
training  strategies  were  adopted,  but  the  draft 
legislation  does  not  yet  fully  incorporate  their 
principles  and  objectives.  Regulatory 
impact 
assessment 
instruments,  strategic  planning  of 
policy,  legislative  and  investment  initiatives,  and 
court  decisions  have  not  been  systematically 
implemented.  Delays  and  potential  reversals  of 
recent reforms are holding back investment. 

September 2016.  Finally,  limited  progress  was 
made in prioritising public investment. 

Regarding progress in reaching the national targets 
under the national Europe 2020 strategy, Romania 
is  performing  well  in  the  areas  of  national 
greenhouse  gas  emission, 
renewable  energy, 
energy  efficiency,  tertiary  education  and  reducing 
the  number  of  people  at  risk  of  poverty  or  social 
exclusion.  However,  employment  rates,  research 
and  development 
intensity,  and  early  school 
leaving  remain  some  distance  away  from  their 
respective targets. 

The  main  findings  of  the  analysis  in  this  report, 
and the related policy challenges, are as follows: 

to 

targeted 

Comprehensive  reforms  were  started  in  2016, 
but  unused  labour  potential  is limiting  growth. 
The public employment service was reinforced and 
active labour market policies are now substantially 
better 
inactive  groups.  However, 
employment and activity rates for women, the low-
skilled, young people, people with disabilities and 
the  EU  average.  Low 
Roma  remain  below 
unemployment  is  thus  matched  by  one  of  the 
highest inactivity rates in the EU. The provision of 
active  labour  market  policies  and  their  link  to 
social  services  is  not  yet  sufficient  to  reverse  this 
trend. Despite reinforced joint controls, undeclared 
work remains prevalent, also reducing both labour 
supply and fiscal revenue. Full equalisation of the 
retirement  age  for  women  and  men  remains  to  be 
adopted.  Work  on  a  minimum  wage  setting 
mechanism is underway, but minimum wages were 
already raised in February 2017. 

Poverty is declining, but high income inequality 
persists. Romania has one of the highest levels of 
income  inequality  in  the  EU  and  rising,  partially 
driven  by  decreasing  redistributive  effects  of  the 
tax and transfer system. Although poverty rates are 
declining,  poverty  and  social  exclusion  persist  for 
young  people,  families  with  children,  people  with 
disabilities,  Roma, 
the  rural  population  and 
inactive people. A change towards more integrated 
services 
is 
planned, as the provision of these services is low. 

to  disadvantaged  groups 

targeted 

Measures  to  improve  healthcare  are  in  place, 
but  the  system  suffers  from 
inefficiencies, 
limited  accessibility  and  corruption.  New 
improve  cost  effectiveness  and 
initiatives 

to 

2 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Household  consumption  will  remain  a  main 
driver  of  growth.  Private  consumption  rose  to  a 
nine-year  high, 
estimated  5.6 
contributing 
percentage points (pps.) to growth in 2016. Stable 
employment  growth,  wage  increases  in  2017  and 
moderate  inflation  are  expected  to  support  real 
disposable incomes. Consequently, consumption is 
set  to  continue  growing  steadily  in  2017  and 
somewhat  slower 
in 
consumer prices (Graph 1.1). 

in  2018  with 

the  rise 

in 

the  business 

On  the  supply  side,  services  are  increasingly 
contributing  to  growth.  The  value  added  of 
services 
sector  has  been 
continuously  increasing  since  the  crisis  (Graph 
1.2).  Among  services,  ICT  and  scientific  and 
administrative support activities are expanding the 
fastest. The ICT sector's share of GDP is one of the 
highest  in  the  EU  (5.6 %  compared  to  an  EU 
average  of  4.2 %) (1).  At  the  same  time,  the 
contribution to growth of agriculture, construction, 
and most recently industry has been shrinking. The 
higher weight of services in the gross value added 
of  the  total  economy  is  mirrored  by  the  dynamic 
job creation in this sector (see Section 3.3). 

GDP and potential growth 

Growth  edged  up  in  2016  driven  by  domestic 
demand boosted by expansionary fiscal policies. 
Following  3.9 %  in  2015,  real  GDP  growth  is 
estimated  to  have  reached  4.9 %  in  2016,  a  new 
post-crisis  peak.  Growth  was  driven  mainly  by 
private consumption supported by wage increases, 
indirect tax cuts, and low interest rates. 

The  robust  rates  of  economic  growth  are 
forecast to moderate towards potential growth. 
A strong fiscal impulse in the short run, alongside 
relatively  favourable  financing  conditions, 
is 
expected to continue to support domestic demand. 
Economic  growth  is  projected  to  moderate  and 
return to potential as consumer prices pick up and 
as  the  additional  fiscal  stimulus  in  2017  is  of 
smaller magnitude than in 2016. Accordingly, real 
GDP  is  forecast  (European  Commission  winter 
2017 forecast) to expand by 4.4 % in 2017 and by 
3.7 % in 2018. 

Graph 1.1:  GDP and components and output gap 

Source: European Commission 

The boost from the fiscal stimulus is likely to be 
short-lived in the absence of reforms to enhance 
potential  growth.  The  fiscal  impulse  and  strong 
domestic  consumption  lifted  cyclical  growth  in 
2016,  closing  the  output  gap.  However,  in  the 
longer 
remain 
constrained in the absence of sufficient progress on 
implementing 
including 
structural fiscal reforms (see Section 3).  

structural  growth  will 

structural 

reforms, 

run, 

3 

(1)  PREDICT 

See 
http://is.jrc.ec.europa.eu/pages/ISG/PREDICT.
html 

project. 

-25-20-15-10-505101520081012141618HH cons.Gov. consGFCFNet exportsOtherGDPOutput gapforecast 
 
 
                                                           
1. Economic situation and outlook 

Graph 1.2:  Gross value added distribution (current prices) 

Graph 1.3:  Gross fixed capital formation (2005-2018) 

Source: European Commission 

Source: European Commission 

The  share  of  less  capital-intensive  sectors  in 
gross  value  added  is  increasing.  Services  are 
among  the  least  capital-intensive  sectors  of  the 
economy, and account for 35 % of the increase in 
gross  value  added  since  2006.  Specifically,  the 
share of ICT, financial and insurance services and 
professional  and  scientific  activities  (circled  in 
Graph  1.4)  in  gross  value  added  increased  from 
10.7 % to 18 % from 2006 to 2015. 

Graph 1.4:  Consumption of fixed capital by sector and 
gross value added (2006-2015) 

Investment 

Investment  has  returned  to  pre-crisis  growth 
rates. Investment growth peaked at 8.3 % in 2015. 
In 2016, total investment (measured as gross fixed 
capital  formation)  is  estimated  to  have  increased 
by  5.5 %,  supported  by  low  interest  rates  and 
stable  investor  confidence.  In  contrast,  public 
investment declined in 2016 partly due to the slow 
uptake  of  new  projects  financed  by  EU  funds  for 
the 2014-2020 period. 

Romania  has  one  of  the  highest  investment 
ratios in the EU. Total investment reached 24.8 % 
of GDP in 2015, above the EU average (at 19.7 %) 
(Graph  1.3).  However,  the  quality  of  public 
investment  remains  constrained  by  management 
deficiencies, changing priorities and difficulties in 
absorbing  EU  funds  (European  Commission, 
2016a). 

Source: European Commission 

Investment  is  projected  to  remain  robust.  In 
2017-2018, investment rates are forecast to remain 
high  due  to  (i)  sustained  investor  confidence 

4 

0%10%20%30%40%50%60%70%80%90%100%010203040506070809101112131415AgricultureIndustryConstructionTradePublic servicesBusiness services05101520253035400506070809101112131415161718Romania govRomania privateEU28 excl RO govEU28 excl RO totalEU13-RO govEU13-RO totalforecastICTFin.Prof. & Scien.-10%0%10%20%30%40%50%60%0%50%100%150%200%250%300%350%Consumptionof fixed capital as % of GVA (2006-2015)Nominal growth in gross value added (2006-2015)Economy average 
 
 
 
1. Economic situation and outlook 

Graph 1.5:  Net international investment position 

Source: European Commission 

Inflation 

Inflation fell to a record low in 2016, markedly 
influenced  by 
fiscal  measures.  Average 
harmonised  index  of  consumer  prices  inflation 
moved  into  negative  territory  with  the  cut  in  the 
VAT rate for food products in June 2015, followed 
in  January  2016  by  a  4  pps.  reduction  in  the 
standard  VAT  rate.  Combined  with  persistently 
low international oil prices, inflation plunged even 
deeper  to  an  all-time  low  of  -3.0 %  in  May  2016 
before  it  started  a  mild  recovery.  A  further  cut  in 
the  standard  VAT  rate  by  1 pp.  was  implemented 
from January 2017. The impact of these successive 
VAT  reductions  on  headline  inflation  has  so  far 
outweighed 
the  upward  pressures  on  prices 
stemming from the surge in domestic demand and 
higher wages. 

the  effect  of 

(Graph  1.6).  As 

Risks  to  the  inflation  outlook  are  tilted  to  the 
upside 
the 
implemented  tax  cuts  fades  out,  inflation  is  set  to 
pick up swiftly in 2017. Additional factors exerting 
upside  pressures  on  prices  in  2017-2018  include 
further wage increases, accelerating credit growth, 
fiscal loosening, and the positive output gap. 

supported  by  tax  incentives  (the  abolition  of  the 
special construction tax from January) and positive 
economic  growth  prospects,  and  (ii)  the  gradual 
implementation  of  projects  financed  from  EU 
funds  in  the  2014-2020  financing  period.  Some 
to 
uncertainties 
the 
predictability 
business 
environment (see Box 3.4.1). 

related  mostly 

remain, 

legal 

and 

the 

of 

External position 

deficit 

current 

account 

As domestic demand grows, the current account 
deficit  is  set  to  widen  through  import  growth. 
The 
significantly 
deteriorated  in 2016  (2.2 % of GDP),  as domestic 
demand  surged.  The  deficit  is  expected  to  widen 
further on the back of import growth due to strong 
domestic demand and is forecast to reach 3.1 % of 
GDP  in  2018.  Additionally,  export  growth  is 
expected to slow down in line with slow growth in 
main  trading  partners  and  a  potential  erosion  of 
cost competitiveness. 

The 
sustainability  of  Romania's  external 
position  improved  in  2015.  The  net  international 
investment  position  (NIIP)  markedly  improved  in 
2015,  reaching  -51.9 %  of  GDP,  a  5.4  percentage 
point  decrease  on  2014.  This  decrease  reflects  a 
shrinking  current  account  deficit  and  strong  GDP 
growth.  The  share  of  foreign  direct  investment 
remained  broadly  stable  while  other  foreign 
liabilities declined as Romania is repaying external 
debt, a trend which is expected to continue (Graph 
1.5). 

5 

-100-80-60-40-2002099'00'01'02'03'04'05'06'07'08'09'10'11'12'13141516*% of GDPNet portfolio invest., equity and investment fund shares/unitsNet portfolio invest., debt securitiesOther invest. (net)Net direct invest.Net financial derivativesNet int'l investment positionMarketable debt (portfolio debt instr., other invest. and res. assets, net) 
 
1. Economic situation and outlook 

Graph 1.6:  Harmonised index of consumer prices inflation 

Graph 1.7: 

Population, natural increase and net migration 

in constant taxes 

Source: European Commission based on national data 

At the same time, some potential labour supply 
remains largely untapped. Inactivity remains one 
of  the  highest  in  the  EU  and  the  share  of  young 
people  neither 
in  education,  employment  or 
training  has  increased.  Other  groups,  such  as 
Roma, women and the rural population continue to 
face  challenges  on  the  labour  market  (see  Section 
3.3.1). 

labour  compensation  accelerated 
Recently, 
reflecting  a  tightening  labour  market.  Since 
2012, nominal compensation per employee growth 
has  been  in  line  with  developments  in  inflation, 
productivity  and  unemployment  developments. 
However,  in  2016,  compensation  per  employee 
growth  picked  up,  reflecting  a  tightening  labour 
market  and  ahead  of  the  rate  suggested  by 
fundamentals (Graph 1.8). 

(1) HICP in constant taxes assumes a full pass-through of VAT 
changes 
Source: European Commission 

Labour market 

Labour  market  conditions  are  improving.  The 
labour  market  continued  to  improve  in  2015  and 
2016  on 
the  back  of  strong  GDP  growth. 
Unemployment  dropped  from  6.8 %  in  2015  to 
6.0 %  in  2016  and  is  approaching  pre-crisis  lows. 
Total  employment  decreased  slightly  in  2016  by 
estimated  0.6 %  and  is  set  to  grow  at  a  modest 
pace in 2017-2018 (see Section 3.3). Jobs were lost 
in agriculture and industry, but gained in services, 
reflecting  the  changing  structure  of  the  economy. 
Jobs  were  created  in  construction  as  economic 
growth has been picking up. 

The  labour  force  continues  to  shrink.  Since 
2007  the  population  has  shrunk  by  6 %,  the  third 
highest  decrease  in  the  EU.  The  population  is 
ageing  and  by  2020  the  working-age  population 
(20-64)  is  expected  to  have  declined  further  by 
around 4 %, while the number of elderly people is 
likely  to  have  increased  by  13 %  by  2060  (Graph 
1.7).  With  the  projected  continued  emigration  of 
predominantly young people, coupled with limited 
return  migration,  the  country  risks  losing  further 
labour  resources.  This,  in  turn,  may  slow  down 
productivity  growth  and  income  convergence  and 
have a downward impact on potential growth.  

6 

-4-2024681012Feb 11Feb 12Feb 13Feb 14Feb 15Feb 16Feb 17%National Bank of Romania inflationtargets  (Dec/Dec, CPI)HICPHICP in constant taxes19.219.419.619.82020.220.420.620.821-600-500-400-300-200-1000070809101112131415mln*1000Net migration(lhs)Natural increase(lhs)Population(rhs) 
 
 
1. Economic situation and outlook 

Graph 1.8:  Nominal compensation per employee 

driven  by  decreasing  redistributive  effects  of  the 
tax and transfer system (see also Section 3.1.1). 

Graph 1.9:  GDP per capita in PPS in 2015 vs income 

quintile ratio (S80/S20) for the EU-countries. 

For methodology see Arpaia et al (2015) 
Source: European Commission 

Social developments 

Poverty levels remain among the highest in the 
EU.  The  poverty  situation  has  improved  and 
severe  material  deprivation  dropped  significantly 
during the last years. However, Roma and children 
remain  particularly  affected  by  poverty  or  social 
exclusion. The risk is also high for inactive people. 
remain 
Education 
unsatisfactory,  especially  for  the  most  affected  by 
poverty  and  social  exclusion.  Poor  education  and 
health outcomes in turn hinder employability. 

outcomes 

health 

and 

Income  inequality  has  been  increasing  and  is 
one of the highest in the EU. Disposable income 
inequality  has  been  gradually  increasing  since 
2012, with a particularly strong push in 2015. The 
richest  20 %  of  the  population  have  an  income 
more  than  eight  times  higher  than  the  income  of 
the  poorest  20 %,  a  ratio  significantly  higher  than 
the  EU  average.  The  fact  that  lower  income 
Member  States  appear  to  show  higher  income 
inequalities (Graph 1.9) only partially explains the 
figures  for  Romania.  There 
large 
difference between regions and a deep urban-rural 
divide (2).  Market  income  inequality  (i.e.  income 
inequality  before  taxes  and  transfers,  including 
pensions)  has  been  stable.  Thus,  the  rise  in 
disposable  income  inequality  has  been  partially 

is  also  a 

(2)  In Romania, the average income in rural areas is only 67 % 
of that in urban areas, against an EU average of 80 %. This 
is the second lowest in the EU. 

7 

Source: European Commission 

Public finances 

Fiscal policy turned pro-cyclical in 2016 and the 
general government deficit is expected to widen. 
The  authorities  have  enacted  a  series  of  tax  cuts, 
including  to  VAT  rates,  excise  duties  and  an 
abolition  of  the  special  construction  tax.  On  the 
expenditure 
side,  public  wages  have  been 
significantly  increased over  2016-2017.  The  new 
government  also  enacted  a  significant  additional 
increase of old-age pensions which will enter into 
force 
the 
in  July  2017.  As  a  consequence, 
structural deficit widened from under 1 % in 2015 
to around 2½ % of GDP in 2016 and is forecast to 
reach  around  4 %  in  2017  (Graph  1.10).  The 
general  government  deficit  is  estimated  to  have 
increased from 0.8 % of GDP in 2015 to 2.8 % of 
GDP  in  2016  and  is  expected  to  widen  further  to 
3.6 % in 2017. 

The  public  debt  ratio  is  expected  to  increase 
moderately. Because of the widening of the public 
deficit, the general government debt is projected to 
increase  from  38 %  of  GDP in  2015  to  42.3 % of 
GDP in 2018. Sovereign financing conditions have 
been  favourable  but  have  recently  deteriorated.  In 
the event of an adverse shock to the exchange rate, 
the 60 % of GDP threshold would be breached by 
2026 (see Section 3.1.3). 

-10-50510152025303504050607080910111213141516Prediction based on inflation,productivity andunemploymentActual nominal wage growthBEBGCZDKDEEEELESFRHRITCYLVLTHUMTNLATPLPTROSLSKFISEUKR² = 0.363.04.05.06.07.08.09.0406080100120140Income quintile share ratio S80/S20GDP per capita in PPS 
 
                                                           
 
1. Economic situation and outlook 

rapidly in 2016 (by 25 % in December for the year 
in  nominal  terms),  supported  by  falling  interest 
rates. Over half of the loans to households are for 
house purchases and are increasingly denominated 
in  domestic  currency  (+54 %  year-on-year  in 
December  2016).  However,  overall  household 
balance  sheets  improved.  At  17.5 %  of  GDP, 
household  debt  remains  one  of  the  lowest  among 
EU countries. After falling in the last 6 years, both 
in  nominal  and  real  terms,  housing  prices  picked 
up in 2015-2016. 

Graph 1.11:  Loans to households and non-financial 

corporations 

Graph 1.10:  Fiscal balance and output gap 

Source: European Commission 

Financial sector 

Banks' balance sheets improved further but the 
sector continues to face challenges. Banks capital 
positions  and  profitability  continued  to  improve. 
loans  remains 
The  stock  of  non-performing 
elevated  but  has  continued  to  decline  markedly. 
However,  recurrent  legislative  initiatives  with 
retroactive 
legal 
predictability and investor sentiment (Section 3.2). 

application 

undermine 

Source: National Bank of Romania 

Credit  growth  to  non-financial  corporations 
remained  negative.  Corporate  lending  continued 
to  lose  ground  (-3.1 %  year-on-year  in  December 
2016). The increase in the stock of local currency- 
denominated loans (+4 %) did not compensate for 
the decline in foreign currency-denominated loans 
(-11.0 %). Credit demand remained subdued due to 
balance  sheet  adjustments  of  resident  corporates 
with a preference for reinvested profits. 

The  accommodative  monetary  policy  stance 
provided stimulus to the economy. In addition to 
improvements  in  banks'  balance  sheets,  easy 
monetary  conditions  and  pro-cyclical  policies 
contributed  to  a  pick-up  of  credit  to  the  economy 
in  recent  years.  The  central  bank  reduced  the  key 
policy rate gradually from 6 % in December 2011 
to  the  current  1.75 %  which  was  reached  in  May 
2015.  Liquidity  conditions 
the 
minimum  reserve  requirements  ratios  were  cut. 
Given  improved  monetary  transmission,  interest 
rates declined in line with changes in the monetary 
policy rate. 

improved  as 

Domestic  currency  lending  is  increasing.  The 
share  of  loans  to  the  private  sector  in  domestic 
currency continued to increase and reached 57.2 % 
of  the  total  loan  stock  in  December  2016,  more 
than  offsetting  the  decrease  in  foreign  currency 
lending. 

Banks  continue  to  focus  on  household  lending. 
Domestic  credit  to  households  in  lei  increased 

8 

200920102011201220132014201520162017-5-4-3-2-1012345-5-3-1135change in cyclically adjusted balanceoutput gap pro-cyclical tigtheningcounter-cyclical tigtheningcounter-cyclical looseningpro-cyclical loosening-25-20-15-10-50510152025Feb 11Feb 12Feb 13Feb 14Feb 15Feb 16Feb 17y-o-y % chLoans to households (HH), totalLoans to households for housingLoans to HH for consumption and other purposesLoans to non-financial corporations 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key macroeconomic, financial and social indicators 

(1) Sum of portfolio debt instruments, other investment and reserve assets  
(2,3) Domestic banking groups and stand-alone banks 
(4) Domestic banking groups and stand alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and 
non-EU) controlled branches. 
Source: European Commission, ECB 

9 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)7.2-7.1-0.81.10.63.53.13.94.94.43.7Private consumption (y-o-y)15.4-10.11.00.81.20.74.76.09.06.74.2Public consumption (y-o-y)-0.53.7-4.90.60.4-4.60.80.14.53.53.0Gross fixed capital formation (y-o-y)22.8-36.6-2.42.90.1-5.43.28.35.56.26.3Exports of goods and services (y-o-y)7.4-5.315.211.91.019.78.05.44.75.05.4Imports of goods and services (y-o-y) 17.9-20.712.610.2-1.88.88.79.210.99.27.3Output gap5.7-1.9-3.9-3.9-4.9-3.2-2.2-1.20.00.60.4Potential growth (y-o-y)6.01.81.31.01.81.72.12.93.63.83.9Contribution to GDP growth:Domestic demand (y-o-y)14.0-19.9-0.91.40.9-1.73.85.77.56.34.7Inventories (y-o-y)-1.65.90.2-0.2-1.41.6-0.3-0.20.00.00.0Net exports (y-o-y)-5.36.9-0.1-0.11.13.6-0.3-1.6-2.6-1.9-1.0Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.5-0.8-1.0-1.1-1.3-1.3-1.0-0.6-0.10.00.0Capital accumulation (y-o-y)2.91.61.51.41.41.01.01.11.21.31.4Total factor productivity (y-o-y)3.61.00.70.71.72.02.12.42.52.52.4Current account balance (% of GDP), balance of payments-10.6-4.8-5.1-4.9-4.8-1.1-0.7-1.2...Trade balance (% of GDP), balance of payments-11.8-6.7-6.4-5.8-5.1-0.8-0.4-0.6...Terms of trade of goods and services (y-o-y)5.21.21.31.8-1.21.01.53.23.01.81.5Capital account balance (% of GDP)0.50.50.20.51.42.12.62.4...Net international investment position (% of GDP)-41.2-62.0-63.4-65.4-67.4-62.6-57.3-52.0...Net marketable external debt (% of GDP) (1)-6.0*-19.7*-20.5*-22.7*-22.2*-19.8-15.7-10.1...Gross marketable external debt (% of GDP) (1)38.557.062.363.861.054.750.643.5...Export performance vs. advanced countries (% change over 5 years)89.983.765.963.725.824.729.923.69...Export market share, goods and services (y-o-y)14.10.7-0.36.2-6.915.56.2-0.1...Net FDI flows (% of GDP)-6.9-2.8-1.8-1.3-1.9-2.0-1.8-1.8...Savings rate of households (net saving as percentage of net disposable income)-20.7-10.0-13.6-20.1-26.76.78.4....Private credit flow, consolidated (% of GDP)13.8-1.70.82.80.3-1.4-2.40.1...Private sector debt, consolidated (% of GDP)48.071.973.972.971.966.762.159.3...of which household debt, consolidated (% of GDP)13.822.222.521.520.619.218.017.5...of which non-financial corporate debt, consolidated (% of GDP)34.249.751.451.451.347.544.141.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-3.25.78.79.311.7-1.515.313.610.610.28.7Corporations, gross operating surplus (% of GDP)26.028.727.129.331.831.132.632.732.732.331.2Households, net lending (+) or net borrowing (-) (% of GDP)-4.1-0.5-6.4-7.7-11.75.2-11.1-10.7-8.6-7.4-6.2Deflated house price index (y-o-y).-27.1-13.8-15.8-9.1-2.8-3.21.9...Residential investment (% of GDP)2.22.92.92.73.12.42.4....GDP deflator (y-o-y)13.34.85.44.74.73.41.72.41.72.32.5Harmonised index of consumer prices (HICP, y-o-y)8.15.66.15.83.43.21.4-0.4-1.11.62.9Nominal compensation per employee (y-o-y)20.7-2.21.9-4.19.43.86.70.98.47.86.0Labour productivity (real, person employed, y-o-y)7.6-5.2-0.51.95.74.42.34.9...Unit labour costs (ULC, whole economy, y-o-y)12.23.22.4-5.83.5-0.64.3-3.82.93.62.6Real unit labour costs (y-o-y)-1.0-1.5-2.9-10.1-1.2-3.92.6-6.01.31.20.1Real effective exchange rate (ULC, y-o-y)11.1-13.01.0-6.5-5.20.93.4-6.41.13.00.6Real effective exchange rate (HICP, y-o-y)5.9-7.31.62.8-6.13.91.3-2.4-1.3-1.0.Tax rate for a single person earning the average wage (%)27.228.428.729.028.925.725.925.3...Tax rate for a single person earning 50% of the average wage (%)23.0*25.325.726.126.022.823.222.9...Total Financial sector liabilities, non-consolidated (y-o-y)39.015.65.44.94.8-0.11.34.8...Tier 1 ratio (%) (2).17.117.315.818.518.019.219.6...Return on equity (%) (3).5.13.26.41.5-4.5-3.8-1.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).5.88.711.4.17.915.810.7...Unemployment rate6.96.57.07.26.87.16.86.86.05.75.6Long-term unemployment rate (% of active population)3.72.22.42.93.03.22.83.0...Youth unemployment rate (% of active population in the same age group)19.320.022.123.922.623.724.021.720.5..Activity rate (15-64 year-olds)63.163.164.964.164.864.965.766.1...People at risk of poverty or social exclusion (% total population)45.643.041.540.943.241.940.337.4...Persons living in households with very low work intensity (% of total population aged below 60)9.28.17.77.37.97.67.27.9...General government balance (% of GDP)-2.5-9.5-6.9-5.4-3.7-2.1-0.8-0.8-2.8-3.6-3.9Tax-to-GDP ratio (%)28.627.026.928.027.827.327.428.126.125.425.4Structural budget balance (% of GDP)..-5.6-3.0-2.5-1.0-0.6-0.6-2.5-3.9-4.0General government gross debt (% of GDP)14.523.229.934.237.337.839.438.039.140.542.3forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

with 

implementing 

Progress 
the 
recommendations  addressed  to  Romania  in 
2016  (3)  has  to  be  seen  in  a  longer  term 
the 
perspective  since 
European  Semester  in  2011.  Hard-won  fiscal 
consolidation  gains  are  at  risk  of  being  reversed, 
and  progress  on  the  structural  reform  agenda  has 
been uneven. 

introduction  of 

the 

On fiscal adjustment progress is at risk of being 
undone.  Since  2009,  Romania  pursued  a 
to 
significant  fiscal  consolidation  which 
achieving  its  medium-term  objective  in  2014  and 
2015.  However,  the  authorities  are  pursuing  an 
expansionary fiscal policy that led to a substantial 
departure from the objective. 

led 

and 

better 

(CSRs) 

coordination 

policies  were 

recommendations 

Romania’s  track  record  on  labour  market, 
education and social reforms is mixed. Progress 
in  reforming  public  employment  services  was 
initially slow, but accelerated substantially in 2016 
supported  by  the  country’s  efforts  to  meet  pre-
conditions for obtaining EU funds. Repeated calls 
to extend the coverage and effectiveness of active 
labour  market 
significantly 
addressed in 2016, through changes in legislation, 
integration of national and European Social Funds 
budgets, 
between 
employment  and  social  services.  Successive 
country-specific 
to 
address youth employment challenges and the high 
percentage  of  young  people  not  in  employment, 
education  or  training  have  triggered  a  more 
integrated approach, which was proposed in 2016, 
including  a  pivotal 
the  National 
Employment  Agency.  These  reforms  have  the 
potential  for  tangible  and  lasting  effects,  but  only 
if implemented and sustained over the longer term. 
Labour taxation was reduced, but in an untargeted 
way. Repeated calls to fight undeclared work saw 
limited progress with some joint inspections by the 
tax administration and the Labour Inspectorate’ in 
2016.  There  has  been  limited  progress  to  date  on 
setting-up  a  minimum  wage  setting  mechanism 
was  made  so  far  with  decisions  being  taken 
without objective criteria. On social inclusion, the 
minimum  inclusion  income  law  was  adopted  in 
2016  as  a  response  to  successive  CSRs.  The  law 
will  be  enacted  in  2018.  A  change  towards 

role 

for 

(3)  For  assessment  of  other  reforms  implemented  in  the  past, 

see in particular section 3. 

and 

education 

care,  with 

integrated  services  for  disadvantaged  groups  has 
started  in  2016  and  could  produce  a  substantial 
impact  when  fully  implemented  and  scaled  up  at 
national  level.  Some  progress  has  been  made  in 
increasing  the  provision  and  quality  of  early 
childhood 
the 
introduction  of  social  vouchers  to  poor  families, 
including  for  the  Roma.  The  early  school  leaving 
Strategy  was  adopted  in  response  to  repeated 
CSRs.  There  was  some  progress  on  this  in  2016, 
but speeding up implementation on the ground will 
be  instrumental  to  reduce  the  rate of  school  drop-
outs.  Some  progress  was  made  in  vocational 
education  and  training  (VET)  by  adoption  of  a 
VET  Strategy,  and  by  reinstating  the  professional 
schools,  but  with  insufficient  links  to  the  labour 
market. 

for 
reporting 
legislative  measures 

Healthcare reforms have advanced in 2016 The 
Ministry  of  Health  has  revamped  a  patient 
informal 
feedback  mechanism 
payments,  with  new 
to 
empower patients, enforced role of ethics councils 
in  public  health  units,  and  sanctions.  Some 
measures  have  been 
the 
availability of outpatient care, but are still at a very 
early stage. 

increase 

taken 

to 

Efforts  to  strengthen  the  capacity  of  public 
administration  were  stepped  up  in  2016.  They 
covered  in  particular:  (i)  transparency,  strategic 
orientation  and  coherence  of  public  policies;  (ii) 
decision-making  tools;  (iii)  coordination  within 
and  between  different  levels  of  government.  New 
civil  service  and  training  strategies  were  adopted, 
setting  the  reform  lines  for  human  resources 
management,  but  implementation  has  not  started. 
These  reforms  could  be  reversed  if  they  are  not 
followed through and sustained over time. 

in 

the 

simplifying 
Progress  was  made 
administrative  procedures.  After  no  progress  in 
2011-2013, progress in 2013-2015 was significant 
with  the  adoption  of  two  dedicated  strategies  and 
an  action  plan  for  entrepreneurship,  business 
environment  and  SMEs,  and  the  adoption  of  the 
2013-2016 
The 
establishment of a dedicated department for SMEs, 
further 
business 
consolidated  progress.  As  a  result,  in  the  past  3 
years  Romania  has  performed  above  the  EU 
average on the ease of setting up new businesses. 

environment 

programme. 

government 

tourism 

and 

10 

 
 
                                                           
2. Progress with country-specific recommendations 

concluded 

The analysis of progress of judicial reform and 
fight  against 
that 
corruption 
Romania  has  made  substantial  progress  on 
much  of  the  reform  of  the  judicial  system (4) 
and  the  investigation  of  high-level  corruption. 
Efforts  are  still  required  as  regards 
judicial 
independence  in  Romania's  public  life,  finalising 
reforms  of  the  criminal  and  civil  codes  and 
ensuring efficiency in the implementation of court 
decisions.  Romania  has  made  some  progress 
towards  further  measures  to  prevent  and  fight 
against  corruption, 
local 
government.  Important  challenges  remain  in  the 
effective implementation of the preventive policies 
that  have  been  defined  in  2016 (5).  Romania  has 
made  substantial  progress  on  the  investigation  of 
high-level corruption.  

in  particular  within 

the 

Overall,  Romania  made  some (6)  progress  in 
addressing 
country-specific 
2016 
recommendations.  There  was  overall  limited 
progress on credibility of fiscal institutions, on tax 
compliance  and  collection  and  financial  stability. 
In  contrast  there  was  overall  some  progress  on 
employment,  minimum  wage  setting,  education 
and pensions. There was overall some progress on 
health,  public  administration,  and  state-owned 
enterprises.  There  was  overall  some  progress  on 
rural areas, transport and investments.  

(4)  European Commission (2017c) 
(5)  National Anti-Corruption Strategy 2016-2020 
(6)  Information on the progress and action taken to address the 
policy  advice  in  each  respective  subpart  of  a  CSR  is 
presented in the overview table in the Annex. This overall 
assessment  does  not  include  an  assessment  of  compliance 
with the Stability and Growth Pact. 

11 

 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on 2016 CSR assessment 

(1) This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

12 

Romania Overall progress with 2016 CSRs:  Some progress CSRs in full version Assessment of progress: CSR 1:  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. Limited progress *  No progress was made in ensuring that the  national fiscal framework is implemented  and limited progress in strengthening tax compliance and collection.   Some progress was made on ensuring financial stability.  CSR 2: Strengthen the National Employment Agency's services to employers and jobseekers, in particular by tailoring services to jobseeker profiles, better linking them with social assistance, including social services, and reaching out to unregistered young people. Establish, in consultation with social partners, objective criteria for setting the minimum wage. 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. Some progress  Substantial progress was made in strengthening the National Employment Agency's services.   Some progress was made in linking employment with social services: a pilot project will be rolled out.   Limited progress on minimum wage setting.   Some progress was made on tackling early school leaving and increasing the provision of quality education.  No progress was made on equalising of the pensionable age for men and women.  CSR 3: 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. Some progress  Some progress was made in curbing informal payments in the healthcare system. Limited progress in increasing the availability of outpatient care.   Limited progress in human resources management in the public administration.-  Some progress on simplifying administrative procedures for businesses and the public.  Substantial progress was made to strengthen SOEs corporate governance. CSR 4: 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. Some progress  Some progress was made on improving access to integrated services, extending basic infrastructure and foster economic diversification in particular in rural areas.  Some progress. The adoption of the transport master plan in September 2016 provides the necessary strategic framework for investments, but implementation remains slow.  Limited progress was made on prioritising and preparing projects.   
 
 
 
 
2. Progress with country-specific recommendations 

13 

 Box 2.1: Contribution of the EU budget to structural change in RomaniaRomania has a total allocation of EUR 30.8 billion from European Structural and Investment Funds (ESI Funds) for  2014-2020) equivalent to 2.6 % of GDP annually and 44 % of the expected national public investment (1). By 31 December 2016, an estimated EUR 3.5 billion, which represents about 11 % of the total allocation for ESI Funds, have already been allocated to projects.  Financing under the European Fund for Strategic Investments, Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is additional to the ESI Funds. By end 2016, Romania has signed agreements for EUR 1.2 billion (from the Cohesion Fund) for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to EUR 148 million, which is expected to trigger nearly EUR 417 million in total investments (as of end 2016). In 2015 and 2016 ESI Funds were instrumental in helping Romania implement structural reforms through ex-ante conditionalities (EACs) (2) and targeted investment. Examples include development of RD&I through updating the National Register for Research Infrastructures and strengthening the governance of the sector, and development of healthcare and transport infrastructure, and water and waste management. The National Transport Master Plan adopted in 2016 and the accompanying railway reform aim to provide a stable and sustainable roadmap for future investments, and strengthen the administrative capacity of state‐owned enterprises in the sector. The EACs on waste management, public procurement and transport (road and railway reform) are still pending and efforts are made to complete them in order to avoid a possible suspension of interim payments for the programmes concerned. The reform of the National Employment Agency has been initiated, with a national strategy, a catalogue of services and new mechanisms of outreach already in place. These reforms have prepared the ground for better implementation of public investment projects, including those financed from national sources and from the other EU instruments mentioned above. Administrative reforms support is available through targeted financing under the European Social Fund, advice from the Structural Reform Support Service and, indirectly, through technical assistance. The fulfilment of ex-ante conditionalities is on track, except in the area of waste. The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020 programmes. These include strengthening active labour‐market measures by designing a personalized approach to jobseekers and reinforcing the capacity of the public employment service by improving its working methods (better targeting of youth not in employment, education or training). Planned activities supporting CSR implementation aim to increase school attendance while reducing early school leaving through remedial measures such as after school and second chance programmes. The reform of the public procurement system is supported via the recent establishment of the National Agency for Public Procurement, the transposition of all public procurement directives and the adoption of secondary legislation. In addition, the ESI Funds address other structural barriers to growth and competitiveness. ESI Funds investments support the reform of the waste sector, e.g. by reducing landfilled biodegradable waste and increasing the recycling rate of household and similar waste, based on the National Waste Management Plan adopted in 2016. ESI Funds contribute to increasing agricultural competitiveness and creating new job opportunities through diversification of the rural economy, e.g. through support for the development and restructuring of 30 000 small farms, facilitating start-up for 9 400 young farmers, and support for 3 000 non-agricultural SMEs. https://cohesiondata.ec.europa.eu/countries/RO                                                            (1) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries. (2) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and conditions for the majority of public investments areas. For Members States that did not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments.  
 
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

in  2016  and 

Fiscal policy turned pro-cyclical in 2016 and the 
deficit  is  expected  to  widen,  in  breach  of  the 
fiscal framework. As a consequence of significant 
tax  cuts  and  expenditure  increases,  the  general 
is 
government  deficit  widened 
projected  to  further  widen  in  2017.  This  increase 
breaches 
the 
provisions  of  which  are  sound  in  theory  but  lack 
enforcement.  With  a  worse  fiscal  balance,  the 
public  debt  ratio 
to  deteriorate 
gradually  but  remain  below  60 %  of  GDP.  High 
tax  evasion  and  low  tax  compliance  remain  a 
challenge. 

the  country's  fiscal  framework, 

is  expected 

3.1.1.  TAXATION 

The  overall  structure  of  the  tax  system  is 
favourable  to  economic  growth.  Compared  with 
the  EU  average,  tax  revenues  depend  to  a  larger 
extent on consumption taxes and to a lesser extent 
on  taxes  on  corporate  income  and  on  labour (7) 
(European Commission 2016f). 

The  impact  of  the  tax  and  benefit  system  on 
reducing  income  inequality  is  relatively  low. 
The  difference  between  market  income  inequality 
(i.e.  before  taxes  and  benefits)  and  disposable 
income  inequality  (i.e.  after  taxes  and  benefits)  is 
relatively  low  (Graph  4.1.1).  The  degree  of 
progressivity in labour tax system is relatively low, 
contributing  to  this  outcome.  Nevertheless,  the 
government  has  removed  the  cap  of  5  average 
gross salaries, so that from 2017 the social security 
contribution  and  the  health  contribution  apply  to 
the entire income earned. Health contributions for 
pensioners  have  been  eliminated,  as  well  as 
personal  income  taxes  for  pensions  below  RON 
2 000 (EUR 440). Since 2015 the government has 
reduced in several steps the standard VAT rate and 
the  VAT  rate  on  food  and  other  products. 
However,  reduced  VAT  rates  are  not  the  most 
income 
efficient 
inequalities, since they are not specifically targeted 
at vulnerable households. 

for  decreasing 

instrument 

(7)  Property taxes followed by consumption taxes are the least 
detrimental to growth, while corporate income taxes appear 
to have the most negative effect. See Arnold, 2008.  

Graph 3.1.1:  Income inequality (2015) 

2015 data partially available for IE.  
Source: European Commission, 2016b 

increased  number  of 

The  incidence  of  undeclared  work  continues  to 
be  high,  weighing  on  tax  revenue.  Undeclared 
work  represents  approximately  15 %-20 %  of 
GDP (8).  Despite 
joint 
controls of labour and tax authorities, their impact 
remains 
limited,  partly  because  preventive 
measures  are  not  yet  sufficiently  developed (9). 
This was because resources are not always focused 
on  sectors  with  highest  risks,  while  preventative 
measures,  including  information  campaigns,  are 
insufficient.  At  the  beginning  of  2017,  in  an 
attempt to reduce the size of the informal sector, in 
particular 
government 
introduced  an  exemption  from  income  tax  for 
individuals  earning  income  from  carrying  out 
seasonal activities based on 12-month employment 
contracts. 

agriculture, 

the 

in 

(8)  In addition, the discrepancy between the relatively high tax 
wedge  on  labour  (calculated  on  the  basis  of  the  legal  tax 
obligation) and the low implicit tax rate on labour (derived 
from  actual  tax  receipts)  suggests  a  high  amount  of 
concealed  earnings.  The  tax  wedge  on  labour  was  42.1 % 
in 2014 (slightly above the EU-28 average of 41.8 %). The 
tax wedge data are for single earners with no children, on 
an average wage. The implicit tax rate on labour of 32.8 % 
in  2014  was  significantly  below  the  EU-28  average  of 
36.4 % (European Commission, 2016g). 

(9)  Similarly to previous years, less than 40 % of employment 
relations found to be undeclared were formalised as a result 
of inspections in 2016.  

14 

0510152025300102030405060% of total populationGini IndexMarket income Gini coefficient (income inequalities before tax and transfers) - LHSDisposable income Gini coefficient (income inequalities after tax and transfers) - LHSAt-risk-of-poverty (AROP) rate - RHS 
 
                                                           
 
                                                           
i.e. 

revenues 

expected  VAT 

Tax  compliance  remains  low  as  evidenced  by 
Romania having the largest VAT gap in the EU. 
the  difference  between 
The  VAT  gap, 
and 
theoretically 
effectively collected VAT, increased by 3.4 pps. in 
2014  (Graph  3.1.2)  despite  a  good  economic 
environment  and  the  introduction  of  anti-fraud 
measures.  To  tackle  VAT  evasion  and  fraud,  the 
legislation  for  the  registration  and  deregistration 
for  VAT  purposes  was  amended  and  clarified, 
while the procedures for VAT reimbursement were 
adjusted in 2016 (10). 

More  measures  to  fight  tax  avoidance  were 
adopted  in  2016.  A  mandatory  but  progressive 
introduction (11)  of  electronic  cash 
registers 
connected  to  the  National  Agency  for  Fiscal 
Administration  IT  system  is  being  pursued.  A 
special  annual  income  tax  replaced  the  corporate 
income  tax  for  taxpayers  operating  in  specific 
business  areas  such  as  hospitality  services  and 
bars/restaurants.  The  tax  is  based  on  coefficients, 
such  as  the  surface  area  of  premises,  irrespective 
of  business's  sales  or  net  profits.  However,  from 
2017  the  turnover  threshold  for  the  application  of 
the micro-enterprise tax regime has been increased 
fivefold  and  the  tax  rate  was  cut,  therefore 
extending  this  departure  from  the  standard  tax 
regime  and  possibly  contributing  to  further  tax 
avoidance. 

3.1. Public finances and taxation 

Graph 3.1.2:  VAT gap 

Source: CASE et al. (2016) 

3.1.2.  FISCAL FRAMEWORK 

as 

deficit 

The  fiscal  framework  is  sound,  but  lacks 
enforcement. The fiscal rules, which are contained 
in  the  fiscal  responsibility  law (12),  are  well 
designed (13).  However,  the  2016  budget  law  was 
non-compliant 
of 
the 
ceiling 
RON 20.9 billion  breached 
the  medium-term 
budgetary objective of a structural deficit of 1 % of 
GDP (14).  The  Romanian  Fiscal  Council  had 
assessed the draft 2016 budget as "a deliberate and 
large deviation from all fiscal rules". Additionally, 
the  first  budget  amendment  (from  August)  broke 
the 
in  personnel 
expenditure  during  the  fiscal  year,  while  the 
second  amendment  (from  November)  broke  the 
rule  prohibiting  increases  of  the  primary  deficit 
during the fiscal year. 

rule  prohibiting 

increases 

(12)  See  European  Commission,  2016a,  for  description  of  the 
fiscal  framework.  For  the  fiscal  governance  reform  which 
laid  the  basis  of  the  current  framework  see  European 
Commission 2012. 

(13)  Captured  by  the  Numerical  Fiscal  Rule  Index  that  reflects 
the  strength  of  the  design  of  all  fiscal  rules  in  place  in  a 
country.  Romania  registered  a  steep  jump  in  the  index 
value 
See: 
http://ec.europa.eu/economy_finance/db_indic
ators/fiscal_governance/fiscal_rules/index_en.
htm. 

available). 

(latest 

2014 

year 

in 

(10)  Orders  of  the  President  of  the  National  Agency  for  Fiscal 
Administration 1503/2016 and 1559/2016, respectively. 
(11)  The introduction of such cash registers is currently planned 

for 2018, after series of delays.  

(14)  The  deficit  rule  requires  compliance  with  or  convergence 
to  the  medium-term  budgetary  objective  of  a  deficit 
of  -1 %  of  GDP  (or  -0.5 %,  if  the  debt  is  above  60 %  of 
GDP). 

15 

41.337.236.734.537.90510152025303540455020102011201220132014%RomaniaEU-27 
                                                           
 
                                                           
The medium-term fiscal strategy does not guide 
the  annual  budget  process.  Under  the  fiscal 
responsibility  law,  the  fiscal  strategy  sets  out  the 
macroeconomic assumptions, medium-term budget 
planning  and  expenditure  ceilings  that  should 
guide  the  annual  budget  process.  However,  in 
2016,  as  in  previous  years,  the  authorities  did  not 
send  an  update  of  the  fiscal  strategy  to  the 
Parliament  by  15  August,  the  statutory  deadline. 
Instead  the  government  sent  it  to  the  Parliament 
simultaneously  with  the  2017  budget  law  in 
December. 

3.1.3.  LONG-TERM SUSTAINABILITY 

With  a  worse  fiscal  balance,  the  public  debt 
ratio 
is  expected  to  deteriorate  gradually. 
Assuming  no  changes  in  fiscal  policy  (baseline 
scenario (15)),  public  debt  would  steadily  increase 
from just below 38 % of GDP in 2015 to 61 % of 
GDP in 2027 (Graph 3.1.3). As the primary deficit 
is  projected  to  deteriorate,  interest  expenditures 
will gradually increase. 

Without  pension  reform,  aging  costs  would 
deteriorate debt dynamics. The retirement age is 
not  equal  among  genders  (see  Section  3.3.1) 
Moreover,  implementation  of  the  second  pension 
pillar  consisting  of  privately  managed  pension 
savings  has  been  delayed.  The  original  plan 
envisaged  that  contributions  to  the  second  pillar 
would  be  raised  to  6  percentage  points  of  the 
employees'  contribution  to  the  pension  system. 
However,  the  2016  budget  provided  for  transfers 
corresponding to 5.1 pps. of contributions and the 
2017  budget  maintained  this  share.  Over  the  long 
run,  aging  costs  related  to  health  care  and  long-
term care will also negatively impact debt-to-GDP 
ratios (16). 

3.1. Public finances and taxation 

Graph 3.1.3:  Public debt sustainability 

Source: European Commission 

Graph 3.1.4:  Annual rate of change in gross debt ratio, 

baseline scenario 

Source: European Commission 

Public  debt  is  sensitive  to  exchange  rate  risk. 
With  over  half  of  debt  denominated  in  foreign 
currency, public debt is sensitive to exchange rate 
shocks.  In  a  stress  test  scenario  involving  a  30 % 
depreciation  of  the  lei  in  2017  and  2018,  general 
government debt would quickly increase to almost 
51 % of GDP in 2018 and would breach the 60 % 
of GDP threshold by 2024 (17). 

(15)  This scenario assumes a constant structural primary deficit 
of  2.3 %  of  GDP  from  2018  to  2027.  This  is  the  value  in 
2018, in accordance with the European Commission winter 
2017 forecast. 

(16)  The  total  costs  of  aging  are  projected  to  increase  from 

(17)  Hedging  of  foreign  currency  positions  may  mitigate  this 

15.6 % of GDP in 2016 to 16.2 % of GDP in 2030. 

risk, but this is not considered here. 

16 

303540455055606512131415161718192021222324252627Baseline no-policy change scenarioNo-policy change scenario without ageing costsStability and Growth Pact (SGP) institutional scenarioStability and Convergence Programme (SCP) scenario-4-3-2-101234561415161718192021222324252627Stock flow adjustmentsInflation effectGrowth effect (real)% of GDP 
                                                           
 
 
 
 
                                                           
3.2.  FINANCIAL SECTOR 

to 

improved 

Financial  stability 
in  2016,  but 
legislative  initiatives  tend  to  undermine  legal 
predictability  and  investor's  confidence.  In  the 
context of strong economic growth and a rebound 
in  credit  activity,  bank  balance  sheets  have 
continued 
strengthen,  while  profitability 
recovered.  Following  the  2015  balance  sheet 
review  and  stress  test,  further  efforts  have  been 
made  to  ensure  adequate  capitalisation  in  the 
insurance  sector.  However,  recurrent  legislative 
initiatives  could  undermine  the  stability  of  the 
financial sector, and undermine investor sentiment 
by making the legal framework less predictable. 

The  banking  sector  remains  well  capitalised 
and  liquid,  and  profitability recovered  in 2016. 
In particular, capital adequacy at system level has 
remained roughly flat since end-2015 and stood at 
18.7 %  at  the  end  of  September  2016.  Liquidity 
remained at comfortable levels, while the loan-to-
deposit  ratio  fell  to  87 %  at  end-March  2016. 
Following  the  balance  sheet  clean-up  in  2014, 
banking  sector  profitability  rebounded  to  positive 
territory  in  2015  and  further  improved  in  2016 
despite compressed interest margins (Graph 3.2.1). 

Graph 3.2.1:  Return on equity 

dropped sharply by roughly 12 pps. to 10.02 % in 
October  2016,   down  from  the  peak  registered  in 
February 2014(19). However, banks continue to be 
burdened by the quality of corporate exposures and 
consumer loans, which are the loan portfolios with 
the highest level of delinquency (Graph 3.2.2). 

Graph 3.2.2:  Non-performing loans 

Source: National Bank of Romania. 

the  governance  of 

The 2015 asset quality review (AQR) and stress 
test of the banking sector has been delayed. The 
NBR  decided  to  delay  the  start  of  the  exercise  to 
capture  the  impact  of  the  law  on  debt  discharge 
('datio in solutum') on banks’ balance sheet data at 
end-2016.  Regarding 
the 
exercise,  the  asset  quality  review  and  stress  test 
will  be  overseen  by  a  steering  committee  with 
international  participation  and  will  be  conducted 
with the support of independent and reputable third 
parties  (including  auditors,  real  estate  appraisal 
the  NBR 
companies).  The  exercise,  which 
committed  itself  to  starting  at  the  beginning  of 
2017, will include all credit institutions of systemic 
relevance.  The  asset  quality  review  methodology 

Source: European Commission 

On the back of write-offs and sales of impaired 
assets,  non-performing  loans  (NPLs)  declined. 
Due  to  the  2014  NPL  resolution  plan  by  the 
National  Bank  of  Romania  (NBR)  and  additional 
in  April  2016 (18),  NPLs 
measures  adopted 

(18)  Following the measures adopted in 2014, the NBR required 
in  April  2016  credit  institutions  to  make  an  additional 

effort  to  fully  provision  non-performing  loans  (more  than 
180  days  past  due,  unsecured,  or  with  a  very  low 
probability to recover the collateral), to facilitate their write 
off. 

(19)  The  NPL  definition  used  by  the  NBR  is  fully  in  line with 
the  European  Banking  Authority's  (EBA)  definition.  In 
accordance  with  the  EBA,  non-performing  exposures  are 
those  that  satisfy  any  of  the  following  criteria:  i)  material 
exposures which are more than 90 days past due; and ii) the 
debtor is assessed as unlikely to pay its credit obligations in 
full  without  realisation  of  the  collateral,  regardless  of  the 
existence of any past due amount or of the number of days 
past due.  

17 

-10-5051015202507080910111213141516%Return on Equity (%)EU (changing composition)Euro Area (changing composition)05101520253035Sep 09Sep 10Sep 11Sep 12Sep 13Sep 14Sep 15Non-performing loans to total loans (NPL)o/w non-financial companies NPLo/w household NPLo/w household NPL consumer loanso/w household NPL for house purchase 
 
 
                                                           
 
                                                                                   
3.2. Financial sector 

the 

of 
law.  Following  a  referral  by  credit 
institutions,  the  Constitutional  Court  ruled  on  25 
October  2016  that  judges  will  assess  whether 
borrowers  comply  with  the  legal  provisions  on 
hardship (21)  under  the  2011  Civil  Code.  The 
ruling  of  the  Constitutional  Court  minimizes  the 
unwarranted  adverse  impact  of  this  law  on  the 
banking  sector  and  reduces  moral  hazard  by 
focusing the applicability of the law on borrowers 
in difficulty. 

The  full  impact  of  the  debt  discharge  law 
remains  difficult  to  assess.  Although  originally 
intended  for  borrowers 
in  financial  distress,, 
experience  so  far  shows  that  borrowers  without 
financial difficulties and delays in the servicing of 
loans have also made use of the law. At the time of 
adoption,  banks  increased  the  down-payment  for 
mortgage  loans,  but  they  subsequently  lowered  it 
for  certain  categories  of  borrowers.  In  prudential 
terms,  the  law  initially  triggered  the  upward 
revision  of  banks’  risks  weights  of  the  loan 
portfolio  falling  under  the  scope  of  the  law. (22) 
However,  after  reassessment  which  took  also  on 
board  the  ruling  of  the  Constitutional  Court,  this 
loan  portfolio  is  no  longer  being  treated  as  being 
impacted  by  a  default  event  and  therefore  no 
longer subject to higher capital requirements. 

declared 

loans  with 

franc-denominated 

The  Constitutional  Court 
as 
unconstitutional  the  law  on  the  conversion  of 
Swiss  franc-denominated  loans.  In  contrast  to 
countries that adopted similar laws (such as Poland 
and  Croatia),  Romania  has  a  limited  exposure  to 
Swiss 
an 
outstanding  stock  amounting  to  0.8 %  of  GDP  (at 
end  June-2016)  and  3 %  of  the  total  loans  to 
households.  The  total  stock  of  Swiss  franc  loans 
has  continued  to  fall  in  the  first  half  of  2016 
compared  to  2015  on  the  back  of  voluntary 
negotiations  between  banks  and  clients  on  the 
conversion  of  loans  in  Swiss  francs  into  lei.  The 
law on the conversion of the Swiss franc loans into 
RON  loans  at  historic  exchange  rates  (i.e.  at  the 
moment  when  the  loan  contract  was  signed) 
adopted  by  Parliament  in  October  2016  was 
the 
referred  by 

the  previous  government 

to 

(21)  Hardship  refers  to  exceptional  circumstances  which  could 
not have been foreseen by the contractual parties when they 
agreed upon the loan contract. 

(22)  In line with the provisions of EU Regulation 575/2013 on 
institutions  and 

prudential 
investment firms (capital requirements regulation – CRR). 

requirements 

for  credit 

will  be  based  on  the  2014  ECB  comprehensive 
assessment.  The  stress  test  will  be  broadly  based 
on  the  methodology  developed  by  the  European 
Banking  Authority  for  the  2016  EU-wide  stress 
test. 

Following  European  Systemic  Risk  Board 
recommendations,  Romania  is  setting  up  a 
macro-prudential  authority.  To  strengthen  their 
powers  in  the  area  on  macro-prudential  policies, 
the  authorities  plan 
to  establish  a  National 
Committee for Macro-prudential Oversight, which 
will  replace  the  current  National  Committee  for 
Financial Stability (20). However, the law to set up 
this committee has yet to be adopted. 

'non-investment' 

introduced  several  macro-
The  authorities 
prudential  measures  in  2016.  In  particular,  the 
NBR  identified  nine  banks  as  other  systemically 
important credit institutions (O-SIIs) with an O-SII 
buffer of 1 % since 2016. In March 2016 the NBR 
adopted  a  systemic  risk  buffer  of  1 %,  applicable 
to banks whose parent institutions are domiciled in 
countries  with  a 
long-term 
sovereign  debt  rating.  However,  this  decision  has 
been  suspended  until  an  impact  study  of  recent 
legislative  developments  has  been  conducted. 
From 1 March 2017 the macroprudential measures 
the 
the  NBR 
adopted 
recommendations  of  the  National  Committee  for 
Financial Stability will refer to: (i) an O-SII buffer 
of 1 % of the total risk exposure amount applied to 
11 banks identified by the NBR as O-SIIs based on 
data  available  as  of  June  2016;  and 
(ii) 
deactivation of the Systemic Risk Buffer. 

following 

by 

The  debt  discharge  law  has  to  be  amended  to 
reflect  the  Constitutional  Court  decision.  The 
law (European Commission, 2016a), in force since 
May  2016  and  retroactively  applicable  also  to 
existing  loan  contracts,  applies  to  loans  with  a 
value  below  the  threshold  of  EUR  250  000  and 
for  buying,  building, 
covers 
loans  granted 
renovating  a  property 
loans 
living,  or 
for 
(irrespective  of  the  scope)  which  are  guaranteed 
with  at  least  one  dwelling  as  collateral.  However, 
mortgage  loans  under  the  state  sponsored  "First 
House" programme were excluded from the scope 

(20)  Macro-prudential  instruments  under  the  CRR/CRDIV  are 
currently  activated  upon 
the 
National  Committee  for  Financial  Stability.  They  are 
implemented by the NBR for credit institutions and by the 
Financial Supervisory Authority for investment firms. 

recommendation 

from 

18 

 
                                                           
                                                           
3.2. Financial sector 

in  response  to  supervisory  actions  and  limits  the 
independence of supervisors. 

in 

several 

insurance 
Shortcomings 
undertakings  are  being  addressed  (European 
Commission, 2016a). Astra Asigurari was put into 
insolvency  in  August  2015,  and  the  decision  was 
declared  irrevocable  in  April  2016.  Following  the 
court  decision,  the  Insurance  Guarantee  Fund 
started  paying  of  compensation  to  Romanian  and 
foreign policyholders. Several follow-up measures 
(including  capital  increases)  were  taken  to  restore 
the financial situation of insurers in distress, based 
on the results of the 2015 balance sheet review and 
stress test, and of a second exercise performed on 
insurance  companies  not  included  in  the  first 
exercise.  Such  measures  were  taken  in  particular 
for  Euroins,  which  was  placed  under  financial 
recovery  in  October  2015,  and  City  Insurance, 
which was under a financial recovery plan until the 
end  of  2016.  As  the  efforts  since  2014  to  restore 
the  viability  of  Carpatica  have  been  unsuccessful, 
the  Financial  Supervisory  Authority  withdrew 
Carpatica's licence in July 2016 and requested the 
opening  of  insolvency  proceedings.  The  measures 
adopted  so  far  have  contributed  to  addressing  the 
shortcomings  identified  during  the  2015  balance 
sheet review and stress test, but several pockets of 
vulnerability,  including  thin  solvency  buffers  for 
some insurers, still remain. 

The government introduced a cap on insurance 
premiums  for  compulsory  car  insurance.  The 
cap  on 
insurance  premiums,  which  became 
effective on 17 November 2016, was triggered by 
the  increase  in  these  premiums  inter  alia  due  to 
measures taken to address shortcomings identified 
during  the  2015  balance  sheet  review  and  stress 
test. The government argues that the increase is the 
corollary  of  a  distortion  in  competition  as  two 
main  insures  exited  the  market  and  passed  an 
insurance 
emergency  ordinance 
premiums for 6 months. The maximum caps on the 
premiums  were  calibrated  by 
the  Financial 
Supervisory Authority and adopted by government 
decision  in  November  2016.  This  intervention  in 
the  price  setting  of  insurance  premiums  in  the 
absence  of  a  general  system  of  price  control  does 
not appear to be in line with EU law, in particular 
with  the  provisions  of  the  Solvency  II  directive. 
The  measure  is  also  likely  to  aggravate  current 
distortions  and  put  further  pressure,  in  the  short 
term, on the profit generation capacity of insurers. 

to  cap 

the 

Constitutional  Court  for  a  constitutionality  check. 
In  its  decision  of  7  February,  the  Constitutional 
Court  rejected  the  conversion  of  Swiss  franc-
denominated  loans  into  RON  loans  at  historic 
exchange rates and held that the conversion should 
be  done  in  line  with  the  conditions  at  the 
the 
conversion 
as 
Constitutional  Court  declared 
unconstitutional based on procedural grounds, as it 
did not respect the principle of bicameralism. 

Furthermore, 

date (23). 

law 

the 

Another  legislative  initiative,  currently  before 
Parliament,  could  be  harmful  for  the  banking 
sector.  A  draft  law  on  the  National  Agency  for 
Consumer  Protection  may  affect  the  mandate  of 
the NBR and its prudential supervisory powers on 
credit  institutions.  The  draft  law  includes  several 
provisions  which  aim  to  increase  the  supervisory 
powers  of  the  agency  on  financial  intermediaries 
operating in Romania, including credit institutions. 
An adequate balance between consumer protection 
and  prudential  supervision  is  important  in  this 
context. 

The independence of financial sector regulators 
may be weakened by further initiatives. A draft 
legislative  proposal  before  Parliament  aims  to 
restrict the independence of the NBR, lift the legal 
protection of NBR staff members for actions taken 
in  good  faith  and  place  the  NBR  under  tighter 
parliamentary  control.  The  Chamber  of  Deputies 
initiated a proposal to amend the legal framework 
the  Financial  Supervisory  Authority.  The 
of 
proposal  includes  new  provisions  on  revoking  the 
mandate of the Authority's board members, which 
is not in line with international good practices and 
have implications for supervisory independence. In 
addition,  Parliament  launched  the  procedure  to 
revoke  the  mandate  of  the  President  of  the 
Financial 
following 
Supervisory  Authority 
measures taken after the 2015 balance sheet review 
and  stress  test  of  the  insurance  sector  to  address 
shortcomings related to compulsory car insurance. 
This  is  an  indication  of  political  pressure  brought 

losses  for 

(23)  Conversion  at  historic  exchange  rates  was  expected  to 
generate 
the  banking  sector.  The  NBR 
preliminarily  estimated  that  converting  the  Swiss  franc-
denominated  loans  into  lei-denominated  loans  at  historic 
rates  would  have  generated  a  total  loss  for banks  of RON 
2.4 billion (EUR 530 million), causing a 1.8 pps fall in the 
capital adequacy ratio at system level.  Some banks would 
have  been  more  severely  hit,  while  some  exchange  rate 
volatility could have occurred, as banks would have needed 
to buy foreign exchange to close their open positions. 

19 

 
                                                           
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

Overview and challenges 

still 

The labour market situation is improving, while 
also  presenting  structural  challenges.  The 
employment  rate  increased  (67.7 %  in  Q3  2016), 
still  at  some  distance  from  both  EU  and  national 
targets  while  unemployment  is  falling.  However, 
faces  negative  demographics, 
Romania 
(ageing  and  emigration),  while 
level  of 
inactivity  one  of  the  highest  in  the  EU.  Large 
socio-economic  disparities  exist  between  fast-
growing  urban  areas  and  poorer  less  developed 
rural  areas  and  areas 
the  urban  fringe. 
Differences  in  access  to  healthcare  and  quality 
education  exacerbate  these  inequalities.  Structural 
reforms  that  should  help  to  tap  the  employment 
potential  and  address  disparities  have  been 
initiated, but are yet to be fully implemented. 

the 

in 

A sectoral shift, typical of a transition economy, 
is  under  way.  As  the  economy  is  transforming, 
low-skilled  manual 
jobs  (in  agriculture  and 
industry)  are  being  lost  and  job  creation  is  taking 
place  in  services  (both  tradable  and  non-tradable) 
and in the public sector (Graph 3.3.1). At the same 
time,  on  the  back  of  sustained  economic  growth, 
construction is picking up. Services are expected to 
be  the  net  job  creator  in  the  next decade (24).  The 
transition  of  the  labour  force  between  sectors 
brings with it challenges. 

Difficulties  with  recruiting  and  retaining 
higher-skilled employees in fast-growing sectors 
are  a  challenge  to  growth.  Skills  shortages  exist 
particularly  in  the  ICT  sector,  but  also  among 
health  and  services  professionals  and  teachers 
(CEDEFOP,  2016a).  Additionally,  occupations 
such  as  skilled  trades,  engineering,  transport  and 
distribution  (Manpower  Group, 2015)  are  in  short 
supply. Poor performance of education, vocational 
training and lifelong learning systems, unattractive 
working  conditions  and  higher  wages  abroad 
(European  Commission  2015c),  contribute 
to 
labour shortages. Finally, internal labour mobility, 
which  could  balance  some  of  the  skills  shortages, 

remains  limited (25).  In  order  to  increase  the 
attractiveness  of  education  and  health  sectors, 
wages in these areas have been increased, but their 
impact remains to be seen. 

Graph 3.3.1:  Employment by sector 

Source: European Commission 

Sustained  reform  momentum  is  essential  for 
long-term  growth. 
boosting  welfare  and 
Ensuring 
implementation  and 
the  continued 
sustainability  of  the  ambitious  reform  measures 
taken  in  2016  is  essential  to  produce  tangible 
effects with an impact on future economic growth, 
on  the  reduction  of  poverty  and  on  the  country's 
development  potential.  Successful  implementation 
of  reforms  also  hinges  on  having  an  effective 
social  dialogue.  The  latter  remains  characterised 
by  low  collective  bargaining  at  sectoral  level  and 
by 
(European 
Commission, 2016a). 

institutional 

weaknesses 

Untapped labour force 

In  this  context,  tapping  into  the  unused  labour 
potential  is  paramount  for  boosting  growth. 
Low  levels  of  unemployment  are  matched  by  one 
of  the  highest  inactivity  rates  of  the  working-age 
population  in  the  EU  (Graph  3.3.2)  and  a  large 
informal sector (26). Employment and activity rates 

(24)  Distribution  and  transport  are  one  of  the  most  dynamic 
sectors, followed by business and other services (including 
ICT)  and  non-marketed  services  such  as  education  and 
health (CEDEFOP 2016b). 

(25)  Recently,  public  wages  in  the  education  and  healthcare 
sectors have been increased, however in an ad hoc manner, 
without  applying  a  comprehensive  policy  based  on 
qualifications and performance of workforce. 

(26)  National  data  estimate  people  in  the  informal  economy  at 
around 1.2 million, representing 0.6 pp. of total population. 

20 

-500-400-300-200-1000100200300400070809101112131415*1000AgricultureIndustryConstructionTradable servicesNon-tradable servicesPublic sectorTotal 
 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

remain below the EU average for women, the low-
skilled, young people, people with disabilities and 
Roma. 

The share of young people neither in education, 
employment  or  training  (NEET)  remains  high. 
This situation further worsened in 2015, increasing 
by  1.1  pps.  and  driven  mainly  by  the  increasing 
early  school  leaving  rate (see  Section 3.3.2).  Two 
thirds  of  NEETs  remain  inactive  and  include  a 
relatively high share of Roma and women living in 
rural areas (Eurostat, 2016 and FRA, 2016). 

Graph 3.3.2:  Activation potential* 

women (27).In  a  context  of  labour  force  shortages 
and with 20 % of new labour market entrants being 
Roma  (World  Bank,  2014b),  better  employment 
prospects  of  Roma  are  essential  for  potential 
growth  and  the  shock-absorbing  capacity  of  the 
economy. 

Women's labour participation remains low. The 
employment rate of women has not improved since 
2008  and  remains  below  the  EU  average (28), 
partly due to the lack of affordable child and long-
term  care  and  afterschool 
facilities.  Recent 
measures  adopted  by  the  Parliament  to  support 
extended (up to two years) (29) and parental leaves, 
which  are  almost  exclusively  taken  by  women, 
may further deteriorate their employment situation. 
Full equalisation of the retirement age for women 
and men (65) has been pending before Parliament 
for several years. 

Labour market policies 

* People from 25 to 54 years as percentage of total 
population in Q2 2016 
** Part-time workers who would like to work additional hours 
and are available to do so 
*** People available to work but not seeking 
**** Inactive people on top of discouraged workers  
Source: European Commission 

A  new  approach  towards  targeting  young 
to  offer  better  employment 
NEETs  aims 
services. The National Employment Agency plans 
to deploy integrated teams to identify and register 
NEETs.  The  teams  will  offer  an  integration 
pathway supported by more attractive active labour 
market policies. Since 2016 all NEETs can benefit 
for the first time from employment subsidies. The 
Youth Guarantee has so far only partially reached 
young NEETs (European Commission, 2016i). 

Roma are one of the most disadvantaged groups 
on  the  labour  market.  Only  one  in  three  Roma 
aged  20-64  report  having  engaged  in  'paid  work'. 
This is roughly the same as for peer countries, with 
and 
a 

between  men 

discrepancy 

high 

Comprehensive measures were adopted in 2016 
to  improve  active  labour  market  participation. 
The  Ministry  of  Labour  has  for  the  first  time  an 
integrated  overview  of  the  European  Social  Fund 
and  national  budgets  for  active  labour  market 
policies. Take-up is expected to improve thanks to 
a mix of more attractive demand- and supply-side 
for 
activation  measures 
entrepreneurship  and  employment 
subsidies), 
tailor-made  to  groups  furthest  from  the  labour 
market.  Financial  incentives  covering  relocation 
and  transport  costs  were  increased  to  improve 
internal  labour  mobility  in  line  with  the  national 
mobility plan. Measures to encourage the return of 
Romanians  from  the  diaspora  were  launched  with 
EU funding support. 

(including 

support 

The National Employment Agency is set to have 
a pivotal role in activation policies. In 2016, the 
Agency implemented a thorough reform of service 
delivery  and  developed  a  profiling  procedure  for 
jobseekers,  subsequently  enshrined  in  legislation. 
The  Agency  plans  to  take  tailor-made  action  in 

(27)  17 %  Roma  women  and  49 %  men  reported  to  have 
engaged in 'paid work' when surveyed or in the four weeks 
prior to the survey. The discrepancy is more pronounced in 
Romania than in peer countries on average (FRA, 2016). 
(28)  The  gender  employment  gap  is  even  more  acute  for  older 
women as compared to the EU average (19.1 % v 13.2 %). 
(29)  Increase  of  parental  leave  from  one  to  two  years, 
remunerated  at  85 %  of  the  previous  salary  and  with  no 
upper ceiling. 

21 

0510152025303540ROEUROEUROEUROEUUnderemployedpart-timeworkers**UnemployedDiscouragedworkers***Other inactivepeople****%Increasing  distance from the labour market 
 
                                                           
3.3. Labour market, education and social policies 

3.3.2.  POVERTY AND SOCIAL EXCLUSION 

confronted 

Poverty  and  social  exclusion  remain  high. 
Although  declining  (Graph  3.3.3),  a  high  risk  of 
poverty  or  social  exclusion  persists  for  young 
NEETs,  families  with  children  and  people  with 
disabilities.  Compared  with  urban  areas,  twice  as 
many  people  in  rural  areas  live  in  marginalised 
communities 
housing, 
employment  and  social  challenges  (World  Bank, 
2014a). The share of poor people who live in very 
bad  quality  housing  and  spend  over  40 %  of  their 
incomes  on  housing  is  one  of  the  highest  in  the 
EU.  In-work  poverty  (with  a  rate  double  the  EU 
average) 
share  of 
unremunerated  family  workers  in  rural  areas. 
Finally,  Romania  has  one  of  the  highest  levels  of 
income inequality in the EU and rising (Section 2).  

the  high 

stems 

from 

with 

Graph 3.3.3:  AROPE for selected groups 

At-risk-of-poverty or social exclusion rate (% of total 
population). People who are at-risk-of poverty (AROP) 
and/or suffering from severe material deprivation and/or 
living in household with zero or very low work intensity. 
2007-2009 EU27, 2010-2015 EU28 
Source: European Commission 

Poverty  and  social  exclusion  are  particularly 
high  among  the  Roma.  The  risk  of  poverty  for 
Roma  is  almost  three  times  as  high  as  for  the 
general  population.  It  is  high  in  comparison  with 
other Member States with a sizable Roma minority  
(BG, CZ, HU, SK including RO), where the rate of 
poverty  for  Roma  is  estimated  to  be  between   
three  to  more  than  six  times  higher  than  for  the 

close  collaboration  with  social  assistance  and 
education counsellors. The Agency started training 
its counsellors in case management and intends to 
hire  professionals  oriented  towards  NEETs,  the 
long-term unemployed and inactive groups. 

to  establish  an 

Minimum  wage  increases  are  still  adopted 
without  objective  criteria.  Ad  hoc  minimum 
wage  increases  have  significantly  raised  the  share 
of workers  earning  the  minimum  wage  and  led  to 
strong  compression  at  the  bottom  of  the  wage 
distribution  (European  Commission,  2016a).  In 
January  2016,  the  Government  set  up  a  tripartite 
working  group 
indexation 
mechanism for future minimum wage adjustments. 
An  impact  study  was  conducted  to  evaluate  the 
economic  and  social  effects  of  the  changes  in  the 
minimum  wage  and  a  group  of  experts  was 
approved  by  the  tripartite  group  to  set  up  the 
mechanism  based  on  the  findings  of  the  study. 
Despite  these  developments,  in  January  2017  the 
Government  decided  ad  hoc  to  increase  the 
minimum  wage  to  RON 1 450  (EUR 322)  from  1 
February  2017  and  to  RON 1 750  (EUR 390)  by 
2020.  These  increases  are  not  based  on  objective 
criteria, despite the work of the tripartite group. 

Challenges in rural areas 

Urban-rural  disparities  are  holding  back 
economic and social development. Over 45 % of 
the population lives in rural areas which remain far 
behind  urban  areas  in  terms  of  poverty  reduction, 
employment and education, access to services and 
infrastructure  (European  Commission,  2016a). 
This  urban-rural  divide  is  holding  back  economic 
growth and income convergence. 

and 

productivity 

Recently  adopted  measures  aim  to  tackle  these 
socio-economic  development  challenges. 
In 
2016,  the  Government  adopted  a  comprehensive 
set  of  measures  to  improve  living  standards  and 
stimulate 
economic 
diversification. Measures include modernising and 
restructuring 
setting-up  non-
agricultural  SMEs  in  rural  areas,  investments  in 
rural infrastructure, including social and education 
infrastructure, 
formalise 
and  measures 
employment.  Successful 
implementation  will 
hinge  on  the  capacity  to  effectively  target  and 
absorb available EU funding. 

farms, 

small 

to 

22 

010203040506070070809101112131415% of populationRO  <18yRO  18-64yRO  65+EU  <18yEU  18-64yEU  65+ 
 
general  population (FRA,  2016) (30).  Roma  are 
concentrated  in  marginalised  communities  and 
about  two  thirds  live  in  housing  lacking  basic 
sanitation  (FRA,  2016,  p. 19).    The  increased  use 
of  dissuasive  sanctions,  such  as  fines,  by  the 
National Council on Combatting Discrimination is 
a  promising  development 
the  effective 
enforcement of anti-discrimination rules. 

for 

High  poverty  incidence  is  associated  with  high 
inactivity  levels.  The  absence  of  any  or  recent 
work  experience,  a  low  level  of  skills  and 
education  and  scarce  employment  opportunities 
are  the  main  barriers  preventing  the  poor  from 
finding 
2017, 
forthcoming,  p. 4).  The  issue  is acute  in  rural  and 
employment 
marginalised 
opportunities 
subsistence 
agriculture are rather limited (for policy response, 
see challenges in rural areas). 

where 
(semi-) 

areas, 
outside 

(World  Bank, 

employment 

consolidates 

The  minimum  inclusion  income  aims  to  tackle 
poverty  and  promote  activation  measures. 
Adopted  in  2016,  the  minimum  inclusion  income 
(MII)  law,  due  to  enter  into  force  on  1  April 
2018 (31), 
three  means-tested 
programmes 
(European  Commission,  2016a). 
While  almost  doubling  the  current  budget (32),  it 
increases  the  adequacy  and  coverage  of  the 
benefits, aiming to lift 10 % of the population out 
of  extreme  poverty.  Moreover,  the  MII  includes 
provisions  to  strengthen  inspections  and  coercive 
measures.  The  MII  will  combine  passive  support 
with more attractive active labour market measures 
by  maintaining  a  part  of  the  benefits  for  those 
taking up work and introducing compulsory active 
labour  market  measures  for  this  group.  The 
activation potential of these compulsory measures, 
however,  remains  modest  with  a  target  to  reach 
only 25 % of MII beneficiaries by 2021.  

3.3. Labour market, education and social policies 

However, social benefits are not yet revised in a 
fully  predictable  manner.  The  level  of  the  main 
social  benefits,  including  unemployment  benefits, 
is  determined  on  the  basis  of  the  social  reference 
index  which  has  not  been  updated  since  its 
introduction 
in  2008  (European  Commission, 
2016a).  A  regular  revision  of  the  social  reference 
index  would  help  preserve  the  adequacy  of  social 
benefits  over 
large 
time  while 
unbudgeted ad hoc revisions. 

avoiding 

from  a  benefit-driven  policy 

For the first time, a comprehensive anti-poverty 
package  was  adopted  in  2016.  The  package 
integrates EU and national funds and provides for 
a safety net for people at risk of poverty. It moves 
away 
towards 
providing more social services catered to each age 
group, such as access to early education and care, 
prevention of early school leaving, transition from 
school  to  work,  and  improved  social  and  medical 
services  for  the  elderly.  Official  accreditation  of 
social  services  has  been  simplified.  However,  the 
lack  of  integration  and  overview  of  services 
provided  with  national  and  EU  funds  make  the 
referral process difficult.  

in  2017 

The  anti-poverty  package  includes  integrated 
services  targeted  at  marginalised  communities. 
A pilot project of integrated teams is planned to be 
rolled  out 
in  100  marginalised 
communities  (out  of  over  500),  mostly  in  rural 
areas.  The 
teams  comprise  social  assistants, 
community  health  assistants,  or  mediators  and 
educational  counsellors  or  mediators  to  provide 
services  tailored  to  the  specific  needs  of  the  most 
disadvantaged groups, working closely with public 
employment services. When scaled up to cover the 
whole  country,  the  project  is  expected  to  have  a 
significant  impact  on  the  currently  low  provision 
of integrated services. 

3.3.3.  EDUCATION 

(30)  The  2016  survey  by  the  Fundamental  Rights  Agency 
improved  the  sampling  and  weighting  methods  developed 
for  the  2011  Roma  survey,  thus  the  results  are  a  more 
accurate  representation  of  the  situation  of  Roma  in  the 
countries 
close 
approximation  to  those  applied  in  standard  European 
surveys  (EU  SILC,  EU  LFS),  but  full  comparability  was 
not intended. For more details see FRA, 2016. 

Indicators  used 

covered. 

are 

a 

(31)  See  European  Commission,  2016a,  for  background  on 

existing social benefits. 

(32)  The budget for the scheme will increase from RON 1.4 to 

2.4 billion (EUR 310 to 530 million). 

Unequal  provision  of  quality  education 
is 
undermining  human  capital  potential.  High 
underachievement  in  basic  skills,  the  high  and 
rising  early  school 
tertiary 
attainment  do  not  meet  the  increasing  needs  for 
skilled  labour  supply  in  the  context  of  persistent 
emigration.  The 
labour  market  relevance  of 
education remains a challenge, while participation 
in  lifelong  learning  is  very  low.  Romania's  public 

leaving  and 

low 

23 

 
                                                           
3.3. Labour market, education and social policies 

in  Roma-predominant 
schools.  Educational 
segregation (34),  partly  stemming  from  uneven 
distribution  of  Roma  in  the  country  and  from 
inclusive 
discriminatory 
education. Only 38 % of Roma children aged 4 to 
compulsory  school  age  participate 
in  early 
education  and  care.  Social  coupons  have  been 
introduced  to  support  the  participation  of  poor 
children in kindergarten. 

attitudes, 

hinders 

for  Roma (35)  and 

The rising share of early school leavers poses an 
additional  challenge.  In  2015  the  proportion  of 
early  school  leavers  rose  to  19.1 %,  the  third 
highest in the EU, and is particularly high in rural 
areas, 
for  people  with 
disabilities.  This  trend  is  driven  by  poverty  and 
education 
insufficient  provision  of  quality 
(European  Commission, 
pp. 64-65). 
National scale European Social Fund projects were 
launched  to  reduce  early  school  leaving.  The 
availability  of  second-chance  programmes  has 
increased,  but  remains 
insufficient  (European 
Commission 2016h). 

2016a, 

The quality and relevance of tertiary education 
for  the  labour  market  remains  a  challenge. 
Tertiary attainment is the one of the lowest in the 
EU  (25.6 %  in  2015,  compared  to  38.7 %  EU28) 
and  unlikely  to  improve  significantly  due  to  low 
passing rates at the baccalaureate (68.1 % in 2016) 
and  high  early  school  leaving.  Despite  some 
progress  (European  Commission,  2016h),  labour 
market relevance remains a challenge as shown by 
the employment rate of graduates (77 % in 2015 vs 
93 % in 2008). 

Progress  in  vocational  education  and  training 
(VET)  is  insufficient  to  meet  labour  market 
needs.  Dual  learning  was  recently  introduced  to 
support the reform of the VET system by offering 
private  companies  fiscal  incentives  for  providing 
student training. A VET strategy was adopted as ex 
ante  conditionality  for  EU  funds  and  a  reform  of 
the apprenticeship system was initiated. However, 
VET  qualifications  and  curricula  continue  to  be 
insufficiently aligned with labour market needs. 

(34)  About 29 % of Roma children receive education in schools 

where all or most students are Roma (FRA, 2016). 

(35)  The  Fundamental  Rights  Agency  estimates  the  share  of 

Roma early school leavers at 77 %. 

(European  Commission,  2016a). 

expenditure  on  education  is  one  of  the  lowest  in 
If 
the  EU 
continue 
unchanged, 
and 
undermining 
economic growth. 

these 
human 

factors  will 

potential 

capital 

A  high  share  of  students  do  not  possess  an 
adequate  level  of  basic  skills.  The  2015  OECD 
Programme  for  International  Student  Assessment 
(PISA)  found  high  levels  of  low  achievement  in 
basic  skills  (Graph  3.3.4).  More  than  half  of 
students  from  the  lower  socio-economic  quarter 
are underachievers, indicating that socio-economic 
status  has  a  large  impact  on  student  performance. 
Underachievement  is  also  high  in  all  other  socio-
economic quarters and the share of top performers 
in science is low. This risks hindering the country's 
future innovation potential and affect its long-term 
competitiveness.  Efforts  were  made  to  revise  the 
curricula  towards  competence-based  learning,  but 
results will take a long time to become visible (33).   

Graph 3.3.4:  Proportion of low achievers among 15-year-

olds in PISA 2015 

Source: OECD 

Access  to  quality  education  is  limited  in  rural 
areas  and  for  the  Roma.  Rural  schools,  which 
provide  education  to  almost  half  of  primary  and 
lower  secondary  students,  score  below  urban 
schools.  Roma 
is 
educational 
negatively  affected  by  the  lower  teaching  quality 

achievement 

(33)  Following  the  revision  of  the  curricula  for  primary 
education (grades 1-4), a new curriculum for grades 5-8 is 
set to be phased in from September 2017. Plans to reform 
the curricula for high-school education have been delayed.  

24 

051015202530354045ROBGITEU-28ESPL%ScienceReadingsMaths 
 
                                                           
                                                           
3.3. Labour market, education and social policies 

Participation  in  lifelong  learning  is  one  of  the 
lowest  in  the  EU.  There  is  limited  cooperation 
between the ministries and institutions carrying out 
educational  activities  for  adults.  A  national 
strategy  to  address  the  shortcomings  of  the  VET 
and  lifelong  learning  systems  is  in  place,  but  its 
implementation  is  slow  and  ESF-funded  action  is 
still to be launched on the ground. 

Romania et al., 2015). The gap in unmet needs for 
medical  examination  between  the  richest  and  the 
poorest is the fourth highest in the EU and double 
the  EU  average.  Access  to  selected  highly  cost-
effective  essential  medicines  is  limited.  Primary 
healthcare and integrated community teams are not 
sufficiently deployed. 

3.3.4.  HEALTH AND LONG-TERM CARE 

The  healthcare  system  faces  structural  and 
financing  challenges.  The  healthcare  system  is 
characterised  by  unequal  access  and  inefficient 
spending  as  well  as  the  lack  of  a  long-term 
sustainable funding structure. The system remains 
hospital-centred,  with  few  primary  and  outpatient 
care services, resulting in outdated and ineffective 
care  (European  Commission,  2016c).  In  addition, 
the  budget  on 
continuous  overspending  of 
pharmaceuticals  constrains  the  introduction  of 
innovative  medicines.  E-health  systems  which 
could  improve  efficiency  and  lower  the  incidence 
of  corruption  are  not  fully  functional.  Weak 
governance  and  the  lack  of  comprehensive  public 
health policies add to these challenges. 

to 

Health outcomes are weak, negatively affecting 
workforce  employability.  Due 
the  high 
mortality  rate,  2 203  potentially  productive  life 
years  are  lost  per  100 000  population  (against  an 
EU average of 1 236; data from 2013 (OECD/EU, 
2016).  Moreover,  while  decreasing  over  time, 
infant mortality, perinatal mortality, amenable and 
preventable  mortality  and  mortality  from  diseases 
of the circulatory systems are among the highest in 
EU, although they are decreasing over time. 

Access  to  healthcare  is  limited  and  unequal. 
Access to good quality care is hindered by the low 
specialist 
density  of  general  practitioners, 
physicians (36)  and  nurses,  while  medical  staff 
migration  to  EU  countries  has  not  abated.  Low 
levels  of  public  funding  contribute  to  informal 
payments,  which  is  one  of  the  main  financial 
barriers  to  accessing  health  care.  As  the  sector 
remains  underfunded, 
the 
population declared having offered money or gifts 
to doctors and 8 % to nurses (Ministry of Health of 

in  2014  11 %  of 

(36)  236.3 physicians per 100 000 residents while EU average is 

349.6. 

the 

improve 

initiatives  will 

New 
cost 
effectiveness  of  and  access  to  healthcare. New 
medicines  have  been 
introduced  and  a  new 
pharmaceutical  pricing  scheme  is  supposed  to 
improve access to cost-effective medicines. A new 
law  on  community  care  setting  up  health  centres 
and teams adopted in October 2016 is expected to 
improve  access 
for 
to  healthcare 
vulnerable groups in rural areas. In addition, ESIF 
investments  for  2014-2020  focus  on  measures  to 
improve  healthcare  access  for  vulnerable  and 
marginalised  groups.  Already  adopted  measures 
include  the  development  and  approval  of  regional 
health care plans, and salary increases for medical 
staff. 

including 

The  reform  agenda  is  incomplete.  Although  the 
national  health  strategy  2014-2020 
includes 
specific measures to address poor health outcomes, 
with some positive results, it will depend on long-
these 
term 
developments.  A  comprehensive  approach  on 
performance  information  systems  and  workforce 
strategy is not yet developed. 

implementation 

sustain 

to 

Corruption  in  the  healthcare  system  has  been 
recognised  as  a  particular  problem  (European 
Commission,  2017c).  The  main  issues  relate  to 
public  procurement  in  hospitals,  insurance  fraud 
and  false  reimbursements,  bribery  for  issuance  of 
medical  certificates  giving  access 
to  special 
benefits  and  the  widespread  practice  of  informal 
payments to medical professionals. 

and 

integrity 

Strengthening 
reducing 
corruption risks became a priority in 2016. The 
national  anti-corruption  strategy  2016-2020  from 
August 2016  puts  forward  a  comprehensive  set  of 
measures  to  fight  corruption  in  healthcare.  A 
revamped  electronic  reporting  system  aims  at 
reducing  informal  payments.  The  Health  Minister 
launched  in  December 2016  a  special  telephone 
line  where  patients,  doctors  or  witnesses  of 
corruption  cases  in  any  medical  unit  can  report 
include 
potential  breaches.  Other  measures 

25 

 
                                                           
3.3. Labour market, education and social policies 

increasing 

changes to the hospital ethics councils' law, as well 
as 
the  accountability  of  hospital 
managers,  ensuring  they  are  recruited  through 
open competition (37). On the latter, there are signs 
of  backtracking 
the 
multifaceted  issue  of  corruption  in  healthcare,  the 
main challenge will be to effectively implement all 
the  national  anti-
the  measures  planned 
corruption strategy 2016-2020. 

2017 (38).  Given 

in 

in 

(37)  Including  special  commissions  selected  according 

to 

objective criteria. 

(38)  The  Government  had  adopted  an  emergency  ordinance  in 
November  (79/2016)  which  modified  the  selection  of 
hospital  managers  to  ensure  they  are  selected  by  open 
competition  and  extended  the  coverage  of  conflict  of 
interest  provisions  for  a  wider  category  of  hospital 
management  staff.  This  ordinance  was  rejected  in  the 
Senate in January 2017, but still needs to pass through the 
Chamber of Deputies. 

26 

 
                                                           
3.4. INVESTMENT 

3.4.1.  EXTERNAL COMPETITIVENESS 

Current account 

Current  account  developments  have  been 
largely driven by the trade balance. The current 
account  markedly  improved  following  the  crisis 
and  was  close to  balance  in 2014. This  correction 
was driven by improvements in the trade balance, 
especially  in  services  (European  Commission, 
2016a).  However,  the  current  account went  into  a 
moderate  deficit  in  2015,  which  expanded  further 
in 2016 due to a widening of the trade balance on 
the back of strong import growth. 

is  boosting 

The  current  account  deficit  is  expected  to 
import  growth  strengthens. 
deteriorate  as 
Robust  domestic  demand 
import 
growth  in  Romania.  European  Commission  staff 
suggest that imports of goods and services grew by 
0.6 %  in  response  to  a  1 %  increase  in  domestic 
demand (39)(40). With consumption growth forecast 
to  remain  buoyant  (see  Section  1.1),  imports  are 
expected  to  continue  to  grow  strongly  in  2017-
2018, with the current account deficit widening to 
3.1 % of GDP by 2018. 

Export performance 

Competitiveness has been the main contributor 
to  a  strong  export  performance,  albeit  at 
declining  pace.  Between  2000  and  2015, 
Romania's  share  in  the  global  trade  market  more 
than doubled from 0.18 % to 0.39 %. Much of this 
improvement  is  explained  by  domestic 
'push 
factors',  such  as  labour  costs,  a  proxy  for  the 
economy's  competitiveness (41).  Competitiveness 

(39)  Research  by  the  National  Bank  of  Romania  (monthly 
bulletin,  June  2016)  also  concluded  that  strong  domestic 
demand had a relatively high impact on import growth, as 
domestic  supply  was  slow  to  react  to  increased  consumer 
demand following lower indirect taxes and rising wages. 
(40)  European  Commission  staff  also  estimated  the  export-
import  elasticity  to  be  0.4,  which  is  consistent  with  the 
relatively  low  import  intensity  of  exports.  The  domestic 
value  added  share  of  exports  was  73 %  in  Romania  in 
(Source: 
2014,  above 
www.wiod.org). 

the  EU  average  of  63 % 

(41)  The  conclusion  is  based  on  a  shift-share  analysis.  Export 
market  share  changes  are  broken  down  into  'pull'  factors, 
which capture the impact from changes in external demand 
or  sectoral  shifts  in  global  markets,  and  'push'  factors, 
which  reveal  how  different  structures  of 
individual 
countries’  exports  affect  their  relative  performance.  The 
'push'  factors  can  be  interpreted  as  a  broad  measure  of  an 
economy’s 'competitiveness'. 

gains were especially strong in the crisis period but 
slowed in 2011-2015. 

External  demand  negatively  contributed  to 
export performance. Changes in external demand 
had  a  positive  impact  before  2007,  but  became 
unfavourable with  the  start of  the crisis.  This was 
partially due to a concentration of exports towards 
the EU market, but also to a significant economic 
slowdown  in  the  Romania's  non-EU  main  trading 
partners,  Russia  and  Turkey.  The  former  even 
dropped  out  of 
top-10  destinations  for 
Romania's exports (Graph 3.4.1) (42). 

the 

Graph 3.4.1:  Geographical specialisation in the 10 largest 

export destinations in 2015 

The size of the bubbles indicates the weight of Romania’s 
exports in total imports of the destination country.  
'Market dynamism' stands for the difference between the 
annualized growth rates of world imports per geographical 
market and global world imports.  
'Competitiveness' stands for the difference between the 
annualized growth rates of Romania’s exports per market 
and world imports per market. 
Source: European Commission 

export 

Traditional  export  sectors  lost  market  share  in 
2015,  reversing  recent  gains.  Breaking  down 
recent 
product 
developments 
specialisation  categories  illustrates  that  Romania 
lost competitiveness in 2015 in its most important 
sectors: vehicles and machinery. These losses were 
compensated in part but not fully by the dynamism 
of these sectors (Graph 3.4.2). 

by 

(42)  Commission staff estimates suggest that Romania's exports 
of goods would fall by 2.4 % in response to a 1 % decrease 
in external demand. 

27 

GermanyItalyFranceHungaryUKTurkeyBulgariaSpainPolandNetherlands-10-8-6-4-20246-15-10-5051015Market Dynamism (pp)Competitiveness (pp) 
 
                                                           
 
                                                           
3.4. Investment 

Graph 3.4.2:  Breakdown of export performance 

Graph 3.4.3:  Labour cost index 

Source: European Commission 

Spillovers from the non-tradable to the tradable 
sector  may  weaken  external  competitiveness  in 
the future. With the tradable sector in all cases the 
follower  in  wage  determination,  it  is  likely  that 
wage  growth  will  catch  up  with  higher  wages  in 
the  public  and  the  non-tradable  sectors  over  the 
medium-term.  Unpredictable  changes  in  public 
wage  policy  may  therefore  divert  economy-wide 
wage  developments 
economic 
fundamentals. 

away 

from 

Graph 3.4.4:  Minimum and public wage growth vs inflation 

and productivity developments (2009-2016) 

Note: IS stands for Romania’s initial sectoral specialisation, 
while MSG captures how successful Romania has been in 
gaining market shares on average across export products.  
Source: European Commission 

Wage dynamism 

in  wages 

Public-sector  wage  adjustments  are  leading 
in  the  tradable  sector. 
changes 
Specifically, public-sector wages were leading the 
wage-setting process in the run-up to the crisis and 
shortly  thereafter.  In  the  wake  of  the  crisis,  the 
non-tradable  sector  joined  forces  with  the  public 
sector  as  the  prime  movers  in  the  wage-setting 
process. 

Economy-wide  wages  grew  swiftly  in  2016, 
driven  by  public  wage  growth.  In  recent  years, 
wage  growth  in  the  public  sector  has  been  more 
volatile  than  in  the  private  sector  (Graph  3.4.3). 
Periods  of  public  wage  decreases  and  stagnation 
were  followed  by  rapid  increases.  Overall,  public 
wages have grown faster since 2010 than those in 
the  private  sector.  Instances  of  large  minimum 
wage increases have also driven wage growth (43). 
Consequently, 
per 
employee  accelerated  in  2016  (see  Section  1.5) 
after some years of moderate growth (44). 

compensation 

nominal 

Source: European Commission 

(43)  See Box 2.1.1 in European Commission, 2016a, pp. 10-11. 
(44)  Compensation of employees consists of wages and salaries, 

and of employers' social contributions.  

28 

-10-50510151112131415% of total market shareMSG-Machinery & ElectricalIS-Machinery & ElectricalMSG-Vehicl, Aircr, VesselsIS-Vehicles, Aircraft, VesselsMSG-other sectorsIS-other sectorsTotal Market Share (% ch.)809010011012013014015016017009Q410Q411Q412Q413Q414Q415Q416Q42012=100Manufacturing(Nace C)Business services(G_N)Public and other services(O_S)7510012515017520022509101112131415162009S1=100Min. wageHICPLabour productivity (hours worked)public wages 
 
                                                           
 
 
 
3.4. Investment 

Graph 3.4.5:  Global Competitiveness Index 

Note: Respondents rate 1 (worse) to 7 (best) 
Source: World Economic Forum, 2016-2017. 

Graph 3.4.6:  Public investment spending and quality of 

infrastructure 

A  more  predictable  wage-setting  process  for 
public  and  minimum  wages  would  help  avoid 
adverse  effects  on  competitiveness.  Commission 
staff  estimates  suggest  that  a  1 %  increase  in  the 
unit labour cost-based real effective exchange rate 
would  reduce  exports  by  0.7 %.  This  implies  that 
export  performance  is  highly  affected  by  changes 
in  labour  costs  and  the  exchange  rate.  Given 
productivity  developments,  income  convergence 
and  the  competitiveness  position  of  Romania, 
increases  in  public  wages  and  their  potential 
impact deserve special attention (Graph 3.4.4). 

3.4.2.  PUBLIC INVESTMENT AND 
INFRASTRUCTURE 

is  a  key 

infrastructure 

factor 
Romania's 
limiting  competitiveness.  Quality 
investment 
would  boost  growth  in  the  long  run,  including  in 
the  process  of  catching-up  and  convergence  with 
the EU. However, the poor shape of infrastructure 
is a key obstacle to doing business. In addition, the 
poor  quality  of  infrastructure  exacerbates  regional 
disparities and inclusion problems (Section 3.3.1). 

Despite  high  public  spending,  the  quality  of 
infrastructure  remains  low.  Romania  has  the 
highest rate of public investment in the EU in the 
last  decade.  At  the  same  time,  although  overall 
performance  improved,  the  country  ranks  last  in 
the  EU  in  the  perceived  quality  of  infrastructure 
(Graph  3.4.6).  This  is  particularly  the  case  in  the 
transport sector where Romania ranks 128 (out of 
138  countries)  for  the  quality  of  roads  and  79  for 
the quality of railroad infrastructure (Graph 3.4.5). 
The  transport  sector  remains  dominated  by  loss-
(see  Section 
making  state-owned  enterprises 
3.4.3),  while 
institutional  and 
legislative reform of the sector is delayed.  

the  necessary 

The  authorities  adopted  measures  to  improve 
investments  in  the  transport  sector.  The  2014-
2030 general transport master plan was adopted in 
September  2016  with  targets,  strategic  objectives 
and priority projects for the medium to long term. 
Additionally,  to  speed  up  investments  in  road 
infrastructure,  the  government  split  the  national 
authority  in  charge  of  road  construction  into  two 
bodies, one for infrastructure investments and one 
for  infrastructure  administration.  The  impact  of 
these  measures  will  depend  on  whether  they  are 
implemented effectively. 

Note: Respondents rate 1 (worse) to 7 (best) 
Source: European Commission and World Economic Forum: 
the Global Competitiveness Index 2015-2016  

Stronger absorption of EU funding could play a 
key  role  in  improving  infrastructure  spending. 
Romania had one of the lowest financial execution 
rates  for  the  2007-2013  Structural  and  Cohesion 
Funds  in  the  EU  (Graph  3.4.7).  Payment  claims 
generated by projects cover only 77 % of the 2007-
2013  budget  allocation  for  transport.  Improved 
absorption  for  the  2014-2020  period  will  depend 
on 
removing  public 
procurement  delays  and  bureaucratic  obstacles 
(e.g.  obtaining  building  permits),  and  on 

improved  governance, 

29 

012345RoadsAirtransportinfrastructureElectricitysupplyPortinfrastructureRailroadinfrastructureOverallinfrastructure2016-172010-11AUTBELBGRHRVCYPCZEDNKESTFINFRADEUGRCHUNIRLITALVALTULUXMLTNLDPOLPRTROSVKSVNESPSWEGBR12345634567Public GFCF spending,                                  2006-2015 average, % of GDPQuality of infrastructure  
 
 
 
3.4. Investment 

improving  beneficiaries'  capacity  to  prepare  high-
quality projects and deliver them on time. 

Graph 3.4.7:  Financial execution of Structural and Cohesion 

funds 2007-2013 

the  Ministry  of  Finance  has  greater  powers  to 
monitor how legislation is being implemented and 
companies' performance. This strengthened role is 
based  on  harmonised  mandatory  reporting  of 
financial  and  operational  performance  and  on  the 
Ministry  having  the  power  to  apply  financial 
penalties  for  the  failure  to  meet  deadlines  and 
procedures. 

3.4.4.  BUSINESS ENVIRONMENT  

remain. 

weaknesses 

The  business  environment  has  improved  but 
some 
Romania's 
competitiveness  significantly  improved  in  2011-
2016 but it ranks 36th in the World Bank's Doing 
Business 2017 Report and dropped from rank 53 to 
62  in  the  Global  Competitiveness  Report  (Graph 
3.4.8).  Weaknesses  persist 
infrastructure 
(roads),  administrative  burden,  labour  market, 
efficiency, health and education (see Sections 3.3, 
3.5, 3.6). Corruption and governance issues in the 
public  sector  are  among  the  main  challenges  for 
the business environment. 

in 

several 

adopted 

Administrative procedures for business and the 
public  are  being  simplified.  During  2016  the 
Government 
emergency 
ordinances  to  simplify  administrative  procedures 
and  facilitate  relations  between  citizens  and  the 
public  administration.  This  new 
legislation 
streamlines  the  process  of  submitting  forms  and 
promotes  widespread  use  of  email.  In  addition,  in 
the  new  government  passed 
January  2017 
measures 
in  support  of  entrepreneurship  and 
simplification such as an increase of the threshold 
for  micro-enterprises,  an  exemption  of  profit  tax 
for  R&D  companies,  and  the  elimination  of  102 
fees and duties. 

the 

e-government 

However,  modern 
solutions 
remain  largely  untapped.  Romania's  use  of 
e-government  is  one  of  the  lowest  in  the  EU 
(European  Commission,  2016a,  p. 47).  Measures 
taken  by 
the 
authorities 
reinforcement  of  governance;  (ii)  coordination  of 
the implementation of e-government solutions; (iii) 
adoption  and 
implementation  of  a  national 
interoperability framework. However, the national 
administration IT system is fragmented, adding to 
the  administrative  burden  for  the  public  and 
businesses. 

target: 

(i) 

Data include advanced payments. Excluding advanced 
payments, Romania managed to claim 77 % of its 2007-2013 
budget allocation. 
Source: European Commission 

3.4.3.  STATE-OWNED ENTERPRISES (SOE) 

counterparts. 

private-sector 

SOEs  play  an  important  role  in  the  economy, 
but  are  not  on  as  firm  a  financial  footing  as 
their 
SOEs 
dominate  critical  infrastructure  sectors  such  as 
energy  and  rail  transport  that  are  essential  for 
sustainable  growth.  However,  SOEs  have  higher 
debt ratios and lower profitability than their private 
sector counterparts (European Commission, 2016a; 
Marrez, 2015). Arrears to the state, to other SOEs 
and  to  private  suppliers  are  a  pervasive  problem 
and 
liabilities.  Despite 
negative operational results in 2015 and 2016, the 
loss-making  SOEs  has  not 
restructuring  of 
advanced.  Moreover,  the  privatization  agenda  has 
not yet started moving forward. 

represent  contingent 

Legislation on improving corporate governance 
was  adopted (45).  The  law  and  its  implementing 
legislation  follow  good  international  practices  in 
ensuring transparency in the appointment of board 
members and the management of SOEs. Moreover, 

(45)  Law 111/2016 on the corporate governance of state-owned 
enterprises  approved  by  Parliament  in  May  2016.  It 
replaced government emergency ordinance 109/2011. 

30 

50556065707580859095100CroatiaRomaniaHungaryCzechrepublicBulgariaPoland%20162015 
 
                                                           
3.4. Investment 

to  retain  skilled  workers  and  address  labour 
shortages and skill mismatches, among others. 

Political  and  media  attacks  of  magistrates  or 
judicial  institutions  risks  undermining  public 
confidence in the judicial system (1). Magistrates 
and judicial institutions were exposed to increased 
criticism by high-level officials and public figures. 
This  risks  undermining  public  confidence  in  the 
judicial  system  as  a  whole  and  could  potentially 
harm the business environment (46). 

While  the  quality  and  efficiency  of  the  judicial 
system  is  improving,  concerns  remain.  The 
judiciary  has  been  developing  assessment  tools  to 
monitor  and  manage  courts'  activity  and  take 
corrective  action.  Courts  have  become  more 
efficient  in  dealing  with  incoming  cases  in  recent 
years, as average clearance rates well above 100 % 
indicate (47).  However,  the  workload  distribution 
among  courts  remains  uneven.  Courts  have 
become  more  efficient  in  dealing  with  incoming 
cases  in  recent  years,  as  borne  out  by  clearance 
rates  well  above 100 % (48). In  contrast, no action 
was taken to address the long-standing problem of 
non-enforcement of final court decisions (49). 

'breathing  space' 

Progress  on  improving  insolvency  procedures 
remains  limited.  The  time  taken  to  conclude 
procedures  is  among  the  longest  in  the  EU, 
preventing  honest  entrepreneurs  from  getting  a 
second  chance.  The 
from 
enforcement  of  actions  on  viable  companies  in 
financial  difficulties  can  last  up  to  3  years,  even 
though  4  months  would  be  sufficient  to  facilitate 
negotiations  and  provide  predictability  and  legal 
certainty  for  creditors.  The  recovery  rate  for 
secured  creditors  in  insolvency  proceedings  is 
34.4 %, below the average of 65 % in the EU. 

E-commerce  development  is  limited  due  to  the 
lack of  consumer protection. While  e-commerce 
could  be  a  gateway  to  new  markets  and  cheaper 
offers,  the  participation  in  online  transactions  of 

(46)  2017 EU Justice Scoreboard (forthcoming). See section 2.1 
of  2017  CVM  Technical  Report  -  SWD  (2017)  25.  Upon 
the  backdrop  of  growing  trust  in  the  judiciary  over  the 
years,  the  improvement  of  businesses'  perception  of 
independence stalled in 2016. 

(47)  Ibid. 
(48)  2017 EU Justice Scoreboard (forthcoming) 
(49)  Romania has proposed an Action Plan to address this issue 
in December 2016, which will be examined by Council of 
Europe Committee of Ministers in March 2017. 

Graph 3.4.8:  Global Competitiveness Indicator 

Note: Respondents rates 1 (worse) to 7 (best) 
Source: World Economic Forum, 2016-2017. 

Access to finance is expected to improve with a 
set of new financial instruments. Work on setting 
up  a  national  promotional  bank  has  been  ongoing 
for  two  years.  A  draft  law  to  transform  parts  of 
EximBank into a promotional bank was adopted in 
November  2015.  Funding 
impact 
assessment  of  the  planned  transformation  was 
approved  in  December  2016  and  the  tender 
is  under 
to  select  a  consultant 
procedure 
preparation.  The  setting  up  of  a  national 
promotional  bank  and  the  creation  of  a  bank  for 
SMEs,  as  announced  by  the  new  government,  are 
to  finance  for 
expected 
enterprises. 

improve  access 

for 

an 

to 

A  strategy  to  put  the  economy  on  sustainable 
path  was  developed  in  2016.  The  'Competitive 
Romania'  strategy  presents  a  EUR 16.9 billion 
economic development plan with the aim to reach 
political and societal consensus on the main areas 
for  action by 2020  to put Romania  on  sustainable 
economic  development  path  and  accelerate 
convergence  with  the  EU.  The  strategy  was 
prepared  jointly  by  the  former  government,  the 
Central Bank and the Romanian Academy and was 
launched  in  July  2016  under  the  patronage  of  the 
President.  Several  measures  from  2016  fit  the 
purpose of the strategy: the legislative package on 
public procurement (in force since May 2016), the 
de-
package 
bureaucratisation (see Section 3.4.4), tax measures 

simplification 

and 

for 

31 

0123456InstitutionsInfrastructureMacroeconomicenvironmentHealth andprimaryeducationHighereducationand trainingGoodsmarketefficiencyLabormarketefficiencyFinancialmarketdevelopmentTechnological readinessMarket sizeBusinesssophisticationInnovation2016-172010-2011 
 
                                                           
3.4. Investment 

includes  measures 

and  to  promote  integrity  in  the  public  sector.  The 
strategy 
improve 
transparency  of  the  decision-making  process  and 
of budget allocation, while maintaining a culture of 
integrity  within  public  organisations  by  enforcing 
managerial accountability. 

to 

The  irreversibility  of  progress  in  the  fight 
against  corruption  was  recently  put  at  risk. 
Romania's  track  record  has  pointed  toward  the 
growing irreversibility of reforms, as a number of 
internal safeguards have been put in place against 
in  an  emergency 
abrupt  reversal.  However, 
procedure  on  31  January  2017,  the  Government 
introduced  amendments  to  the  Criminal  Code, 
affecting  the  fight  against  corruption (54).While  a 
subsequent  government  emergency  ordinance 
issued  on  5  February 
these 
amendments,  the  parliamentary  scrutiny  of  both 
ordinances 
risk 
challenging  the  progress  already  made  over  the 
past 10 years in this field. 

is  pending.  Such 

(55)  abrogated 

initiatives 

(54)  Emergency  Government  Ordinance  no.13  of  31.01.2017 
for  the  modification  of  Law  no.  286/2009  regarding  the 
Criminal  Code  and  Law  no.  135/2010  regarding  Criminal 
procedure code. Official Journal of Romania, Part II, No. 9 
of 1 February 2017. 

(55)  Emergency  Ordinance  no.  14  from  05.02.2017  for  the 
abrogation  of  the  Government  Emergency  Ordinance  no. 
13/2017  amending  and  supplementing  Law  no.  286/2009 
regarding the Criminal Code, Law no. 135/2010 regarding 
the  Criminal  Procedure  Code  and  amending  Law  no. 
135/2010 regarding the Criminal Procedure Code.  Official 
Gazette no. 101 from 05.02.2017.  

Romanian  consumers  (12 %  vs  55 %  EU)  and 
SMEs (7 % vs 17 % EU) remains one of the lowest 
in  the  EU.  Despite  improvements  in  the  last  2 
years,  unfavourable  consumer  conditions (50) 
remain  an  obstacle  to  consumer  confidence  in 
online shopping (51). The effective enforcement of 
rules  in  the  digital  environment  remains  limited 
to  weak  enforcement  capacity.  An  IT 
due 
coordinator  was  appointed  at  secretary  of  state 
level, 
line  with  Decisions  464/2016  and 
in 
21/2017. 

Corruption 

recently 

Corruption persists at all levels and remains an 
obstacle for doing business. Corruption is widely 
acknowledged  as  a  major  issue  in  Romania,  as 
shown  regularly  in  perception  surveys (52)  and 
most 
the 
Cooperation  and  Verification  Mechanism  (53). 
Corruption  and  governance  issues  in  the  public 
sector  are  among  the  top  challenges  for  the 
business  environment,  holding  back  growth 
(World Economic Forum, 2017). 

in  a  Eurobarometer  on 

Romania stepped up efforts to fight corruption 
over  the  past  years.  Romania  has  a  solid  anti-
corruption legal framework and the track record of 
the  judicial  institutions  fighting  corruption  has 
been  strong.  Romania  has  a  comprehensive 
framework for the integrity of public officials and 
an independent institution with a good track record 
(National  Integrity  Agency).  The  national  anti-
corruption  strategy  2016-2020  from  August  2016 
aims to create a better corruption prevention policy 

(50)  Twice  as  many  Romanians  compared  to  other  Europeans 
report  unfair  contract  terms  and  unanticipated  charges  by 
retailers and a higher than EU average prevalence of unfair 
commercial  practices.  Awareness  of  alternative  dispute 
resolution  amongst  Romanian  retailers’  is  among  the 
lowest  in  the  EU  (44 %  vs  55 %  EU-28),  with  decreasing 
participation  in  such  mechanisms  (21 %  vs  32 %  EU-28), 
upcoming Consumer Conditions Scoreboard (2017). 

(51)  Despite an increase of 7 pps. in the last 2 years, Romanian 
consumers’ confidence in online shopping is still below the 
EU  average  (57 %  vs  72 %  EU28).  In  addition,  retailers' 
confidence  in  online  selling  in  Romania  decreased  and  is 
below  the  EU  average  (47 %  vs  57 %  EU28)  (upcoming 
Consumer Conditions Scoreboard 2017). 

(52)  Flash  Eurobarometer  428:  Businesses’  attitudes  towards 
corruption 
at 
http://ec.europa.eu/COMMFrontOffice/PublicOp
inion/index.cfm/Survey/getSurveyDetail/instru
ments/FLASH/surveyKy/2084 ;   

available 

EU, 

the 

in 

(53)  Flash  Eurobarometer 

  445:  The  Cooperation  and 
Verification  Mechanism  for  Bulgaria  and  Romania, 
published on 25 January 2017. 

32 

 
                                                           
                                                           
3.4. Investment 

33 

Box 3.4.1:  Investment challenges and reforms in RomaniaSection 1. Macroeconomic perspective  Total investment in Romania (gross fixed capital formation) has weathered the crisis well. After a sharp correction in 2010, investment has been on an upward trend since 2011. It accelerated sharply in 2015 and returned to almost pre-crisis growth rates (8.3 % year-on-year), driven mainly by investment in equipment and supported also by civil engineering with the end of the implementation period for projects financed by EU funds from the 2007-2013 financing period. Both private and public investment are above the EU average (see Section 1). Looking forward, good economic growth prospects are expected to support investment activity and investor confidence. All investment components are expected to contribute to investment growth in 2017 and 2018, with a slightly stronger role played by investment in equipment. Section 2. Assessment of barriers to investment and ongoing reforms   The overall business environment presents challenges hampering investment (European Commission, 2015a). These include continued political uncertainty and unpredictability of new policies. Some appropriate measures have been taken, but many barriers remain to be addressed to lift growth and accelerate convergence (see Sections 3.3-3.6).   Main barriers to investment and priority actions underway 1. Despite high public investment spending, the quality and efficiency of infrastructure are low, holding back investment. Comparatively low absorption of EU funds, inefficient project preparation, prioritisation and implementation, and limited efficiency and non-transparent governance of state-owned enterprises constrain the development of quality infrastructure. Romania took action in 2016 to improve strategic investment in road infrastructure with the adoption of the transport master plan, which remains to be implemented. 2. Inadequate labour supply weighs on investment. Unfavourable demographics and emigration, untapped labour force, low knowledge and innovation capacity and the lack of basic digital skills in large parts of the population reduce the supply of skilled workers, which affects investment decisions. Romania adopted ambitious labour market reforms in 2016. These could have a long-lasting effect on potential growth, poverty reduction and the country's development potential, if fully implemented. 3. Widespread corruption and inefficient public administration continue to hamper the business environment. Investment can be held back by the remaining regulatory and administrative burden, inefficiencies in public administration, lack of predictability of legislation and poor enforcement of legal and technical regulations and of final court decisions. Regulatory/ administrative burdenCSRGROWEPL & framework for labour contracts EMPL?Business services / Regulated professionsPublic administrationCSREMPLWages & wage settingCSREMPLRetailPublic procurement /PPPsEMPLEducation CSREAC/EMPLConstructionJudicial systemJUSTTaxationCSRECFINDigital Economy / TelecomInsolvency frameworkJUSTAccess to financeECFIN/FISMAEnergyCompetition and regulatory frameworkCSRGROWCooperation btw academia, research and businessRTDTransportCSRFinancing of R&D&IRTDNo barrier to investment identifiedNo progressSome progressCSRInvestment barriers that are also subject to a CSRLimited progressSubstantial progressFully addressedPublic administration/ Business environmentLabour market/ EducationSector specific regulationFinancial Sector / TaxationR&D&I 
 
 
 
 
 
 
3.5. SECTORAL POLICIES 

3.5.1.  RESEARCH AND INNOVATION (R&I) 

Structural shortcomings in the R&I system are 
holding back its growth contribution. Structural 
challenges  to  R&I  remain  unchanged  (European 
Commission,  2016a).  These  include  insufficient 
funding, institutional fragmentation, low quality of 
the  public  science  base,  and  weak  public-private 
collaboration.  In  2015,  the  European  Innovation 
Scoreboard (European Commission, 2016j) placed 
Romania  in  the  lowest  country  category  ('modest 
innovator'), with scores well below the EU average 
on  all  dimensions  and  indicators  (Graph  3.5.1). 
The lack of dynamism in R&I has implications for 
long-term competitiveness and growth prospects. 

Graph 3.5.1:  Innovation performance of EU Member States 

in 2015 

Source: European Commission EIS2016 

intensity 

improved  but  the 

lack  of 
R&D 
investment  impedes  R&I  capacities  take-off. 
Although  R&D  intensity (56)  improved  in  2015 
(Graph 3.5.2), Romania still has one of the lowest 
levels  among EU  Member States.  Out of  the  total 
2014-2020  structural  funds  allocated  only  3.4 % 
were allocated for R&I, far from the EU average of 
10.6 %  for  the  same  period.  The  2016  budget 
provided  for  a  slight  increase  in  public  R&D 
largely 
expenditure  up 

to  0.29 %  of  GDP, 

insufficient  to  reach  the  1 %  of  GDP  target  of 
public investments in R&D (57) by 2020. 

to 

stimulate 
Recently  adopted  measures 
business investment have yet to gain traction. In 
2015,  less  than  200  business  entities  applied  for 
the  50 %  supplementary  corporate  tax  deduction 
for  R&D  expenditure,  even  fewer  than  the  223 
entities  in  2014.  Despite  the  slight  increase  in 
business R&D intensity in 2015, at 0.21 % of GDP 
it is still one of the lowest in the EU. To stimulate 
business  R&D 
government 
activities, 
introduced  in  August  2016  an  exemption  from 
tax  for  all  R&D 
income 
paying 
activities.  Also, 
the  activity  of 
to  stimulate 
computer programmes  development,  a  measure  of 
payroll taxes exemption was set up and is in place 
starting with 2017, for employees in start-ups with 
main activity in this area. 

the  salary 

the 

Graph 3.5.2:  Evolution of business R&D intensity and public 

R&D intensity in Romania, 2000-2015 

Source: European Commission 

obstruct 

bottlenecks 

Pervasive 
SMEs' 
investment in innovation. SMEs have a low level 
of innovation and knowledge flows between public 
R&D  and  the  business  sector  (Graph  3.5.3)  are 
weak,  as  borne  out  by  Romania  ranking  at  the 
'Linkages  &  Entrepreneurship' 
bottom  of  the 
dimension  of  the  Scoreboard (58).  Red  tape,  poor 

(56)  Research  and  development  (R&D)  is  the  statistical  proxy 
for  expenditure  in  the  R&I  system  (Eurostat).  Intensity  is 
measured as R&D expenditure in percent of GDP. 

(57)  Romania's Europe 2020 target is 2 % of GDP investments 
in R&D, with 1 % from the public sector and 1 % from the 
private sector. 

(58)  It  covers  performance  indicators  on  SMEs  innovating  in-
house,  innovative  SMEs  collaborating  with  others  and 
public-private scientific co-publications. 

34 

0.000.100.200.300.400.500.600.700.80ROBGHRLVLTPLSKHUESELPTITCZMTEECYSIEUFRATLUUKBEIENLDEFIDKSEInnovation leadersStrong innovatorsModerate innovatorsModest innovators0.00.10.20.30.40.500010203040506070809101112131415%GDPPublic R&D intensityBusiness R&D intensity 
 
 
                                                           
 
                                                           
3.5. Sectoral policies 

infrastructure  and  the  low  level  of  entrepreneurial 
education hamper innovative entrepreneurship and 
the development and growth of technological start-
ups. 

Graph 3.5.3:  Quality of scientific output and public R&D 

investment levels 

create an environment conducive to the growth of 
technological  start-ups.  In  September  2016,  the 
European  Investment  Fund  and  the  Romanian 
Ministry of European Funds launched a EUR 59.3 
million (61)  Competiveness 
to 
finance SMEs via several financial intermediaries. 

fund-of-funds 

3.5.2.  DIGITAL ECONOMY 

low 

level  of  digitisation 

is 
Companies' 
constraining 
improvements 
productivity 
(European  Commission  2016d). Measured  against 
the  12  key  digital  technologies  covered  by  the 
Digital Intensity Index (62), Romania ranks among 
the three EU Member States with one of the lowest 
share of enterprises with high digital intensity. On 
the positive side, the share of companies with very 
high  digital  intensity  exceeds  that  of  peers  and  is 
close to the EU average (Graph 3.5.4). 

Source: European Commission 

Graph 3.5.4:  Digital intensity score for enterprises 

and 

reduce 

Key  steps  have  been  undertaken  to  improve 
governance 
fragmentation. 
Developing  and  implementing  effective  smart 
specialisation  strategies  requires:  (i)  building  on 
the  strengths  of  clusters  of  entrepreneurial 
knowledge  and  resources,  and  (ii)  involving  all 
regional  and  national  players.  In  this  context,  the 
establishment of the National Council for Science, 
Technology  and  Innovation  Policy (59)  may  be  an 
important  step  towards  improving  the  still  weak 
coordination between the national and the regional 
levels  in  a  coherent  innovation  system.  High 
fragmentation in public research performance, with 
more  than  150  public  institutions  undertaking 
R&D, and inefficient technological transfer policy 
remain issues to be tackled. 

The  government  is  taking  steps  to  improve  the 
R&I  environment.  Under 
'specific  support' 
provided  under 
the  European  Commission's 
Horizon  2020  Policy  Support  Facility (60) 
recommendations began to be drawn up in 2016 to 

(59)  The  National  RDI  Strategy  2014-2020,  provides  for  the 
creation of a consultative body responsible for coordination 
and  harmonization  of  R&I  policy,  under  the  coordination 
of the prime-minister.  

(60)  https://rio.jrc.ec.europa.eu/en/policy-support-

facility  

Source: European Commission 

The  workforce's  digital  skills  are  one  of  the 
lowest  in  the  EU.  Despite  the  existence  of  many 
skilled ICT specialists, the general workforce lacks 

(61)  Funded by the European Regional Development Fund. 
(62)  The  indicators  are:  internet  access  for  at  least  50 %  of 
employed  people;  recourse 
to  ICT  specialists;  fast 
broadband (30 Mbps or above); mobile internet devices for 
at  least  20 %  of  employed  people;  a  website  with 
functions;  social  media;  ERP;  CRM; 
sophisticated 
electronic 
chain  management 
information; e-commerce turnover accounting for over 1 % 
of  total  turnover;  business-to-consumer  web  sales  of  over 
10 % of total web sales. 

sharing 

supply 

of 

35 

EUBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUKy = 7.7498x + 4.1712468101214160.20.40.60.81.01.2Highly-cited publications(1)  (%), 2013Public R&D intensity, 2013 0102030405060708090100ROBGPLHUCZHREU28Very Low (0-3)Low (4-6)High (7-9)Very High (10-12) 
 
                                                           
 
                                                           
3.5. Sectoral policies 

stimulus could come from the full implementation 
of  EU-level  market  rules  on gas  trading  and  from 
increased  cross-border  interconnectivity,  in  order 
to secure more liquidity on the wholesale market.  

However,  competition  in  gas  supply  still  faces 
hurdles.  While  price  regulation  for  business 
customers  was  successfully  phased  out  by  2015, 
regulated gas retail prices for household customers 
will  be  phased  out  by  2021.  In  addition,  the  gas 
wholesale market remains very concentrated, with 
more  than  75 %  of  the  market  held  by  the  three 
largest companies. 

Romania is not yet fully integrated into the EU 
energy  market.  In  2016,  the  interconnection 
capacity  for  electricity  was  7 %,  below  the  2020 
target of 10 %. The upgrading of internal lines and 
aged  network  assets  is  slow.  To  reach  the  10 % 
target  by  2020,  Romania  will  have  to  implement 
new Projects of Common Interest and upgrade six 
internal  lines.  Gas  network  development  through 
the  Bulgaria–Romania–Hungary–Austria 
trans-
mission corridor would give access to the Caspian 
gas  coming  to  Greece  through  the  planned  Trans-
Adriatic  pipeline.  This  would  increase  security  of 
supply  and  gas  source  diversification  in  the  EU's 
south-eastern region. 

3.5.4.  RESOURCE EFFICIENCY 

is  not  resource  efficient, 
The  economy 
considerably  less  so  than  the  EU  average,  with 
implications for competitiveness (World Economic 
Forum,  2014)  and  for  the  country's  sustainable 
development  (Eco-Innovation  Observatory,  2015). 
Its  recycling  rate  is  one  of  the  lowest  in  the  EU 
(5 %),  while  the  landfilling  rate  is  one  of  the 
highest  (82 %  in  2013),  with  illegal  landfill  sites 
reappearing. 

Waste  management  reform 
is  significantly 
delayed. The national waste management plan and 
the  waste  prevention  programme,  due  since  2014, 
were  not  finalised.  The  plan  would  channel 
national  and  EU  investments  to  achieve  the  EU 
environmental standards. Specifically, an effective 
economic  and  legislative  framework  for  waste 
the  waste 
lacking.  Drawing  up 
recycling 
management  plan  is  a  mandatory  requirement  for 
accessing EU funding for the 2014-2020 period. 

is 

digital  skills  with  negative 
implications  for 
increased  labour  participation.  In  2016,  only  one 
third  of  the  workforce  possessed  basic  or  above 
digital  skills  compared  to  two  thirds  in  the  EU. 
Moreover, in the overall population, only 28 % of 
Romanians possessed basic or above basic level of 
digital skills compared to 56 % in the EU. 

jeopardise 

Broadband  networks  are  underdeveloped  in 
rural  areas,  with  risk  of  digital  exclusion.  
Romania is one of the world's leading countries in 
terms of internet speed. Nevertheless, there are still 
rural areas with no access to the Internet. Barriers 
that 
the  successful  completion  of 
broadband  projects  include  low  implementation 
capacity,  cumbersome  administrative  procedures 
for  obtaining  the  building  permits  for  broadband 
deployment  and  bureaucratic  procedures 
for 
commissioning  sites.  To  bridge  the  urban-rural 
digital divide and ensure a viable connection rate, 
investments  in  broadband  networks  could  be 
complemented by demand stimulation measures. 

3.5.3.  ENERGY 

thus 

costs 

improved 

reforms  have 

Recent 
energy 
efficiency  but  progress  is  slow  in  key  areas. 
Increased  energy  efficiency  investment  will  keep 
production 
improving 
low, 
competitiveness  and  growth  prospects.  While 
energy  efficiency  is  improving  overall,  progress 
remains  slow  in key  areas, such  as  the renovation 
of the district heating infrastructure. With the EU's 
highest final energy consumption per square meter 
of  dwelling  in  the  residential  sector,  an  energy 
inefficient  building  stock  exacerbates  the  problem 
for many Romanian households This is mainly due 
to  insufficient  local  financing  and  low  absorption 
of EU and national funds (63). 

Romania  has  made  significant  progress  in 
liberalising  the  gas  market (64).  Market  reforms 
adopted  in  2016  require  gas  producers  to  sell  and 
suppliers  to  purchase  gas  via  trading  platforms. 
These  reforms,  along  with  the  abolition  of  fixed 
prices paid  to gas producers, will  improve market 
liquidity  and  strengthen  price  signals.  Further 

(63)  Funds  allocated  to  cogeneration/district  heating  were 
underused.  From  the  total  amount  initially  programmed, 
15.9 % have actually been used. 

(64)  See  European  Commission,  2016a,  Section  2.3  for 

background. 

36 

 
                                                           
Graph 3.6.1:  Executive capacity, 2016 (1) 

3.6. PUBLIC ADMINISTRATION 

Slow  progress  in  public  administration  reform 
hinders  the  delivery  of  structural  reforms. 
Romania  adopted  new  civil  service  strategies 
improving governance and transparency. However, 
the  organisational  structures  remain  unstable  and 
vulnerable to political changes. Incomplete human 
resources reforms limit public institutions' capacity 
to  develop  and  implement  policies  in  a  strategic 
and  coordinated  manner.  Moreover, 
low 
accountability  of 
the  public  administration 
negatively  impacts  the  quantity  and  efficiency  of 
public services. 

the 

Several  measures  strengthened  transparency 
and  accountability  of  public  administration. 
Two government ordinances simplified procedures 
for  business  and  citizens  (see  Section  3.4.4).  A 
transparency  register  for  lobbying  entities  was 
opened.  New 
tools  and  standards for  public 
debates were incorporated in the process of policy 
and  law  formulation  (65).  However,  transparent 
practices are not yet firmly established and public 
consultation  on  draft  legislation  is  insufficient. 
Romania  ranks  110th  (out  of  138)  in  the  global 
to 
index  when 
competitiveness 
transparency of policymaking.  

comes 

it 

and 

across 

reinforcing 

departments, 
integrate 

Policy  and  legislation  lack  systematic  strategic 
planning.  Steps  were  taken  in  2016  to  strengthen 
strategic  policy  making  by 
the 
Chancellery  of  the  Prime  Minister  to  ensure 
coherence 
oversee 
cross-sectoral 
implementation 
measures  combining  national  and  EU  funding.  In 
2017,  the  Government  General  Secretariat  took 
over  its  strategic  and  coordination  competences, 
but its capacity and leverage to steer policy design 
be 
sectoral 
by 
  Moreover,  mandatory  strategic 
strengthened. 
planning  and 
impact  assessment 
instruments  are  not  systematically  used  and 
parliamentary legislative initiatives are not subject 
to budgetary impact analysis. Overall, Romania is 
one  of  the  lowest  ranked  of  OECD  and  EU 
countries  on  its  executive  capacity  (Bertelsmann 
Stiftung, 2016, p. 17) (Graph 3.6.1). 

departments 

regulatory 

remains 

to 

1) The graph shows 5 lowest and 5 highest ranked countries 
Source: Bertelsmann Stiftung, 2016  

3.6.1.  HUMAN RESOURCES 

Recently  adopted 
strategies  could  ensure 
consistency  and  common  standards  across  the 
public service. Strategies for the civil service and 
staff  training,  adopted  in  2016,  provide  for  a 
comprehensive  approach 
to  human  resources 
management  in  the  public  administration  and  an 
improvement 
and 
in  workforce 
performance.  The  envisaged  measures  would 
clarify roles, functions and mandates for each staff 
performance  management 
category, 
systems,  increase  transparency  and  neutrality  in 
recruitment, 
and  prioritize 
and 
employee training. 

coordinate 

planning 

review 

However,  implementation  hinges  on  legislative 
amendments  and  a  proper  institutional  set-up. 
The  objectives  of  the  new  civil  service  strategies 
are  not fully reflected  in  the  civil service  law  and 
draft  administrative  code.  The  Civil  Service 
Agency  has  neither  the  capacity  nor  the  authority 
to  implement  effectively  the  new  civil  service 
strategies.  The  Agency  has  not  standardised  data 
for  public  administration  employees (66).  Training 
is  now  mandatory  in  public  institutions,  but  the 

(65)  In 2016, consultations and public debates were carried out 
systematically  on  the  basis  of  templates  and  standard 
procedures  developed  by  the  Ministry  of  Civic  Dialogue 
and Public Consultation to be followed by ministries at all 
stages  –  launching  of  debates,  consolidating  proposals, 
incorporating them in draft texts, and explaining rejections, 
if necessary. 

(66)  Romania performs worse than all but one OECD countries 
in  terms  of  administrative  data  collection  of  number  of 
staff,  pay  levels,  functions,  skills,  mobility  and  turnover 
(OECD, 2016, p. 11).  

37 

0123456789FinlandDenmarkNew ZealandSwedenNorwayOECDEUBulgariaSloveniaCroatiaRomaniaGreeceCyprus 
 
                                                           
 
                                                           
3.6. Public administration 

pending  will  re-enforce  the  ex-ante  and  internal 
the  National  Agency  for  Public 
controls  of 
Procurement  and 
the  contracting  authorities, 
operationalization  of  anticorruption  measures,  e-
procurement,  and  training  of  public  procurement 
officers. 

sources  of  funding  are  unidentified  and 
selection of training providers is not transparent. 

the 

Recruitment  criteria  and  pay  levels  are  not 
harmonized across public institutions. The civil 
service  strategy  plans  to  introduce  transparent 
criteria  for  staff  selection  and  recruitment  and 
mechanisms  to  reduce  political  interference  in 
appointments  by  2020.  Some  pay 
level 
harmonization  has  been  introduced  across  staff 
categories  within  institutions,  but  substantial  gaps 
persist between public institutions. 

3.6.2.  PUBLIC PROCUREMENT 

Romania made progress in public procurement 
reform, but corruption remains a challenge (67). 
The  implementation  of  the  public  procurement 
strategy and action plan progressed in 2016 (68). In 
May  2016  the  new  public  procurement  laws 
transposing  the  EU  directives  entered  into  force 
and  all  necessary  secondary 
legislation  was 
adopted  by  the  end  of  2016.  The  law  for  the 
PREVENT  system  for  systematic  ex-ante  checks 
of conflicts of interests was adopted. The National 
Agency  for  Public  Procurement  (ANAP)  was  set 
up  in  2015  as  single  institution  responsible  for 
public  procurement  providing  more  robust  and 
efficient  corruption  control  and  preventive 
institutional mechanisms. ANAP is responsible for 
the  ex  ante  check  of  the  public  procurement 
implementing  a 
is  currently 
procedures  and 
sample-based,  more  thorough,  ex  ante  checks 
system,  as  opposed  to  the  previous  systematic 
controls. An inter-ministerial committee for public 
procurement  was  established  in  October  2015 
aiming  at  ensuring  the  overall  coherence  of  the 
public procurement system.  

Several measures are still outstanding. The web-
based guidelines which should help the contracting 
authorities  step  by  step  during  the  procurement 
process are still under development and should be 
fully  completed  by  2019.  Other  measures  still 

(67)  "There are sectors in public procurement where corruption 
is  generalized.  Many  times,  the  awarding  of  contracts  or 
the  payments  related  to  contracts  are  conditioned  by 
receiving different sums of money disguised by fraudulent 
deals or fictitious agreements", DNA (2016). 

(68)  The  analysis  of  the  progress  in  the  implementation  of  the 
public procurement Strategy is part of a wider Commission 
exercise 
the 
implementation of EFSI funds in the 2014-2020 period. 

to  ex-ante  conditions 

relation 

for 

in 

38 

 
                                                           
ANNEX A 

Overview Table 

Commitments 

2016 country-specific recommendations (CSRs) 

CSR  1:  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. 

Summary assessment(69) 

Romania made limited progress in addressing 
CSR1 (this overall assessment of CSR 1 does 
not include an assessment of compliance with 
the Stability and Growth Pact). 

Limit the deviation from the medium-term budgetary 
objective in 2016  

  CSRs  related  to  compliance  with  the 
Stability and Growth Pact will be assessed 
in spring once the final data are available. 

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 

  There  was  no  progress  on  ensuring  the 
application  of  the  fiscal  framework.  The 
2016  budget  does  not  comply  with  the 
deficit  rule,  which  contains  the  obligation 
to  comply  with  the  MTO;  as  in  previous 
years,  the  authorities  did  not  send  an 
update  of  the  fiscal  strategy  to  Parliament 
by the statutory deadline of 15 August. 

  Limited  progress.  There  are 

slight 

(69)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 

No progress: The Member State has not credibly announced nor adopted any measures  to address the CSR. Below a number of 
non-exhaustive typical situations  that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent;    
and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or  
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  Parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

39 

 
 
 
 
 
 
  
 
 
 
 
                                                           
 
 
A. Overview Table 

…and  strengthen 
collection.  

further 

tax  compliance  and 

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. 

to 

regard 

tax  administration 

improvements  with 
the 
compliance  ratios  for  tax  declarations  and 
payments  for  both  natural  persons  and 
companies compared to the previous year. 
The 
(ANAF)  and 
Labour  inspection  maintained  their  efforts 
in  terms  of  inspections  and  audits,  yet the 
results are not better compared to last year. 
ANAF  introduced  also  an  audience  with 
the  applicant  as  an  additional  step  before 
issuing the final decision with regard to the 
VAT  registration.  The  legislation  for  the 
registration  and  deregistration  for  VAT 
purposes  has  been  modified  and  clarified 
again  and 
for  VAT 
the  procedures 
reimbursement were adapted, respectively, 
in  the  course  of  2016.  The  mandatory  but 
progressive 
introduction  of  electronic 
cash-register  connected  to  the  National 
Agency for Fiscal Administration (ANAF) 
IT system is pursued, but further delays to 
the  official  deadlines  were  introduced.  To 
tackle  sectorial  tax  evasion,  a  special 
annual  income  tax  will  replace  corporate 
income tax in specific business areas, such 
as  accommodation  services  and  bars/ 
restaurants,  from  2017.  Irrespective  of  the 
sales or the net profits of the business, the 
tax  to  be  paid  will  be  computed  based  on 
coefficients,  such  as 
the  surface  of 
premises, the seasonality or the location of 
the  business.  Moreover,  as  of  2017,  self-
employed  and  family  businesses  will  be 
limited to the number of business activities 
they  can  perform  and  in  the  number  of 
persons they can employ. 

in 

("datio 

  Some progress was made on safeguarding 
law  on  debt 
financial  stability.  The 
discharge 
solutum")  was 
promulgated  with  retroactive  application, 
but a  recent  decision  of  the Constitutional 
Court  has  mitigated  some  of  the  potential 
risks  on  financial  stability.  The  CHF-
denominated  loan  conversion  law  adopted 
by  Parliament  may  put  strain  on  several 
banks.  However,  before  its  enactment,  the 
law  was  sent  to  the  Constitutional  Court 
for a constitutional heck.  

CSR  2:  Strengthen 
the  National  Employment 
Agency's  services  to  employers  and  jobseekers,  in 

Romania  has  made  some  progress 

in 

40 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

addressing CSR2. 

particular  by  tailoring  services  to  jobseeker  profiles, 
better  linking  them  with  social  assistance,  including 
social  services,  and  reaching  out  to  unregistered 
young  people.  Establish,  in  consultation  with  social 
partners,  objective  criteria  for  setting  the  minimum 
wage. 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. 

the  National  Employment  Agency's 
Strengthen 
services to employers and jobseekers, in particular by 
tailoring services to jobseeker profiles, better linking 
them with social assistance, including social services, 
and reaching out to unregistered young people.  

41 

  Substantial  progress  was  made 

first 

for 
the 

towards 

procedure 

a  working 

the 
service  offer  of 
jobseekers 

in 
strengthening  the  National  Employment 
Agency's  (NEA)  services.  The  NEA  is 
undergoing  a  major  change  process 
reflected  in  a  strategy  and  including  1) 
establishing  for  the  first  time  an  initial 
profiling and segmentation process, which 
became 
and 
legislation  in  October  2016  (most  of  the 
people in NEA database have already been 
profiled);  2)  Adoption  of  a  catalogue  of 
time  bringing 
services, 
the 
together 
organisation 
and 
towards  employers;  3)  Reinforcement  of 
case  management  capacity  -  pilot  project 
developed in October/November; to be up-
scaled  through  the  ESF;  4)  Setting  up  an 
integrated  approach  to  NEETs  outreach, 
including  a  substantial  increase  in  agency 
the  Youth 
the  delivery  of 
staff  for 
Guarantee-  to  be  rolled  out.  The  Youth 
Guarantee has so far only partially reached 
young  NEETs.  The  NEA  also  plans  to 
reinforce  its  capacity  to  strengthen  its 
services  for  employers.  The  active  labour 
market  policies  have  been  revised  to 
provide  more  incentives  for  take  up  and 
several  disadvantaged  groups  benefit  for 
the  first  time  from  some  ALMPs.  A 
national mobility plan aims to improve the 
internal  mobility.  As 
linking 
employment  with  social  services,  a  pilot 
project,  financed  with  EU  funds,  will  be 
rolled out. This would target 100 deprived 
communities  and  would  set  up  integrated 
teams 
social  assistants, 
community health assistants/mediators and 
education  counsellors/mediators.  In  the 
teams  are 
long  run, 

integrated 

regards 

include 

these 

that 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

dealing 

advisers 

supposed to be scaled up at national level, 
in  over  500  deprived  communities.  A 
common order of the ministers for Labour, 
the 
Education  and  Health  establishes 
working  methods  of  integrated  teams. 
Special 
with 
disadvantaged  groups  are  proposed  to  be 
hired  in  the  Public  employment  service 
and  would  make  the  link  with  social 
services  and 
teams.  The 
integrated 
minimum  inclusion  income  law  increases 
the  coverage  and  adequacy  of  social 
benefits  and  strengthens  the  provision  of 
for 
active 
Income 
Guaranteed 
beneficiaries.  These  reforms  have 
the 
potential  of  tangible  and  lasting  effects, 
but only if implemented and sustained over 
the longer term. 

labour  market 

Minimum 

policies 

Establish, 
objective criteria for setting the minimum wage.  

in  consultation  with  social  partners, 

Take  action  to  prevent  early  school  leaving  and 
increase  the  provision  of  quality  education,  in 
particular among Roma.  

42 

In  January  2016, 

  Limited progress was made on minimum 
wage  setting. 
the 
government  set  up  a  tripartite  working 
group  with  the  task  of  establishing  an 
indexation  mechanism  that  would  make 
future  minimum  wage 
adjustments 
automatic. This group has commissioned a 
study  to  analyse  all  the  economic  and 
social  aspects  of  the  minimum  wage  in 
Romania. As a follow up to this and based 
on the results of the study, clear guidelines 
and  criteria,  endorsed  by  social  partners 
are  supposed  to  be  established  in  the  first 
quarter  of  2017.  However, 
the  new 
government announced the increase of the 
minimum wage from 1 February 2017 and 
subsequent  increases  until  2020,  despite 
tripartite  ongoing  work  on  a  minimum 
wage setting mechanism.  

  Some  progress  was  made  to  tackle  early 
school  leaving  and  increase  the  provision 
of  quality  education.  The  situation  for 
remains 
schools 
in 
Roma 
inclusion 
the 
a 
challenging.  As 
on 
step 
school 
the  Early 
implementation  of 
Leaving 
have 
authorities 
Strategy, 
launched  two  national  calls  for  proposals 
supported  by  the  European  Social  Fund 
(approximately EUR 200 million) to tackle 
drop-out ('School for all') and improve the 
in 
quality 
provision 

education 

of 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

to 

schools 

increase 

programmes, 

teaching  quality 

disadvantaged 
('Motivated 
teachers  in  disadvantaged  schools').  These 
projects  aim  to  address  two  of  the  main 
drivers  of  early  school  leaving,  namely 
insufficient  prevention  measures  and 
insufficient provision of quality education. 
'School  for  All'  seeks  to  finance  a  wide 
range  of  activities,  including  integrated 
interventions for students and their parents, 
after-school 
and 
scholarships.  The  second  call  specifically 
aims 
in 
disadvantaged  schools,  in  particular  for 
Roma  and  schools  in  rural  areas.  The 
projects  are  now  in  the  evaluation  phase, 
with  implementation  expected  to  start  the 
latest  in  September  2017.  Therefore,  the 
impact on reducing drop-outs or increasing 
teaching quality in disadvantaged school is 
yet  to  be  seen.  Other  recent  measures  to 
tackle early school leaving include a warm 
meal  pilot  programme  running 
in  50 
schools,  and 
reimbursement  of 
commuting  costs  for  students  from  rural 
teachers' 
areas.  The  methodology  for 
allowances was changed to include criteria 
on  working  with  children  at  risk  of  drop-
out (ministerial order from 22 December).  

full 

in 

pre-school 

  To  support 
the  participation  of  poor 
children 
education 
(empirically shown to prevent early school 
leaving)  authorities  are  implementing  the 
programme  'Every  child  in  kindergarten' 
providing  social  vouchers  on  condition  of 
attendance.  To 
the 
application  procedures  were  simplified. 
the  number  of  beneficiary 
Although 
children who had not gone to kindergarten 
before  is  increasing,  it  remains  relatively 
low  (2 700  out  of  67 000).  Modernisation 
of the curricula for pre-school education is 
underway. 

improve 

take-up, 

  To 

quality 
also 

in 
approved 

increase 
education, 
the 
authorities  have 
curricular frameworks for lower secondary 
education 
new 
curriculum  is  expected  to  enter  into  force 
in  September  for  5th  graders.  However, 
plans  to  reform  the  curricula  high  school 

5-8).  The 

(grades 

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

education have been delayed.  

  To 

in 
increase  managerial  capacities 
school 
competition 
schools, 
principals  was  organized,  albeit  allowing 
for some exceptions.   

for 

a 

criteria 

expanding 

  Anti-segregation  legislation  was  improved 
by 
and 
the 
strengthening the responsibilities of school 
inspectorates which is expected to lead to a 
more  inclusive  education  in  schools  for 
Roma  and  other  disadvantaged  groups. 
However,  in  the  absence  of  monitoring 
criteria progress has yet to be seen. While 
a  number  of  positive  measures  have  been 
initiated, these are unlikely to be sufficient 
to address the challenge.  

 

on 

 No  progress  was  made 
the 
equalisation  of  the  pensionable  age  for 
men  and  women.  The  draft  law  submitted 
to Parliament in 2013 has been adopted by 
the Senate, but not by the lower Chamber. 

Romania has made some progress addressing 
CSR3. 

in 

for 

Strategy 

  Some  progress  was  made  with  curbing 
informal  payments 
the  healthcare 
system. In line with the new National Anti-
corruption 
2016-2020, 
legislation was adopted in November 2016 
to  revamp  the  existing  patient  feedback 
mechanism.  In  2014,  the  Ministry  of 
Health put in place a patient feedback form 
mechanism 
informal 
payments. Reporting under the mechanism 
was  not  reliable  and 
is  now  being 
revamped.  The  National  Anti-corruption 
Strategy for 2016-2020 adopted in August 
planned  to  revise  the  existing  patient 
the 
feedback  mechanism 
the 
involvement  of  medical  units 
collection  of 
information  on  patients' 
experience.  Consequently,  new  legislative 

to  eliminate 
in 

reporting 

for 

Adopt  the  equalisation  of  the  pension  age  for  men 
and women. 

CSR  3:  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. 

Curb informal payments in the healthcare system  

44 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

measures were adopted in November 2016 
to  empower  patients,  also  addressing  the 
role  of  ethics  councils  in  public  health 
the 
units,  and  sanctions.  In  addition, 
salaries  of  health  professionals  have  been 
improved (Emergency Ordinance no. 20 of 
June 8, 2016 amending and supplementing 
Government  Emergency  Ordinance  no. 
57/2015  on  the  salaries  of  staff  paid  from 
public funds in 2016). 

…and increase the availability of outpatient care.  

of 

fulfilment 

substantial 

  Limited  progress  was  made  with 
increasing  the  availability  of  outpatient 
care.  Some  measures  have  been  taken  in 
this regard, but overall a shift to outpatient 
care is still at a very early stage to consider 
the 
a 
recommendation.  The  Ministry  of  Health 
has  developed  regional  healthcare  plans 
that  include  a  mapping  of  needs  for 
infrastructure  and  services.  The  regional 
plans,  together  with  the  national  health 
strategy,  offer  a  good  basis  for 
the 
planning  of  investments  from  ESIF  and 
other  sources.  The  first  monitoring  report 
of  the  national  health  strategy  has  been 
published  mid-2016,  the  second  report 
in  February  2017.  A 
being  expected 
to 
Working  Group  has  been  created 
address  ambulatory  care;  it  is  announced 
that outpatients’ centres will be developed 
in  the  context  of  the  Regional  Plans 
including a pilot project in the South-West 
region;  on  the  other  hand,  on  primary 
healthcare, 
in  2016  has 
increased  overall  5 %  with  higher 
increases (up to 15 %) for the expenditure 
per  capita  and  the  value  of  the  points  for 
service. Nonetheless, the shift to outpatient 
care is still at a very early stage. Likewise, 
the  implementation  of  the  World  Bank´s 
project Health Sector Reform including the 
target  of  strengthening  ambulatory  care  is 
unsatisfactory (World Bank, 2016).  

the  budget 

  Limited  progress  was  made  in  human 
resources  management 
the  public 
administration. Strategies for Civil Service 
and  Staff  Training  have  been  adopted, 
legislative  and 
however 
to 
it  hard 
institutional  set-up  makes 

the  current 

in 

Strengthen  the  independence  and  transparency  of 
human 
the  public 
administration.  

resources  management 

in 

45 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Simplify  administrative  procedures  for  business  and 
the public.  

A. Overview Table 

effectively implement.  

  Some  progress  was  made  on 

to 

to 

of 

include 

inactive 

2016 
n. 

the  adoption 

the 
simplification of administrative procedures 
for  business  and  the  public.  Measures 
emergency 
taken 
in 
ordinance 
simplify 
41/2016 
administrative  procedures  and  facilitate 
relations  between  citizens  and  the  public 
administration;  and 
in 
November  2016  of  first  elements  of  a 
second 
including 
legislative  package, 
emergency  ordinance  84/2016  amending 
the  Fiscal  Procedure  Code    contains  also 
measures 
administrative 
simplify 
procedures  for  businesses,  including  e.g. 
procedures  to  obtain  a  fiscal  code,  for  the 
reactivation 
taxpayers, 
widening  the  use  of  remote  means  of 
payment  (e.g.  home  banking,  mobile 
banking) to pay taxes,  wider provision of 
e-tools  to pay taxes  and some  specific fee 
reductions;  further  development  of  the 
RIA  framework;  introduction  of  income 
tasks  and 
tax  exemptions 
activities,  and  clarification  of  tasks  and 
activities exempt from income taxation for 
IT  professionals;  adoption  of  OUG 
and 
35/2016 
completion of the land registry law 7/1996, 
important  both  for  agriculture  and  for 
infrastructure  projects.  The  substantial 
increase 
measures 
transparency 
(public  consultation  and 
debates  on  draft  legislation etc),  are being 
reversed in 2017. 

the  modification 

for  R&D 

in  2016 

taken 

for 

to 

Strengthen  corporate  governance  of  state-owned 
enterprises. 

  Substantial  progress  was  made  in  SOEs 
corporate 
bylaws 
governance.  The 
supporting  Law  111/2016  on  SOEs 
corporate governance were adopted within 
the  deadline,  in  October  2016.  As  Law 
111/2016 applies to all SOEs, the Ministry 
of Finance started contacts with the larger 
local  authorities  to  improve  awareness  of 
the  new  rules.  The  H1  2016  budget 
execution  of  SOEs  under 
the  central 
government  was  made  public.  However, 
the hiring of professional managers has not 
the 
yet  started 
implementation of law 111/2016. 

raising  concerns  on 

46 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

Romania has made some progress addressing 
CSR 4. 

CSR 4: 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 
and 
project 
preparation. 

prioritisation 

investment 

Improve  access  to  integrated  public  services,  extend 
basic 
economic 
diversification, in particular in rural areas.  

infrastructure 

foster 

and 

supply/waste  water 

  Despite  delays,  in  2016  there  was  some 
progress  with  the  completion  of  action 
plans  for  ex-ante  conditionality  on  health, 
transport,  public  procurement  and  RD&I. 
This  has  created  a  basis  for  strategic 
planning  of  future  ESIF  investments  in 
infrastructure  for  public  services  and 
SMEs.  However, 
institutional  and 
the 
operational  setup  of  ESIF  programmes  is 
still  not  completed  and  a  few  key  ex-ante 
conditionality  items  are  not  yet  fulfilled, 
creating  a  risk  of  further  delays 
in 
implementation. 348 projects of a value of 
252  million  EUR  (19%  of  allocation)  for 
investments  in  rural  infrastructure  (roads, 
water 
systems, 
education  and  social  infrastructure)  have 
the 
been  contracted.  In  August  2016 
government 
a 
launched 
further 
comprehensive  IT  programme,  developed 
jointly  with  the  private  sector, to  increase 
the inter-operability across different levels 
of administration and the quality of public 
services  (GovITHub).  Some  progress  was 
made  on  improving  access  to  integrated 
services  in  rural  areas,  marking  a  shift 
from  benefits  towards  service  provision. 
As  part  of  a  pilot  project,  integrated 
services  will  be  introduced  in  around  100 
most  marginalised  communities,  through 
teams  at  community  level,  mostly  in  rural 
areas.  When  scaled  up,  it  can  produce 
substantial 
the 
provision of integrated services. ESF calls 
at  national  level  have  been  launched, 
disadvantaged 
covering 
communities, 
including 
in  disadvantaged  areas.  A 
comprehensive  set  of  measures  was 
adopted in early 2016 aimed at improving 
living  standards,  stimulating  productivity 
and  economic  diversification  in  the  rural 
areas.    A  set  of  measures  was  adopted  in 
2016  aimed  at  increasing  the  wealth  in 
rural areas and developing the rural middle 
class. The Rural Development Programme 

concerning 

progress 

47 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

allocation) 

investments 

has  started  to  be  implemented.  Additional 
533 projects of a value of 49 MEUR (16% 
of 
in 
for 
diversification  of  economic  activities  and 
setting-up  of  non-agricultural  activities  in 
rural  areas  have  been  contracted.    While 
there 
contracting, 
implementation  of  the  projects  on  the 
ground is just starting. Romania still has to 
spend  by  2023  around  1.2  BEUR  for 
investments in rural infrastructure and 275 
MEUR 
rural 
economy. 

for  diversification  of 

progress 

on 

is 

Adopt and implement the transport master plan.  

to  make 

  Some  progress.  The  Transport  Master 
Plan was adopted in September 2016. The 
in 
Railway  Reform  Authority,  set-up 
October  2016  and  expected  to  become 
fully operational by mid-2017, should take 
the  necessary  measures 
the 
transport  more 
railway 
operation  of 
efficient.  To  speed  up  of  investments  in 
road  infrastructure,  the  government  has 
also  split  the  national  authority  in  charge 
of  road  construction  into  two  bodies,  one 
for  infrastructure  investments  (CNIR)  and 
one 
administration 
(CNAIR).  Performance  contracts  between 
the national companies and the Ministry of 
Transport are currently developed.  

infrastructure 

for 

Strengthen  public  investment  project  prioritisation 
and preparation. 

  Limited  progress  was  made  with 
strengthening  public  investment  project 
prioritisation and preparation. In August, a 
change to the ordinance 88 obliged the line 
ministries  to  take  into  account  the  public 
investment  priority  list  in  the  budget 
preparation. However, no other steps have 
been  made  to  enhance  the  role  of  the 
existing  public  investment  prioritisation 
unit  in  the  Ministry  of  Finance  and  to 
improve  the  prioritisation  and  preparation 
of all public investment projects.  

Europe 2020 (national targets and progress) 

48 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employment rate target  

R&D target : 2 % of GDP 

A. Overview Table 

The  national  target  of  70 %  by  2020  remains 
ambitious,  as  the  employment  rate  in  the  age 
group  20-64  reached  67.7 %  in  the  third 
quarter of 2016. 

target 

intensity 

The  Romanian  R&D 
is 
ambitious and difficult to reach, given that the 
country’s R&D intensity in 2015 was 0.49 %. 
To  reach  its  2020  target,  R&D  in  Romania 
will need to grow by an average of 32.6 % per 
year  between  2015  and  2020.  However, 
Romanian  R&D  intensity  fell  between  2007 
and 2015 at a compound annual rate of 2.1 %. 
In  2015,  both  public  and  business  R&D 
intensities 
improvements 
compared  with  the  previous  year.  In  2015, 
business  R&D  intensity  rose  to  0.21  %  of 
GDP  (26th  in  the  EU)  and  the  public  R&D 
intensity to 0.27 % (27th in the EU). 

slight 

show 

National Greenhouse gas (GHG) emissions target: 

2020 target: 19 % 

19 % in 2020 compared to 2005 (in non-ETS sectors) 

Renewable energy target:  

2020 Renewable energy target: 24 % 

Energy efficiency: reduction of energy consumption 

the 

In  accordance  with 
latest  national 
projections  based  on  existing  measures,  non-
ETS emissions will increase by 3.7% between 
2005  and  2020.  The  target  is  consequently 
expected  to  be  met  with  a  margin  of  15.3 
percentage points. 

Non-ETS 2015 target: 7 % 

In  accordance  with  preliminary  estimates  in 
2015,  greenhouse  gas  emissions  not  covered 
by  the  EU  ETS  decreased  by  6%  between 
2005  and  2015,  while  the  target  for  2015 
allows an increase of 7% compared to 2005. 

With  a  renewable  energy  share  of  24.7 %  in 
2015, Romania has already met its 2020 target 
for renewable energy (70) especially due to its 
large  hydro-power  sector,  which  accounted 
for  almost  a  third  of  the  installed  energy 
generation  capacity,  but  also  due  to  the 
deployment  of  wind  power  (9.4 %  of  power 
generation in 2014) and the use of biomass for 
heating (16.6 % of final energy consumption).  

Romania  remains  above  the  EU  average  in 
terms  of  both  economy  wide  (primary)  and 

(70)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (04.10.2016). See the 
the  2016  Report  on  Renewable 

in  Realisation  of 

Öko-Institut  Report:  Study  on  Technical  Assistance 
Energy,  http://ec.europa.eu/energy/en/studies  

49 

 
 
 
 
                                                           
A. Overview Table 

Romania's  2020  energy  efficiency  target  is  43  Mtoe 
expressed in primary energy consumption (30.3 Mtoe 
expressed in final energy consumption.) 

Early school leaving target 

Tertiary education target 

Target  on  the  reduction  of  population  at  risk  of 
poverty or social exclusion in number of persons:  

industrial  energy  intensity  but  has  improved 
more  than  most  other  Member  States  since 
2005. Final energy consumption per capita in 
households is below the EU average. In terms 
of  implementation  of  the  Energy  Efficiency 
Directive  Romania,  the  latter  started  with 
some  delay  but  made  progress  both  in  2015 
and 2016. 

increased 

Romania 
its  primary  energy 
consumption  by  2.1 %  from  30.64  Mtoe  in 
2014  to  31.29  Mtoe  in  2015.  Final  energy 
consumption  increased  by  1 %  from  21.72 
Mtoe in 2014 to 21.89 Mtoe in 2015. Even if 
Romania  has  already  achieved 
levels  of 
primary  and  final  energy  consumption  which 
are below the indicative national 2020 targets, 
it would need to make an effort to keep these 
levels until 2020.  

Romania  made  no  progress  on  meeting  the 
target.  Its  early  school  leaving  rate  increased 
further  to  19.1 %  in  2015.  Romania  has 
among  the  highest  early  school  leaving  rates 
in the EU and is getting further away from its 
national Europe 2020 target. 

Romania made some progress on meeting the 
target.  Its  tertiary  attainment  rate  improved, 
reaching  25.6 %  in  2015,  and  is  on  track  to 
reach  the  Europe  2020  national  target  of 
26.7 %. 

Substantial progress was made in reducing the 
population  at  risk  of  poverty  or  social 
exclusion as compared with the national target 
terms 
of  580 000  people. 
1 680 000 people were lifted out of the risk of 
poverty or social exclusion between 2008 and 
2015. 

In  absolute 

50 

 
 
 
ANNEX B 

MIP scoreboard indicators 

Table B.1: 

The MIP scoreboard for Romania 

Flags: p: provisional. 
Notes: (1) Figures highlighted are those falling outside the threshold established in the European Commission's Alert 
Mechanism Report. For REER and ULC, the first threshold applies to euro area Member States. 
Source: European Commission 

51 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-7.2-4.9-4.9-3.6-2.2-1.0-35%-63.4-65.4-67.4-62.6-57.3-51.9Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -10.8-3.3-1.90.3-1.12.7Export market share - % of world exports5 years % change-6%53.850.613.114.620.821.1Nominal unit labour cost index (2010=100)3 years % change9% & 12% 28.8-0.5-0.2b-3.27.30.5p6%-13.8-15.8-9.1-2.8-3.21.714%0.92.80.3-1.4-2.40.2133%73.972.971.966.662.159.160%29.934.237.337.839.437.9Unemployment rate3 year average10%6.46.97.07.06.96.916.5%5.04.64.40.81.24.1-0.2%1.9b1.21.70.01.61.30.5%-0.80.50.80.8-0.10.02%2.86.32.61.60.1-0.9Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

1) Latest data Q2 2016. 
2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators 

52 

201120122013201420152016Total assets of the banking sector (% of GDP)68.968.363.460.257.654.8Share of assets of the five largest banks (% of total assets)54.654.754.454.257.4-Foreign ownership of banking system (% of total assets)71.269.969.269.467.8-Financial soundness indicators:1)              - non-performing loans (% of total loans)11.4-17.915.810.79.0              - capital adequacy ratio (%)16.817.218.817.718.918.5              - return on equity (%)2)0.2-7.10.0-15.211.36.0Bank loans to the private sector (year-on-year % change)7.6-0.7-3.5-1.34.52.9Lending for house purchase (year-on-year % change)13.07.79.79.215.514.1Loan to deposit ratio118.6113.9100.890.085.383.3Central Bank liquidity as % of liabilities2.03.90.30.00.00.0Private debt (% of GDP)72.971.966.662.159.3-Gross external debt (% of GDP)1) - public16.719.120.721.819.618.3    - private32.433.530.128.926.826.2Long-term interest rate spread versus Bund (basis points)*468.4518.4384.4333.1297.8321.2Credit default swap spreads for sovereign securities (5-year)*279.8310.5180.4137.4110.0105.9 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

1 The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks. 
2 Long-term unemployed are those who have been unemployed for at least 12 months. 
3 Not in education employment or training. 
4 Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted. 
Source: European Commission 

53 

201120122013201420152016 4Employment rate(% of population aged 20-64)63.864.864.765.766.066.3Employment growth (% change from previous year)-0.8-4.8-0.90.8-0.9-0.9Employment rate of women(% of female population aged 20-64)56.256.756.557.357.257.5Employment rate of men (% of male population aged 20-64)71.572.872.874.074.774.9Employment rate of older workers (% of population aged 55-64)39.941.641.843.141.142.8Part-time employment (% of total employment, aged 15-64)9.59.39.08.78.87.7Fixed-term employment (% of employees with a fixed term contract, aged 15-64)1.41.51.41.51.41.4Transitions from temporary to permanent employment58.255.859.258.351.9:Unemployment rate1 (% active population, age group 15-74)7.26.87.16.86.86.1Long-term unemployment rate2 (% of labour force)2.93.03.22.83.03.1Youth unemployment rate (% active population aged 15-24)23.922.623.724.021.7:Youth NEET3 rate (% of population aged 15-24)17.516.817.017.018.1:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)18.117.817.318.119.1:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)20.321.722.925.025.6:Formal childcare (30 hours or over; % of population aged less than 3 years)1.04.01.01.0:: 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

1 People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity. 
2 At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.  
3 Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
4 People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
5 For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes) 
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

54 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare4.34.04.03.93.9:Disability1.61.41.21.11.1:Old age and survivors8.78.68.28.08.0:Family/children1.71.71.31.21.2:Unemployment0.60.30.20.20.1:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.30.20.20.20.2:Total17.116.215.214.614.4:of which: means-tested benefits1.20.80.60.60.6:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)41.540.943.241.940.337.4Children at risk of poverty or social exclusion  (% of people aged 0-17)48.149.252.551.450.746.8At-risk-of-poverty  rate2 (% of total population)21.622.322.923.025.125.4Severe material deprivation rate3  (% of total population)30.529.531.129.825.922.7Proportion of people living in low work intensity households4 (% of people aged 0-59)7.77.37.97.67.27.9In-work at-risk-of-poverty rate (% of persons employed)17.919.119.018.419.818.8Impact of social transfers (excluding pensions) on reducing poverty22.323.620.518.412.813.3Poverty thresholds, expressed in national currency at constant prices5433441673884388839914253Gross disposable income (households; growth %)3.90.91.236.5-20.68.6Inequality of income distribution (S80/S20 income quintile share ratio)6.16.26.66.87.28.3GINI coefficient before taxes and transfers51.952.153.251.852.1:GINI coefficient after taxes and transfers33.433.333.234.034.7: 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

1 The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
2 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3 Percentage population aged 15-64 having completed tertiary education.       
4 Percentage population aged 20-24 having attained at least upper secondary education.       
5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6 Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans)." 

55 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry8.09-4.704.614.241.382.84Labour productivity in construction1.04-21.038.477.051.6725.62Labour productivity in market services5.28-3.2622.091.23-0.351.00Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-2.684.869.34-3.780.741.24ULC in construction-29.5528.571.86-5.01-10.86-19.63ULC in market services-4.217.11-10.225.797.70-4.67Business environment201020112012201320142015Time needed to enforce contracts1 (days)512.0512.0512.0512.0512.0512.0Time needed to start a business1 (days)8.012.08.08.08.08.0Outcome of applications by SMEs for bank loans2na0.71na0.990.940.46Research and innovation201020112012201320142015R&D intensity0.450.490.480.390.380.49Total public expenditure on education as % of GDP, for all levels of education combined3.533.072.642.70nanaNumber of science & technology people employed as % of total employment222324242426Population having completed tertiary education3121314141415Young people with upper secondary education4788080808080Trade balance of high technology products as % of GDP-1.60-1.45-1.79-1.96-1.66-1.74Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallnana1.69OECD PMR5, retailnana1.80OECD PMR5, professional servicesnananaOECD PMR5, network industries6nana1.97 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices). 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR). 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR). 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR). 
          Waste intensity: waste (in kg) divided by GDP (in EUR). 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.   
Weighting of energy in HICP: the proportion of "energy" items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % ch.). 
Real unit energy cost: real energy costs as a percentage of total value added for the economy. 
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the EU’. 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors. 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP. 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste. 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP. 
Proportion of greenhouse gas (GHG) emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on 
greenhouse gas emissions (excl land use, land use change and forestry) as reported by Member States to the European 
Environment Agency. 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR). 
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector. 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels. 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels.  
Source:  European Commission; * European Commission and European Environment Agency 

56 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.280.290.270.240.230.23Carbon intensity kg / €1.291.331.301.151.11-Resource intensity (reciprocal of resource productivity)kg / €4.324.814.654.524.184.42Waste intensity kg / €2.37-2.83---Energy balance of trade % GDP-2.2-2.7-3.0-1.9-1.4-Weighting of energy in HICP%16.8817.7712.5212.4412.2112.25Difference between energy price change and inflation %-2.01.01.35.00.12.8Real unit of energy cost% of value added19.424.925.623.622.6-Ratio of environmental taxes to labour taxesratio0.190.180.180.190.22-Environmental taxes% GDP2.11.92.02.02.4-Sectoral Industry energy intensity kgoe / € 0.280.290.300.270.290.27Real unit energy cost for manufacturing industry excl. refining% of value added19.321.022.721.721.4-Share of energy-intensive industries in the economy% GDP10.9210.679.839.398.999.38Electricity prices for medium-sized industrial users€ / kWh0.080.080.080.090.080.08Gas prices for medium-sized industrial users€ / kWh0.020.020.030.030.030.03Public R&D for energy % GDP0.010.020.010.010.020.01Public R&D for environmental protection% GDP0.030.020.020.020.010.01Municipal waste recycling rate%12.811.714.813.213.0-Share of GHG emissions covered by ETS*%45.947.044.638.038.237.7Transport energy intensitykgoe / €0.921.080.980.900.940.83Transport carbon intensitykg / €2.562.912.732.552.67-Security of energy supplyEnergy import dependency%21.921.622.718.517.117.1Aggregated supplier concentration indexHHI20.516.712.412.814.1-Diversification of energy mixHHI0.230.230.230.230.23- 
 
 
 
 
 
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