COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Romania, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 221 final  COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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(2018) 120 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 

Annex A: Overview table 

Annex B: Macroeconomic Imbalance Procedure scoreboard 

Annex C: Standard tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators – Romania 

Table 2.1: 

Summary table on CSR assessment 

Table B.1: 

The Macroeconomic Imbalances Procedure scoreboard for Romania (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1:  GDP components and output gap 

Graph 1.2: 

Contributions to potential growth 

Graph 1.3:  GDP by region  

1 

4 

11 

15 

15 

20 

23 

32 

42 

46 

53 

54 

60 

10 

13 

53 

54 

55 

56 

57 

58 

59 

4 

4 

5 

 
 
 
 
 
Graph 1.4:  Gross fixed capital formation 

Graph 1.5: 

Current account breakdown 

Graph 1.6: 

Harmonised index of consumer prices (HICP) inflation in constant taxes  

Graph 1.7: 

Labour market outcomes 

Graph 1.8: 

Population, natural change and net migration 

Graph 1.9: 

Breakdown of change in general government balance 

Graph 1.10: 

Loans to households and non-financial corporations 

Graph 1.11: 

Share of debt in companies facing financial stress 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 

Graph 3.1.1:  Redistributive power of the tax and benefit system in EU Member States, 2016  

Graph 3.1.2:  Romania: VAT Revenues, VAT theoretical tax liability (VTTL) and VAT gap 

Graph 3.1.3:  Public debt projection 2017-2028 

Graph 3.2.1:  Pension funds' real net investment rate of return, Dec 2016 (preliminary) 

Graph 3.3.1:  Nominal compensation per employee and GDP per person employed 

Graph 3.3.2:  People at risk of poverty or social exclusion by degree of urbanisation 

Graph 3.3.3:  Early school leaving rates 

Graph 3.3.4:  Proportion of people with health insurance, registered with a family practitioner 

Graph 3.4.1:  Net international investment position 

Graph 3.4.2:  FDI flows by investment type 

Graph 3.4.3:  Nominal unit labour cost, growth breakdown 

Graph 3.4.4:  Share of export value by quality category, in manufacturing 

Graph 3.4.5:  Export market share by industry  

Graph 3.4.6:  Export market share by country  

Graph 3.4.7:  Changes in regional and global value chain trade 

Graph 3.4.8:  GDP per capita and quality of infrastructure 

Graph 3.4.9:  Ease of doing business 

Graph 3.4.10:  Award of contracts for single bids in 2017 

Graph 3.5.1:  Regional Innovation performance in Romania 

Graph 3.5.2:  Business R&D intensity, 2007 and 2016 

Graph 3.5.3:  Logistics Performance Index 2016 

LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support to structural change in Romania 

Box 3.1.1: Emergency Ordinance No 79/2017:  distributive and macroeconomic impact 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.3.2: Main challenges for the education system as a driver of growth in Romania 

Box 3.4.1: Investment challenges and reforms in Romania 

Box 3.5.1: Policy highlights: ICT innovative cluster development and advanced manufacturing in 

West Romania 

5 

6 

6 

7 

7 

9 

9 

9 

11 

15 

16 

19 

22 

23 

27 

29 

30 

32 

32 

33 

33 

33 

34 

34 

35 

36 

40 

42 

42 

44 

14 

17 

24 

31 

41 

45 

 
 
 
 
EXECUTIVE SUMMARY 

In  the  absence  of  structural  reforms  and  fiscal 
consolidation,  Romaniaʼs  buoyant  economic 
growth  risks  setting  the  stage  for  a  hard 
landing.  The  current  economic  boom  has  been 
driven  mainly  by  consumption,  while  investment 
has  remained  subdued.  The  strong  economic 
upswing represents an opportunity to rebuild fiscal 
buffers and prepare the economy for leaner times. 
Inequality  and  poverty  rates  remain  high  despite 
the  strong  economic  growth.  Some  structural 
reforms were reversed in 2017 while others stalled. 
The  progress  made  in  the  fight  against  corruption 
was  again  put  at  risk.  Ensuring  continuity  of  past 
reforms  would  support  Romania's  transformation 
to  a  higher  value  added  economy  and  could 
improve  the  economyʼs  resilience  to  an  eventual 
downturn (1). 

The  economyʼs  cyclical  upswing  continued  in 
2017  but  is  expected  to  ease  off  in  2018.    Real 
GDP  growth  accelerated  in  2017  to  a  post-crisis 
high on the back of booming private consumption, 
spurred  by  wage  hikes  in  both  the  public  and 
private  sector  and  indirect  tax  cuts.  Growth  is 
forecast  to  decelerate  but  stay  above  potential. 
Despite  export  market  share  gains,  the  growth  of 
imports  has  outpaced  that  of  exports  and  the 
current  account  deficit  is  widening.  Inflation 
to 
in  2017  and 
turned  positive 
accelerate. 

is  forecast 

in  more 

than  20  years.  The 

The  labour  market  has  been  tightening  in  line 
with  the  strong  economic  growth.  Employment 
growth  was  positive  in  2017  (0.7 %)  and  the 
unemployment  rate  dropped  to  4.9 %,  its  lowest 
level 
low 
unemployment  rate,  coupled  with  a  declining 
labour force and persistent skills shortages, has led 
to  very  tight  labour  market  conditions.  The 
compensation  of  employees  is  low  relative  to  the 
EU  average  but  the  strong  wage  growth  of  2017, 
also  driven  by  a  16 %  minimum  wage  hike  and 
public sector wage increases, risks putting pressure 
if  not 
and 
on 

competitiveness 

inflation, 

(1)  This report assesses Romania’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms and ensuring responsible fiscal policies. 

accompanied  by 
increases. 

corresponding  productivity 

Due  to  tax  cuts  and  increases  in  public  wages 
and  pensions,  the  public  deficit  is  on  an 
increasing  path.  Indirect  taxes  were  cut  in  2017 
while  the  personal  income  tax  rate  was  cut  from 
January  2018.  On  the  expenditure  side,  public 
wages  and  old-age  pensions  were  significantly 
increased in 2017 and are set to advance further in 
2018.  As  a  consequence, 
the  nominal  and 
structural budget deficits are on an increasing path, 
causing Romania to diverge from the targets in its 
national  fiscal  framework.  In  2017  the  Council 
launched  a 
significant  deviation  procedure 
addressed to Romania. 

to 

The  financial  sector  has  further  strengthened, 
whereas  some  segments  need  monitoring.  The 
banking  sector  remains  well-capitalised  and  its 
including  asset  quality,  has 
overall  health, 
continued 
recurrent 
improve.  However, 
legislative  initiatives  warrant  close  monitoring. 
The  insurance  sector  is  strengthening,  as  the 
measures  to  address  the  financial  situation  of 
weaker  companies  have  started  to  bear  fruit.  The 
recent  reduction  in  the  contributions  to  the  pre-
funded  second  pillar  pension  funds,  which  have 
displayed  strong  performance  since  they  were  set 
up, eased short term fiscal concerns but could have 
negative  implications  for  the  development  of 
capital markets.  

the 

2017 

strengthening 

limited  progress  on 
Romania  has  made 
addressing 
country-specific 
recommendations.  No  progress  was  made  on 
ensuring  that  the  national  fiscal  framework  is 
implemented  and  there  was  limited  progress  in 
strengthening  tax  compliance  and  collection.  By 
contrast,  there  was  some  progress  on  fighting 
undeclared work while limited progress was made 
labour  activation 
targeted 
on 
measures.  No  progress  was  made  on  how  the 
minimum  wage  is  set  and  on  equalising  the 
pensionable  age  for  men  and  women.  Limited 
progress was made on improving access to quality 
mainstream  education.  In  the  healthcare  system, 
limited progress was made on shifting to outpatient 
care  and  some  progress  was  achieved  on  curbing 
informal payments. There was limited progress on 
adopting  legislation  to  ensure  a  professional  and 
independent civil service and on prioritising public 
investment.  Finally,  some  progress  was  made  on 

1 

 
 
                                                           
 
Executive summary 

process  of 
Collective bargaining rates are low. 

involvement  and  cooperation. 

inequality 

is  high,  while 

  Poverty  increased  and  income  inequality 
remains  high. 
Inequality  of  opportunity 
remains a challenge, especially for rural areas. 
Income 
the 
redistributive  effect  of  the  tax  and  benefit 
system  is  below  the  EU  average.  The  limited 
integration  of  employment,  education  and 
social  services  prevents  disadvantaged  groups 
from  escaping  poverty.  The  provision  of 
services is limited, especially in disadvantaged 
areas.  Child  poverty  is  high  and  rising.  The 
entry  into  force  of  the  Law  on  minimum 
inclusion  income 
that  would  increase  the 
adequacy  and  coverage  of  social  benefits  was 
postponed 
2019.  Legislation 
to 
equalising  pension  ages  for  men  and  women 
has  not  been  adopted.  The  adopted  shift  of 
social  security  contributions  places  the  burden 
of  financing  social  protection  almost  entirely 
on employees.  Access  to  social  protection  for 
all is not ensured.  

again 

  No  tangible  results  were achieved  on public 
administration  reforms,  and  the  business 
environment 
shows  weaknesses.  Draft 
legislation  on  human  resource  management  is 
currently  aligned  with  the  strategy  for  civil 
servants but implementation has not started and 
results  are  expected  only  in  2019.  The  public 
consultation  process,  strategic  and  budgetary 
planning as well as the use of regulatory impact 
assessments  remains  weak,  limiting  evidence-
based 
Cumbersome 
administrative  procedures  for  businesses,  slow 
progress  in  the  provision  of  e-government 
solutions,  complex  insolvency  procedures  and 
frequent regulatory changes with limited use of 
impact assessment and consultation procedures 
weigh on the business environment.  

making. 

policy 

  The  weak  performance  of  the  education 
system  limits  growth  prospects  in  the  long 
run.  Low attainment levels in basic skills and 
digital  skills,  persistently  high  early  school 
leaving,  poor  Roma  inclusion  and  rural-urban 
disparities  in  education  result  in  lost  human 
capital and growth potential. Quality assurance 
and  initial  teacher  education  programmes  face 
challenges.  Vocational  education  and  training 

implementing  the  national  public  procurement 
strategy,  but  sustainability  of  measures  and 
irreversibility  of 
further 
monitored. 

reforms  should  be 

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

Romania  faces  challenges  with  regard  to  a 
number  of  indicators  of  the  Social  Scoreboard 
supporting the European Pillar of Social Rights. 
The  high  economic  growth  has  translated  into 
improved employment outcomes and resulted in a 
strong  increase  of  household  disposable  incomes. 
However,  Romania  has  a  high  number  of  early 
school leavers, and young people not in education, 
employment  or  training.  Romania  has  not  yet 
achieved  a  mature  social  dialogue,  and  on  social 
protection and inclusion, challenges remain. 

Key structural issues analysed in this report, which 
point 
to  particular  challenges  for  Romania's 
economy, are the following: 

  Labour and skills supply are not keeping up 
with the fast-changing needs of the economy. 
Romaniaʼs  unfavourable  demographic  trends 
are  expected  to  continue.  Population  aging, 
limited  internal  labour  mobility  and  continued 
emigration  represent  a  significant  drag  on 
potential  economic  growth.  Despite  recent 
improvements,  labour  force  participation  rates 
remain well below EU averages. This concerns 
particularly  women,  older  people,  Roma, 
young people, and people in rural areas. Active 
labour market policies are insufficient in scope 
and  design.  Skills  shortages  and  mismatches 
have an adverse impact on competitiveness and 
convergence.  Undeclared  work  continues  to 
distort  the  labour  market.  Minimum  wage 
increases are decided in a discretionary manner 
while  social  partnersʼ  involvement  in  policy-
making  is  very  limited,  with  no  substantive 

2 

 
 
Executive summary 

  The  irreversibility  of  the  progress  in  the 
fight  against corruption  was  recently  put  at 
risk. The continued good results of the judicial 
institutions in the fight against corruption were 
largely  brought 
into  question  by  events 
throughout the past year. The ongoing reforms 
of  the  justice  laws  risk  harming  judicial 
independence  and  undoing  progress  achieved 
over  the  past  10  years.  Moreover,  judicial 
institutions  and 
legal  framework  for 
fighting corruption crimes continue to be under 
intense pressure.  

the 

remains  a  second  choice  option  and  in  most 
cases  is  not  adapted  to  labour  market  needs. 
Access to adult learning is limited, in particular 
for the low-skilled. 

negative 

repercussions 

  The  health  status  of  the  population  has 
improved, but remains below EU standards. 
Access  to  healthcare  remains  a  key  challenge, 
also  in  relation  to  equality  of  opportunities, 
with 
child 
development,  workforce  employability  and 
healthy  ageing.  Low  funding  and  inefficient 
the  health 
use  of  public  resources 
systemʼs effectiveness, against the background 
of  a  sizeable  shortage  of  doctors  and  nurses. 
Health  infrastructure  and  the  prevalence  of 
informal payments remain sources of concern. 

limit 

on 

  Performance  in  the  area  of  research  and 
innovation  remains  modest.  Despite  a  solid 
IT infrastructure and the rapid development of 
the ICT sector, Romania continues to score low 
on  all  European 
Innovation  Scoreboard 
indicators  and there  are  no  signs  of  improving 
performance. The degree of digitisation of both 
the  public  and  private  sector  remain  very  low. 
increasing  public  funding  and  a 
Despite 
dynamic 
technology 
ecosystem, 
adoption, internationalisation and scaling-up of 
companies  remain  significant  challenges.  The 
weak  innovation  performance  could  have  a 
negative impact on growth prospects. 

start-up 

  High  public  spending  is  not  reflected  in  the 
countryʼs  infrastructure.  Despite  relatively 
high  public  investment  rates,  the  supply  of 
infrastructure  is  limited,  with  the  perceived 
quality of infrastructure being one of the lowest 
in the EU. The general condition and reliability 
of road and rail infrastructure remain poor and 
the  reform  of  the  transport  sector  progresses 
slowly.  Water,  waste  and  energy 
very 
infrastructure  remain  deficient.  State-owned 
enterprises’ efficiency is not improving and the 
corporate  governance  framework 
is  being 
weakened.  Public  investment  is  characterised 
by 
in  project 
preparation  and  prioritisation  and  public 
procurement.  Businesses  see  investment  in 
infrastructure  as  a  major  priority  for  public 
spending.  

low  efficiency  particularly 

3 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP and potential growth 

Growth  accelerated  further  in  2017,  fuelled  by 
domestic demand. Real GDP is estimated to have 
increased  by  6.7 %  in  2017,  following  the  4.8 % 
advance  in  2016,  marking  a  new  post-crisis  peak. 
Real GDP growth is forecast to ease off but remain 
above  potential  growth,  at  4.5 %  in  2018  and 
4.0 % in 2019. Private consumption was the main 
contributor  to  growth  in  2017,  supported  by 
indirect tax cuts and wage hikes both in the public 
and  the  private  sectors.  Private  consumption  is 
forecast  to  slow  down  in  2018,  as  inflation 
increasingly weighs on real disposable income, but 
is expected to remain the main growth driver. The 
output  gap,  which  is  estimated  to  have  turned 
positive in 2017, is projected to increase further as 
actual  GDP growth  continues  to outpace potential 
growth. 

Graph 1.1:  GDP components and output gap 

transformation  to  a  higher  value  added  economy 
will constrain economic growth (see Section 3).   

improved  somewhat 
Potential  growth  has 
driven  mainly  by  total  factor  productivity. 
Potential growth is estimated to have been around 
3.7 %  in  2017,  compared  to  an  average  of  4.6 % 
over 2000-2008 (Graph 1.2). Growth in total factor 
productivity (3)  has  been  the  main  driver  of 
potential  growth  since  2012  and  is  expected  to 
remain so in the coming years. The contribution of 
capital  accumulation  continued  to  be  positive,  but 
smaller  compared 
times.  The 
contribution  of  labour  was  close  to  zero  in  2016 
and is estimated to have remained so in 2017 as the 
effects of a shrinking working-age population and 
a  falling  unemployment  rate  cancelled  each  other 
out.  Demographics  will  continue  to  weigh  on 
growth,  calling  for  sustained  improvements  to 
labour  productivity  (both  through  total  factor 
productivity growth and more efficient investment) 
and  to  labour  force  participation  so  as  to  allow 
further  convergence  towards  EU  average  income 
levels (see Sections 3.3-3.5). 

to  pre-crisis 

Graph 1.2:  Contributions to potential growth 

Source: European Commission 

to 

increase 

This  strong  upswing  will  not  be  sustainable  in 
the  absence  of  reforms 
the 
economy’s  potential.  Private  consumption  has 
accounted  for  most  of  the  strong  growth  over  the 
past  few  years,  supported  by  a  pro-cyclical  fiscal 
policy (2) (Graph 1.1). In contrast, the contribution 
of  investment  to  GDP  growth  has  mostly  been 
modest 
longer  run, 
insufficient  progress  on  implementing  structural 
the 
reforms 

in  recent  years.  In 

investment 

supporting 

and 

the 

(2)  Loosening  fiscal  policy  when  the  economy  is  doing  well 

and tightening it when the economy is doing badly 

4 

Source: European Commission 

Per  capita  GDP  is  converging  towards  EU 
averages  but  regional  disparities  persist.    GDP 
per  capita  in  Romania  increased  from  slightly 
more  than  40 %  of  the  EU  average  at  the  time  of 
accession  in  2007  to  almost  60 %  in  2016. 
Nevertheless,  Romania  remains  one  of  the  EU 
lowest  GDP  per  capita. 
countries  with 

the 

(3)  Change  in  output  that  cannot  be  accounted  for  by  the 

change in either labour or capital inputs. 

-25-20-15-10-50510150910111213141516171819pps of GDPHH cons.Gov. consGFCFNet exportsInventoriesGDPforecast-2-10123456789050607080910111213141516171819pps of potential GDPforecastCapital ContributionTFP ContributionLabour ContributionPotential Growth 
 
 
                                                           
 
                                                           
1. Economic situation and outlook 

Although all regions have made progress on GDP 
convergence,  the  capital  region  advanced  at  a 
markedly faster pace with GDP per capita reaching 
almost  140 %  of  the  EU  average  in  2015,  further 
widening the already large gap with the rest of the 
country (Graph 1.3). 

investment, driven mainly by housing construction 
and  equipment  investment,  recovered  somewhat 
but could only partially compensate for the drop in 
public investment.  

Graph 1.4:  Gross fixed capital formation 

Graph 1.3:  GDP by region  

Source: European Commission 

(1)GDP in purchasing power standard (PPS) per inhabitant 
as a percentage of the EU average 
Source: European Commission 

Investment 

Romania  has  one  of  the  highest  investment 
ratios in the EU but the quality of investment is 
not  improving.  Total  investment  reached  22.7 % 
of  GDP  in  2016,  above  the  average  for  the  EU 
(19.8 %) and for the new Member States (19.9 %) 
(Graph  1.4),  consistent  with 
the  catching-up 
process  of  the  Romanian  economy.  However,  the 
quality  of  public  investment  remains  constrained 
by  management  deficiencies,  frequently  changing 
priorities  and  difficulties  in  absorbing  EU  funds 
while private investment is hampered by continued 
legal uncertainty and red tape (see Section 3.4). 

After a contraction in 2016, investment growth 
started  to  recover  in  2017.  Overall,  investment 
increased  by  3.4 %  in  the  first  nine  months  of 
2017,  following  a  reduction  by  3.5 %  in  2016. 
However,  public  investment  fell  sharply  in  2017 
for  the  second  consecutive  year  as  the  uptake  of 
projects  financed  by  EU  funds  under  the  2014-
2020  programming  period  lagged  behind.  Public 
investment is estimated to have dropped to 3 % of 
GDP in 2017, more than 2 percentage points (pps) 
below  the  average  of  the  last  10  years.  Private 

investment 

is  expected  to  strengthen  but 
Investment 
is 
uncertainties  persist.  Public 
projected to start recovering on the back of a pick-
up  in  the  implementation  of  projects  financed  by 
EU  funds  and  amount  to  3.5%  of  GDP  in  2018. 
The  2018  budget  provides  for  a  7.3%  increase  in 
domestically-funded capital expenditure compared 
to 2017 budget execution. However, in the past the 
initial 
investment  budget  has  often  been 
substantially  under-executed,  pointing  to  similar 
risks  for  the  future.  The  tightening  of  monetary 
policy 
inflationary 
pressures could weigh on private investment. 

to  mounting 

in  response 

External position 

The  current  account  deficit  has  widened  since 
2014. The reduction of macroeconomic imbalances 
the  balance-of-payments  programmes 
under 
contributed  to  a  significant  improvement  of  the 
current  account  deficit  from  the  trough  of  12.7 % 
of  GDP  in  2007  to  a  balanced  position  in  2014 
(European  Commission,  2015a).  The  adjustment 
was driven by improvements in the trade balance, 
especially in services (Graph 1.5). However, on the 
back of robust consumption-led import growth, the 
turned  around  and 
current  account  balance 
deteriorated to -0.6 % of GDP in 2015, - 2.3 % in 
2016 and - 3.1 % in 2017. As of 2016, the current 
account  deficit  was  more  than  1  pp.  higher  than 

5 

050100150RomaniaNord-VestCentruNord-EstSud-EstSud - MunteniaBucuresti - IlfovSud-Vest OlteniaVest2015200705101520253035400607080910111213141516171819% of GDPRomania govRomania privateEU28 excl RO govEU28 excl RO totalEU13-RO govEU13-RO totalforecast 
 
 
1. Economic situation and outlook 

2015,  from  1.75 %  to  2 %.  Market  participants 
expect  further  hikes  in  2018  given  the  mounting 
inflationary  pressures.  In  November  2017,  the 
symmetrical  corridor  formed  by  the  interest  rates 
on  permanent  credit  and  deposit  facilities  was 
narrowed  to  ±1  pp.  around  the  monetary  policy 
rate. So far the corridor has been narrowed by 150 
bps  since  November  2014.  The  aim  is  to  mitigate 
interbank money market rate volatility and further 
strengthen  the  transmission  of  the  policy  rate 
signal. 

Graph 1.6:  Harmonised index of consumer prices (HICP) 

inflation in constant taxes  

(1) HICP in constant taxes assumes a full pass-through of 
VAT changes to consumer prices. 
(2) Inflation targets are formulated in terms of the annual 
change in the consumer price index and are set as 
midpoints within a target band of +/-1 percentage points. 
Source: European Commission, National Bank of Romania 

Labour market 

to 

strong 

economic 

Labour  market  conditions  further  improved 
growth. 
owing 
Unemployment declined further and is estimated to 
have reached 4.9 % in Q3-2017, the lowest level in 
more  than  20  years.  Employment  growth  was 
robust and the employment rate increased to 69 % 
in  Q3-2017,  within  reach  of  the  national  Europe 
2020  target  of  70 %.  The  activity  rate  has  also 
been 
increasing  steadily  since  mid-2016  but 
remains one of the lowest in the EU. 

expected from the fundamentals. Import growth is 
projected  to  continue  outpacing  that  of  exports, 
leading  to  a  further  widening  of  the  current 
account  deficit  to  3.2 %  in  2018  and  3.4 %  in 
the  persistent  current  account 
2019.  Despite 
deficit, 
international 
investment  position  has  improved  as  a  share  of 
GDP  on  the  back  of  the  strong  economic  growth 
(see Section 3.4). 

Romania’s 

negative 

Graph 1.5:  Current account breakdown 

Source: European Commission 

Inflation and monetary policy 

inflation  progressively 

After  2  years  of  falling  consumer  prices, 
inflation 
is  picking  up.  Inflation  has  been 
markedly  influenced  by  the  successive  reductions 
of  the  VAT  rates  for  different  categories  of 
products and dampened by persistently low global 
oil prices. After reaching a -3 % low in May 2016, 
the  average  harmonised  index  of  consumer  prices 
increased  but 
(HICP) 
remained subdued due to a further 1 pp. VAT cut 
in January 2017 and a reduction in excise duties on 
fuel.  Inflation  started  to  accelerate  in  the  second 
half  of  2017,  re-entering  the  National  Bank  of 
Romania’s  (NBR)  target  band  of  2.5 %  ±1 % 
(Graph  1.6).  Headline  inflation  is  projected  to 
further pick up in 2018 as demand pressures mount 
and  the  effect  of  disinflationary  tax  cuts  fades 
away  –  or,  in  the  case  of  excise  duties,  the  cuts 
themselves are reversed. 

The  NBR  has  started  to  reverse  its  very 
accommodative  monetary  policy  stance.  In 
January 2018 the NBR increased its key monetary 
policy rate, which had been unchanged since May 

6 

-25-20-15-10-5051015990001020304050607080910111213141516% of GDPCapital account (KA)Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA)-4-20246Dec 11Dec 12Dec 13Dec 14Dec 15Dec 16Dec 17%NBR inflation target bandNBR inflation target midpointsHICP in constant taxesHICP 
 
 
1. Economic situation and outlook 

Graph 1.7: 

Labour market outcomes 

Graph 1.8: 

Population, natural change and net migration 

(1) Activity rate in % of population, total, ages 20-64; 
unemployment rate and long-term unemployment rate in 
% of labour force, total, ages 15-74; youth unemployment 
rate in % of labour force, total, ages 15-24; NEET: not in 
education, employment or training in % of population, 
total, ages 15-24 
Source: European Commission 

Despite  these  positive  developments,  access  to 
the  labour  market  remains  highly  unequal. 
Access  is  particularly  challenging  for  women, 
people  with  disabilities,  Roma  and  young  people. 
While  youth  unemployment  has  been  declining 
since  2015,  the  share  of  young  people  not  in 
(NEET) 
education,  employment  or 
remains  high,  and  only  recently  showed  signs  of 
improvement.  Moreover,  the  gender  employment 
gap  has  increased  slightly  in  2016  to  17.6 %  and 
remains one of the largest in the EU. 

training 

trend 

is  expected 

to  continue  for 

Labour  supply  is  not  keeping  up  with  the  fast-
changing  needs  of  the  economy.  Romania  is 
facing unfavourable demographics. The population 
has  been  declining  for  almost  three  decades  and 
this 
the 
foreseeable  future  (Graph  1.8).  Population  ageing 
will  represent  a  further  significant  drag  on 
potential  economic  growth,  with  the  share  of 
people  of  working  age  (15-64)  expected  to  fall 
from  67 %  in  2016  to  55 %  by  2050.  Continued 
migration  poses  an  additional  challenge.  Despite 
recent  improvements,  labour  force  participation 
rates, particularly for women and people older than 
50,  remain  well  below  EU  averages.  Skills 
shortages  and  mismatches  also  have  an  adverse 
impact  on  the  quality  and  quantity  of  labour 
supplied. 

Source: European Commission based on national data 

in 
in 

years.  The 

labour  compensation  has 
The  growth 
accelerated 
low 
recent 
unemployment,  combined  with  a  shrinking  labour 
force and persistent skills shortages, led to a tighter 
labour  market  and  economy-wide  wage  increases. 
After  strong  growth  in  2016,  wages  increased 
further  in  2017,  also  driven  by  a  16 %  minimum 
gross  wage  hike  in  February  to  RON  1  450  (c. 
EUR  315)  and  public-sector  wage  increases. 
Wages are projected to increase further in 2018 as  
the net minimum wage was increased by a further 
9 %  in  January while  the  average net  wage  in  the 
public  sector  could  progress  by  11.5 %  (see 
Section  3.1)  (4).  Wages  in  Romania  remain  low 
compared  to  the  EU  average  and  relatively  high 
wage growth is to be expected from a catching-up 
economy.  However,  current  patterns  of  wage 
growth  may  not  be  sustainable.  Public  wages 
increased by more than 70% between Q1-2015 and 
Q3-2017 and have considerably outpaced wages in 
the  private  sector.  The  minimum  wage  has  also 
increased  by  more  than  60%  in  net  terms  since 
2015.  Around  30%  of  workers  earned 
the 
minimum  wage  in  2017,  which  indicates  a  highly 
compressed  wage  distribution.  The  strong  wage 
growth  may  put  pressure  on  competitiveness  and 
inflation if productivity growth does not keep pace 
with the increases in wages (see Section 3.4.1). 

(4)  Taking  into  account  the  shift  of  social  contributions  from 
employers to employees, which is expected to partly offset 
gross wage increases. 

7 

6566676869707172737405101520253001020304050607080910111213141516%%Activity rate (rhs)Unemployment rateLong-term unempl. rateYouth unempl. rateNEET rate19,219,419,619,820,020,220,420,620,8-250-200-150-100-500080910111213141516Millionn personsThousand  personsNet migrationNatural changePopulation(rhs) 
 
 
                                                           
1. Economic situation and outlook 

3.3 %  in  2017  and  to  reach  4.3 %  in  2018. 
Meanwhile, the headline deficit is projected by the 
Commission to have remained at 3.0 % of GDP in 
2017  and  increase to  3.9 % in  2018  assuming no-
policy change (see Section 3.1.1). 

The  tax  cuts  and  expenditure  increases  are 
being financed  with  public  debt.  Because  of  the 
widening  of 
the  general 
the  public  deficit, 
government  debt  is  projected  to  increase  from 
37.6 % of GDP in 2016 to 40.5 % of GDP in 2019. 
Assuming  no  policy  change,  public  debt 
is 
projected  to  increase  to  above  60 %  of  GDP  in 
2027 (see Section 3.1.4).  

Financial sector 

credit 

to  households 

Credit  growth  picked  up  in  2017.  After  several 
years  of  decline, 
to  non-financial 
corporations  started  to  increase  in  the  second  half 
of  2017  (Graph  1.10).  Meanwhile,  the  growth  of 
credit 
remained  stable  as  a 
slowdown 
the  growth  of  mortgages  was 
compensated  by  a  pick-up  in  consumption  credit. 
The  stock  of  foreign  currency  loans  continued  to 
fall  for  both household  and corporations, with  the 
domestic currency increasing its share of the total 
loan stock to 61.8 % in November 2017 (up from a 
low of 35.6 % in May 2012).  

in 

House prices are increasing fast, but from a still 
low level. House prices corrected strongly between 
2008  and  2012,  falling  by  more  than  half  in  real 
terms.  The  correction reversed  in 2015  and prices 
picked  up  in  2016,  increasing  by  6.5 %  in  real 
terms. The strong momentum continued in the first 
quarters  of  2017,  supported  particularly  by 
increasing household disposable income and rapid 
economic  growth.   Despite  a  strong  increase  in 
2015  (+15.5 %)  and  2016  (+12.0 %)  which 
provided  further  support  to  house  price  growth, 
mortgages  in  Romania  continue  to  account  for  a 
relatively  small  share  of  GDP  (7.6 %  versus 
37.5 %  in  the  euro  area  in  2016).  In  spite  of  the 
recent  increase,  valuation  metrics  suggest  that 
the 
house  prices 
increase in house prices could continue.  

remain  undervalued (7)  so 

(7)  Methodology in Philiponnet and Turrini (2017) 

Social developments 

Poverty  remains  high.  In  2016  the  risks  of 
poverty  and  social  exclusion  increased,  affecting 
reversing  a 
the  population  and 
38.8 %  of 
decreasing  trend  of  several  years.  The  trend  does 
not  appear  to  improve,  driven  by  increases  in 
equivalised  disposable  income  for  all  households 
the  poorest  10 % (5).  The  divide 
except  for 
between  the  rich  and  the  poor  and  between  rural 
and  urban  areas  remains  high.  High  poverty  risks 
are mostly associated with high inactivity levels. 

High  economic  growth  is  accompanied  by  high 
inequality.  The  income  of  the  top  20 %  of  the 
population  exceeds  by  seven  the  income  of  the 
bottom  20 %  compared  to  a  ratio  of  five  for  the 
EU-28 (see Section 3.3). Meanwhile, inequality at 
the  lower  end  of  the  income  distribution  appears 
more  pronounced,  with  the  bottom  10 %  of  the 
population  earning  14  times  less  than  the  bottom 
50 %, one of the highest ratio in the EU. 

high 

transfers 

remains 

Inequality 
along  many 
dimensions. Income inequality remains one of the 
highest in the EU despite the recent decline, while 
the  tax  and  benefit  system  has  a  limited  effect  on 
reducing  market  income  inequality  (i.e.  before 
taxes  and 
including  pensions)  (see 
Section  3.1.1).  Opportunities  are  also  unequal, 
with educational outcomes and risk of poverty for 
children  highly  correlated  with  parents’  education 
levels  (see  Section  3.3).  The  gap  in  unmet 
healthcare  needs  between  the  richest  and  the 
poorest households (6.5 %) is one of the widest in 
Europe.  These 
labour  market 
outcomes (see Section 3.3). 

turn  affect 

in 

Public finances 

The  public  deficit  has  been  widening  due  to 
taxes  (in 
pro-cyclical  fiscal  policy.  Indirect 
particular the standard VAT rate) were cut in 2017, 
while  the  personal  income  tax  rate  was  cut  from 
January  2018.  On  the  expenditure  side,  public 
wages and old-age pensions significantly increased 
in  2017  and  will  continue  to  do  so  in  2018.  As  a 
consequence,  the  structural  deficit (6)  is  projected 
to  have  widened  from  2.2 %  of  GDP  in  2016  to 

(5)  Based on Eurostat experimental flash estimates for income 
reference  year  2016,  which  can  be  used  in  preliminary 
analysis until the final EU-SILC data becomes available. 

(6)  Defined as the deficit corrected for the business cycle 

8 

 
                                                           
                                                           
1. Economic situation and outlook 

Graph 1.9: 

Breakdown of change in general government 
balance 

Graph 1.10:  Loans to households and non-financial 

corporations 

Source: European Commission 

Source: National Bank of Romania 

Graph 1.11:  Share of debt in companies facing financial 

stress 

The  banking  sector  continues  to  be  profitable, 
well  capitalised  and  liquid.  Capital  adequacy  at 
system  level  has  been  stable  since  end-2015  and 
stood  at  19 %  at  the  end  of  September  2017. 
Liquidity remained at comfortable levels, with the 
loan-to-deposit 
ratio  around  80 %  at  end-
September  2017.  The  share  of  non-performing 
loans  (NPLs)  has  fallen  significantly  (see  Section 
3.2). Despite compressed interest margins, banking 
profitability  has  remained  in  positive  territory 
since 2015. 

Non-performing  loans  continue  to  fall  but  the 
share  of  companies  facing  financial  distress 
remains  high.  In  2016,  more  than  40 %  of 
companies  in  selected  sectors  had  an  interest 
coverage  ratio  lower  than  1,  suggesting  a  limited 
ability to meet interest payments (Graph 1.11). The 
large  share  of  financially  stressed  companies  can 
act  as  a  drag  on  economic  growth.  Besides  being 
financially 
significantly 
constrained  companies  also 
reduce 
to 
employment  and  invest  less  than  non-financially 
stressed 
enterprises 
accounted  for  a  substantial  share  of  financially 
distressed companies (see Section 3.4). 

companies.  State-owned 

productive, 

tend 

less 

(1) Zombies are defined as companies that are less than 
10-years old and for which the interest coverage ratio has 
been below one for more than 3 years in a row (only 
available from 2015 onwards). 
The analysis does not include firms in agriculture, mining, 
finance and insurance, public administration, the arts and 
households as employers. 
Source: Orbis and European Commission calculations 

9 

-3-2-1012141516171819% of GDPforecastOther factorsDiscretionary reven. measuresCyclical componentInterest paymentsOverall gov. balance-15-10-50510152025Dec-11Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17y-o-y % changeLoans to households (HH), totalLoans to households (HH), housingLoans to households (HH), consumer and other loansLoans to non-financial corporations0%10%20%30%40%50%60%70%80%90%100%13141516ZombiesICR<1ICR>1 
 
 
 
 
 
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators – Romania 

(1)  NIIP excluding direct investment and portfolio equity shares  
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

10 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)6.80.43.34.04.86.74.54.0Potential growth (y-o-y)5.82.51.93.23.63.74.04.0Private consumption (y-o-y)13.2-0.42.75.97.6...Public consumption (y-o-y)-2.41.1-2.00.23.1...Gross fixed capital formation (y-o-y)23.2-3.6-1.27.4-2.0...Exports of goods and services (y-o-y)9.94.013.74.68.7...Imports of goods and services (y-o-y) 22.3-0.58.88.09.8...Contribution to GDP growth:Domestic demand (y-o-y)14.4-1.41.05.54.6...Inventories (y-o-y)-1.40.00.6-0.10.7...Net exports (y-o-y)-6.41.31.6-1.4-0.5...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.4-1.0-1.2-0.7-0.2-0.20.00.0Capital accumulation (y-o-y)2.22.31.01.10.80.70.91.0Total factor productivity (y-o-y)4.01.22.02.83.03.13.03.0Output gap5.5-1.5-3.2-2.1-1.20.71.11.2Unemployment rate7.26.67.06.85.95.35.15.0GDP deflator (y-o-y)13.46.32.52.62.12.03.23.3Harmonised index of consumer prices (HICP, y-o-y)8.15.72.3-0.4-1.11.14.13.0Nominal compensation per employee (y-o-y)15.88.05.31.99.813.210.97.8Labour productivity (real, person employed, y-o-y)7.42.13.35.35.8...Unit labour costs (ULC, whole economy, y-o-y)7.85.81.8-3.33.87.96.63.7Real unit labour costs (y-o-y)-4.9-0.5-0.7-5.71.75.83.20.4Real effective exchange rate (ULC, y-o-y)9.6-2.52.2-6.01.86.14.11.7Real effective exchange rate (HICP, y-o-y)8.5-2.92.6-2.4-1.2-2.00.7.Savings rate of households (net saving as percentage of net disposable income)-22.3-16.97.5.....Private credit flow, consolidated (% of GDP)13.93.0-1.90.20.6...Private sector debt, consolidated (% of GDP)43.270.764.359.155.8...of which household debt, consolidated (% of GDP)11.921.418.617.516.8...of which non-financial corporate debt, consolidated (% of GDP)31.449.345.741.739.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..16.910.77.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)-2.86.3-2.6-5.6-5.0-5.6-4.9-5.4Corporations, gross operating surplus (% of GDP)25.828.331.631.732.030.029.228.0Households, net lending (+) or net borrowing (-) (% of GDP)-4.7-5.66.28.26.77.27.37.9Deflated house price index (y-o-y)..-3.01.96.5...Residential investment (% of GDP)2.02.92.42.42.6...Current account balance (% of GDP), balance of payments-10.2-6.2-0.9-1.2-2.1-2.8-2.8-2.6Trade balance (% of GDP), balance of payments-11.3-7.4-0.6-0.6-0.9...Terms of trade of goods and services (y-o-y)5.71.11.32.80.4-1.5-0.50.5Capital account balance (% of GDP)0.50.62.42.42.5...Net international investment position (% of GDP).-61.7-60.0-54.6-49.9...Net marketable external debt (% of GDP) (1).-22.2-18.2-13.0-7.4...Gross marketable external debt (% of GDP) (1).57.753.445.240.2...Export performance vs. advanced countries (% change over 5 years)84.070.525.722.720.1...Export market share, goods and services (y-o-y)13.92.410.7-0.28.5...Net FDI flows (% of GDP)-7.1-2.8-1.9.-2.7...General government balance (% of GDP)-1.7-6.1-1.7-0.8-3.0-3.0-3.9-4.1Structural budget balance (% of GDP)..-0.7-0.3-2.2-3.3-4.3-4.6General government gross debt (% of GDP)14.827.438.637.937.637.939.040.4Tax-to-GDP ratio (%)28.427.327.428.026.025.626.026.2Tax rate for a single person earning the average wage (%)27.228.525.825.3....Tax rate for a single person earning 50% of the average wage (%)22.725.523.022.9....forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

the 

in  a 

introduction  of 

implementation  of 

Progress  with 
the 
recommendations  addressed  to  Romania  in 
2017 (8)  has  to  be  seen 
longer-term 
the 
perspective  since 
European  Semester  in  2011.  Looking  at  the 
multi-annual  assessment  of  the  implementation  of 
the  CSRs  since  these  were  first  adopted,  68 %  of 
all the CSRs addressed to Romania have recorded 
at  least  'some  progress'.  32 %  of  these  CSRs 
recorded 'limited' or 'no progress' (see Graph 2.1). 
Overall,  Romania  has  advanced  in  implementing 
country  specific  recommendations  (CSRs)  since 
2013,  and  some  reforms  have  been  pursued  even 
during  the  economically  challenging  times.  The 
decisiveness  and  speed  of  implementation  have 
largely  dependent  on 
however  been  uneven, 
political  developments. While 
there  was  an 
acceleration  of  reform  in  2016,  the  recent  follow-
up on reform priorities in key sectors has been less 
strong.  In  several  policy  areas  subject  to  CSRs 
measures have been slowed down or even reversed 
and  significant  efforts  are  still  needed  to  achieve 
tangible results of reform implementation.  

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
(2) 2011-2012: Different CSR assessment categories.  
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2018 country report. 
Source: European Commission 

On  fiscal  adjustment  past  progress  has  been 
gradually  undone.  Since  2009,  Romania  pursued 
a  significant  fiscal  consolidation  which  led  to 
achieving  its  medium-term  objective  in  2014  and 
2015. However, the authorities have been pursuing 
an expansionary fiscal policy since 2016 that led to 
a substantial departure from that objective. 

Progress on labour market and social assistance 
reforms  moderated  in  2017.  Some  progress  was 
achieved  on 
labour  market 
improving  active 
policies and the public employment service reform 
especially in  2016,  but  slowed  down  since  then. 
The reform of the National Employment Agency is 
still to be implemented and sustained over the long 
term  through  a  strong  political  commitment.  No 
progress  was  made  in  2017  on  applying  objective 
criteria  for  the  minimum  wage  setting  and  on 
equalising  pensionable  age  for  men  and  women, 
following the advances seen in 2016. Progress has 
been  uneven  on  social  assistance  reform.  The 
implementation of the Minimum Inclusion Income 
Law, adopted in 2016, stalled in 2017 and is now 
postponed  for  2019.  The  pilot  project  aiming  to 
introduce  integrated  teams  in  a  number  of  most 
deprived  communities  is  delayed.  The  link  with 
activation  measures  needs  further  strengthening. 
The poverty reduction power of social transfers is 
still  among  the  lowest  in  the  EU  and  there  is  no 
objective mechanism to update social benefits.  

Access  to  quality  and  inclusive  education  is 
faced  with  continuous  challenges.  Over  the  last 
years,  the  Romanian  authorities  have  taken  some 
measures to address poor education outcomes and 
skill  shortages  by  adopting  relevant  strategies. 
Some  progress  has  been  made  in  vocational 
education  and  training,  lifelong  learning  and 
higher  education  but  the  quality  of  these  services 
and  their  labour  market  relevance  remain  largely 
insufficient. After the adoption of the Strategy for 
Early  School  Leaving  in  2015  and  the  progress 
observed  the  following  year,  efforts  to  continue 
implementation  were  modest  in  2017.  This  is 
reflected  in  high  early  school  leaving  rates, 
unequal  access  to  quality  education  including  for 
the  Roma  and  large  gaps  in  terms  of  student 
performance all pointing to persistent hurdles.  

(8)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 3.1, 3.3, 3.4 and 3.5. 

Healthcare reform is progressing at a slow pace.  
Since  2013,  the  Romanian  authorities  have  made 
some  progress  in  implementing  health-related 

11 

6%26%53%11%4%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
 
                                                           
2. Progress with country-specific recommendations 

broadband access and e-Government services, they 
support  youth  not  in  education,  employment  or 
training,  reinforce  the  capacity  of  the  public 
employment service and improve the integration of 
employment, social and education services.  

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
design,  and 
implement  growth-enhancing 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-
financing  and  is  provided  at  a  Member  State's 
request. The support addresses priorities identified 
in  the  context  of  the  EU  economic  governance 
process  (i.e.,  implementation  of  country-specific 
recommendations),  but  the  scope  of  the  SRSS 
support is wider as it can also cover reforms linked 
to  other  Commission  priorities,  or 
reforms 
undertaken at the initiative of Member States.  

Romania  has  requested  technical  support  from 
the SRSS to help implement reforms in various 
include  governance  and  public 
areas.  These 
administration, revenue administration, growth and 
the  business  environment,  health,  social  services, 
education,  the  financial  sector  and  access  to 
finance.  In  particular,  the  SRSS  provides  support 
to 
the 
Romanian Financial Supervisory Authority. 

the  supervisory  capacity  of 

improve 

shifting  priorities,  poor 

country  specific  recommendations  on  a  yearly 
basis,  albeit  with  some  difficulties  due  to  the 
modest  administrative  capacity  of  the  Ministry  of 
investment 
Health, 
planning  and  in  some  cases  the  lack  of  political 
commitment.  The  shift  to  outpatient  care  remains 
at an early stage, with most efforts concentrated on 
hospital care. Past measures on reporting informal 
payments need more time to deliver visible results.    

took 

authorities 

the  reform  of 

Progress  on 
the  public 
administration  has  been  overall 
limited. 
some  measures 
Romanian 
regarding  the  public  administration  reform  by 
adopting  in  2016  the  new  civil  service  and  staff 
training  strategies.  However,  draft 
legislation 
reflecting the relevant objectives is not yet adopted 
and  results  will  be  seen  only  around  mid-2019. 
The  incomplete  human  resource  reforms  limit  the 
capacity  to  develop  and  implement  policies  in  a 
investments  and 
strategic  manner,  weigh  on 
negatively impact the businesses environment.  

the 

and 

and 

public 

collection, 

compliance 

Overall,  Romania  made  limited  progress (9)  in 
country-specific 
2017 
addressing 
recommendations. There was limited progress on 
tax 
activation 
measures,  education,  outpatient  care,  public 
investment 
administration 
prioritization. No progress was made on minimum 
wage 
fiscal 
framework.  In  contrast,  there  was  some  progress 
on  public  procurement,  fighting  undeclared  work 
and  curbing  informal  payments  in  healthcare. 
Legislative  changes  adopted  in  2017  reversed  the 
substantial  progress  made  the  previous  year  in 
strengthening  the  corporate  governance  of  state-
to  a  significant 
owned  enterprises,  pointing 
backtracking on past reforms.  

setting,  pensionable 

and 

age 

European  Structural  and  Investment  Funds 
(ESI  Funds)  are  pivotal  in  addressing  key 
challenges to inclusive growth and convergence 
in  Romania,  notably  by  reforming  the  public 
procurement system, strengthening the quality and 
accessibility of primary and community healthcare, 
and  improving  basic  transport,  waste  and  water 
infrastructure.  The  ESI  Funds  also  help  extend 

(9)  Information  on  the  level  of  progress  and  actions  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. 

12 

 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on CSR assessment 

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

13 

     Romania Overall assessment of progress with 2017 CSRs:  Limited progress   CSR 1: In 2017, ensure compliance with the Council Recommendation of 16 June 2017 with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective. In 2018, pursue a substantial fiscal effort in line with the requirements of the preventive arm of the Stability and Growth Pact. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection. Fight undeclared work, including by ensuring the systematic use of integrated controls. 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 fighting undeclared work    CSR 2: Strengthen targeted activation policies and integrated public services, focusing on those furthest away from the labour market. Adopt legislation equalising the pension age for men and women. Establish a transparent mechanism for minimum wage-setting, in consultation with social partners. Improve access to quality mainstream education, in particular for Roma and children in rural areas. In healthcare, shift to outpatient care and curb informal payments. Limited progress  Limited progress was made in strengthening targeted activation policies and integrated public services.   No progress was made on equalising of the pensionable age for men and women.   No progress was made on minimum wage setting.   Limited progress was made on improving access to quality mainstream education.  Limited progress was made on shifting to outpatient care  Some progress was made on curbing informal payments.    CSR 3: Adopt legislation to ensure a professional and independent civil service, applying objective criteria. Strengthen project prioritisation and preparation in public investment. Ensure the timely full and sustainable implementation of the national public procurement strategy. Limited progress  Limited progress was made adopting legislation to ensure a professional and independent civil service.   Limited progress was made on strengthening project prioritization and preparation in public investment.  Some progress was made on implementing the national public procurement strategy.        
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in Romania 

Romania  is  a  beneficiary  of  significant  European  Structural  and  Investment  Funds  (ESI  Funds) 
support and can receive up to EUR 30.8 billion until 2020. This represents around 3 % of GDP annually 
over  the  period  2014-2018  and  49%  of  public  investment (1).  By  31  December  2017,  an  estimated 
EUR 8.2 billion  (27 %  of  the  total)  was  allocated  to  projects  on  the  ground.  The  investments  already 
contracted  will  enable  the  hiring  of  174  new  researchers,  the  registration  of  200  000  young  people  not  in 
education,  employment  or  training  to  the  public  employment  services,  the  support  of  55  marginalised 
communities  through  an  integrated  approach  and  the  implementation  of  new  primary  and  secondary 
education curricula. Out of the EU financing, EUR 300 million from the European Regional Development 
Fund is to be delivered via financial instruments, a 133% increase compared to the 2007-2013 period.  

implement  country-specific 
structural  policy  challenges  and 
ESI  Funds  help  address 
recommendations. Actions financed cover, among others, strategic investments in transport, energy, water 
and  waste  management  infrastructure;  strengthening  primary  and  community  healthcare  and  improving 
accessibility for vulnerable groups; improving the effectiveness of the justice system; extending broadband 
access and developing inter-operable eGovernment services. The capacity of the public employment service 
has  been  reinforced.  Other  measures  aim  to  strengthen  the  management  and  control  systems  of  EU  funds 
and  improve  strategic  planning.  Public  procurement  reform  is  supported  via  the  establishment  of  a  Public 
Procurement  Agency,  the  transposition  of  the  2014  public  procurement  directives  and  the  adoption  of 
secondary legislation. However, implementation on the ground is significantly delayed in several sectors. 

Various  reforms  were  undertaken  already  as  precondition  for  ESI  Funds  support. (2)  The  National 
Transport  Master  Plan  and  the  National  Waste  Management  Plan  aim  to  provide  a  stable  and  sustainable 
roadmap for future investments and strengthen the administrative capacity of state‐owned enterprises in the 
sector. However, progress in the preparation of projects aligned to the new strategic planning is very slow. 
Efforts  are  made  for  the  swift  completion  of  the  preconditions  on  waste  and  transport  so  as  to  avoid  a 
possible  suspension  of  payments.  Romania  has  received  support  for  the  design  and  implementation  of 
regional  smart  specialization  strategies  and  for  ensuring  synergy  with  the  national  smart  specialisation 
sectors.  Given  the  success  of  the  pilot  phase  of  the  project,  focused  on  the  North-East  and  North-West 
regions, the Commission is now preparing a roll-out to the other regions, with additional support from the 
World Bank. The two pilot regions will benefit from dedicated funding for project ideas developed as part of 
bottom-up, collaborative activities involving regional authorities, universities, businesses and technological 
transfer entities. 

Romania  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  327 
million, which is expected to trigger total private and public investment of EUR 1.1 billion into over 2 500 
companies. RDI ranks first in terms of operations and volume approved, followed by energy and SMEs (3). 

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional to the ESI Funds. By the end of 2017, Romania has signed agreements for EUR 1.2 billion for 
projects under the Connecting Europe Facility. 

https://cohesiondata.ec.europa.eu/countries/RO  

1)  Defined as gross fixed capital formation+ investment grants + national expenditure on agriculture and fisheries. 
2)  Before  programmes  are  adopted,  EU  countries  are  required  to  comply  with  a  number  of  prerequisites,  which  aim  at 

improving conditions for the majority of public investments areas. 

(3)  For  more  details  see  EFSI  factsheet  for  Romania  at  https://ec.europa.eu/commission/publications/country-factsheets-

investment-plan-state-play_en. 

14 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICY 

fiscal 

in  2017  and  2018,  following 

The  government  has  been  pursuing  an 
policy, 
pro-cyclical 
expansionary, 
resulting  in  an  increasing  fiscal  deficit.  Indirect 
taxes  were  cut  at  the  beginning  of  2017  (in 
particular  the  standard  VAT  rate  by  1  pp.)  while 
the  flat  personal  income  tax  rate  was  cut  from  16 
% to 10 % from January 2018. On the expenditure 
side,  public  wages  have  been  significantly 
increased 
the 
adoption  of  the  Unified  Wage  Law  (UWL)  in 
summer  2017,  although  the  fiscal  impact  of  the 
increases  of  the  gross  wages  in  the  public  sector 
was  partially  contained  by  a  switch  of  the  social 
contributions  to  the  employee  side  from  January 
2018  (see  Box  3.1.1).  The  government  also 
enacted  significant  increases  to  old-age  pensions, 
going  beyond  the  standard  pension  indexation 
mechanism,  which  enter  into  force  in  July  2017 
and  July  2018.  As  a  consequence  of  these 
measures,  the  public  deficit  has  been  increasing 
(see Section 1). In June 2017 the Council launched 
a  significant  deviation  procedure  addressed  to 
Romania.   

3.1.2.  TAXATION 

The tax and benefit system has a relatively low 
degree  of  redistribution  and  hence  relatively 
low  influence  on  income  inequality.  Per  capita 
spending on social protection is one of the lowest 
in the EU. The personal income tax has a tax-free 
allowance  and  a  flat  rate  (reduced  to  10%  since 
January  2018).  The  tax  wedge,  i.e.,  the  ratio 
between the amount of taxes paid by a worker and 
the 
the  corresponding 
employer, on low income earners is above the EU 
average, while for high income earners it is below 
it 
the  degree  of 
redistribution, measured as the difference between 
the  market  income  inequality  and  the  disposable 

(10).  As  a  consequence, 

labour  cost  for 

total 

(10)  The  tax  wedge  for  those  earning  50 %  of  average  wage 
(AW) was 36.8 %, while for those earning 167 % of AW it 
amounted to 39.5 % in 2016, compared to the EU average 
of  32.2 %  and  44.4 %  respectively.  Source:  European 
Commission,  Tax  and  Benefits  database,  available  at 
http://europa.eu/economy_finance/db_indicators/tab/#.  

income inequality, is relatively limited (see Graph 
3.1.1 and Sections 1 and 3.1).  

Graph 3.1.1:  Redistributive power of the tax and benefit 

system in EU Member States, 2016  

(1) Difference between the Gini coefficients for market 
income inequality (i.e. before tax and benefits) and 
disposable income inequality (i.e. after tax and benefits). 
Income data are adjusted for household size 
(equalisation). The scale of Gini coefficients is from 0 to 100. 
The value 0 corresponds to perfect equality (same income 
to everybody) while 100 corresponds to maximum 
inequality (all income distributed to only one person and all 
the others have nothing). 
(2) No 2016 data available for Ireland, Italy and 
Luxembourg, therefore 2015 data used instead. (3) The EU-
28 average is calculated as the population-weighted 
average of individual national figures.  
Source: Commission calculations based on Eurostat data 

Tax  compliance  remains  low,  in  particular  in 
VAT. The VAT gap in Romania, i.e. the difference 
between theoretically expected VAT revenues and 
the  VAT  actually  collected,  is  the  highest  in  the 
EU. However, it decreased by 5.7 pps in 2015 (see 
Graph  3.1.2),  the  second  biggest  fall  in  the  EU 
(CASE  et  al,  2017).  As  of  October  2017,  the 
government  introduced  an  optional  VAT  split-
payment  system,  aimed  at  addressing  low  VAT 
collection. By the first half of November only 300 
companies  decided  to  switch  to  this  optional 
system.  From  2018,  the  system  is  mandatory  for 
taxpayers  with 
insolvent  companies  and  for 
significant  old  outstanding  VAT 
liabilities. 
However, the mandatory introduction of electronic 

15 

0,00,10,20,30,40,50,6051015202530FIBESIIEDKCZATNLHUSEDEUKFRLUHRSKELPTMTITROPLESCYEELTLVBGEU-28Decrease of Gini index in %Decrease of Gini index in absolute valuesDecrease of Gini in absolute valuesDecrease of Gini in percentage 
 
                                                           
 
3.1. Public finances and taxation 

taxpayerʼs tax risk position (leading to a smoother 
VAT reimbursement system), the average duration 
of  tax  audits  was  reduced  to  82  days,  rules  for 
deferring  tax  payments  were  made  more  flexible, 
and  the  use  of  the  Private  Virtual  Space,  i.e.  an 
online portal with personal taxpayer accounts, was 
extended  to  legal  entities,  besides  individuals (15). 
In  November,  the  government  introduced  specific 
anti-abuse  measures 
in  Directive 
1164/2016 (16),  complementing  the  general  anti-
abuse provisions set out already in the Fiscal Code. 
The  Romanian  tax  administration (ANAF) and  its 
a  minor 
system 
IT 
reorganisation (17).  

underwent 

included 

also 

Graph 3.1.2:  Romania: VAT Revenues, VAT theoretical tax 

liability (VTTL) and VAT gap 

"VAT gap" - the difference between theoretically expected 
VAT revenues ("VTTL") and actually collected VAT, as a 
share of the theoretically expected VAT revenues. 
Source: CASE et al. (2017) 

(15)  The  portalʼs  use  seems  rather  limited,  with  only  144  000 
taxpayers connected almost 3 years after its introduction, of 
which  67  000  are  legal  entities.  See  ANAF  press  release: 
https://static.anaf.ro/static/3/Anaf/20170717142252_720-
17.07.2017-%20com%20spv.pdf  

(16)  Council Directive (EU) 2016/1164 of 12 July 2016 laying 
down  rules  against  tax  avoidance  practices  that  directly 
affect the functioning of the internal market. 

(17)  Notable  changes  are:  (i)  the  creation  of  the  so-called 
National  Centre for Financial  Information  (CNIF)  through 
the  merger  of  some  resources  from  the  Large  Taxpayers 
Office  of  ANAF, 
the  National  Agency  for  Public 
the  National  Forecasting 
Procurement 
Commission  (CNP);  (ii)  a  further  regional  reorganisation, 
and  (iii)  the  centralised  management  of  non-resident 
taxpayers. 

(ANAP)  and 

cash registers connected to the tax administrationʼs 
IT system has been postponed (11). 

to  broaden 

run  awareness  campaigns, 

The  incidence  of  undeclared  work  continues  to 
be  relatively  high.  The  share  of  employees 
receiving envelope wages – i.e. with underreported 
salary  –  is  estimated  at  double  the  EU  average 
(Williams  and  Horodnic,  2017).  The  informal 
economy is large, (12) also given the high share of 
self-employment,  especially  in  agriculture. (13)  In 
the  Labour  and  Fiscal  Codes  were 
2017, 
amended (14) 
the  definition  of 
undeclared  work  and  to  introduce  more  coercive 
measures  against  disguised  employment,  by 
increasing  fines.  While  a  dedicated  department 
was  set  up  in  the  Labour  Inspectorate  to  increase 
the 
controls  and 
organisation  of  the  fight  against  undeclared  work 
continues  to  be  fragmented  across  a  range  of 
institutions  and  the  preventive  element  is  still 
insufficiently  developed.  Social  partners  are 
insufficiently 
fight  against 
undeclared  work.  Since  September  2017  (for 
employers)  and  January  2018  (for  employees) 
social security contributions for part-time contracts 
have  to  be  paid  based  on  at  least  the  minimum 
gross  wage..  While  the  potential  impact  of  this 
measure  has  not  been  fully  assessed,  it  could 
time  employment. 
overall 
However,  the  higher  tax  burden  may  also  create 
new  incentives  to  avoid  formalised  employment 
altogether. 

to  more  full 

involved 

lead 

the 

in 

introduced 

tax  compliance 
The  authorities  simplified 
obligations, 
specific  anti-abuse 
measures  and  somewhat  re-organised  the  tax 
administration.  The  Code  of  Fiscal  Procedures 
was  amended  in  August  2017.  VAT  registration 
and  deregistration  was  made  dependent  on  the 

(11)  According  to  the  Government  Ordinance  No.  20/2017, 
published  in  Official  Gazette  No.  705/2017,  the  new 
deadline  for  average  and  large-sized  companies  is  June 
2018,  while 
the  deadline  for  small  companies  was 
maintained (August 2018). 
(12)  Using  OECD  methodology, 

the  Romanian  National 
Statistics Office estimated for 2014 a level of 22.1% for the 
informal/unobserved  economy,  a  slight  increase  from  the 
OECD  estimate  of  21.5%  for  2010.  According  to  the 
methodology  used,  the  unregistered  workforce  is  the 
biggest  component  of 
in 
Romania. 

the  unobserved  economy 

(13) Seasonal employment, highly present in agriculture, has to 
be  declared  by  the  employer,  and  the  Labour  Inspectorate 
is competent to conduct checks. 

(14)  Government Emergency Ordinance No. 53/2017. 

16 

0204060801000%10%20%30%40%50%20112012201320142015Bn RONVAT gapVTTL (rhs)collected VAT (rhs) 
                                                           
 
 
 
                                                           
3.1. Public finances and taxation 

Box 3.1.1: Emergency Ordinance No 79/2017:  
distributive and macroeconomic impact 

In November 2017 the government adopted Emergency Ordinance No 79/2017 which substantially 
changed  the  structure  of  social  contributions  by  shifting  their  burden  almost  entirely  to  the 
employees, from 22.75 % for employers and 16.5% for employees to 2.25% and 35% respectively. 
It  also reduced the  personal  income  tax  (PIT)  rate from  16%  to  10%  and  increased  the  PIT-free 
allowance.  These  changes  entered  into  force  on  1  January  2018.  They  follow  the  Unified  Wage 
Law  (UWL)  adopted  in  summer  2017,  which  provided  for  a  25%  gross  wage  increase  for  most 
government employees in January 2018 and additional increases in health and education sectors. 
Also, to compensate for the shift of social contributions, the government increased the minimum 
gross  wage  by  31 %  to  RON  1  900  (EUR  413)  and  requested  social  partners  to  re-negotiate  the 
wages in the private sector. This concerns a very large number of contracts. These measures are set 
to  have  a  negative  impact  on  the  general  government  balance.  Expenditures  on  wages  of  public 
employees are set to increase and the revenues from PIT are set to decrease. The fiscal cost of the 
increased  wages  of  public  employees  is  set  to  be  partially  compensated  by  the  higher  social 
contributions they are paying. 

The  distributive  and  equity  impact  of  these  changes  has  been  simulated  by  the  European 
Commission  Joint  Research  Centre  using  the  EUROMOD  microsimulation  model1  (Graph  1 
below). The simulation is static, i.e. it does not incorporate second-round effects of the reforms on 
the  economy.  In  the  public  sector,  the  disposable  income  increases  across  all  income  deciles, 
although  significantly  less  than what would have occurred without the  social  contributions shift. 
For  the  private  sector,  the  simulation  presents  a  lower-bound  scenario  of  no  reaction  of  gross 
wages  to  the  shift.  Those  earning  more  than  RON  1  593  (EUR  341)  in  the  baseline  scenario 
increasingly lose. This is because the increased burden of the social contributions outweighs the 
higher minimum gross wage, higher PIT allowance and the reduced PIT rate. Moreover, part-time 
workers lose due to the introduction of a minimum contributory base for social contributions paid 
by  them.  The  UWL  increases  market  income  inequality,  as  the  public  employees  are  mostly 
situated  in  the  upper  part  of  the  income  distribution  (Graph  2).  This  impact  is  more  than 
compensated by the impact on inequality of the increase of the minimum wage. Taken together, 
these two measures cause market income inequality to marginally fall. Assuming no adjustment of 
private  gross  wages,  the  Ordinance  increases  the  degree  of  redistribution,  in  particular  thanks  to 
increased  PIT-free  allowance,  and  thus  decreases  the  disposable  income  inequality.  The 
redistributive  effect  of  the  Ordinance  is,  however,  diminished  by  the  reduced  PIT  rate.  A 
renegotiation  of  private  gross  wages  of  those  earning  more  than  RON  1  593  (EUR  341)  (not 
simulated)  would  cause  both  market  and  the  disposable  income  inequality  to  slightly  increase 
compared to the baseline scenario. 

A simulation using the QUEST global macroeconomic model2 shows the second round effects of 
the UWL and the Emergency Ordinance No 79/2017 (Graph 3). The model does not incorporate 
the  minimum  wage  increase  and  assumes  no  spill-overs  from  public  wages  increases  to  private 
sector wages. The simulation indicates a gradual increase of real gross wages in the private sector 
in reaction to the social contributions shift. Therefore, real net wages and labour costs (not shown) 
in the private sector immediately drop and gradually adjust thereafter. GDP immediately increases 
thanks to an increase in private employment driven by the decrease in average labour tax-rate on 
employers  (and  thus  a  decrease  in  labour  costs)  brought  by  the  shift.  The  gain  in  GDP  would 
dissipate  in  the  long  run,  as  private  wages  adjust  and  the  increase  in  employment  dissipates. 
Adding  the  minimum  wage  increase  and  spill-overs  between  public  and  private  sector  wages 
would dampen the impact of the reforms on GDP and employment. 

17 

 
 
3.1. Public finances and taxation 

Graph 1:  

  Mean disposable income of public and private sector employees 

A. by decile (equivalised household disposable 
income) 

B. by initial gross wage in RON 

"Public  sector  –  UWL  only":  pure  impact  of  the  public  wage  increases.  "Public  sector  –  all  policy  changes"  and 
"Private sector – all policy changes": cumulative impact of UWL, Emergency Ordinance No 79/2017 and increased 
minimum gross wage (assumes no reaction of the gross wages in the private sector). 

Source: European Commission Joint Research Centre, calculations based on the EUROMOD model. 

Graph 2:  

 Impact on inequality 

Graph 3:  

 Macroeconomic impact 

"UWL only": pure impact of the public wage increases; 
"all  policy  changes":  cumulative 
impact  of  UWL, 
Emergency  Ordinance  No  79/2017  and  increased 
minimum  wage  (assuming  no  adjustment  of  gross 
wages in the private sector). 

The  graph  shows  the  percentage  deviations  from  the 
baseline  scenario  without  the  reforms..  Public  wage 
increases  resulting  from  UWL  are  simulated  as  a 
permanent  increase  of  government  expenditures  on 
public  wages.  The  Ordinance is  simulated  as  a  shift  of 
labour tax burden from employers to employees. 

Source:  European  Commission  Joint  Research  Centre, 
calculations based on the EUROMOD model. 

Source:  European  Commission,  calculations  based  on 
the QUEST model 

1  EUROMOD  is  the  tax-benefit  microsimulation  model  for  the  European  Union.  The  simulations  are  based  on 

representative survey data from the European Statistics on Income and Living Conditions (EU-SILC). 

2  QUEST 

is  a  dynamic  stochastic  general  equilibrium  model.  See  https://ec.europa.eu/info/business-economy-

euro/economic-and-fiscal-policy-coordination/economic-research/macroeconomic-models_en. 

18 

 
 
 
 
 
 
 
 
 
 
3.1.3.  FISCAL FRAMEWORK 

to 

The  national  fiscal  framework  has  not  been 
respected,  in  what  appears  to  have  become  a 
recurrent  practice.  The  deficit  rule  embedded  in 
the national fiscal framework requires compliance 
the  medium-term 
with  or  convergence 
budgetary objective of a structural deficit of 1 % of 
GDP. However, in 2016 structural deficit increased 
above the medium-term objective, in breach of the 
national  deficit  rule.  Both  the  2017  and  2018 
budgets target a headline deficit of close to 3 % of 
GDP,  which  in  presence  of  an  increasing  output 
gap implies a further deterioration of the structural 
balance,  again  contrary 
the  deficit  rule. 
Additionally,  the  two  2017  budget  amendments 
(from  September  and  November)  broke  rules 
prohibiting  increases  of  the  headline  and  primary 
deficit  ceilings  during  the  fiscal  year  as  well  as 
personnel 
rules 
expenditure  and  total  government  expenditure 
excluding EU funds during the fiscal year.  

prohibiting 

increases 

in 

to 

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 
2017,  as  in  previous  years,  the  authorities  did  not 
send an update of the fiscal strategy to Parliament 
by  15 August,  the  statutory  deadline.  Instead  the 
government  sent  it  to  Parliament  simultaneously 
with  the  2018  budget  law  in  December,  thereby 
undermining  the guiding  role  of  the  medium-term 
fiscal strategy. 

3.1.4.  FISCAL SUSTAINABILITY 

With  a  high  fiscal  deficit,  the  public  debt  ratio 
is  expected  to  gradually  increase,  leading  to 
high  debt  sustainability  risks  in  the  medium 
term.  Due  to  a  high  structural  primary  deficit, 
interest  expenditure  is  set  to  gradually  increase. 
Increasing  ageing  costs  related  to  health  care  and 
long-term  care  will  also  negatively  impact  the 
public debt dynamic. As a consequence, assuming 
no-policy  change,  the  debt-to-GDP  ratio  is  set  on 
an  upward  path  and  expected  to  go  beyond  the 
60 % Treaty reference by 2028. At the same time it 
is  sensitive  to  shocks  on  the  primary  balance. 

Romania  is  one  of  the  few  EU  countries  where 
debt  is  projected  to  rise  by  2028  and  it  is  the  EU 
country with the largest projected debt increase (18) 
(Graph 3.1.3).  

Graph 3.1.3:  Public debt projection 2017-2028 

(1)The green colour indicates a positive change in general 
government's debt, while the red colour indicates a 
negative change. 
Source: European Commission 

funded 

It  envisaged 

The  government  partially  reversed  the  2008 
pension reform that introduced the multi-pillar 
pension  system.  The  2008 reform  provides  that a 
portion  of  social  security  contributions  is  directed 
to 
(a  defined 
individual  accounts 
contribution  scheme)  managed  by  pension  funds 
(second  pension  pillar). 
that 
contributions to the second pension pillar would be 
gradually raised to 6 % of gross wages based on a 
pre-determined  schedule.  However, 
in  2016 
contributions were increased to only 5.1 % (instead 
of 5.5 %) and the 2017 budget maintained this rate. 
In  November  2017  the  government  enacted  an 
emergency ordinance cutting the rate to 3.75 % of 
gross  wages  as  from  2018.  This  change  will 
decrease the fiscal deficit in the short term, as the 
second  pension  pillar  is  classified  outside  of  the 
general  government  sector.  However,  that  fiscal 
gain would dissipate in the long term as the social 
contributions  diverted  from  the  second  pillar 
would be accompanied by an obligation to pay old-
age pensions in the future. In addition, this reversal 
will result in less diversified retirement income. It 
could  also  have  negative  implications  for  the 
development of capital markets (see Section 3.2). 

(18)  For  an  overview  of  fiscal  sustainability  assessment  see 

European Commission (2018a). 

19 

-60-40-20020406080100120140160BGLUSEDKCZMTLVSKNLDEIEATSICYHUEU28HREAUKBEESPTITEELTPLROFIFR% of GDP2017Ch. 2017-20282028Peak Year2028Peak Year2017 
 
 
                                                           
3.2.  FINANCIAL SECTOR 

Banking sector 

Banking  sector  capitalisation  continues  to  be 
reassuring  and  asset  quality  has 
further 
improved.  Total  capitalisation  at  system  level 
remained roughly flat in the first 9 months of 2017, 
hovering around 19 %, well above the EU average. 
The  Common  Equity  Tier  1  ratio (19)  has  also 
the  end  of 
remained  robust,  at  17.15 %  at 
September  2017.  On  the  back  of  the  measures 
adopted  since  2014  by 
the  supervisor,  non-
performing loans (NPLs) fell by roughly 14 pps to 
slightly below 8 % in September 2017, down from 
the peak registered in February 2014 (20). NPLs are 
estimated to have further fallen to roughly 6 % by 
the end of December 2017.  

to 

the  previous  system  of  full 

However,  the  ongoing  clean-up  of  banksʼ 
balance  sheets  faces  obstacles.  Bank  balance 
sheets  continue  to  be  burdened  by  the  quality  of 
corporate  exposures  and  the  still  high  level  of 
impaired  consumer  loans,  which  require  close 
monitoring. Through the Fiscal Code amendments 
approved in August 2017, the government limited 
the tax deductibility of expenditure related to non-
performing  exposures  sold  by  banks  to  30 %,  in 
tax 
contrast 
deductibility.  Whereas 
situation 
appears  manageable, 
for  highly 
provisioned NPLs,  the  new  tax  treatment  is  likely 
to  significantly  hinder  NPL  sales  and  hence  the 
clean-up  of  bank  balance  sheets  if  NPLs  were  to 
increase  again.  Furthermore, 
legislative 
proposal by Parliament aiming to cap the recovery 
values from NPLs to no more than double the price 
paid  for  these  loans  by  investors  (and  debt 
collection  companies)  is  adopted,  this  is  likely  to 
significantly  discourage  future  secondary  market 
transactions with impaired assets. 

the  current 
especially 

if  a 

The  National  Bank  of  Romania  (NBR)  has 
reiterated  its  commitment  to  conducting  an 
asset  quality  review  and  stress  test  of  the 
banking sector in 2018. Preparatory work started 
already  in  2015  with  a  view  to  conducting  the 

(19)  Defined  as  the  ratio  of  a  bankʼs  Tier  1  capital  (consisting 
mostly of common stock) to its risk-weighted assets. 
(20)  The National Bank of Romania's NPL definition is fully in 
line  with  that  of  European  Banking  Authority.  Non-
performing exposures are: i) material exposures which are 
more than 90 days past due; or ii) the debtor is assessed as 
unlikely to pay its 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. 

20 

in  2016.  However, 

exercise 
the  authorities 
subsequently  postponed  the  exercise  for  2018  to 
capture  the  impact  of  the  Debt  Discharge  Law  on 
banksʼ  balance  sheets  and  to  allow  for  the 
completion  of  the  IMF  2017  Financial  Sector 
Assessment  Programme.  The  asset  quality  review 
and  stress  test  exercise  is  expected  to  cover  all 
banks identified as having systemic relevance. It is 
also expected to be performed with the support of 
independent  and  reputable 
third  parties.  The 
exercise will be overseen by a Steering Committee, 
which  includes  representatives  of  the  NBR  as 
the  European 
members,  plus  observers  from 
Commission and the European Banking Authority. 

Profitability  has  remained  strong,  supported 
also by the lower costs of risk and funding. On 
the back of the buoyant economic growth and the 
increase in lending activity, profitability at system 
level  continued  to  improve  in  2017.  However, 
profitability  has  varied  between  banks,  as  the 
smaller credit institutions faced more difficulties to 
generate profit. Net interest income has continued 
to  be  the  main  source of  operating  revenues, with 
smaller  credit 
in  particular 
several  banks, 
institutions,  having  limited  capacity  to  generate 
non-interest  income.  The  cost-to-income  ratio  at 
system level has been lower than the EU average, 
but there is further scope for improving efficiency, 
especially  for  smaller  banks.  The  streamlining  of 
the  banksʼ  networks  continued,  with  the  total 
number  of  branches  down  by  some  3.6 %  in 
September  2017  as  compared  to  end-2016  and  by 
6.5 % since 2015. 

The  banksʼ  business  model  continues  to  be 
geared towards lending to households. Whereas 
banks have become more prudent about household 
lending  than  in  the  pre-crisis  period,  they  have 
been  also  more  reluctant  to  switch  to  a  business 
model  focused  predominantly  on 
to 
companies. Several factors have contributed to this 
state of play: (i) the small size of companies, most 
of  which  do  not  meet  the  EU  definition  of  SMEs 
and which among other things do not have a track-
record  of  creditworthiness;  (ii)  the  persistent 
undercapitalisation  of 
large  number  of 
companies,  which  have  not  been  bankable  and 
have  also  contributed  to  the  decrease  in  payment 
discipline in the economy  (21); (iii) the difficulties 

lending 

a 

(21)  Despite the buoyant economic growth over the past couple 
of  years,  the  capital  position  of  companies  has  worsened. 

 
 
                                                           
                                                           
3.2. Financial sector 

in 

activity, 

insurance 

sector  and  by  36 %  in  the  life  insurance  sector  as 
compared to the same period in 2016. Despite this 
increase 
insurance 
penetration (22)  has  remained  one  of  the  lowest  in 
the EU at roughly 1.2 % of GDP. Furthermore, the 
insurance  market  is  highly  dependent  on  non-life 
insurance,  in  particular  compulsory  car  insurance 
(third-party  liability  motor  insurance).  The  efforts 
of  several  companies  to  diversify  their  insurance 
business are still to bear fruit. 

Despite  past  corrective  measures,  several 
segments of the insurance sector require further 
improvement.  Following  the  2015  balance  sheet 
review  and  stress  test  of  the  insurance  sector, 
measures were taken by the Financial Supervisory 
Authority  to  restore  the  financial  situation  of 
insurers  in  distress.  Nevertheless,  several  pockets 
of  vulnerability  remain  to  be  addressed,  including 
the  thin  capital  buffers  of  some  weaker  insurers 
their  high  reliance  on  compulsory  car 
and 
insurance.  The  caps  on  insurance  premiums  for 
compulsory car insurance, which became effective 
in  November  2016,  were  lifted  in  May  2017  and 
replaced by reference prices. The removal of these 
maximum  caps  has  not,  so  far,  triggered  an 
increase 
insurance  premiums,  which  have 
remained  below  the  reference  prices.  To  continue 
improving  the  health  of  the  insurance  market  and 
increase  the  capacity  of  insurance  companies  to 
strengthen  their  capital  basis,  efficiency  gains 
through cost-cutting measures appear warranted, in 
insurance 
particular  over 
products. 

the  distribution  of 

in 

met  by  banks  in  hiring  qualified  staff  to  support 
the  transition  to  a  business  model  focused  on 
corporate lending. 

sector 

Risks to the banking sector posed by legislative 
initiatives  have  abated,  but  require  close 
monitoring.  Based  on  a  referral  by  credit 
institutions,  the  Constitutional  Court  ruled  in 
October 2016 that the Debt Discharge Law, which 
entered  into  force  in  May  of  that  year,  was 
constitutional if certain conditions are met so as to 
minimise the lawʼs unwarranted adverse impact on 
(European  Commission, 
the  banking 
2017a). The number of notifications by borrowers 
intending to use debt discharge has declined since 
this decision of the Constitutional Court. Similarly, 
following  the 2016  Constitutional  Court  ruling on 
the unconstitutionality of Swiss franc-denominated 
loans  conversion 
loans 
(European Commission, 2017a), credit institutions 
continued  their  efforts  to  support  borrowers  in 
difficulty  by  offering  the  possibility  to  convert 
Swiss 
into  RON-
loans 
loans  with  a  discount  or  by 
denominated 
these 
loans.  Despite 
these 
restructuring 
developments, 
framework 
legislative 
the 
applicable  to  the  banking  sector  continues  to 
require  close  oversight.  A  recent  initiative  by 
Parliament  aims  to  introduce  a  maximum  cap  on 
interest  rates  in  all  loan  contracts  for  lending  to 
households,  both  for  ongoing  and  new  contracts. 
Under this proposal, the interest rate should not be 
higher than the policy rate of the NBR +50 % (i.e. 
3 % at the end of January 2018). 

franc-denominated 

local  currency 

into 

Non-banking sector 

Although  insurance  activity  expanded  in  2017, 
insurance penetration is still very low. Insurance 
activity expanded in the first half of 2017, as gross 
written premiums increased by 2 % in the non-life 

According  to  NBR  data,  roughly  44 %  (276  500)  of  the 
total  number  of  companies  do  not  observe  the  legal 
requirements regarding capitalisation, with total own funds 
being lower than half of the subscribed equity. Out of these 
companies, 59 % (or 163 800 firms)  are companies which 
registered losses in 2016. Furthermore, roughly 42 % (268 
500) of the total number of companies had negative equity 
at the end of 2016. For further details see the presentation 
of  NBR  First  Deputy  Governor  Florin  Georgescu,  Real 
convergence  –  the  fundamental  criterion  for  joining  the 
euro  area,  22  November  2017.  http://bnr.ro/Prezentari-si-
interviuri--1332.aspx 

independence 

The 
the  non-banking 
of 
supervisor  has  come  under  pressure.  Following 
measures taken after the 2015 balance sheet review 
and  stress  test  of  the  insurance  sector  (European 
Commission,  2017a) 
to  address  shortcomings 
related to insurance companies in financial distress 
and  to  the  situation  regarding  compulsory  car 
insurance,  Parliament  launched  in  late  2016  a 
procedure  to  revoke  the  mandate  of  the  President 
of the Financial Supervisory Authority. The former 
the  Authority  was  subsequently 
President  of 
removed  from  office  by  Parliament  in  May  2017. 
This  was  an  indication  of  political  pressure  in 
response  to  the  Authorityʼs  supervisory  actions. 
This  limits  the  independence  of  the  supervisor  to 

(22)  Insurance  penetration  is  defined  as  the  share  of  gross 

written premium in a countryʼs GDP. 

21 

 
                                                                                   
                                                           
3.2. Financial sector 

tackle  shortcomings  identified  in  its  area  of 
competence in a timely manner. 

Graph 3.2.1:  Pension funds' real net investment rate of 

return, Dec 2016 (preliminary) 

shares  listed  on  the  Bucharest  Stock  Exchange 
amounted  to  roughly  EUR  1.34  billion  at  the  end 
of  June  2017.  These  investments  went  up  by 
roughly 20% compared to end-2016, thanks to the 
hike in the stock exchange indices and the increase 
of participations of these pension funds in some of 
the  largest  companies  listed  on  the  Bucharest 
Stock Exchange.  

Source: OECD 

The  recent  reductions  in  contributions  to  the 
second  pillar  pension  funds  were  triggered  by 
short-term  fiscal  concerns  rather  than  their 
financial  performance  (see  Section  3.1).  The 
financial  situation  and  functioning  of  Romanian 
private  pension  funds  has  not  been  a  matter  of 
concern.  According  to  OECD  data,  they  were 
among  the  top  performing  pension  funds  in  the 
new EU Member States in 2016, together with the 
Polish and Croatian pension funds (OECD, 2017c). 
The  real  net  investment  rate  of  return  of  the 
Romanian  second  pillar  pension  funds  stood  at 
roughly  5%  in  2016,  higher  than  the  average  rate 
of  return  (simple  average)  of  3.4%  of  pension 
funds in the new EU countries. 

and 

sustainability 

Reform  of  the  second  pillar  pensions  could 
weaken  pension 
the 
performance  of  the  local  capital  market.  As  of 
end-June 2017, the second pillar pension funds had 
total  assets  of  EUR  7.9  billion  and  roughly  6.9 
million  participants  (individuals).  Over  the  past 
couple  of  years,  the  second  pillar  pension  funds 
have increasingly diversified their investments. As 
of  June  2017,  roughly  65 %  of  their  assets  were 
invested in government bonds, down from  around 
70%  in  2012.  Furthermore,  these  pension  funds 
invested  roughly  19.6  %  of  their  assets  in  equity, 
6.4 % in deposits and the remaining in investment 
funds,  corporate  and  municipal  bonds.  The 
investments  of  the  second  pillar  pension  funds  in 

22 

-202468PolandCroatiaRomaniaHungaryBulgariaSimple averageLithuaniaSlovakiaSloveniaEstoniaLatviaCzech Republicannual rate of return in %, Dec 2016 
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market demand 

Employment 
is  growing,  driven  by  strong 
domestic  demand.  Employment,  including  the 
number  of  self-employed  people,  is  growing  in 
expanding sectors, i.e. industry and services, which 
require  medium  to  high  levels  of  skills.  At  the 
same  time,  the  total  number  of  persons  employed 
slightly increased over the past 12 months. 

Employers  increasingly  report  difficulties  in 
hiring  and  retaining  workers.  According  to 
survey  information,  in  2016  72 %  of  employers 
reported difficulties in filling jobs, the highest rate 
since  2008  (Manpower  Group,  2016).  Skill 
shortages  exist  for  medium-  to  high-skill  jobs  in 
engineering,  machinery,  IT  and  services.  Only 
29 % of Romanians have at least basic IT skills (23) 
while  less  than 6 %  of firms  provide  ICT  training 
to  their  staff.  Higher  wages  abroad,  low  internal 
mobility (24),  limited  entrepreneurship  initiative 
and  weak  links  between  education  and  labour 
market  needs  contribute  to  increasing  labour 
shortages. 

Substantial  wage  increases  in  recent  years 
reflect  a  tightening  labour  market.  Both  labour 
productivity and wages are converging towards the 
EU  average (25)(Graph  3.3.1).  Romania  has 
witnessed an acceleration of wage growth (in real 
terms)  over  the  past  3  years,  with  the  highest 
increases  registered  in  manufacturing,  the  IT  and 
financial  sectors,  and  in  the  public  sector.  In 
addition to the increasing labour shortages leading 
to a rebound in wages after the crisis especially for 
medium-to-high 
factors 
explaining  the  current  trend  are:  (i)  successive  ad 
hoc  increases  in  public-sector  wages,  and  (ii)  the 
surge  in  the  statutory  minimum  wage.  However, 
the  2018  shift  of  social  contributions  almost 
entirely  onto  employees  could  have  a  negative 

sectors,  other 

skill 

(23)  Among the lowest in the EU and half the EU average; see 

footnote 65. 

(24)  Among other causes, home ownership is 96 %, the highest 

in the EU. 

(25)  GDP  per  person  employed,  as  a  measure  of  productivity, 
stood  at  around  31 %  in  2016,  with  wages  lagging  behind 
at around 27 %. 

impact  on net wages  in  the  short  run  (see Section 
3.1). 

transforms 

fundamentally 

The  shift  of  social  contributions  to  employees 
represents a major  change.  This  alters  the  wage 
structure  and 
the 
financing  of  social  protection.  In  most  EU 
countries  the  shares  of  employersʼ  contributions 
are frequently higher than or equal to those of the 
employees 
security 
contributions are financed from taxation). The shift 
marks also an important deviation from the system 
in 
of  social  contributions  generally  agreed 
industrial 
employers, 
employees  and  the  state  share  the  responsibility 
and burden of the financing. It is also enshrined in 
various international standards (26). 

(in  Denmark 

in  which 

countries 

social 

Graph 3.3.1:  Nominal compensation per employee and 

GDP per person employed 

Source: European Commission 

(26)  Romania  ratified  ILO  Convention  102  on  Social  Security 
Minimum Standards and the Code of Social Security of the 
Council  of  Europe,  thus  legally  committing  to  standards 
which stipulate that the total of the insurance contributions 
bore by the employees protected shall not exceed 50 % of 
the  total  of  the  financial  resources  allocated  to  the  social 
protection  of  employees  and  their  families.  Moreover,  a 
number of international standards of non-binding character 
lay  out  principles  and  recommendations  of  fair  burden 
sharing and solidarity, including the role of employers. 

23 

0510152025303500010203040506070809101112131415161718% relative to EU28forecastGDP per person employedNominal compensation per employee 
 
                                                           
 
 
                                                           
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council  and  the  European  Commission,  sets  out  20  principles  and  rights  to  benefit  citizens  in  the  EU.  In 
light of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions. 

Romania  faces  a  challenges  with  regard  to  a  number  of  indicators  of  the  Social  Scoreboard (27) 
supporting the European Pillar of Social Rights. Romania has a comparatively high early school leaving 
rate, NEET rate, and a relatively large gender employment gap. Romania is also faced with a high risk of 
poverty and social exclusion, as well as income inequality. While labour market performance has improved, 
the  inactivity  of  large  segments  of  the  working-age  population  remains  a  concern.  Roma  and  people  with 
disabilities also have difficulties in getting jobs. The design of active employment measures is still not fully 

aligned with demand.  

to  equal 
Particular  difficulties  pertain 
opportunities. Inequality of opportunity persists 
in  education,  health care,  access  to  employment 
and to services, and is particularly paramount in 
rural  areas.  This  is  also  in  the  context  of 
weaknesses in social dialogue.  

institutions  and 

Positive  results  were  achieved 
in  de-
institutionalising  children.  The  number  of 
children in institutions dropped significantly. An 
institutional  closure  plan  was  drawn  up  and 
places  the  child's  interest  at  the  core  of  the 
process. The plan will be applied for a first batch 
of  50 
tailor-made 
measures  for  every  child  in  the  institutions 
concerned aiming  first  to  reintegrate  children in 
their  family.  The  current  funding  is  not  yet 
sufficient  to  reach  the  targets.  Sustained  efforts 
were  made  on  preventive  services,  and  the 
number  of  families  benefiting  from  it  has 
increased by 35% from 2011 to 2016.  

fosters 

(27)  The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States performance. 
The indicators "participants in active labour market policies per 100 persons wanting to work" and "compensation of employees 
per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible alternatives will be discussed in 
the relevant Committees. Abbreviation: GDHI – gross disposable household income. 

The  minimum  wage  has  more  than  doubled  in 
nominal  terms  since  2012.  The  gross  minimum 
wage  increased  from  RON  700  (c.  EUR  162)  in 
2012  to  RON  1  450  (c.  EUR  315)  in  2017  and 
reached  RON  1  900  (c.  EUR  413)  in  2018, 
including  employers’  social  contributions.  The 
minimum  wage  growth  rate  over  2012-2017 
exceeded that of average wages and increased the 

share of employees earning the minimum wage to 
some 30 % in 2016, making the wage distribution 
compressed at the bottom. Despite a proposal for a 
set  of  objective  criteria  to  be  taken  into  account, 
endorsed  by  social  partners  as  a  good  basis 
forconsultations,  the  minimum  wage  continues  to 
be  set  by  the  government  in  a  discretionary 
manner. 

24 

Early leavers from education and training (% of population aged 18-24)Critical situationGender employment gapCritical situationIncome quintile ratio (S80/S20)Weak but improvingAt risk of poverty or social exclusion (in %)Critical situationYouth NEET (% of total population aged 15-24)Critical situationEmployment rate (% population aged 20-64)To watchUnemployment rate (% population aged 15-74)Better than averageGDHI per capita growth Best performersImpact of social transfers (other than pensions) on poverty reductionCritical situationChildren aged less than 3 years in formal childcareWeak but improvingSelf-reported unmet need for medical care Critical situationIndividuals' level of digital skillsCritical situationSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketROMANIAMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaveragebutitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final. 
 
                                                           
 
Shrinking labour supply 

Demographics and emigration affect the labour 
market  supply.  Since  2008  the  population  has 
decreased  significantly  while  its  age  structure  has 
developed  unfavourably (28).  In  addition,  around 
3.4  million  Romanians  work  and  live  abroad. 
Sectors such as healthcare are particularly affected. 
Many  emigrants  are  younger  and  more  qualified 
than  the  average  population (29),  which  further 
constrains  the  supply  of  skilled  labour.  While  in 
the short run foreign remittances help improve the 
run  negative 
the 
current  account, 
demographics  and  emigration  could  hurt  growth 
and  income  convergence  (European  Commission, 
2017i: p. 56, IMF, 2016). 

long 

in 

improvements  (72.5 % 

the  working-age  population 

Although 
is 
shrinking,  there  is  a  large  untapped  labour 
pool. The activity rate among the population aged 
20-64 remains one of the lowest in the EU despite 
recent 
in  Q3-  2017). 
Furthermore,  long-term  unemployment  is  high, 
affecting  50 %  of  the  unemployed  (2016  data). 
Regional  disparities  remain  high.  An  appropriate 
mix  of  active  labour  market  policies  could  help 
activate several disadvantaged groups in particular 
prime-aged women with low education, Roma, and 
young  people,  mainly  from  rural  areas  (World 
Bank, 2017c). 

facilities  and 

The  gender  employment  gap  is  high,  affecting 
mainly older women. The gap has increased from 
16.7 pps in 2014 to 17.6 pps in 2016. Employment 
and  activity  rates  of  women  remain  far  below  the 
EU  average,  especially  for  older  women,  partly 
due  to  the  lack  of  affordable  child  care (30),  after 
long-term  care.  The 
school 
government has taken some measures to formalise 
the  employment  of  child  minders  and  plans  to 
finance 2 500 nurseries. Employment gaps lead in 
turn  to  a  gender  pension  gap  that  is  one  of  the 
highest  in  the  EU.  Despite  these  challenges,  the 
bill  on  pension  age  equalisation  for  men  and 
women  has  been  pending  before  Parliament  since 
December  2013  and  no  plans  have  been  made  to 
debate it in a plenary session.  

(28)  Romania’s population decreased from 21.1 million to 19.8 
million over 2007-2016.  The proportion of the population 
aged  60+  to  those  aged  20-59  increased  from  36.1 %  to 
44.1 % over the same period (Eurostat, 2017) 

(29)  More  than  half  of  those  living  abroad  are  aged  18  to  39 

(World Bank, 2016b). 

(30)  The share of children below 3 in formal care is only 9.4 % 

3.3. Labour market, education and social policies 

The  number  of  young  people  neither 
in 
education,  employment  or  training  (NEETs) 
remains  very  high.  While  youth  unemployment 
has been declining (17.3 % in 2017), the situation 
of  young  NEETs  only  improved  slightly,  mainly 
driven by decreasing early school leaving. Many of 
the  NEETs 
inactive  or 
discouraged  workers  (Eurofound,  2016)  and  the 
incidence  among  women  and  the  Roma  (FRA, 
2016) is particularly high.  

economically 

are 

The  implementation  of  the  Youth  Guarantee 
remains  weak  due  to  significant  delays.  The 
large  majority  of  young  NEETs  still  need  to  be 
reached  and  included  in  the  scheme.  Two  thirds 
(65.7 %)  of  those  registered  had  not  received  an 
employment  offer  within  4  months,  while 
Romania’s  allocation  under 
the  EU’s  Youth 
Employment  Initiative  is  unspent  and  risks  being 
returned  to  the  EU  budget.  There  is  no  follow-up 
received  an 
for  most  NEETs  who  have 
employment  offer.  A  number  of  measures  have 
been  launched  including  the  provision  of  Youth 
Guarantee  offers  by  multi-disciplinary  teams  of 
employment  and  education  counsellors,  together 
with social assistants. First results are expected for 
the beginning of 2018.  

incentives, 

some  measures 

Active labour market policies (ALMPs) appear 
insufficient in scope and design. Due to delays in 
accessing 
financial 
EU-financed  ALMPs, 
allocations (31)  and  participation  rates  in  such 
policies (32)  remain  very  low.  Despite  increased 
financial 
are 
overlapping  for  the  target  groups,  the  use  and 
uptake  of  the  mobility  schemes  remains  low,  and 
the  administrative  burden  remains  a  disincentive 
for  employers.  The  development  of  innovative 
measures 
the  public 
employment  service  with  social  and  education 
services  and  external  providers (33)  are  limited. 
There  is  no  case  management  for  the  long-term 
unemployed  and  recipients  of  social  assistance. 
Community  work  programmes  do  not  provide 
relevant skills and appear to have limited value as 
stepping  stones  into  standard  employment.  Some 

cooperation  of 

and 

(31)  The  national  budget  of  ALMPs  was  0.2 %  GDP  in  2015, 

excluding the European Social Fund allocation. 

(32)  3.1 % of people willing to work and 6.3 % of unemployed 
people benefited from activation measures (in 2016). 
(33)  NGOs  and  social  insertion  enterprises  (entities  helping 
vulnerable groups prepare for and access the labour market, 
e.g. HIV positive in severe poverty, homeless or convicts).  

25 

 
                                                           
                                                           
3.3. Labour market, education and social policies 

trade unions and employers’ organisations. Among 
key  obstacles  to  a  more  effective  social  dialogue 
are  the  high  representativeness  thresholds  and  the 
unclear  definition  of  sectors.  Amendments  to  the 
Social  Dialogue  Law  aimed  at  improving  the 
bargaining process and the definition of economic 
sectors  have 
but 
under 
negotiations are not advancing. 

discussion 

been 

Inequality 

income 

High 
inequality  persists,  especially 
between rural and urban areas. Despite a small 
improvement  in  2016  and  recent  policy  changes,  
Romania  still  has  one  of  the  highest  levels  of 
income inequality in the EU, with the richest 20 % 
of  the  population  earning  seven  times  more  than 
the  poorest  20 %.  In  2016,  median  incomes  of 
rural households were only 52 % of those of urban 
households. High income inequality is the result of 
a  highly  unequal  distribution  before  taxes  and 
benefits (market inequality) and the limited ability 
of the tax and benefit system to reduce this. 

families 

Inequality  of  opportunity  remains  a  challenge. 
Unequal access to education, healthcare and other 
services,  together  with  high  inter-generational 
transmission  of  poverty (35),  prevents  children 
from 
from  disadvantaged  areas  or 
reaching their full potential. Some social measures 
for pre-school and school-aged children have been 
introduced,  but 
low  and 
kindergarten places face shortages. Rural areas are 
particularly  affected  by  inequality  of  opportunity 
due to poor infrastructure, insufficient employment 
opportunities and inexistent or poor quality public 
services (European Commission, 2016a). 

take-up 

their 

is 

Poverty and social exclusion 

Despite  economic  growth,  poverty  and  social 
exclusion  increased  after  a  four-year  decline. 
The  increase  in  poverty  and  social  exclusion  in 
2016  is  driven  by  the  fact  that  the  disposable 
income  for  the  bottom  10 %  did  not  increase, 
unlike  for  the  rest  of  households.  The  in-work 
poverty  rate  is  one  of  the  highest  in  the  EU,  at 
18.9 %, twice the EU average, reflecting the large 

(35)  Child  poverty  is  correlated  with  parental  education  levels, 
with  63.2 %  of  children  of  low-skilled  workers  at  risk  of 
poverty  against  only  6.7 %  of  children  from  high-skilled 
families. 

measures  have  been  taken  to  strengthen  the 
capacity  of  the  public  employment  service,  while 
further  reform  plans  (notably  on  the  merger  of 
these  services  with  other  institutions)  may  induce 
some uncertainty into the reform process. 

skill 

Limited 
forecasting  capacities  could 
further affect labour market supply. The current 
evaluation of skills on which training programmes 
are  based  follows  a  standard  procedure,  which 
however is not sufficiently taking into account the 
rapidly  changing  needs  in  the  economy  (Cedefop, 
2017).  The  capacity  to  anticipate  future  skills 
needs  and  estimate  the  expected  impact  of  new 
technologies  such  as  big  data,  biotechnologies, 
waste reuse technologies, advanced manufacturing, 
as  well  as  public-sector  innovations,  is  therefore 
weak.  The  skill  forecasting  system  currently 
is 
developed  by  public  employment  services 
training 
expected 
the 
programmes, 
European Social Fund. 

those  funded  by 

the  design  of 

to  guide 

including 

The  involvement  of  social  partners  in  policy-
making is very limited. Institutional structures for 
social  dialogue  are  in  place  (e.g.  the  National 
Tripartite  Council  and  the  broader  Economic  and 
Social Council, but also Ministry and county-level 
committees),  but  they  are  mostly  used  by  the 
government  to  provide  information  about  planned 
initiatives,  without  a  substantive  process  of 
involvement  and  cooperation  (Eurofound,  2018). 
The views of social partners on policy-making are 
often ignored by the government, even when they 
converge, such as on the recent tax reform and the 
shift  of  social  contributions  from  employers  to 
employees.  Romania  has  one  of 
lowest 
labour-
perceived  degrees  of  cooperation 
employer  relations  in  the  EU  (World  Economic 
Forum,  2017).  The  capacity  of  social  partners  is 
also limited. 

the 
in 

The  framework  for  collective  bargaining  is  not 
conducive  to  a  well-functioning  system  of 
industrial 
is 
characterised  by  low  collective  bargaining (34), 
especially at sectoral level, and low membership of 

relations. 

dialogue 

Social 

(34)  Romania  witnessed  a  drastic  decrease 

in  collective 
bargaining  coverage  from  98 %  (2008)  to  35 %  (2016), 
compared  to  an  EU  average  of  60 %  (2016).  Trade  union 
density  decreased  from  around  90 %  in  1990  to  around 
20 % in 2012. Membership of employersʼ organisations is 
one of the lowest in the EU (based on 2013 data). 

26 

 
                                                           
                                                           
percentage  of  individuals  who  have  near-zero 
monetary  earnings  despite  working  full  time, 
especially  in  subsistence  and  semi-subsistence 
agriculture. The risk of poverty or social exclusion 
is  the  highest  for  young  people,  families  with 
children,  Roma,  people  with  disabilities,  the  rural 
population 
(European 
Commission, 2017a, FRA 2016). Women are more 
exposed  to  poverty  due  to  shorter  careers,  lower 
retirement  age  and  lower  pension  contributions. 
Rural  residents  face  twice  the  risk  of  poverty  or 
social exclusion compared to people living in cities 
(Graph 3.3.2). 

inactive  people 

and 

Graph 3.3.2:  People at risk of poverty or social exclusion 

by degree of urbanisation 

Source: European Commission 

Housing  deprivation  and  exclusion  affect  large 
parts  of  the  population.  A  large  share  of  the 
population 
faces  severe  housing  deprivation 
(19.8 % versus 4.9 % in the EU). The figure is also 
high for children. Housing cost overburden, though 
decreasing,  remains  an  issue,  with  one  in  eight 
households  allocating  more  than  40 %  of  their 
income 
in  2016.  Housing 
overcrowding  is  well  above  the  EU  average, 
especially for Romanians in monetary poverty. 

to  housing  costs 

low 

employment, 

Roma face multiple disadvantages. Compared to 
the rest of the population they are confronted with 
very  high  inequality  of  opportunity  and  poverty 
rates, 
educational 
attainment,  low  health  coverage  and  adverse 
housing 
(European  Commission 
2017a).  Residential  segregation,  forced  evictions 
and  discrimination  at  work  persist.  While  the 
specific  bodies  dealing  with  Roma  show  more 

conditions 

poor 

3.3. Labour market, education and social policies 

commitment, their impact depends on the work of 
other 
institutions.  Measures  addressing  Roma 
inclusion  are  mainly  supported  by  externally-
funded projects. A good part of them are only just 
starting. 

reduces 

education,  which 

People  with  disabilities  and  children  face  a 
higher  risk  of  poverty.  Many  people  with 
disabilities  leave  school  early  and  few  reach 
tertiary 
their 
employability.  Their  situation  is  worsened  by  the 
absence  of  targeted  employment  services  and  the 
uneven  availability  of  vocational  counsellors  and 
job  coaches.  Child  poverty 
the 
highest (36)  in  the  EU  and  rising,  also  due  to  the 
low effectiveness of the family benefit system and 
the 
limited 
situation. 

integrated  measures 

to  address 

is  among 

is 

limited, 

population 

Access  to  social  protection 
in 
particular  for  workers  without  a  standard 
employment  contract,  and  for  many  self-
employed.  High  poverty  incidence  is  driven  by 
unemployment,  inactivity  and  unequal  access  to 
services  and  social  protection.  Most  recipients  of 
social  assistance  are  poorly  educated  and  live  in 
rural  or  remote  areas,  where  jobs  and  access  to 
services  are  very  limited.  More  than  half  of  the 
subsistence 
employed 
rural 
agriculture 
is  not  covered  by  pensions  or 
unemployment  insurance  and  many  do  not  have 
health insurance. Casual and seasonal workers are 
not  covered  by  mandatory  healthcare  insurance 
and have less access to parental leaves. The risk of 
poverty  for  the  self-employed  is  more  than  ten 
for  employees.  Part-time 
times  higher 
workers,  more 
in 
involuntary  part-time  (59.4 %,  against  an  EU 
average  of  15.3 %),  also  face  a  very  high  risk  of 
poverty.  

than  half  of  which  are 

than 

in 

Unemployment benefits are very low. They have 
a  very  low  and  decreasing  coverage  and  strict 
eligibility  criteria (37).  The  coverage  rate  for  the 
short-term  unemployed  has  decreased  from  2013 
to  2016,  to  around  10 % (38).  The  adequacy  of 
benefits  is  low  and  has  been  declining  markedly 

(36)  One  in  two  Romanian  children  is  at  risk  of  poverty  or 

social exclusion. 

(37)  According  to  the  results  of  the  benchmarking  exercise  on 
unemployment  benefits  carried  out  by  EU  advisory 
committee the Employment Committee (EMCO). 

(38)  Based on Eurostat data. 

27 

010203040506007080910111213141516%CitiesTowns and suburbsRural areas 
 
                                                           
3.3. Labour market, education and social policies 

potential. Vocational education and training is not 
well  linked  to  labour  market  needs.  These  factors 
will  translate  into  lost  growth  opportunities  if  left 
unaddressed, and assuming the countryʼs negative 
demographics  are  not  reversed  (see  also  Box 
3.3.2). 

school 

higher 

improvement 

and  development 

education 
and 
External 
evaluation  face  continued  challenges.  Quality 
assurance  in  school  education  remains  largely 
focused  on  compliance,  due  to  fragmentation  and 
overlaps in responsibilities. Mechanisms to support 
are 
school 
relatively weak (OECD, 2017a), despite the recent 
efforts  to  make  better  use  of  quality  assurance 
findings.  The  quality  assurance  body  for  pre-
make 
university 
recommendations to support schools, while school 
inspectorates’  tasks  mostly  relate  to  compliance 
with  regulations.  Despite  recent  efforts  by  the 
quality  assurance  body  in  higher  education  to 
improve  external  evaluation  and  standards  for 
bachelor,  master’s  and  doctoral  programmes, 
fostering excellence in higher education remains a 
significant challenge. 

education 

cannot 

Rural-urban  disparities,  Roma  exclusion  and 
inequality in education often overlap. Schools in 
rural  areas  are  less  likely  to  provide  quality 
education compared to urban schools (40). The gap 
in  underperformance  between  advantaged  and 
disadvantaged students is one of the highest in the 
EU (36.9 pps in science compared to 26.2 pps for 
EU-28).  Roma  inclusion  in  education  remains  a 
challenge  with  implications  for  social  inclusion 
future  employability (41).  Segregation 
and 
in 
education, 
residential 
in  particular  due 
segregation, remains a challenge. 

to 

(40)  In 2016, 37.5 % of 8th grade students (i.e. in the final year 
of  lower-secondary  education)  in  rural  schools  had  poor 
results  at  the  national  evaluation,  compared  to  15 %  in 
urban schools. 

(41)  According  to  Fundamental  Rights  Agency  estimates,  only 
38 %  of  Roma  children  attend  kindergarten  and  77 %  of 
Roma aged 18-24 are early school leavers (FRA, 2016). 

since 2010. The net replacement rate for a worker 
at the average wage declined from 45 % to 30 % in 
2016.  With  RON 500  per  month,  the  Social 
Reference Index on which unemployment benefits 
are calculated is well below the minimum wage; it 
has  not  been  indexed  since  its  introduction  in 
2008.  

is 

Social  service  provision  remains  fragmented 
and  increasingly  dependent  on  the  financial 
capacity  of  municipalities.  There 
little 
coordination  in  the  provision  of  services  between 
national,  local,  public  and  private  bodies  and  the 
coverage of social services is limited, especially in 
rural areas. Some services, such as long-term care 
or  counselling  are  mainly  provided  in  big  cities. 
Staffing levels vary greatly between big cities and 
rural  communities,  with  many  municipalities  not 
having  a  social  assistant.  Social  and  employment 
services  are  not  systematically  linked (39)  and 
ALMPs are not tailored to the individual needs of 
social  assistance  beneficiaries  (see  Section  3.4.5). 
A  pilot  project  aiming  to  introduce  integrated 
services  in  over  100  marginalised  communities  is 
advancing  at  a  slow  pace,  despite  long  standing 
discussions. 

Despite  several  years  of  preparation,  the 
implementation  of  the  Minimum  Inclusion 
Income  Law  was  again  delayed.  The  current 
minimum  income  is  one  of  the  lowest  in  the 
EU not only in absolute terms but also as measured 
by  its  distance  to both poverty line  and  low wage 
earners,  with  social  assistance  spending  equally 
low.  The  Minimum  Inclusion  Income  law  will 
increase  adequacy  and  coverage,  but  its  long-
awaited  entry  into  force,  initially  scheduled  for 
April 2018, was postponed by one more year, with 
negative effects on poverty and social exclusion. 

Education and skills 

The  weak  performance  of  the  education  and 
training  system  will  limit  growth  prospects  in 
the  long  run.  Persistently  high  early  school 
leaving  rates  (Graph  3.3.3),  unequal  access  to 
quality  education  and 
in 
student  performance,  as  measured  by  basic  skills 
performance, point to a large unused human capital 

large  shortcomings 

(39)  Despite  the  transposition  of  the  Council  Recommendation 
2016/67/C  of  15  February  2016  on  the  integration  of  the 
long-term unemployed into the labour market. 

28 

 
                                                           
                                                           
Graph 3.3.3:  Early school leaving rates 

Source: European Commission 

Inclusive  education  in  the  classroom  requires 
strengthening.  Initial  teacher  education  offers 
insufficient  training,  especially  on  working  with 
students  from  disadvantaged  backgrounds,  Roma 
and  students  with  learning  difficulties.  Attracting 
high-quality teachers to disadvantaged schools is a 
persistent  challenge.  The  current  merit-based 
allowance  system  is  insufficiently  geared  towards 
supporting work with students from disadvantaged 
backgrounds. 

Healthcare 

The  health  status  of  the  population  has 
improved,  but  remains  below  EU  standards. 
Despite  recent  improvements,  life  expectancy  in 
Romania is almost 6 years below the EU average. 
Heart  diseases  and  strokes,  though  decreasing, 
remain the biggest contributors to mortality, while 
the  incidence  of  some  forms  of  cancers  has 
increased sharply. Other major pressing challenges 
are  the  declining  rates  of  vaccination  for  children 
and  the  high  rate  of  tuberculosis  and  multidrug-
resistant  tuberculosis  cases.  These  in  turn  are 
detrimental  to  childrenʼs  development,  workforce 
employability and healthy ageing. 

Low  funding  and  inefficient  use  of  public 
resources  limit  health  system  effectiveness.  Per 
capita  health  spending  is  one  of  the  lowest  in  the 
EU (42).  Over-reliance  on  hospital  care  to  the 

(42)  EUR  814  in  2015,  a  third  of  the  EU  average.  The  annual 
spending  on  health  represents  4.9  %  of  GDP,  half  the  EU 
average of 9.9 % of GDP. 

3.3. Labour market, education and social policies 

detriment of primary and community care points to 
a  misallocation  of  resources  and  limits  access  to 
quality  care  (European  Commission,  2017a).  In 
addition, Romania is confronted with a substantial 
deficit  of  doctors  and  nurses.  It  is  estimated  that 
since early 2000 around 24 000 Romanian doctors 
and  nurses  have  left  the  country  (OECD,  2017b). 
The government expects the salary increases in the 
health sector in 2017-2018 to slow the emigration 
of health professionals. 

Health  coverage  is  de  facto  not  universal, 
despite being a constitutional right. Social health 
insurance  covers  only  around  86 %  of 
the 
population,  including  those  living  abroad,  with 
limited  access  in  rural  areas  and  for  vulnerable 
sections of the population. Only half of the Roma 
are  estimated  to  be  covered  by  public  health 
insurance  (FRA,  2016).  The  uninsured  are  only 
entitled 
a  minimum  benefits  package. 
Accordingly,  and  despite  the  recent  adoption  of 
legislation  to  regulate  community  healthcare,  the 
gap  in  unmet  medical  needs  between  the  richest 
and the poorest (6.5 %) remains one of the highest 
in  the  EU.  The  main  reasons  for  unmet  needs  are 
costs (including informal payments) and distance. 

to 

Access  to  medicines  is  a  major  challenge, 
although efforts are being made to improve the 
situation.  To  improve  access  to  innovative drugs, 
the 
list  of  subsidised  medicines  has  been 
substantially  amended  by  introducing  over  100 
new medicines since 2014. Nonetheless, efforts to 
improve  access  to  medicines  are  complicated  by 
concerns  that  the  low  prices  of  some  medicines 
compared  to  other  EU  countries  may  lead  to 
parallel  exports, 
limiting  availability  within 
Romania. 

in 

The  ongoing  implementation  of  the  national 
health  strategy  is  marred  by  shifting  priorities 
and  poor  investment  planning.  Despite  recent 
progress 
the  preparation  of  EU-funded 
investments  in  healthcare  (e.g.  the  three  regional 
hospitals in Iasi, Cluj and Craiova), the preparation 
of  projects  is  significantly  delayed,  especially  for 
the  shift  towards  outpatient  care  and  community-
based  services.  The 
lack  of  clear  political 
commitment  to  the  project  and  involvement  in 
the  modest  administrative 
overseeing 
capacity  of  the  Ministry  of  Health  risk  generating 
further delays.  A  comprehensive human  resources 
strategy  announced  by  the  Ministry  of  Health  in 

it  and 

29 

051015202530350708091011121314%TotalCitiesTowns and suburbsRural 
 
                                                           
3.3. Labour market, education and social policies 

covers 

a  broad 

spectrum: 

healthcare 
the 
widespread  practice  of  informal  payments,  the 
occurrence of double practice in public and private 
clinics, as well as corruption in the procurement of 
medical devices, authorisation and procurement of 
pharmaceuticals,  in  the  appointment  of  hospital 
managers  or  Ministry  of  Health  officials,  and 
within  the  healthcare  educational  system.  In  this 
context,  concerns remain  as  to  whether  the  public 
procurement procedures for the construction of the 
three  regional  hospitals  will  be  transparent  and 
effective (European Commission, 2017b). 

extra  payment  on  top  of  the  standard  fees.  Despite  an 
improvement  compared  to  the  previous  survey,  the  figure 
remains one of the highest in the EU (EU average: 4 %).   

December  2016 
Commission, 2017a).  

is  still  pending 

(European 

Graph 3.3.4:  Proportion of people with health insurance, 

registered with a family practitioner 

Source: Casa Naţională de Asigurări de Sănătate 
(Romaniaʼs national health insurance office) 

Romania  ranks  high  in  perceived  levels  of 
in 
healthcare 

corruption (43).  Corruption 

(43)  According  to  a  2017  Eurobarometer  survey,    19 %    of 
respondents  say  that  upon  visiting  a  public  healthcare 
practitioner or institution the past year they had to make an 

30 

010203040506070809010020122013201420152016%UrbanRuralTotal 
 
                                                           
                                                                                   
3.3. Labour market, education and social policies 

Box 3.3.2: Main challenges for the education system as a driver of growth in Romania 

Investment in education is low and lacks appropriate mechanisms to support disadvantaged 
schools.  General  government  expenditure  on  education  as  a  percentage  of  GDP  is  one  of  the 
lowest  in  the  EU  (3.1 %  versus  4.9 %  in  2015)  and  is  the  third  lowest  as  a  proportion  of  total 
government  expenditure  (8.6 %  compared  to  10.3 %  in 2015).  Expenditure per  student  in  public 
and  private  institutions  is  also  among  the  lowest  in  the  EU  for  all  levels  of  education.  This 
underfunding  poses  a  large  financial  burden  to  Romanian  households (1).  There  are  no  targeted 
programmes  to  channel  additional  resources  to  disadvantaged  schools,  while  correction 
coefficients  remain  insufficient,  despite  a  recent  increase  in  the  standard  cost  per  student.  The 
amendments  to  the  Fiscal  Code  may  result  in  the  inequalities  in  local  budgets  financing  school 
infrastructure  getting  worse.  Capacities  to  develop  and  implement  evidence-based  policies  and 
programmes require strengthening. 

Human  capital  does  not  appear  to  sufficiently  meet  the  needs  of  a  competitive  labour 
market. In 2016, 23.6 % of the population aged 25-34 had less than lower secondary education 
compared to an EU average of 16.6 %. Early school leaving, although decreasing (2), is still high. 
It  remains  a  challenge  due  to  high  drop-out  rates.  The  OECD  Programme  for  International 
Student Assessment (PISA) found that one in four students is a low achiever in all three subjects 
tested  (European  Commission  2017d).  Achieving  excellence  in  school  education  adds  to  the 
challenge: the proportion of students who demonstrate complex problems solving abilities is low 
(2 %  in  reading,  3.3 %  in  mathematics  and  0.7 %  in  science).The  design  of  second  chance 
programme  lacks  sufficient  flexibility  for  adult  learners  while  accessibility  in  rural  areas  is 
particularly difficult. 

The link of education to the labour market remains weak, despite recent measures. Tertiary 
education is confronted with one of the lowest attainment rates in the EU (3). Adult participation 
in  learning  remains  very  low,  particularly  for  the  low  skilled,  despite  the  need  for  upskilling 
(1.2 %  in  2016  compared  to  EU-28:  10.8 %).  The  fragmented  system  of  adult  learning  lacks  a 
coordinating  body,  resulting  in  limited  capacity  in  the  implementation  of  strategic  documents. 
Weak  skills  governance,  including  on  tracking  of  graduates,  hamper  evidence-based  decision 
making.  This  also  impedes  on  the  effective  delivery  of  the  Upskilling  Pathways  Council 
Recommendation. 

Despite recent measures, the quality and labour market relevance of vocational education 
and training (VET) remain largely insufficient. The attractiveness of VET as a career choice 
and not mainly as a ‘second choice’ option remains rather limited. The employment rate of recent 
VET  graduates  remains  below  the  EU  average  (63.3 %  vs  75 %  in  2016).  Despite  continued 
reforms,  especially on  dual VET, several challenges  remain  to be  addressed. An  integrated  and 
robust  system  of  feedback  from  employers  about  the  relevance  of  qualifications  is  yet  to  be 
established. Guidance and counselling services are still under-developed. The alignment between 
VET and second chance programmes is insufficient as is the provision of alternative pathways. 
Access to continuing VET learning programmes is hampered by entry requirements linked to the 
completion of lower secondary education.  

(1)  The  ratio  of  household  expenditure  on  education  as  a  proportion  of  public  expenditure  equals  39 %  for  Romania 

against an EU average of 13 % (Eurostat data, 2015). 

(2)  From 19.1 % in 2015 to18.5 % in 2016 (% of population aged 18-24)  
(3)  25.6 % in Romania vs. 39.1 % in EU-28 for people aged 30 to 34 (Eurostat data 2016) 

31 

 
 
 
 
 
3.4. 

INVESTMENT 

3.4.1.  EXTERNAL COMPETITIVENESS 

net 

international 

Romaniaʼs 
investment 
position  (NIIP)  has  continued  to  improve.  The 
NIIP  reached  -49.9 %  of  GDP  in  2016,  almost  5 
percentage  points  above  the  2015  level  (Graph 
3.4.1).  This  decrease  has  taken  place  despite  the 
widening current account deficit and is mainly due 
to  strong  GDP  growth.  Foreign  direct  investment 
(FDI)  has  remained  broadly  stable  as  a  share  of 
GDP,  while  the  share  of  other  foreign  liabilities 
declined  as  Romania  repays  its  external  debt,  a 
trend which is expected to continue. 

by 

exports 

driven  mainly 

services, 
of 
transportation  and  IT  services,  remained  positive 
but did not offset the negative and widening deficit 
in  the  trade  of  goods.  The  balance  of  primary 
incomes  remained  negative,  reflecting  mainly  the 
outflow  of  investment  income  linked  to  the 
countryʼs negative NIIP. The balance of secondary 
income,  which  consists  mainly  of  remittances, 
continues to be positive but was outweighed by the 
negative  balance  of  primary  income.  Overall,  the 
current  account  deficit 
to  have 
is  estimated 
increased to around 3 % of GDP in 2017. 

Graph 3.4.1:  Net international investment position 

Graph 3.4.2:  FDI flows by investment type 

Source: European Commission 

(1) Merged BPM5/BPM6-ESA 2010 data. 
Source: European Commission 

The trend for FDI flows continues to be volatile. 
After  increasing  by  almost  50 %  in  2016,  FDI 
inflows declined in 2017. In the first 11 months of 
2017, FDI inflows were around 9 % lower than in 
the  same  period  of  2016  (Graph  3.4.2).  However, 
FDI  in  equity  and  reinvested  earnings  increased 
substantially, with the entire fall in FDI accounted 
for by debt instruments (intercompany loans). The 
main  sources  of  FDI  inflows  into  Romania  in  the 
three  quarters  of  2017  were  Cyprus, 
first 
Luxembourg, 
the  Netherlands,  Germany  and 
France. 

The  current  account  balance  has  been 
worsening  recently.  Despite  increasing  export 
market  shares  (see  below),  the  growth  of  exports 
was  outpaced  by  that  of  imports.  In  the  first  10 
months  of  2017,  imports  of  consumer  goods, 
intermediate goods, and capital goods all increased 
by  double  digit  rates.  The  balance  of  trade 

32 

in 

the  EU.  The 

the  growth  of  compensation 

Unit  labour  costs  (ULC)  further  increased  in 
2017  as 
to 
that  of  productivity. 
employees  outpaced 
Productivity convergence has been substantial over 
the past two decades. Labour productivity per hour 
worked increased from 22 % of the EU-28 average 
in 2000 to approximately 54 % in 2015. However, 
productivity  levels  continue  to  be  the  second 
lowest 
real 
compensation per employee (27.8 %) was broadly 
in  line  with  that  of  labour  productivity  (25.6 %) 
between  2011  and  2016.  In  2017,  the  growth  of 
real  compensation  per  employee  is  estimated  to 
have  been  more  than  double  that  of  productivity 
(Graph  3.4.3). With  Romaniaʼs nominal exchange 
rate broadly stable, the rise in unit labour costs has 
also  been  reflected  in  a  real  exchange  rate 
appreciation.  The  real  effective  exchange  rate,  as 
deflated  by  unit  labour  costs  has  appreciated  by 
around 7.8 % between Q1-2016 and Q3-2017.  

increase 

in 

-100-80-60-40-2002000'01'02'03'04'050607080910111213141516% of GDPNet portfolio invest., equity and invest. fund shares/unitsNet portfolio invest., debt securitiesOther invest. (net)Net direct invest.Net financial derivativesNet int'l investment positionMarketable debt (NIIP minus FDI and shares)-2000-1500-1000-50005001000150020002500300010Q311Q312Q313Q314Q315Q316Q317Q3Mn EURsDebt instruments (FDI)Equity and investment fund shares/units - other than reinvestment of earningsEquity and investment fund shares/units - reinvestment of earningsTotal FDI inflows 
 
 
 
Graph 3.4.3:  Nominal unit labour cost, growth breakdown 

3.4. Investment 

Export  performance  has  been  relatively  strong 
in  recent  years.  Between  2000  and  2016  export 
market shares increased almost fourfold, reflecting 
the  contained  evolution  of  unit  labour  costs  after 
the  crisis.  Since  2016,  however,  unit  labour  costs 
began  to  increase  as  the  growth  in  workersʼ 
compensation 
in 
productivity  (see  below).  A  continuation  of  this 
trend  could  threaten  further  increases  in  export 
market  shares,  unless  accompanied  by  structural 
reforms  sustaining  a  transition  to  higher  value-
added  products,  integration  in  global value  chains 
and access to new export markets . 

ahead  of  growth 

raced 

Source: European Commission  

Graph 3.4.5:  Export market share by industry  

has 

competitiveness 

Non-cost 
improved. 
Between  2011  and  2016  the  share  of  top  quality 
products in total export values increased by almost 
50 %.  Over  the  same  period,  the  value  share  of 
low-quality  products  diminished  substantially 
(Graph  3.4.4).  Quality  gains  took  place  across 
Romaniaʼs  main  export  industries  but  were  most 
conspicuous  for  computer,  electronic  and  optical 
products. 

Graph 3.4.4:  Share of export value by quality category, in 

manufacturing 

(1) A rank of 1 reflects the highest quality in the EU market 
for a particular 'country of origin-product', while 0 
corresponds to the lowest quality (manufacturing exports 
to the EU-28 are proxied by EU-28 imports) 
Source: European Commission based on Comext and Orbis 

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

Export market share gains in 2016 came mainly 
from  traditional  export  industries.  The  chief 
industry,  machinery  and  equipment, 
export 
accounted for almost half of the increase in export 
market  shares  of  goods  in  2016  (Graph  3.4.5). 
Substantial  gains  also  came  from  the  vehicle 
industry, Romaniaʼs third largest industry in terms 
of  share  of  exports.  These  gains  came  almost 
entirely  from  market  share  gains  within  these 
industries rather than from the sectors' global trade 
in  services 
dynamism.  Export  market  shares 
continued  to  expand  as  well,  with  most  gains 
coming  from  transport  and  telecommunications, 
computers and information services.  

33 

-30-20-1001020304002030405060708091011121314151617*18*19*y-o-y % changeInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area0,000,100,200,300,40bottom(0.0 - 0.2)low(0.2 - 0.4)middle(0.4 - 0.6)high(0.6 - 0.8)top quality(0.8 - 1.0)20112016-15%-10%-5%0%5%10%15%050607080910111213141516IS - other sectorsMSG - Vehicles, Aircraft, VesselsIS - Machinery & ElectricalMSG - other sectorsMSG - Vehicles, Aircraft, VesselsMSG - Machinery & ElectricalTotal Market Share Change 
 
 
 
 
3.4. Investment 

Graph 3.4.6:  Export market share by country  

declined.  The  pattern  for  Romania  is  the  opposite 
as it is the share of regional value chain integration 
that  has  continued 
to  grow  more  strongly, 
particularly in manufacturing and business services 
(Graph 3.4.7). 

Graph 3.4.7:  Changes in regional and global value chain 

trade 

(1) The size of the bubbles indicates the weight of the trade 
partner in Romaniaʼs total exports  
ʼMarket dynamismʼ stands for the difference between the 
annualised growth rates of world imports per geographical 
market and global world imports.  
ʼCompetitivenessʼ stands for the difference between the 
annualised growth rates of Romaniaʼs exports per market 
and world imports per market. 
Source: European Commission 

Geographically,  the  strong  trade  performance 
since 2011 is mainly due to market share gains 
in  western  Europe.  Romaniaʼs  chief  export 
destinations  between  2011  and  2016  were 
Germany,  Italy  and  France.  Over  this  period, 
three 
Romania  gained  market  shares 
countries.  Trade with  each of  them  had  a positive 
contribution  to  Romaniaʼs  global  export  market 
share even though all three of them have seen their 
share of global imports declining (Graph 3.4.6).  

in  all 

Romania  has  captured  an  increasing  part  of 
trade  related  to  EU  production  chains.  The 
Romanian  economy  continues  to  benefit  from  its 
strong  integration  in  EU  value  chains (44).  An 
increasing  specialisation  in  regional  European 
value  chains  has  enabled  Romania  to  respond  to 
the shift in global demand to emerging economies. 
This  development  is  in  contrast  with  the  general 
trend.  Since  2011,  global  value  chain 
trade 
intensity has continued to grow and now accounts 
for  more  than  half  of  all  value  chain  trade,  while 
the  share  of  regional  value  chain  trade  has 

(44)  The  main  immediate  production  partners  of  Romania  in 
regional  EU  value  chains  that  together  account  for  more 
than  70 %  of  Romanian  regional  value  chain  trade  are: 
Germany  (28.9 %  of  regional  value  chain  trade),  Italy 
(11.0 %),  Hungary  (9.2 %),  France,  Austria  (7.2 %  each) 
and Belgium (6.6 %). Immediate production relations with 
the UK are limited (1.8 %). 

34 

(1) RVC/GVC indicate the share of regional EU value chain 
trade (RVC) and global value chain trade (GVC), 
respectively, as a % of total value added trade in the total 
economy 
Source: Stehrer et al. (2017) based on World Input-Output 
Databse release 2016 

3.4.2.  PUBLIC 

INVESTMENT 

AND 

INFRASTRUCTURE 

Investment spending needs improved efficiency 
to deliver results. Investment has been robust over 
the  past  decade  and  particularly  after  EU 
accession,  when  the  country  became  one  of  the 
main  beneficiaries  of  EU  structural  and  cohesion 
funds.  However,  high  inefficiencies  in  public 
investment  management  translated  into  sluggish 
EU  funds  absorption  and  prevented  the  country 
from  reaping  the  full  benefits  of  its  increased 
capital spending and from improving the quality of 
its infrastructure.  

public 

investment 
insufficient 

High 
spending 
is 
infrastructure. 
accompanied  by 
Romania had one of the highest public investment 
rates  in  the  EU  over  the  past  decade.  This  would 
suggest  a  corresponding  supply  of  physical 
recent  achievements 
infrastructure.  However, 
under the National Local Development Programme 
notwithstanding,  the  discrepancy  between  inputs 

GermanyItalyFranceHungaryUKBulgariaTurkeySpainPolandCzech Rep.-4-3-2-10123-15-10-5051015Market Dynamism (pps)Competitiveness (pps)8,0%9,0%10,0%11,0%12,0%13,0%14,0%15,0%16,0%000102030405060708091011121314RO (GVC)RO (RVC)EU (GVC)EU (RVC) 
 
                                                           
 
(infrastructure) 

(investment)  and  outputs 
is 
particularly  striking,  raising  questions  concerning 
the  efficiency  of  public  capital  spending.  This  is 
confirmed  by  recent  empirical  evidence  which 
suggests that inefficiencies in public spending may 
lead to an overestimation of the actual capital stock 
(IMF, 2017a, 2017b). 

The poor quality of infrastructure limits growth 
prospects. The quality of infrastructure fares badly 
when  compared  not  only  to  more  developed 
economies but also to peer countries (Graph 3.4.8). 
This  can  be  seen  in  particular  in  the  transport, 
water/wastewater  and  energy  sectors.  The  weak 
performance  of  state-owned  enterprises,  the  main 
providers  of  infrastructure  in  these  areas,  is  of 
In 
particular  concern 
quantitative  terms  the  supply  of  infrastructure  is 
also low (see Section 3.5). 

(see  Section  3.4.3). 

Graph 3.4.8:  GDP per capita and quality of infrastructure 

3.4. Investment 

European  Structural  and  Investment  Funds 
(ESIF) provide a significant source of financing 
for  infrastructure.  More  than  one  third  of  the 
total EUR 30.8 billion ESIF available for the 2014-
2020  programming  period 
to 
investments in transport, energy and environment. 
Access  to  ESIF  depends  on  compliance  with 
institutional  conditions 
regulatory,  policy  and 
intended to ensure an efficient and effective use of 
funds (45) (see Box 2.1). 

is  allocated 

3.4.3.  STATE-OWNED ENTERPRISES (SOE) 

The  operational  and  financial  performance  of 
state-owned enterprises has not improved. SOEs 
have higher debt ratios and lower profitability than 
their  private-sector  counterparts  (Marrez,  2015; 
Bower,  2017)  and  preliminary  data  suggest  that 
their  performance  did  not  improve  in  2017. 
Arrears,  which  dropped  significantly  under  the 
2009-2015 
assistance 
programmes  are  again  increasing  and  no  action 
plan  is  being  taken  to  address  the  issue.  CFR 
Marfă, the main cargo rail operator, is of particular 
concern (46).  Besides  this  lacklustre  performance 
and  the  key  role  played  by  SOEs  in  critical 
infrastructure  sectors  such  as  energy  and  rail 
transport (Marrez, 2015), the restructuring of loss-
making companies is not progressing. 

financial 

EU/IMF 

(1)  Respondents rate 1 (worst) to 7 (best) 
Source: European Commission and World Economic Forum: 
the Global Competitiveness Index 2017-2018 

Viable  projects  are  needed  to  bridge  the 
infrastructure  gap  and  support  economic 
growth.  Large  infrastructure  projects  above  RON 
100  million  (EUR  21  million)  are  evaluated  and 
included on a priority list monitored by a dedicated 
unit  within  the  Ministry  of  Finance.  As  of  2017, 
projects  on  the  list  are  assigned  a  prioritization 
score that the line ministries are obliged to reflect 
in their proposed budgets. Despite recent progress, 
the  capacity  to  develop  and prioritise  high-quality 
projects remains nevertheless limited. 

SOEsʼ  corporate  governance  was  substantially 
weakened  in  2017.  Rules  for  SOEsʼ  corporate 
governance  were  strengthened  in  2016  with  the 
adoption  of  the  Law  on  corporate  governance 
(Law  111/2016)  and  its  implementing  legislation. 
However,  implementation  has  been  sparse  and 
transparency diminished in 2017 with the delay in 
the publication of financial data. More worryingly, 
in December 2017 the law was all but voided by a 
Parliament's  amendment  exempting  almost  100 
companies  from  its  provisions,  including  most 
large SOEs. This decision amounts to a substantial 
backtracking  on  2015  and  2016  country  specific 
recommendations,  which  had  been  considered 

(45)  In  2017,  Romania  fulfilled  several  of  these  conditions, 
specifically 
research  and 
those  concerning,  health, 
innovation,  and  transport.  The  requirements  on  public 
procurement and public administration are still pending and 
could  trigger  a  possible  suspension  of  payments  to  the 
programmes concerned. 

(46)  http://europa.eu/rapid/press-release_IP-17-5345_en.htm  

35 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK01234567020406080100Quality of overall infrastructure (2017-2018)GDP per capita ('000 EUR) (2016) 
 
                                                           
3.4. Investment 

fulfilled  by  the  European  Commission  (European 
Commission, 2016a, 2017a) (47). 

3.4.4.  BUSINESS ENVIRONMENT 

business 

environment 

Romania’s 
is 
deteriorating  (Graph  3.4.9).  Romania  dropped 
nine  ranks  in  the  World  Bankʼs  Doing  Business 
2018  report,  down  to  45th,  (World  Bank,  2017a), 
while  in  the  Global  Competitiveness  Report  it 
dropped  from  62nd  to  68th  (World  Economic 
Forum,  2017).  Performance  remains  particularly 
poor  in  governance,  labour  force  qualification, 
infrastructure,  health  and  education  (see  Sections 
3.3, 3.4.2, 3.4.5).  In  this environment,  more  firms 
expect  a  reduction  of  investment  activity  than  an 
expansion in the near future (European Investment 
Bank, 2017). 

At  sub-national  level  the  business  environment 
presents a more varied picture. Despite common 
legislation  and  provision  of  guidance  by  the 
National  Trade  Register  Office,  Romanian  cities 
display  considerably  uneven  performance  in  a 
number  of  areas,  in  particular  on  starting  a 
business,  obtaining  a  permanent  electricity 
connection  and  enforcing  contracts.  Enforcing  a 
contract  takes  15  months  in  Timisoara  but  23 
months  in  Brasov.  The  time  required  to  start  a 
business varies between 12 days in Bucharest and 
Oradea and 25 days in Craiova. Getting electricity 
requires  173  days  in  Iasi  and  209  days  in 
Constanta (World Bank, 2017b). 

Graph 3.4.9:  Ease of doing business 

on 

drawing 

substantially 

Some  of  the  most  profitable  SOEs  may  be 
transferred  to  a  new  Sovereign  Development 
and  Investment  Fund.  A  draft  law  for  the 
creation  of  a  Sovereign  Development  and 
Investment  Fund  (FSDI)  was  put  under  public 
consultation  in  summer  2017.  It  has  not  yet  been 
adopted  by  the  government,  but  a  legislative 
proposal 
the 
government's draft was submitted to the Senate by 
a  group  of  parliamentarians,  kicking  off  the 
legislative process. According to the draft law, the 
Fund would be set up as a joint-stock company and 
would  receive  the  state-owned  shares  of  27 
profitable  SOEs.  The  purpose  of  the  Fund  and  its 
investment strategy are only vaguely set out in the 
draft  law  and  it  is  unclear  how  the  Fund  would 
address  the  main  barriers  to  public  investment  in 
Romania  (see Box 3.4.1).  Under  the draft law  the 
Fund  is  exempted  from  Law  111/2016  on  SOEsʼ 
corporate governance. The draft law also generates 
concerns  about  transparency  of  decision-making, 
reporting and monitoring. 

The fiscal risks generated by the new FSDI are 
not  yet  known.  The  government  has  sought 
Eurostatʼs opinion on the fiscal impact of the Fund 
if  created  under  the  draft  legislation  submitted  to 
public consultation in August 2017. If the Fund is 
classified outside the general government sector, it 
would have  a  negative  impact  on  the  state  budget 
in  2018  and  possibly  beyond  as  the  dividends  of 
the  SOEs  under  the  Fund  would  no  longer  go  to 
the state budget. According to the authorities, this 
impact 
the  Fund  starts 
distributing  dividends.  Information  available  to 
date does not allow, however, to assess the extent 
and  timing  of  a  turnaround  in  the  budgetary 
impact.  A  broader  concern  is  the  implicit  liability 
to the state budget from its operations and from the 
debt issued. 

temporary  until 

is 

(47)  The  law  will  need  to  be  reassessed  by  Parliament.  On  13 
February  2018,  the  Constitutional  Court  considered  it 
unconstitutional  due 
to  procedural  and  substantive 
concerns. 

(1) Ranking: (1) easiest to (190) most difficult 
Source: World Bank 2017 

laws  and  procedures 

Insolvency 
remain 
complex.  Despite  the  availability  of  a  simplified 
liquidation  procedure, 
bankruptcy  and  asset 

36 

04080120160Starting a BusinessDealing withConstructionPermitsGetting ElectricityRegisteringPropertyGetting CreditProtecting MinorityInvestorsPaying TaxesTrading acrossBordersEnforcingContractsResolvingInsolvencyRomaniaEU 
                                                           
 
companies in financial distress are often brought to 
court  by  creditors,  without  the  possibility  of 
recourse  to  reorganisation  or  repayment  plans. 
Notwithstanding  the  reform  of  the  insolvency 
framework in 2014, and while a majority of cases 
under  the  simplified  procedure  can  be  solved  in 
less  than  a  year,  the  "time  required  to  resolve 
insolvency"  indicator  has  remained  stable  since 
2008 at 3.3 years, one of the highest values in the 
EU (European Commission, 2017e).  

SMEs rely heavily on bank financing, which has 
remained  sluggish.  Almost  half  of  SME  funding 
was secured via credit lines and bank loans in Q2-
Q3 2017. After a significant drop over 2015-2016 
to  below  2 %,  loan  rejection  rates  increased  to 
18 %  in  2017,  a  level  last  observed  in  2009. 
Moreover,  10 %  of  SMEs  report  not  having 
received  the  full  loan  requested  (ECB,  2017). 
Among non-financial companies, the level of non-
performing  loans  remains  higher  particularly  for 
micro-enterprises and SMEs (NBR, 2017). 

Further measures are needed to support SMEʼs 
initiatives.  Romanian  SMEs 
entrepreneurial 
would  benefit 
increased  capitalisation, 
from 
simplification  of  the  insolvency  framework  and 
mobilisation  of  additional  private 
financing 
instruments.  An 
supported  by  EU 
initiative  signed  by  the  Commission  and  the 
European  Investment  Bank  with  Romania 
is 
expected  to  generate  some  EUR  500  million  in 
new SME loans under favourable conditions. 

financial 

an 

dynamic 

increasingly 

In 
start-up 
ecosystem, scaling-up  remains  a  challenge. 
Increased  public  support  through  the  Start-up 
Nation programme notwithstanding (48), scaling-up 
of existing companies is hampered by lack of clear 
legislation,  administrative  burden,  skill  shortages 
and  low  innovation  (see  Sections  3.3,  3.4.5  and 
3.5).  The  share  of  high-growth  businesses  in 
Romania  is  among  the  lowest  in  the  EU.  Start-up 
entrepreneurs lack access to mentoring and school 
curricula  are  not  aligned  to  the  needs  of  future 
entrepreneurs. 

(48) In 2017, 8 700 start-up projects were approved for funding 

from this programme.  

3.4. Investment 

Judicial reform 

source 

concern 

independence  are  a 
Challenges  to  judicial 
persistent 
(European 
of 
Commission, 2017k). Recurrent public criticism of 
the  judiciary  and  judicial  decisions  undermine 
judicial  independence  and  the  trust  in  the  justice 
system. However, the Commissionʼs findings over 
the  last  years,  which  have  been  supported  by  the 
Council (49),  have  made  a  positive  assessment  of 
the  judicial  system  and  the  role  of  the  magistracy 
in  pursuing 
(European  Commission, 
2017j). 

reform 

(ii) 

The  ongoing  reform  of  the  justice  laws  risks 
undoing  progress  achieved  in  the  last  10  years 
and  harming  judicial  independence.  The  three 
justice laws, dating back to 2004, regulate: (i) the 
status  of 
the 
judges  and  prosecutors; 
organisation  and  functioning  of  the  courts  and 
prosecution offices;  and  (iii)  the  Superior Council 
of  Magistracy.  The  laws  have  a  direct  impact  on 
judicial independence and the justice system more 
broadly.  Some  of  the  amendments  adopted  by 
Parliament  at  the  end  of  December  2017  touch 
upon  safeguards  for  judicial  independence  or 
would affect the functioning of the judicial system. 
These  amendments  to  the  justice  laws  went 
through  a  fast-track  procedure  in  Parliament,  a 
process  at  odds  with  the  Commission's  CVM 
recommendation 
transparent  and 
to  have  a 
consensus-based legislative process and to respect 
safeguards  for  the  independence  of  the  judiciary. 
Moreover,  the  Commissionʼs  recommendation  to 
consult the Venice Commission, an advisory body 
of the Council of Europe, was not followed up. No 
proper  consideration  was  given  to  the  opinion  of 
the Romanian magistracy, which, when consulted, 
has  twice  rejected  drafts  of  these  amendments 
citing  concerns  over  judicial  independence  and 
serious  negative  impact  on  the  functioning  of  the 
judicial  system.  Some  of  the  amendments  also 
raise  questions  about  whether 
the  positive 
assessment of Romania’s progress on ensuring the 
independence of the judicial system would have to 
be  reconsidered  (European  Commission,  2017k). 
The  draft  laws  were  referred  to  the  Constitutional 

(49)  Council  Conclusions  on  the  Cooperation  and  Verification 
Mechanism  (CVM)  reports  —  March  2017  available  at 
https://ec.europa.eu/info/files/council-conclusions-7-
march-2017_en  and  December  2017  available  at: 
https://ec.europa.eu/info/files/council-conclusions-12-
december-2017_en   

37 

 
                                                           
                                                           
3.4. Investment 

Court. The Court ruled unconstitutional a series of 
provisions.  The  laws  therefore  will  need  to  be 
reconsidered in Parliament. 

serious  concerns  over  the  ability  of  the  judicial 
institutions to effectively continue the fight against 
corruption.  

An  action  plan  for  the  enforcement  of  court 
decisions  is  lacking  concrete  solutions  and  a 
timetable,  and  its  implantation  is  slow.  At  the 
end  of  August,  Romania  updated  the  2016  action 
plan it prepared for the Council of Europe in order 
to  address  structural  problems  over  the  non-
enforcement  of  court  decisions  against  the  State 
identified  by  European  Court  of  Human 
Rights (50). The implementation of the action plan 
requires concrete solutions and a detailed timetable 
to address the problems identified. 

Corruption 

the 

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. Corruption 
and  governance  issues  in  the  public  sector  are 
the  business 
among 
top  challenges  for 
(World 
environment,  holding  back  growth 
Economic  Forum,  2017).  In  2017,  corruption  as 
well  as  patronage  and  nepotism  are  identified  as 
obstacles  to  doing  business  in  Romania  by  85 % 
and 82 % of businesses respectively (EU averages: 
37 %  and  38 %  respectively).  86 %  of  companies 
think  that  bribery  and  the  use  of  connections  is 
often  the  easiest  way  to  obtain  certain  public 
services (an increase of 10 pps compared to 2015, 
EU average: 60 %) while 70 % think that the only 
way  to  succeed  in  business  is  to  have  political 
connections  (an  increase  of  22  pps  compared  to 
2015, EU average: 42 %) (European Commission, 
2017f).  

The  fight  against  corruption continued but has 
faced  increased  pressure  throughout  the  past 
year.  Romania  has  a  solid  anti-corruption  legal 
framework  and  the  track  record  of  the  judicial 
institutions  fighting  corruption  was  maintained  in 
2017.  However,  the  judicial  institutions  and  the 
legal framework for fighting corruption crimes are 
facing 
legislative 
amendments  under  debate  in  Parliament  raise 

intense  pressure.  Several 

(50)  Action  plan  of  structural  measures  in  relation  to  the 
(73970/01) 

of 
Săcăleanu 
http://hudoc.exec.coe.int/eng#{"EXECDocumentTypeColl
ection":["CEC"]} 

group 

cases 

The 
implementation  of  the  national  anti-
corruption  strategy  has  kicked  off  at  technical 
level, but tangible political support is needed to 
demonstrate  progress  (European  Commission, 
2017k).  The  2016-2020  national  anti-corruption 
strategy,  for  central  and  local  public  institutions 
has  the  potential  to  be  an  effective  corruption 
prevention  policy  if  properly  implemented  and 
followed  up  on  the  ground.  At  technical  level, 
implementation  started  with 
the  drafting  of 
integrity  plans  in  each  public  institution  and  the 
establishment  of  the  first  peer-review  monitoring 
cycle.  A  high  number  of  public  institutions, 
including state-owned enterprises, are participating 
in  the  anti-corruption  strategy.  The  first  reporting 
on  the  implementation  of  the  measures  will  take 
place  at  the  beginning  of  2018.  Visible  progress 
would  help  bring  effective  results  in  corruption 
prevention  and  reduce  corruption  prevalence.  To 
encourage  public  bodies  to  devote  time  and 
resources to anti-corruption work, the strategy now 
needs  visible  political 
the 
government,  the  ministers  responsible  for  central 
and public administration, ministers in key sectors 
such as education or health and local authorities.  

support 

from 

3.4.5.  PUBLIC ADMINISTRATION 

Human resources 

reconfirmed 

its  commitment 

The  human  resources  management  reform  has 
yet  to  produce  results.  The  draft  legislation  is 
aligned  with  the  strategy  for  civil  servants.  The 
government 
to 
implementing  the  key  points  of  the  reform  and  a 
project  was  recently  signed  with  World  Bank, 
which  should  enable  the  relevant  authorities  to 
start  implementation.  First  results  of  the  project 
will  be  available  by  mid-2019.  So  far,  there  has 
been  no  progress  on  integrating  databases  of 
employees in the public administration. 

The  Unified  Wage  Law  does  not  include  a 
proper  pay  for  performance  system  and  is  not 
achieving  wage  equity,  as  provided  for  in  the 

38 

 
                                                           
new 

strategy. (51)  The 

relevant 
legislative 
framework aims to create a unified wage grid and 
thus improve transparency and quality of services. 
However,  it  appears  to  only  reduce  discrepancies 
within  sectors  rather  than  between  sectors  for 
similar 
local 
administration level, there is a high risk that wages 
will  vary  significantly  between  municipalities,  for 
similar  functions.  This  will  impact  staff  mobility 
and  could  generate  under-staffing  in  some  sectors 
or municipalities.  

functions.  Moreover, 

the 

at 

Policy-making process 

and 

implementing 

A  culture  of  transparency  and  participative 
government  at  national  and  local  level  is  not 
well  established.  Despite  the  acceleration  of 
reform  in  this  area,  difficulties  remain  over 
streamlining 
transparency 
measures  across  all 
levels  of  administration. 
Factors  slowing  down  reform  are  insufficient 
administrative capacity and weak political support 
for improving the quality and impact of the public 
consultation  process.  Also,  the  mechanism  for 
addressing the observations received during public 
consultations  does  not  ensure  proper  follow-up  of 
stakeholdersʼ opinions. This has a negative impact 
on 
the  business  environment  and  citizens’ 
perception and trust.  

and 

effective 

a  more 

Setting up an effective framework for strategic 
and budgetary planning remains a challenge. A 
recent  legislative  initiative  proposing  an  updated 
methodology  for  strategic  planning  could  help 
create 
coherent 
mechanism (52).  The  main  novelty  is  the  link 
between 
the  strategic  plans  of  each  public 
institution  and  the  annual  budgetary  process,  with 
an  increased  focus  on  implementing  the  annual 
operational  plans.  An  integrated  calendar  for 
strategic  planning,  clear  responsibilities  and  a 
mechanism  for  performance  monitoring  are  also 
proposed. This should help increase the quality of 
the decision-making process. 

impact 

not 
Regulatory 
systematically  and  adequately  used.  Political 
will to enforce appropriate use of the existing tools 

assessment 

is 

(51) The Unified Wage Law allows public institutions to reward 
their employees for performance, but this is limited to 5 % 
of wage expenditures, and can be granted in a discretionary 
way. 

(52)  Government Emergency Ordinance 49/2017. 

3.4. Investment 

the 

legislative  process 

in 
remains  below 
expectations.  The  government  General  Secretariat 
continues  to  have  a  limited  role  in  the  quality 
control  of  policy  design.  Explanatory  memoranda 
accompanying new legislative initiatives are vague 
and  not  based  on  thorough  impact  assessments  or 
stakeholder  consultation.  Romania  is  among  the 
bottom-ranked OECD/EU countries (36 out of 41) 
on  executive  capacity  (Bertelsmann  Stiftung, 
2017). 

Public service delivery 

The quality of public services, especially at local 
level, remains unsatisfactory. In a recent survey, 
only  27 %  of  respondents  rated  the  quality  of 
public services provided as good while 70 % took 
the  opposite  view.  Funding  availability 
for 
decentralised  services  remains  the  core  issue. 
Other factors include weak administrative capacity 
of  local  administrations,  unavailability  of  services 
in  poor  or  remote  areas,  lack  of  skilled  personnel 
and fragmentation of services offered. 

is 

the 

income 

tax  deductions 

In  a  context  of  decentralisation,  the  financial 
capacity  of  municipalities 
increasingly 
important.  Public  and  private  social  service 
providers  often  compete  for public funding  which 
has been drastically reduced for private operators. 
Limiting 
for 
sponsorships  also  negatively  impacts  on  private 
sources of financing. Local budgetsʼ low ability to 
generate  their  own  resources  perpetuates  their 
dependence  on  transfers  from  the  state  budget  for 
more  than  50 %  of  their  funding.  The  framework 
and  mechanisms 
for  ensuring  stability  and 
predictability of income sources for administrative 
units  are  being  developed.  These  include  quality 
and  control 
to  be 
decentralised, with results expected for 2019. 

standards 

services 

for 

Unequal  access  to  basic  public  services  and 
uneven service provision could worsen. The gap 
between  the  quality  of  services  provided  in 
wealthy  municipalities  compared  with  poor 
municipalities  could  widen  further  following 
in  2017 (53).  The 
several  measures  adopted 

(53)  Reduction  of  the  income  tax  from  16 %  to  10 %  with  no 
clear  compensatory  measures  for 
local  budgets 
(Emergency  Ordinance  79/2017);  differences  in  wages for 
staff  in  local  public  administration,  encouraging  staff 
mobility  towards  wealthier  municipalities  and  further 
poor 
weakening 

administrative 

capacity 

the 

the 

of 

39 

 
                                                           
                                                           
3.4. Investment 

adoption  of  the  Code  for  Local  Public  Finances 
could  address  some  of  the  issues  by  setting  a 
minimum level of budget revenue per inhabitant or 
adapting  local  budget  mechanisms.  However,  the 
exact content or effective impact of such measures 
is yet unknown. 

Public  service  quality  is  also  hindered  by 
sluggish  e-government  reforms.  Simplification 
measures  for  citizens  and  businesses  have  started 
implemented,  albeit  at  a  slow  pace. 
being 
Interoperability  and 
integration  of  different 
e-government  systems  in  public  administration 
remains  a  concern,  with  high  negative  impact  on 
the effectiveness of public service delivery. 

Public procurement 

The incidence of inefficient public procurement 
remains  high.  With  17 %  in  2017,  the  share  of 
negotiated  procedures  without  prior  publication 
has  remained  among  the  highest  in  the  EU. 
Moreover,  more  than  40 %  of  contracts  awarded 
by  public  institutions  in  2017  were  single  bids 
(Graph  3.4.10).  This  reinforces  the  persistent 
involving  public 
perception  of 
procurement  among  companies,  in  turn  reducing 
competition  and  decreasing  efficiency  of  public 
spending. (54) 

corruption 

Graph 3.4.10: Award of contracts for single bids in 2017 

is  not  yet 

Progress was made on implementing the public 
procurement  strategy  but  challenges  remain. 
Despite  efforts  to  carry  out  a  thorough  reform  of 
the  public  procurement  system  and  the  tangible 
achievements  observed  so  far,  the  national  public 
procurement  action  plan 
fully 
implemented. Its completion is a precondition that 
has to be met across the board for ESIF funding to 
be  granted  and  is  a  necessary  condition  for 
avoiding suspension of ESIF payments. The areas 
where  further  progress  is  needed  include  the 
professionalisation 
of 
and 
contracting 
aggregation  of 
authorities, 
purchases,  use  of  strategic  procurement  and 
effective audit and fraud control.  

empowerment 

the 

(1) Percentage of awards of contract per country  
Source: European Commission, TED database 

(54)  See 

the 

information  contained 

the  2017  Flash 
Eurobarometer  no.  457,  p.  71f.,  on  the  subject  (European 
Commission, 2017l).  

in 

public 

municipalities  (Law  153/2017);  weak  support  and  budget 
cuts for NGOs with a strong role in  increasing the quality 
of 
(http://dialogsocial.gov.ro/wp-
content/uploads/2016/10/Evaluare-
MCPDC_Raport_Finantarea-organizatiilor-
neguvernamentale-de-catr....pdf). 

services 

40 

0%10%20%30%40%50%60%70%ATBEBGCYCZDEDKEEESFIFRGRHRHUIEISITLILTLVMTNLNOPLPTROSESISKUKAverage 
                                                                                   
 
 
 
                                                           
Box 3.4.1: Investment challenges and reforms in Romania 

Macroeconomic perspective  

While  Romania  continues  to  have  one  of  the  highest  investment  ratios  in  the  EU,  the  performance  of 
investment  since  the  crisis  has  been  volatile.  An  acceleration  of  investment  in  2015  was  followed  by  a 
contraction in 2016 as public investment fell due to a slow uptake of projects financed by EU funds under 
the  2014-2020  programming  period.  Investment  grew  again  in  2017  on  account  of  a  pickup  in  private 
investment, mainly in the construction sector. Public investment, however, declined for the second year in a 
row.  Investment  is  expected  to  strengthen  in  the  future  as  private  investment  growth  remains  steady  and 
public investment recovers as the absorption of EU funds improves.  

Assessment of barriers to investment and ongoing reforms 

The  overall  business  environment  presents  challenges  hampering  investment  (European  Commission, 
2015b). 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 3.3-3.5).   

Main barriers to investment and priority actions under way 

1.  Despite  relatively  high  public  investment  spending,  the  low  quality  of  infrastructure  is  holding  back 
investment.  The  development  of  quality  infrastructure  is  being  held  back  by:  (i)  comparatively  low 
absorption  of  EU  funds;  (ii)  remaining 
in  project  preparation,  prioritisation  and 
inefficiencies 
implementation;  and  (iii)  limited  efficiency  and  the  recent  weakening  of  corporate  governance  law 
applicable to state-owned enterprises. The adoption of the transport master plan in 2016 was an important 
step  in  the  direction  of  improving  strategic  investments  in  road  infrastructure  but  progress  so  far  remains 
slow.   

2. Inadequate labour supply weighs on investment. Persistent labour emigration and shortages, skill gaps and 
mismatches, low business innovation, lack of basic digital skills in large parts of the workforce reduce the 
supply of skilled workers, which affects investment decisions.  

3.  Poor  governance  and  inefficient  public  administration  continue  to  hamper  the  business  environment. 
Investment can be held back by the continuing regulatory and administrative burden, inefficiencies in public 
administration and public procurement, lack of predictability of legislation and lack of timely and effective 
stakeholder consultation.  

3.4. Investment 

41 

Regulatory/ administrative burdenGROWFinancial TaxationCSRPublic administrationCSREMPLSector / TaxationAccess to financePublic procurement /PPPsCSREMPLCooperation btw academia, research and businessJudicial systemJUSTFinancing of R&D&IInsolvency frameworkJUSTBusiness services / Regulated professionsCompetition and regulatory frameworkGROWRetailEPL & framework for labour contracts EMPL?ConstructionWages & wage settingCSREMPLDigital Economy / TelecomEducation CSREAC/EMPLEnergyTransportNo barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressPublic administration/ Business environmentLabour market/ EducationSector specific regulationR&D&I 
 
 
3.5.  SECTORAL POLICIES 

RESEARCH AND INNOVATION (R&I) 

Graph 3.5.2:  Business R&D intensity, 2007 and 2016 

The  innovation  performance  shows  no  signs  of 
improvement,  with  consequences  for  growth 
prospects. Romania is a modest innovator, scoring 
below the EU average in all indicators analysed in 
the  European  Innovation  Scoreboard  2017 (55), 
apart 
penetration.  More 
worryingly,  Romania’s  innovation  performance 
has  deteriorated  since  2011  in  every  region, 
including the most dynamic ones (Graph 3.5.1). 

broadband 

from 

Graph 3.5.1:  Regional Innovation performance in Romania 

Source: European Commission, Regional Innovation 
Scoreboard 2017 

R&D  investment  remains  very  low  despite 
recent  improvements  in  the  private  sector.  In 
2016, R&D intensity (56) fell slightly to 0.48 % of 
GDP,  one  of  the  lowest  levels  in  the  EU.  Private 
sector  R&D  intensity  increased  in  2016  (Graph 
3.5.2),  but  was  only  partly  offset  by  the  fall  in 
public  R&D  expenditure.  In  the  2018  budget,  the 
R&D  allocation  was  increased  by  about  15 % 
compared to the budget executed in 2017. 

(55)  Innovation performance is measured by looking at a set of 
27  indicators,  including  doctorate  graduates,  international 
scientific 
expenditure,  SME 
innovation, medium- and high-tech product export   
       http://ec.europa.eu/growth/industry/innovation/facts-

co-publications,  R&D 

figures/scoreboards_en  

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

42 

Source: European Commission, Regional Innovation 
Scoreboard 2017 

Low and inefficient public R&D funding results 
in  a  low-quality  science  base (57).  Inefficiencies 
in  funding  are  linked  particularly  to  the  high 
fragmentation  of  the  research  and  innovation 
system and its lack of international openness. Only 
46 % of Romanian publications are internationally 
co-authored.  Recent  provisions  adopted  for  the 
evaluation  process  of  R&D  projects  funded  from 
the  national  budget (58)  will  further  reduce  the 
international openness of the R&D system. 

The  low  quality  of  the  science  base  acts  as  a 
disincentive to private R&D investment. Despite 
an  economic  structure 
to  R&D 
activities (59),  R&D  business  investment  remains 
modest.  Knowledge  transfer  from  public  research 
to  businesses  is  limited.  In  2016  the  government 
adopted  several  measures  to  stimulate  private 
is 
R&D 

investment (60).  While 

favourable 

impact 

their 

(57)  Measured as the share of Romanian scientific publications 
top  10 %  most-cited  worldwide 

the 

ranked  among 
publications.   

(58)  In  March  2017,  the  Minister  for  Research  and  Innovation 
adopted  new  rules  for  the  evaluation  of  nationally  funded 
research  projects,  limiting  the  number  of  international 
reviewers in the selection panels. Under the new rules, the 
Romanian research and innovation executive agency has to 
give  priority  to  Romanian  evaluators  and  rely  on  foreign 
evaluators  only  as  a  last  resort,  when  no  Romanian 
evaluators can be found in a specific field. 

(59)  Medium-high-tech  manufacturing  represents  28 %  of  the 
manufacturing  sector  while  knowledge  intensive  services 
account for 47 % of the services sector. 

(60)  Most  notably,  an  exemption  from  paying  the  personal 
income  tax  for specific  R&D  activities  and  for employees 
in  start-ups  having  software  development  as  their  main 
activity (European Commission, 2017a). 

0102030405060708090100110Bucuresti - IlfovVestCentruNord-VestSud - MunteniaSud-EstSud-Vest OlteniaNord-EstIndex: EU(2011)=10020112017EU (2017) =102.60,00,51,01,52,02,53,0SEATDEDKFIBESIFREUNLUKCZHUIEITEEESLUPTBGPLELSKMTHRLTROCYLVBusiness R&D expenditure as % of GDP20162007 
 
 
                                                           
 
                                                           
3.5. Sectoral policies 

of 

and 

classes 

technology 

lower-secondary 

programming 
are 
introduced  as  from  the  fifth  grade  (i.e.  the  first 
year 
education).  This 
complements what is already taught at high-school 
level. Measures have also been taken to ensure that 
there  are  sufficient  teachers  and  that  they  have 
proper digital training. The skills mismatch is also 
caused  by  a  sizable  gap  at  university  level. 
Although 
(science, 
the  number  of  STEM 
technology,  engineering,  mathematics)  students 
has doubled over the past few years, the number of 
teachers has remained the same. 

among 

the  government 

Progress on implementing the Digital Agenda is 
very limited. There is a lack of coordination both 
within 
institutions 
implementing the Digital Agenda and between the 
government  and  IT  associations,  initiatives  and 
stakeholders.  This  leads  to  weak  national  digital 
policies  and  no  common  ground  and  direction 
towards  digitisation.  EU  co-financed  investments 
in  public  e-services  addressing  key  life  events 
(such  as  births,  marriages,  deaths)  are  under 
development but progress is slow. The preparation 
of  projects  on  eEducation  (EUR  100  million), 
eHealth (EUR 30 million) and eInclusion (EUR 25 
million) in particular has been delayed.  

to 

to  assess  at 

top-level  human 

difficult 
this  stage,  significant 
improvements  cannot  be  expected  as  long  as  the 
low-quality science base limits potential investors’ 
and 
access 
collaboration  opportunities.  The  EU’s  Horizon 
2020  policy  support  facility  for  assessing  the 
entrepreneurship  ecosystem  proposes  a  set  of 
recommendations  for  a  coherent  policy  mix  to 
foster 
entrepreneurial 
ecosystem (European Commission, 2017g).  

a  healthy 

innovative 

resources 

to 

support 

Recent  measures 
the 
seek 
development  of  the  research  infrastructure.  A 
recently adopted roadmap for investing in research 
infrastructure  and  an  investment  prioritisation 
methodology  aim  to  improve  strategic  planning 
and  the  effectiveness  of  funding  from  EU  and 
national  sources.  The  roadmap  provides  for  an 
assessment  of  the  quantity,  quality  and  degree  of 
utilisation  of  research  equipment  and  laboratories 
list  of 
and 
infrastructure  to  be  financed  either  from  national 
or  EU  funds.  An  adequate  national  infrastructure 
should  not  only  support  research  programmes  but 
Pan-European 
also 
infrastructures.  Political  commitment 
the 
to 
implementation of the roadmap has been expressed 
by a recent ministerial order. (61) 

the  compilation  of  a  priority 

improve 

access 

to 

DIGITAL ECONOMY 

The  degree  of  digitisation  of  the  economy 
remains  very  low.  Despite  boasting  the  highest 
ultrafast  broadband  penetration  in  the  EU,  the 
levels  of  broadband  coverage  (fixed  and  4G)  and 
digitisation  of  both  the  public  and  private  sectors 
remain low, in particular in rural areas. In contrast 
with  the  increasing  numbers  of  ICT  specialists  in 
the  economy,  the  digital  skills  of  the  overall 
population  are  among  the  poorest  in  the  EU  (62). 
This  in  turn  limits  labour  force  mobility  (see 
Section 3.3).  

The  government  is  taking  steps  to  improve 
digital skills performance in schools. As of 2017, 

(61)  The  approval  of  the  2017-2025  national  roadmap  for 
research,  development  and  innovation  infrastructure  has 
been a key element of the preconditions for EU funding in 
this  area.  These  preconditions  were  confirmed  to  the 
Commission  to  have  been  attained  by  Ministerial  Order 
624/2017 of 3 October 2017.  

(62)  29 %  of  Romanians  only  have  basic  digital  skills  (Digital 

Economy and Social Index 2018) 

ENERGY, RESOURCES AND CLIMATE CHANGE 

Romania still needs to put in place appropriate 
energy  market  rules.  The  existing  market 
structure  remains  inadequate  and  may  prevent 
Romania  from  exploiting  its  gas  potential.  The 
Emergency  Ordinance  No  64  of  October  2016 
introduced  crucial  reforms  for  the  energy  market. 
It  abolished  existing  regulatory  barriers  to  the 
export  of  gas  which  breached  EU  rules  and 
introduced  essential  aspects  on  competition  and 
transparency.  These  changes  put  Romania  on  the 
path towards becoming a key regional player in the 
EU  gas  sector.  However,  the  amendment  of  the 
Emergency  Ordinance  currently  in  Parliament  is 
watering down the regulatory framework. 

New  infrastructure  will  increase  Romaniaʼs 
integration in the regional energy market.  The 
Romanian  part  of 
the  BRUA  bi-directional 
Bulgaria-Romania-Hungary-Austria  Gas  Corridor, 
a EUR 479 million investment to be completed by 
end-2019,  will  connect  gas  reserves  in  the  Black 
Sea  and  from  the  Southern  Gas  Corridor  with  the 
central  and  eastern  European  markets.  As  for 

43 

 
                                                           
3.5. Sectoral policies 

projects  and  their  readiness.  The  railway  network 
needs  to  become  financially  viable  but  reform  of 
the  railway  sector  is  lagging  behind.  The  rail 
reform  agency  is  not  fully  operational  and  the 
socioeconomic  analysis  of  the  rail  network  still 
needs to be finalised. In 2017 the market for train 
services  was  assessed  by  Romanian  consumers 
very poorly overall and significantly worse than in 
2015 (European Commission, 2018b). 

Graph 3.5.3:  Logistics Performance Index 2016 

(1) Respondents rate 1 (worse) to 5 (best) 
Source: World Bank 

improve 

Preparation,  development  and  implementation 
of  major  infrastructure  projects  are  advancing 
slowly. A realistic and mature project pipeline that 
can 
the  quality  and  quantity  of 
infrastructure,  complete  the  multimodal  corridor 
and fully use the EUR 6.3 billion (63) available for 
the  2014-2020  period  is  still  needed  (see  Section 
3.4). The projects currently implemented under the 
2014-2020 programmes are those prepared but not 
completed  during 
the  previous  programming 
period.  In  late  2017  and  early  2018,  three  new 
major 
the 
Commission (64). Although there is no more risk of 
foregoing  part  of  the  EU  funds  earmarked  for  the 
Large Infrastructure Operational Programme 2018-
2019, given the size and complexity of many of the 
the 
there 
projects, 
performance 
implementation 

to  accelerate 
The 

is  a  need 
process. 

projects  were 

submitted 

to 

(63)  From  the  European  Structural  and  Investment  Funds  and 

the Connecting Europe Facility 

(64)  Notably  on  the  construction  of  the  Tȃrgu  Mureş  –  Ogra  - 
Cȃmpia  Turzii  motorway,  the  rehabilitation  of the  railway 
line between the border with Hungary and Braşov, section 
km  614  –  Gurasada  –  Simeria;  construction  of  the 
Bucharest metro line 6 (1 Mai – Otopeni).  

electricity, several interconnectivity projects would 
still  have  to  be  carried  out  for  Romania  to  reach 
the 10 % electricity interconnection target by 2020 
and fully exploit its high generation capacity. Such 
projects include interconnection lines and upgrades 
of  six  internal  lines  to  increase  interconnection 
capacities with Moldova, Bulgaria and Serbia 

Waste  management  reform  is  progressing  only 
slowly.  The  national  waste  management  plan  and 
the  waste  prevention  programme  were  adopted  in 
December  2017.  This 
is  a  prerequisite  for 
accessing  EU  funds  during  the  2014-2020  period. 
The  implementation  of  the  reform  is  now  needed 
by  the  national  and  regional  authorities.  The 
performance gap with the EU rules is, however, so 
large that even after adoption of the plan, meeting 
the  required  legal  deadlines  will  be  difficult  to 
achieve  in practice.  The  rate  of  landfilling is high 
and  most  waste 
is  not  recycled  (European 
Commission,  2017a).  The  roll-out  of  effective 
measures  to  stimulate  selective  collection  and 
recycling  are  urgently  needed.  In  addition  to  the 
solid  waste  management  sector,  improvements  in 
efficiency and coverage should also continue in the 
water/wastewater  sector,  as  2018  brings  the  final 
deadline for complying with EU rules. 

TRANSPORT 

The  general  condition  and  reliability  of  road 
and  rail  infrastructure  remains  poor.  Despite 
substantial  investments,  the  state  of  the  road 
infrastructure  remains  precarious.  Motorways  and 
national roads account for slightly more than 20 % 
of the road network, while some 90 % of national 
roads have only one traffic lane in each direction. 
This  is  detrimental  to  delivery  times  and  road 
safety. Heavy underinvestment in maintenance has 
reduced  train  speed  and  affected  rail  freight 
delivery  times  (OECD,  2016).  The  poor  state  of 
the infrastructure affects the efficiency with which 
Romania can ship its goods and connect producers 
with  consumers  compared  to  its  main  trading 
partners (Graph 3.5.3). 

the 

very 

sector 

transport 

is 
The  reform  of 
slowly.  The  Romanian 
progressing 
the 
in  September  2016 
government  adopted 
is  a 
national 
precondition  for  accessing  2014-2020  European 
Structural  and  Investment  Funds.  However,  the 
plan  only  gives  a  general  picture  of  the  priority 

transport  master  plan,  which 

44 

0,001,002,003,004,005,00LPI ScoreCustomsInfrastructureInternationalshipmentsLogisticscompetenceTracking &tracingTimelinessRomaniaFranceGermanyItaly 
 
                                                           
3.5. Sectoral policies 

contracts that the Ministry of Transport concluded 
with  the  national  road  and  rail  companies  in 
improve 
October  2017  should  be  used 
and 
motorway 
implementation,  also  by 
introducing  modern 
management practices.  

to 
planning 

railway 

and 

Box 3.5.1: Policy highlights: ICT innovative cluster development and advanced 
manufacturing in West Romania 

The  IT  infrastructure  is  considered  satisfactory  by  businesses  and  investors  and  it  is  supportive  of  the 
international  competitiveness  in  fields  such  as  software  development,  engineering  and  design.  There  is  a 
vibrant  ICT  developers  community  which  starts  to  show  spill-overs  in  high-tech  products  and  start-ups 
concentrated  in  specific  sectors  such  as  automotive,  advanced  packaging,  logistical  services  and  mobility 
technologies. 

The  development  of  clusters  in  ICT  and  advanced  manufacturing  is  particularly  dynamic  in  the  capital 
region  and  West  Romania;  diversifying  towards  advanced  manufacturing  and  higher-value  techniques  has 
been  recognised  as  an  opportunity  for  regional  industrial  development.  The  Regional  Development  Plan 
2014-2020 and the Cluster Observatory scorecard for West Romania identify ICT as the most relevant key 
enabling technology for the region. More than 22% of the region's working age population is employed in 
the manufacturing sector, and more than half of all employed in manufacturing-oriented clusters. 

The  ICT  sector  has  been  developing  rapidly  in  recent  years  especially  in  Timisoara,  capitalising  on  the 
presence  of  important  technical  universities  and  their  close  partnerships  with  leading  companies,  for 
example in the field of big data analytics where students enrolled in the West University of Timisoara can 
receive training at IBM on issues related to cloud computing, analytics, mobilecam and securitys and where 
IBM  professionals  are  involved  in  the  re-design  of  the  university  curriculum  for  post-graduate  degrees, 
doctoral studies and research projects. 

The  West  region  shows  an  emerging  and  dynamic  ecosystem  for  advanced  manufacturing,  and  there  are 
opportunities  in  the  development  of  cross-sector  technological  capabilities  for  the  industry  especially  in 
fields  such  as  ICT  and  big  data,  high-performance  computing  and  supercomputing,  mechatronics, 
electronics and nanoelectronics, as well as new materials testing. The regional Smart Specialisation (RIS3) 
Strategy targets improving SMEs’ R&D&I capacities across the board, as well as the development of the six 
priority  sectors  where  the  region  has  a  comparative  advantage  (automotives,  ICT,  agro-food,  textiles, 
construction and tourism). 

There are more and more cases of start-ups and local SMEs providing support with electronics, ICT services 
and software development for the manufacturing sector. The fields of Big Data and 3D printing have also 
proven  to  be  interesting  business  opportunities  for  local  SMEs  and  new  multinational  corporations  alike. 
Their integration into the local production sector continues rising fast, especially in the automotive sector.  

45 

 
 
 
ANNEX A 

Overview table 

Commitments  

2017 Country-specific recommendations (CSRs)  

Summary assessment (65) 

the 

from 

significant  deviation 

CSR  1:  In  2017,  ensure  compliance  with  the  Council 
Recommendation  of  16  June  2017  with  a  view  to 
correcting 
the 
adjustment  path  toward  the  medium-term  budgetary 
objective. In 2018, pursue a substantial fiscal effort in 
line with the requirements of the preventive arm of the 
Stability  and  Growth  Pact.  Ensure  the  full  application 
of the fiscal framework. Strengthen tax compliance and 
collection.  Fight  undeclared  work, 
including  by 
ensuring the systematic use of integrated controls.  

Romania  has  made  Limited  Progress  in  addressing 
CSR  1  (the  overall  assessment  of  CSR  1  does  not 
include an assessment of compliance with the Stability 
and Growth Pact). 

the  Council 
In  2017,  ensure  compliance  with 
Recommendation  of  16  June  2017  with  a  view  to 
correcting 
the 
adjustment  path  toward  the  medium-term  budgetary 
objective.  

significant  deviation 

from 

the 

The  compliance  assessment  with  the  Stability  and 
Growth Pact will be included in spring once final data 
for 2017 are available.  

In  2018,  pursue  a  substantial  fiscal  effort  in  line  with 
the requirements of the preventive arm of the Stability 
and Growth Pact.  

The  compliance  assessment  with  the  Stability  and 
Growth Pact will be included in spring once final data 
for 2017 are available.  

Ensure the full application of the fiscal framework.  

No  Progress  There  was  no  progress  on  ensuring  the 
application  of  the  fiscal  framework.  The  2017  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 

(65)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case  by  case  basis  taking  into  account  country-specific  conditions.  They 
include the following:  
 

no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  national  reform  programme,  in  any  other 
the  European 
official  communication 
Commission, publicly (e.g. in a press statement or on the 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). 
However, it has not proposed any clearly-specified measure(s) to address the CSR. 

/  relevant  parliamentary  committees  or 

the  national  Parliament 

 
 

to 

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 legislative body but these have not been adopted yet and substantial further 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 
 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures 
have  been  implemented.  For  instance,  a  measure  or  measures  have  been  adopted  by  the  national  Parliament  or  by 
ministerial decision, but no implementing decisions are in place. 

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

have been implemented. 

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

46 

 
 
                                                           
Strengthen tax compliance and collection.  

A. Overview Table 

of 15 August.  

Limited  Progress  Despite  an  improvement  registered 
in 2015, the VAT gap in Romania remains the highest 
in  the  EU.  The  size  of  the  informal  economy  is  also 
large  (22.1%  according  to  2014  estimates),  reflecting 
significant 
tax  evasion  and  undeclared  work. 
Moreover,  the  mandatory  introduction  of  electronic 
cash  registers  connected  to  the  tax  administration's  IT 
system,  which  was  supposed  to  help  improve  VAT 
collection, has been postponed again.  

Fight  undeclared  work,  including  by  ensuring  the 
systematic use of integrated controls.  

but 

Some Progress. A number of important modifications 
were  made  to  the  labour  and  fiscal  codes  broadening 
the  definitions  of  undeclared  work.  Under-declared 
included.  Coercive 
earnings  are  now  explicitly 
measures  were  expanded,  also  benefiting  from  media 
coverage, 
still 
insufficiently  used.  However,  in  2017  the  labour 
inspection conducted fewer joint inspections compared 
to  the  previous  year  due  to  the  late  signature  of  the 
memorandum  of  understanding  with  ANAF.  Social 
partners  are  still  insufficiently  involved,  the  dialogue 
with  external  stakeholders  is still  relatively  weak,  and 
quality management is at early stages.  

preventive  measures 

are 

Romania  has  made  Limited  Progress  in  addressing 
CSR 2  

CSR  2:  Strengthen  targeted  activation  policies  and 
integrated  public  services,  focusing  on  those  furthest 
away  from  the  labour  market.  Adopt  legislation 
equalising  the  pension  age  for  men  and  women. 
Establish a transparent mechanism for minimum wage-
setting,  in  consultation  with  social  partners.  Improve 
access  to  quality  mainstream  education,  in  particular 
for  Roma  and  children  in  rural  areas.  In  healthcare, 
shift to outpatient care and curb informal payments.  

Strengthen  targeted  activation  policies  and  integrated 
public  services,  focusing  on  those  furthest  away  from 
the labour market.  

the  active 

Limited  Progress  Despite  measures  to  include  more 
categories of disadvantaged groups and to improve the 
financial  attractiveness, 
labour  market 
policies  appear  insufficiently  well  designed  and  the 
administrative  burden  remains  a  disincentive  for 
employers. There is no case management for long-term 
unemployed  and  social  assistance  beneficiaries  or 
cooperation  procedures  between  public  employment 
services  and  social  assistance  or  educational  services. 
Some progress has been made with outreaching young 
people  not  in  education,  employment  or  training 
following 
the  project  INTESPO. 
Progress  on  introducing  integrated  teams  in  the  most 
disadvantaged  communities  is  limited,  despite  several 
months  of  discussions,  due  to  lack  of  involvement  of 
rigid 
certain  actors, 

low  political  priority  and 

the  signing  of 

47 

 
A. Overview Table 

Adopt  legislation  equalising  the  pension  age  for  men 
and women.  

No  Progress  The  bill  on  pension  age  equalisation  for 
men and women is still pending in parliament.  

employment provisions.  

Establish a transparent mechanism for minimum wage-
setting, in consultation with social partners.  

No  Progress  Despite  a  proposal  for  an  objective 
mechanism  endorsed  by  the  social  partners  as  a  good 
basis,  the  minimum  wage  continues  to  be  set  on  a 
discretionary  basis.  Moreover,  the  opinions  of  the 
social  partners  are  not  taken  into  account,  even  when 
they converge, as it was the case for the recent transfer 
of social contributions to employees and the changes to 
the Fiscal code.  

Improve  access  to  quality  mainstream  education,  in 
particular for Roma and children in rural areas.  

segregation  has  yet 

the  kindergarten  coupon 

Limited Progress Limited progress to improve access 
to  quality  mainstream  education,  in  particular  for 
Roma  and  children  in  rural  areas.  Implementation  of 
the  ESF-financed  calls  to  attract  highly  qualified 
teachers  in  disadvantaged  schools  and  to  tackle  early 
school leaving is delayed, with limited or no impact on 
the  ground.  The  methodology  to  identify  and  tackle 
to  be  developed. 
school 
Implementation  of 
for 
children 
from  disadvantaged  backgrounds  has 
continued,  but  the  number  of  children  not  previously 
enrolled is very low and hence the impact on enrolment 
rates is only marginal. An early-warning mechanism to 
identify children at risk of drop-out is being developed 
and there are plans to launch an ESF-financed call for 
second  chance  programmes.  However,  prevention 
measures for early school leaving tend to be focused on 
social programmes, whereas the focus on the quality of 
education provided is rather limited. Existing measures 
to  address  Roma 
in  education  remain 
insufficient  to  tackle  the  magnitude  of  the  challenge. 
Implementation  of  the  new  school  curriculum  is 
progressing,  but  is  incomplete,  while  textbooks  have 
raised  a  series  of  controversies.  Beyond  the  ongoing 
ESF  project  to  finance  teacher  training  in  view  of  the 
new  curriculum, 
teacher 
initial  and 
education  programmes  remain  insufficiently  geared 
towards fostering inclusive education in the classroom. 
The  strategy  on  education  infrastructure  has  been 
finalized  at  the  end  of  2017.  However,  no  specific 
budget has been set aside for the implementation of the 
strategy and the implementation capacity remains very 
modest.  

in-service 

inclusion 

In healthcare, shift to outpatient care  

Limited  Progress  A  variety  of  measures  will  be 
implemented  in  the  2018  Framework  Contract  of  the 
National  Health  Insurance  House  with  the  providers: 
(i) The administrative burden for family doctors will be 

48 

 
A. Overview Table 

reduced  using  eHealth  solutions.  (ii)  In  rural  areas, 
pilot  projects  will  be  implemented  to  increase  the 
number  of  family  doctors  by  setting  a  pay  per 
performance  system.  (iii)  The  fees  for  specialised 
ambulatory care will be raised close to the level of day 
hospital. Other measures are planned in the context of 
the Regional Health Plans and Regional Master Plans, 
some  of  which  will  required  some  legislative  changes 
that  are  currently  discussed  to  be  approved  by  the 
corresponding  Commissions  of  Specialties: 
(i) 
Palliative  care  is  being  reorganised  with  an  integrated 
approach (home-ambulatory-inpatient care) as part of a 
World  Bank  project;  (ii)  In  connection  with  the 
building of the regional hospitals, some of the beds in 
the  old  county  hospitals  will  be  reconverted  to 
palliative  and  long  term  care;  (iii)  The  Romanian 
government  will  invest  in  infrastructure  regarding  the 
ambulatory  specialised  care  (policlinics);  (iv)  A 
network  of  Integrated  Community  Centres  equipped 
with 
developed, 
teams  will 
complemented  with  training  for  community  nurses. 
Nonetheless, 
the 
National  Health  Strategy  2014-2020  (with  the  overall 
aim  of  shifting  from  inpatient  to  outpatient  care)  is 
marred by shifting priorities, poor investment planning, 
lack  of  clear  political  commitment  and  the  modest 
administrative capacity of the Ministry of Health. The 
progress  on  mobilizing  ESIF  to  reinforce  outpatient 
care  remains  very  limited.  Efforts  are  still  focused  on 
the  hospital  sector  (regional  hospitals).  While  some 
ESIF calls have been launched and implementation can 
finally  start,  the  political  will  to  ensure  the  shift 
towards outpatient care seems to be lacking.  

implementation  of 

the  ongoing 

integrated 

be 

and curb informal payments.  

Some  Progress  An  Integrity  Service  within  the 
Ministry  of  Health  is  connected  to  the  National 
the 
Integrity  Agency  and  receives  support  from 
National  Anticorruption  Directorate.  The  Service 
monitors  patients’  feedback  mechanism  which  was 
revamped in December 2016. The feedback is based on 
two  elements:  a  survey  of  patients’  satisfaction 
following  hospital  discharge  and  a  secure  telephone 
line.  Between  July  and  October  2017,  a  total  of  164 
calls  were  registered  of  which  48  involved  some 
offence and 37 were corruption-related. A report on the 
satisfaction survey is produced on a monthly basis (to 
be  sent  to  the  Commission). The  Government  and  the 
hospitals  are  running  awareness-raising  campaigns. 
However,  it  is  too  early  to  assess  the  impact  of  the 
above measures on the reduction of informal payments.   

49 

 
A. Overview Table 

CSR 3: Adopt legislation to ensure a professional and 
independent  civil  service,  applying  objective  criteria. 
Strengthen  project  prioritisation  and  preparation  in 
full  and 
public 
sustainable  implementation  of  the  national  public 
procurement strategy.  

investment.  Ensure 

timely 

the 

Romania  has  made  Limited  Progress  in  addressing 
CSR 3  

legislation 

Adopt 
independent civil service, applying objective criteria.  

to  ensure  a  professional  and 

to 

Institute 

legislation  sent 

the 
Limited  Progress  Draft 
Parliament in December is now aligned with the Civil 
Service  Strategy.  The  National 
of 
Administration  has  become  operational  since  June 
2017.  A  project  with  the  World  Bank  was  recently 
signed  to  implement  some  of  the  key  actions  of  the 
human  resource  management  reform.  First  results  of 
the project may be available by mid-2019 and depend 
on  the  legal  text  adopted  by  Parliament  and  the 
effective  implementation  of  the  measures  under  the 
World  Bank  project.  It 
to  address 
dysfunctionalities  in  public  administration  and  public 
investments governance in all sectors including quality 
of implementation and absorption of ESIF.  

is  essential 

Strengthen  project  prioritisation  and  preparation  in 
public investment.  

burdensome 

implementation 

Limited  Progress  Despite  some  progress  with  public 
procurement  reform,  limited  political  ownership  of 
administrative 
structural  measures, 
procedures  and 
lack  of  stable  prioritization  and 
strategic  planning  hold  back  the  implementation  of 
important  policies  across  many  sectors,  including  the 
of  ESI  Funds.  New 
timely 
administrative structures were set up in the Ministry of 
Finance in 2016 to facilitate public-private partnerships 
(Directorate  for  Management  of  Public  Investments). 
The  Government  Programme  2017-2020  retains  a 
focus  on  PPP.  Technical  assistance  projects  under  the 
SRSP  focus  on  improving  the  related  existing  legal 
framework  and  administrative  capacity  and  enhancing 
the 
public 
investment  agenda  remains  influenced  by  changing 
priorities  and  the  link  with  the  adopted  strategic 
framework remains modest. 

prioritisation.  However 

investment 

Ensure  the  timely  full  and  sustainable  implementation 
of the national public procurement strategy.  

to 

Some  Progress  Despite  efforts  to  engage  a  thorough 
reform  of  the  public procurement  system  and  tangible 
achievements  made  in  2017,  the  process  was  marked 
by  instances  of  backtracking  and  lack  of  political 
the  critical 
implement  some  of 
ownership 
commitments  taken  in  the  context  of  the  national 
public  procurement  action  plan.  Further  focus  and 
progress  are  needed  to  ensure  the  sustainability  of 
reforms and the enforcement of measures allowing the 
use  of  the  opportunities  provided  by  the  new  public 
procurement  directives.  The  areas  where  further 

50 

 
A. Overview Table 

is  supported  via 

the  contracting  authorities, 

progress  is needed  include  the  professionalization  and 
empowerment  of 
the 
aggregation of purchases, use of strategic procurement 
and balanced articulation of controls. The reform of the 
public  procurement  system 
the 
establishment  of  a  Public  Procurement  Agency,  the 
transposition of the 2014 public procurement directives 
and  the  adoption  of  secondary  legislation.  However, 
pressures  to  exempt  some  investments  from  public 
procurement  rules  continue  to  affect  implementation. 
The  irreversibility  of  the  public  procurement  reform 
and  further  monitoring  in  the  context  of  the  EU 
Semester process remain essential.  

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 70 %.  

R&D target set in the NRP: 2 % of GDP  

The national target of 70 % by 2020 is within reach as 
the  employment  rate  in  the  age  group  20-64  was  at 
69.0% in Q3-2017.   

the  period  2016-2020.  Moreover, 

Romania  will  not  reach  the  R&D  intensity  target  by 
2020.  The  country’s  R&D  intensity  in  2016  was  only 
0.48%  of  GDP.  To  reach  its  2020  target,  R&D  in 
Romania will need to grow by an average of 42.7% per 
the 
year  over 
Romanian  R&D  intensity  fell  annually  by  2%  in  the 
period 2007-2016. In 2016, public R&D intensity was 
20% lower than in 2015, while business R&D intensity 
increased  by  24%.  Business  R&D  intensity  reached 
0.27%  of  GDP  in  2016  (26th  in  the  EU)  while  public 
R&D intensity fell to 0.22% of GDP (27th in the EU). 
EU-funded  investments  in  R&D  infrastructure  are 
slowly  taking  off,  but  they  are  unlikely  to  have  a 
significant impact on R&D performance before 2020.  

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

emissions, 

national 

gas 

target:  

estimates 

to  preliminary 

According 
in  2016, 
greenhouse gas emissions not covered by the EU ETS 
decreased  by  4%  between  2005  and  2016,  while  the 
target  for 2015  allows an  increase of 7% compared  to 
2005. According to the latest national projections based 
on existing measures, non-ETS emissions will increase 
is 
by  1%  between  2005  and  2020.  The 
consequently  expected  to  be  met  with  a  margin  of  18 
percentage points.  

target 

2020 renewable energy target: 24 %  

With  24.8%  renewable  energy  share  in  gross  final 
consumption, Romania is well on track and even above 
in  attaining  its  renewable  energy  target  for  2020. 

51 

 
 
 
A. Overview Table 

the  amendments 

Emergency Ordinance No 24/2017 was adopted on 30 
March  2017,  approving 
the 
renewable  energy  support  scheme.  This  provides 
support to promoting renewable energy in a sustainable 
manner while ensuring a reasonable consumer impact. 
This  approach  brings  the  much  needed  stability  and 
predictability 
the  Romanian  renewable  energy 
sector. 

to 

to 

Energy efficiency, 2020 energy consumption targets:  

43 Mtoe (primary energy consumption);  

30.3 Mtoe (final energy consumption).  

Early school leaving (ESL) target: 11.3 %.  

Tertiary education target: 26.7 %.  

ESI  Funds  should  further  contribute  to  meeting  this 
target  but  the  preparation  and  implementation  of 
energy efficiency projects are significantly delayed.  

The  rate  of  early  school  leaving  decreased  slightly  to 
18.5 %  in  2016,  but  the  target  of  11.3 %  remains  far 
from being reached. Romania continues to have one of 
the highest early school leaving rates in the EU.  

Progress  on  meeting  the  target  has  stalled.  In  2016, 
tertiary  attainment  remained  at  the  same  level  as  in 
2015 (25.6 %).  

Target  for  reducing  the  number  of  people  at  risk  of 
poverty  or  social  exclusion,  expressed  as  an  absolute 
number of people: 580 000.  

The  national  target  of  580 000  people  is  already 
considered  reached.  In  absolute  terms,  the  number  of 
people  lifted  out  of  the  risk  of  poverty  or  social 
exclusion  since  2008 
is  1 420 000  (2016).  The 
population taken out of poverty or social exclusion was 
however  higher  in  2015  (1  680  000)  as  compared  to 
2016.   

52 

 
  
ANNEX B 

Macroeconomic Imbalance Procedure scoreboard 

Table B.1: 

The Macroeconomic Imbalances Procedure scoreboard for Romania (AMR 2018) 

Flags:b:Break in series. p:Provisional. 
(1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document.  
(2) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. 
Source:  European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

53 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-4.9 -4.9 -3.6 -2.2 -1.0 -1.3 Net international investment position% of GDP-35%-65.4 -67.4 -62.6 -57.3 -54.6 -49.9 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-3.2 -2.0 0.4 -1.0 2.7 -2.5 Export market share - % of world exports5 year % change-6%50.2 12.8 14.2 20.7 20.9 23.6 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)-0.5 -0.2b-3.2 7.3 0.3 6.0pHouse price index (2015=100), deflated 1 year % change6%-15.8 -9.2 -2.8 -3.2 1.9 6.5 Private sector credit flow, consolidated% of GDP14%2.8 0.3 -1.4 -2.4 0.2 0.6pPrivate sector debt, consolidated% of GDP133%72.9 71.9 66.6 62.1 59.1 55.8pGeneral government gross debt% of GDP60%34.4 37.3 37.8 39.4 37.9 37.6 Unemployment rate3 year average10%6.9 7.0 7.0 6.9 6.9 6.5 Total financial sector liabilities, non-consolidated1 year % change16.5%4.6 4.4 0.8 1.3 4.0 7.6 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp1.2 1.7 0.0b1.6 1.3 0.7 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp0.5 0.8 0.8 -0.1 0.0 -0.2 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp6.3 2.6 1.6 0.1 -0.9 -3.1 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
ANNEX C 

Standard tables 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) Quarterly values are not annualised 
(5) Latest data May 2017. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

54 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)68.363.460.257.655.753.4Share of assets of the five largest banks (% of total assets)54.754.454.257.459.1-Foreign ownership of banking system (% of total assets)(2)89.890.090.090.591.491.2Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)-17.915.810.77.76.7              - capital adequacy ratio (%)17.218.817.718.919.219.1              - return on equity (%)(4)-7.10.0-15.211.310.66.1Bank loans to the private sector (year-on-year % change)(1)-0.7-3.5-1.34.53.37.5Lending for house purchase (year-on-year % change)(1)7.79.79.215.513.411.9Loan to deposit ratio(1)113.9100.890.085.379.780.8Central Bank liquidity as % of liabilities(5)3.90.3---0.0Private debt (% of GDP)71.966.662.159.155.8-Gross external debt (% of GDP)(2) - public19.120.721.819.619.118.9    - private33.530.128.926.828.326.8Long-term interest rate spread versus Bund (basis points)*518.4384.4333.1297.8323.4359.9Credit default swap spreads for sovereign securities (5-year)*310.5180.4137.4110.0105.992.5 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 
2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat. 

55 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)17.817.318.119.118.5:Gender employment gap (pps)16.116.316.717.517.616.8Income inequality, measured as quintile share ratio (S80/S20)6.66.87.28.37.2:At-risk-of-poverty or social exclusion rate1 (AROPE)43.241.940.337.438.8:Young people neither in employment nor in education and training (% of population aged 15-24)16.817.017.018.117.4:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)64.864.765.766.066.369.0Unemployment rate2 (15-74 years)6.87.16.86.85.94.9Gross disposable income of households in real terms per capita3 (Index 2008=100) ::125.7135.4::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction420.518.412.813.314.2:Children aged less than 3 years in formal childcare15.06.02.69.417.4:Self-reported unmet need for medical care11.510.99.89.46.5:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::26.028.029.0 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.     
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD. 

56 

Labour market indicators201220132014201520162017 5Activity rate (15-64)64.864.965.766.165.6:Employment in current job by durationFrom 0 to 11 months5.35.25.06.24.9:From 12 to 23 months6.65.86.07.46.4:From 24 to 59 months22.121.220.019.520.5:60 months or over66.067.869.066.868.2:Employment growth* (% change from previous year)-4.8-0.90.8-1.3-0.93.7Employment rate of women(% of female population aged 20-64)56.756.557.357.257.460.5Employment rate of men (% of male population aged 20-64)72.872.874.074.775.077.3Employment rate of older workers* (% of population aged 55-64)41.641.843.141.142.844.5Part-time employment* (% of total employment, aged 15-64)9.39.08.78.87.46.9Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)1.51.41.51.41.41.2Transition rate from temporary to permanent employment(3-year average)57.357.757.856.5::Long-term unemployment rate1 (% of labour force)3.03.22.83.03.02.1Youth unemployment rate (% active population aged 15-24)22.623.724.021.720.617.3Gender gap in part-time employment1.31.01.30.70.40.2Gender pay gap2 (in undadjusted form)6.94.94.55.8::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)1.42.01.51.31.2:Underachievement in education340.8::39.9::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)21.722.925.025.625.6:Variation in performance explained by students' socio-economic status419.3::13.8:: 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD. 

57 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.03.93.93.8::Disability1.21.11.11.1::Old age and survivors8.28.08.07.9::Family/children1.31.21.21.3::Unemployment0.20.20.10.1::Housing0.00.00.00.0::Social exclusion n.e.c.0.20.20.20.2::Total15.214.614.414.3::of which: means-tested benefits0.60.60.60.6::General government expenditure by function (% of GDP, COFOG)Social protection12.311.511.411.411.6:Health3.84.04.04.24.0:Education3.02.83.03.13.7:Out-of-pocket expenditure on healthcare (% of total health expenditure)22.420.220.321.3::Children at risk of poverty or social exclusion (% of people aged 0-17)*52.551.450.746.849.2:At-risk-of-poverty  rate1 (% of total population)22.923.025.125.425.3:In-work at-risk-of-poverty rate (% of persons employed)19.018.419.818.818.9:Severe material deprivation rate2  (% of total population)31.129.825.922.723.8:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan19.916.14.91.61.4:Tenant, rent at market price19.021.232.853.046.0:Proportion of people living in low work intensity households4 (% of people aged 0-59)7.97.67.27.98.2:Poverty thresholds, expressed in national currency at constant prices*38843888399142534518:Healthy life years (at the age of 65)Females5.15.25.75.7::Males5.95.85.96.3::Aggregate replacement ratio for pensions5 (at the age of 65)0.70.70.70.60.7:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::43.946.249.854.1GINI coefficient before taxes and transfers*53.251.852.154.154.4:GINI coefficient after taxes and transfers*33.234.034.737.434.7: 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1)The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 don't know. 
(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 here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm. 
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
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). 

58 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry6.722.31-4.524.241.389.362.48Labour productivity in Construction-20.16-31.9313.847.051.677.554.87Labour productivity in Market Services0.81-8.8241.170.83-0.023.764.70Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry1.99-2.4818.48-3.780.74-0.532.66ULC in Construction7.5037.79-3.52-5.01-10.864.33-3.78ULC in Market Services5.6611.83-29.306.197.37-0.586.55Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)512.0512.0512.0512.0512.0512.0512.0Time needed to start a business(1) (days)8.012.08.08.08.08.012.0Outcome of applications by SMEs for bank loans(2)na0.71na0.990.940.460.36Research and innovation2010201120122013201420152016R&D intensity0.450.490.480.390.380.490.48General government expenditure on education as % of GDP3.304.103.002.803.003.10naPersons with tertiary education and/or employed in science and technology as % of total employment22232424242627Population having completed tertiary education(3)12131414141515Young people with upper secondary level education(4)78808080808080Trade balance of high technology products as % of GDP-1.62-1.46-1.79-1.96-1.66-1.74naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overallnana1.69OECD PMR5, retailnana1.80OECD PMR5, professional servicesnananaOECD PMR5, network industries(6)nana1.97 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % 
change) 
Real unit energy cost: real energy costs as % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG 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 2010 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

59 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.290.270.240.230.230.21Carbon intensity kg / €0.990.960.860.830.81-Resource intensity (reciprocal of resource productivity)kg / €3.513.373.283.253.313.20Waste intensity kg / €-1.92-1.27--Energy balance of trade % GDP-2.7-3.0-1.9-1.4-0.9-0.9Weighting of energy in HICP%17.7712.5212.4512.2112.2511.94Difference between energy price change and inflation %1.01.35.00.12.8-1.0Real unit of energy cost% of value added24.925.623.622.6--Ratio of environmental taxes to labour taxesratio0.180.180.190.220.24-Environmental taxes% GDP1.92.02.02.32.42.3Sectoral Industry energy intensity kgoe / € 0.180.200.180.180.170.15Real unit energy cost for manufacturing industry excl. refining% of value added21.022.721.721.4--Share of energy-intensive industries in the economy% GDP13.6711.7911.5912.2012.5612.77Electricity prices for medium-sized industrial users€ / kWh0.080.080.090.080.080.08Gas prices for medium-sized industrial users€ / kWh0.020.030.030.030.030.03Public R&D for energy % GDP0.020.010.010.020.010.02Public R&D for environmental protection% GDP0.020.020.020.010.010.02Municipal waste recycling rate%11.714.813.213.113.2-Share of GHG emissions covered by ETS*%47.044.638.038.237.735.3Transport energy intensitykgoe / €0.770.580.550.600.530.47Transport carbon intensitykg / €2.071.631.551.701.50-Security of energy supplyEnergy import dependency%21.622.718.517.117.122.3Aggregated supplier concentration indexHHI16.712.412.814.217.8-Diversification of energy mixHHI0.230.230.230.230.230.23 
 
 
 
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