Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Romania and delivering a Council opinion on the 2018 Convergence Programme of Romania
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Romania, access to education, budget deficit, economic policy, economic reform, health policy, social dialogue, stability pact, stability programme, tax collection

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 422 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Romania  and delivering a Council opinion on the 2018 Convergence Programme of Romania  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Romania 

and delivering a Council opinion on the 2018 Convergence Programme of Romania 

THE COUNCIL OF THE EUROPEAN UNION, 

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

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

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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3 
4 

On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Romania as one of the Member States for which an in-depth review would be carried 
out.  
The  2018  country  report  for  Romania4  was  published  on  7  March  2018.  It  assessed 
Romania’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 

OJ L 209, 2.8.1997, p. 1. 
COM(2018) 422 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 
SWD(2018) 221 final. 

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(3) 

(4) 

(5) 

(6) 

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the Council on 11 July 2017, the follow-up given to the recommendations adopted in 
previous years and Romania's progress towards its national Europe 2020 targets. 

Romania  submitted  its  2018  National  Reform  Programme  on  10  May  and  its  2018 
Convergence Programme on 14 May 2018. To take account of their interlinkages, the 
two programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council5,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance6.  

Romania  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2018 Convergence Programme, the government plans a headline deficit of 2.95 % of 
GDP  in  2018,  and  its  gradual  reduction  thereafter,  to  1.45  %  of  GDP  in  2021.  The 
medium-term budgetary objective, a structural deficit of 1 % of GDP, is not expected 
to be reached by 2021, which is the end of the programme horizon. The recalculated 
structural balance is expected to reach -2.1 % in 2021. According to the Convergence 
Programme, the general government debt-to-GDP ratio is expected to remain below 40 
% by 2021. The macroeconomic scenario underpinning those budgetary projections is 
favourable. Moreover, the measures needed to support the planned deficit targets have 
not been sufficiently specified. 

On 16 June 2017, the Council decided in accordance with Article 121(4) of the Treaty 
on  the  Functioning  of  the  European  Union  ("TFEU")  that  a  significant  observed 
deviation  from  the  medium-term  objective  occurred  in  Romania  in  2016.  In  view  of 
the  established  significant  deviation,  on  16  June  2017  the  Council  recommended 
Romania to take the necessary measures to ensure that the nominal growth rate of net 
primary government expenditure7 does not exceed 3.3 % in 2017, corresponding to an 
annual  structural  adjustment  of  0.5  %  of  GDP.  On  5  December  2017  the  Council 
found  that  Romania  had  not  taken  effective  action  in  response  to  the  Council 
recommendation  of  16  June  2017  and  issued  a  revised  recommendation.  In  the  new 
recommendation the Council asked Romania to take the necessary measures to ensure 
that the nominal growth rate of net primary government expenditure does not exceed 
3.3 % in 2018, corresponding to an annual structural adjustment of 0.8 % of GDP. On 

Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund, the  Cohesion Fund, the European Agricultural Fund for Rural Development and the European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 
Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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XX  June  2018  the  Council  found  that  Romania  had  not  taken  effective  action  in 
response  to  the  Council  recommendation  of  5  December  2017.  Moreover,  based  on 
2017  outturn  data  Romania  was  found  to  be  in  significant  deviation  from  the 
recommended adjustment in 2017. In line with Article 121(4) TFEU and Article 10(2) 
of  Council  Regulation  (EC)  No  1466/97,  the  Commission  issued  a  warning  to 
Romania on 23 May 2018 that a significant deviation from the adjustment path toward 
the  medium-term  budgetary  objective  was  observed  in  2017.  On  XX  June  2018,  the 
Council  adopted  a  subsequent  recommendation  confirming  the  need  for  Romania  to 
take  the  necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government  expenditure  does  not  exceed  3.3 %  in  2018,  corresponding to  an  annual 
structural  adjustment  of  0.8  %  of  GDP.  Based  on  the  Commission  2018  spring 
forecast, there is a risk of a deviation from that recommendation in 2018. 

For 2019, the Council on XX June 2018 recommended Romania to take the necessary 
measures  to  ensure  that  the  nominal  growth  rate  of  net  primary  government 
expenditure does not exceed 5.1 %, corresponding to an annual structural adjustment 
of 0.8 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of a 
deviation  from  that  requirement  in  2019.  In  addition,  the  Commission  2018  spring 
forecast projected a general government deficit of 3.4 % and 3.8 % of GDP for 2018 
and 2019, above the 3 %-of-GDP Treaty reference value. Overall, the Council is of the 
opinion that significant further measures will be needed as of 2018 to comply with the 
provisions of the Stability and Growth Pact, in light of a strongly deteriorating fiscal 
outlook,  in  line  with  the  recommendation  addressed  to  Romania  on  XX  June  2018 
with a view to correcting the significant observed deviation from the adjustment path 
toward the medium-term budgetary objective. 

Romania's  budgetary  planning  regularly  ignores  the  prescriptions  of  its  fiscal 
framework  despite  the  need  for  responsible  fiscal  policy-making.  Romania’s  fiscal 
responsibility law transposes the Fiscal Compact into national legislation. Its rules are 
well designed but are recurrently overlooked in practice. In 2016 the structural deficit 
increased  above  the  medium-term  objective,  in  breach  of  the  deficit  rule.  Both  the 
2017 and 2018 budgets targeted a headline deficit of close to 3 % of GDP, implying a 
deterioration  of  the  structural  balance  against  the  rule.  The  two  budget  amendments 
undertaken  in  2017  were  not  compliant  with  the  rules  prohibiting  increases  of  the 
headline and primary deficit ceilings and increases in personnel and total government 
expenditure  during  the  ongoing  fiscal  year  respectively.  Furthermore,  as  in  earlier 
years, in 2017 the update of the fiscal strategy was provided to Parliament long after 
the  statutory  deadline,  thus  failing  to  provide  a longer-term  perspective to  budgetary 
planning.  

Tax  compliance  remains  low,  in  particular  for  the  value  added  tax.  In  the  past  year, 
Romania  achieved  limited  progress  in  addressing  the  repeated  country-specific 
recommendation  to  strengthen  tax  compliance  and  collection.  As  regards  the  value 
added  tax,  the  difference  between  theoretically  expected  and  actually  collected 
revenues  remains  very  high.  To  improve  compliance,  the  authorities  introduced  split 
payments.  This  is  optional  except  for  insolvent  companies  and  taxpayers  with 
significant  outstanding  value added tax's liabilities. However, the measure has  yet to 
deliver  significant  results.  The  introduction  of  electronic  cash  registers  connected  to 
the 
still  pending 
implementation.  

tax  administration’s 

information 

technology 

system 

is 

(7) 

(8) 

(9) 

(10)  The health of the financial sector has further improved, but some developments need 
monitoring.  The  banking  sector  is  well  capitalised  and  asset  quality  has  improved. 

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However,  several  ongoing  legislative  initiatives,  which  risk  adversely  affecting  non-
performing  loan  disposal  and  credit  and  investment,  warrant  close  monitoring.  The 
recent  reduction  in  the  contributions  to  the  pre-funded  second  pillar  pension  funds 
eased  short  term  fiscal  concerns  but  could  have  negative  implications  for  the 
development of capital markets. 

(11)  The  labour  market  has  been  tightening  due  to  employment  growth  along  with  a 
reduction of the labour force due to demographic ageing and emigration. Romania has 
at the same time substantial unused labour potential, and several groups such as young 
people, Roma, the long-term unemployed and people with disabilities have difficulties 
in  accessing  the  labour  market.  In  the  past  year,  Romania  made  little  progress 
addressing  the  country-specific  recommendation  to  strengthen  targeted  activation 
policies  and  integrated  public  services,  focusing  on  those  furthest  away  from  the 
labour  market.  Despite 
incentives  for  mobility  schemes, 
participation  in  active  labour  market  policies  has  remained  very  low,  and  the 
administrative  burden  has  been  high.  Public  work  programmes  of  local  interest  have 
done little to provide relevant skills and support transitions into standard employment. 
There  is  no case  management  for  the  long-term  unemployed  and  recipients  of  social 
assistance. Cooperation among public employment services and social and education 
service providers and external providers respectively has been limited. 

increased  financial 

(12)  The  risk  of  poverty  or  social  exclusion  has  been  very  high.  Families  with  children, 
people  with  disabilities,  Roma,  and  the  rural  population  have  been  particularly 
affected. High income inequality persists, also due to the low impact of the tax-benefit 
system  on  mitigating  market  income  inequality.  The  social  reference  index,  which 
provides a reference when calculating the most important social benefits, has not been 
updated  since  2008.  The  minimum  inclusion  law,  scheduled  for  entry  into  force  in 
2018, would have increased the coverage and adequacy of social assistance. However, 
its entry into force was postponed by more than a year. The lower retirement age for 
women  results  in  lower  pension  entitlements,  aggravating  old-age  poverty  and  the 
gender employment gap. 

(13)  The involvement of social partners in the design and implementation of economic and 
social reforms has been very limited. The views of social partners are frequently not 
taken  into  account  even  when  they  converge.  Romania’s  collective  bargaining 
framework is not conducive to a well-functioning system of industrial relations. Social 
dialogue is characterised by a low level of collective bargaining, especially at sectoral 
level,  and  low  membership  of  trade  unions  and  employers’  organisations.  High 
representativeness  thresholds  and  the  vague  definition  of  sectors  are  among  the  key 
obstacles  to  more  effective  social  dialogue.  Legislative  amendments  to  improve  the 
framework have progressed little so far.  

(14) 

In  the  past  few  years,  the  minimum  wage  has  been  repeatedly  increased  in  a 
discretionary  manner.  Since  2015,  the  net  minimum  wage  has  risen  by  more  than 
60 %. In 2017, around 30 % of workers earned the minimum wage, implying a highly 
compressed  wage  distribution.  A  proposal  for  an  objective  mechanism  for  minimum 
wage  increases  has  been  endorsed  by  social  partners  but  not  been  applied  by  the 
government. 

(15)  The supply of skills is not keeping up with the needs of the economy. Low attainment 
levels  in  basic  skills  and  digital  skills  have  an  adverse  impact  on  competitiveness, 
employment  and  convergence.  Participation  in  adult  learning  has  been  very  low.  A 
mechanism to match active labour market policies with the demand for skills is not yet 

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in  place,  and  the  capacity  to  anticipate  future  skills  needs  and  estimate  the  expected 
impact  of  new  technologies  is  weak.  Vocational  education  and  training  remains  a 
second  choice  option  and  is  not  sufficiently  aligned  with  labour  market  needs  and 
regional or sectoral specialisation strategies.  

(16)  The  weak  performance  of  the  education  system  contributes  to  the  high  inequality  of 
opportunity and Romania’s long-run growth prospects. The provision of and access to 
quality  inclusive  mainstream  education  is  a  challenge,  in  particular  for  Roma  and 
children in rural areas. The monitoring methodology to tackle school segregation has 
yet to be developed. The rate of early leavers from education and training is decreasing 
but still high. An early-warning mechanism to identify children at risk of dropping out 
is being developed, but the focus on quality education is weak. Despite some measures 
having  been  taken,  quality  assurance  in  school  and  higher  education  is  faced  with 
challenges.  Tertiary  education  attainment  is  very  low.  Investment  in  education  is 
relatively low, and disadvantaged schools in particular are lacking appropriate support.  

(17)  The  health  status  of  the  population  has  improved,  but  remains  below  EU  standards. 
Access to healthcare remains a challenge, with negative impacts on child development, 
workforce  employability  and  healthy  ageing.  Low  funding  and  the  inefficient  use  of 
resources limit the effectiveness of the healthcare system, against the background of a 
sizeable  shortage  of  doctors  and  nurses.  Access  to  healthcare  is  limited  by  the 
prevalence of informal payments and distance to health infrastructure. Romania made 
some  progress  addressing  the  country-specific  recommendation  to  curb  informal 
payments,  and  a  monitoring  mechanism  is  being  implemented,  though  its  actual 
impact is still to be assessed. Addressing the country-specific recommendation to shift 
to outpatient care has seen limited progress so far. The ongoing implementation of the 
national health strategy is marred by shifting priorities and poor investment planning.  

(18)  Strategic  planning,  the  public  consultation  process  and  regulatory  impact  assessment 
remain  weak  in  the  design,  implementation  and  monitoring  of  policies.  This  impairs 
the  quality  and  predictability  of  regulation.  Furthermore,  frequent  changes  in 
legislation, such as amendments to the fiscal code, weigh on the business environment. 
The involvement of stakeholders in the design and implementation of reforms is weak, 
and  genuine  dialogue  is  rarely  applied,  although  relevant  institutional  structures  are 
available.  The  mechanism 
in  public 
consultations does not ensure their proper follow-up. A specific recent example is the 
disregard  of  a  proposal  endorsed  by  social  partners  for  an  objective  mechanism  for 
increasing  the  minimum  wage,  which  would  have  addressed  a  country-specific 
recommendation. No tangible results were achieved on public administration reforms. 
The  adoption  of  relevant  legislation  on  human  resource  management  in  public 
administration  has  been  delayed.  The  general  secretariat  of  the  government  has  a 
limited role in the quality control of policy design.  

for  addressing  stakeholders’  opinions 

(19)  The  poor  quality  of  infrastructure,  including  in  the  transport,  waste  and  waste  water 
sectors, limits Romania’s growth prospects. Public investment is characterised by low 
efficiency particularly in project preparation and prioritisation. The general  condition 
and reliability of road, rail and waterways infrastructure remain poor and the reform of 
the transport sector is progressing very slowly. Progress in waste management reform 
is slow too, while the solid waste and waste water sectors are facing challenges alike. 
The  transport  masterplan  and  the  national  waste  management  plan  are  intended  to 
provide a stable roadmap for investments and strengthen administrative capacity in the 
sectors,  but  the  alignment  of  project  preparation  with  strategic  planning  has  been 
limited  so  far.  Romania  achieved  limited  progress  in  addressing  a  country-specific 

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recommendation  to  strengthen  project  prioritisation  and  preparation  in  public 
investment. 

(20)  Efficient and transparent public procurement remains pivotal to addressing key policy 
challenges  to  Romania,  including  efficient  public  spending,  the  fight  against 
corruption,  and  fostering  innovation  and  sustainable  and  inclusive  growth.  Romania 
made some progress in addressing the country-specific recommendation to implement 
the public procurement strategy, but the plan is not yet fully implemented. At the same 
time, enhancing the efficiency and strategic use of public procurement, effective audit 
and fraud control still remain challenges. The sustainability of measures taken and the 
irreversibility  of  reforms  need  continued  monitoring.  Efficiency  and  transparency 
challenges  associated  with  public  procurement  apply  in  particular  to  the  large 
healthcare  infrastructure  investments  in  the  regional  hospitals  for  Iaşi,  Cluj  and 
Craiova.  

(21)  State-owned enterprises have a key role in critical infrastructure sectors such as energy 
and rail transport. However, their operational and financial performance is weaker than 
that  of  private-sector  counterparts.  The  corporate  governance  of  state-owned 
enterprises  has  been  substantially  weakened  lately,  reversing  progress  made  on 
country-specific recommendations from 2015 and 2016. Not only has implementation 
of  the  new  legislation  been  hesitant,  but  there  are  ongoing  attempts  to  exempt  a 
number of companies from its scope. Furthermore, the publication of financial data on 
state-owned  enterprises  has  been  delayed.  As  a  result,  key  conditions  for  promoting 
the  efficient  use  of  public  resources  are  being  impaired,  and  space  is  allowed  for 
distorted  investment  decisions.  In  February  2018  the  Constitutional  Court  called  on 
Parliament to revise the above exemptions.  

(22)  Developments  throughout  the  past  year  have  largely  brought  into  question  the 
irreversibility  and  sustainability  of  Romania’s  substantial  progress  on  reforming  its 
judicial  system  and  tackling  high-level  corruption.  Judicial  independence  is  being 
challenged  and  pressure  being  put  on  the  judicial  institutions  and  on  the  legal 
framework  for  fighting  corruption,  while  progress  on  remaining  challenges  is  being 
further  held  back.  The  implementation  of  the  2016-2020  national  anti-corruption 
strategy developing further measures to prevent and fight corruption is progressing at 
technical  level  but  more  tangible  political  support  is  needed,  as  corruption  and 
governance  issues  in  the  public  sector  persist  at  all  levels  and  are  among  the  top 
challenges for the business environment.  

(23)  Under  the  Cooperation  and  Verification  Mechanism,  the  Commission  continues  to 
monitor the judicial reform and the fight against corruption in Romania. These areas 
are  therefore  not  covered  in  the  country-specific  recommendations  for  Romania,  but 
are  relevant  for  the  development  of  a  positive  socio-economic  environment  in  the 
country. 

(24) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Romania’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Convergence  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Romania  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Romania  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

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(25) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Convergence 
Programme and its opinion8 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that Romania take action in 2018 and 2019 to: 

1. 

2. 

3. 

Ensure compliance with the Council recommendation of XX June 2018 with a view 
to correcting the significant deviation from the adjustment path toward the medium-
term  budgetary  objective.  Ensure  the  full  application  of  the  fiscal  framework. 
Strengthen tax compliance and collection. 

Complete the minimum inclusion income reform. Improve the functioning of social 
dialogue.  Ensure  minimum  wage  setting  based  on  objective  criteria.  Improve 
upskilling and the provision of quality mainstream education, in particular for Roma 
and children in rural areas. Improve access to healthcare, including through the shift 
to outpatient care.  

Increase  the  predictability  of  decision-making  by  enforcing  the  systematic  and 
effective  use  of  regulatory  impact  assessment  and  stakeholder  consultation  and 
involvement  in  the  design  and  implementation  of  reforms.  Improve  the  preparation 
and prioritization of large infrastructure projects and accelerate their implementation, 
particularly in the transport, waste and waste water sectors. Improve the transparency 
and efficiency of public procurement. Strengthen the corporate governance of state-
owned enterprises. 

Done at Brussels, 

For the Council 
The President 

8 

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

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