Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Romania and delivering a Council opinion on the 2019 Convergence Programme of Romania
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Romania, economic policy, economic reform, education policy, fiscal policy, pension scheme, stability pact, stability programme, tax collection, transport policy

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 523 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Romania and delivering a Council opinion on the 2019 Convergence Programme of Romania    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of Romania and delivering a Council opinion 
on the 2019 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  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof,  

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

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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2 
3 

On 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, in which it identified Romania 
as one of the Member States for which an in-depth review would be carried out.  
The 2019 country report for Romania3 was published on 27 February 2019. It assessed 
Romania’s  progress  in  addressing  the  country  specific  recommendations  adopted  by 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
SWD(2019) 1022 final. 

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the Council on 13 July 2018, the follow-up given to the recommendations adopted in 
previous  years  and  Romania's  progress  towards  its  national  Europe  2020  targets.  It 
also  included  an  in-depth  review  under  Article  5  of  Regulation  (EU)  No  1176/2011, 
the  results  of  which  were  also  published  on  27  February  20194.  The  Commission’s 
analysis led it to conclude that Romania is experiencing macroeconomic imbalances. 
In  particular,  vulnerabilities  are  linked  to  diminishing  cost  competitiveness  and  a 
widening current account deficit in a context of an expansionary fiscal policy and an 
unpredictable  business  environment.  Recent  legislative  initiatives  create  risks  for  the 
functioning of the financial sector and may harm private investment. 

On  9  May  2019,  Romania  submitted  its  2019  National  Reform  Programme  and,  on     
8  May  2019,  its  2019  Convergence  Programme.  In  order  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  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  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 ESI Funds to sound economic governance6.  

Romania  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2019  Convergence  Programme,  the  government  plans  a  headline  deficit  of  2.8%  of 
GDP in 2019, and its gradual reduction thereafter, to 2.0% of GDP in 2022. Based on 
the  recalculated  structural  balance7,  the  medium-term  budgetary  objective,  set  at  a 
structural  deficit  of  1%  of  GDP,  is  not  planned  to  be  achieved  over  the  programme 
horizon. According to the Convergence Programme, the general  government debt-to-
GDP  ratio  is  expected  to  remain  below  40%  by  2022.  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 22 June 2018, 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 budgetary objective occurred in Romania in 2017. In 
view  of  the  established  significant  deviation,  on  22  June  2018  the  Council 
recommended  Romania  to  take  the  necessary  measures  to  ensure  that  the  nominal 
growth rate of net primary government expenditure8 does not exceed 3.3% in 2018 and 

COM(2019) 150 final. 
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. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 
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 

(3) 

(4) 

(5) 

(6) 

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taken  effective  action 

5.1%  in  2019,  corresponding  to  an  annual  structural  adjustment  of  0.8%  of  GDP  in 
each  year.  On  4  December  2018,  the  Council  found  that  Romania  had  not  taken 
effective  action  in  response  to  the  Council  recommendation  of  22  June  2018  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 4.5% in 2019, corresponding to an 
annual  structural  adjustment of 1.0% of GDP.  On XX June 2019, the Council found 
that  Romania  had  not 
the  Council 
recommendation of 4 December 2018. Moreover, based on 2018 outturn data Romania 
was found to be in significant deviation from the recommended adjustment in 2018.In 
line with Article 121(4) TFEU and Article 10(2) of Regulation (EC) No 1466/97, the 
Commission issued a warning to Romania on 5 June 2019 that a significant deviation 
from the adjustment path toward the medium-term budgetary objective was observed 
in  2018.  On  XX  June  2019,  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 4.5% in 
2019, corresponding to an annual structural adjustment of 1.0% of GDP. Based on the 
Commission  2019  spring  forecast,  there  is  a  risk  of  a  deviation  from  that 
recommendation in 2019. 

in  response 

to 

(7) 

(8) 

For 2020, the Council on XX June 2019 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 
0.75%  of  GDP.  Based  on  the  Commission  2019  spring  forecast  under  unchanged 
policies, there is a risk of a deviation from that requirement in 2020. In addition, the 
Commission  2019  spring  forecast  projected  a  general  government  deficit  above  the 
3%-of-GDP Treaty reference value in 2019 and in 2020. Overall, the Council is of the 
opinion that significant further measures will be needed as of 2019 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  2019 
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  provisions  of  the  national  fiscal 
framework.  The  national  structural  deficit  rule  requires  compliance  with  or 
convergence  to  the  medium-term  budgetary  objective  of  a  structural  deficit  not 
exceeding  1% of GDP.  In 2016 Romania departed from  the medium-term budgetary 
objective and is  on a divergent  path  since, in  breach of the national  deficit rule. The 
two  2018  budget  amendments  adopted  in  autumn  2018,  departed  once  again  from 
several auxiliary rules prohibiting increases in deficit and expenditure ceilings during 
the  ongoing  fiscal  year.  The  2019  budget,  adopted  by  the  government  in  February 
2019  and  approved  by  the  Parliament  in  March,  again  departed  from  multiple  fiscal 
rules,  including  the  structural  deficit  rule.  Moreover,  as  in  previous  years,  the 
authorities did not send an update of the medium-term fiscal strategy to Parliament by 
the  statutory  August  deadline,  thereby  undermining  its  guiding  role.  Also,  as  in 
previous years, the authorities did not comply with the requirement to sign a statement 
that  the  2019  budget  and  the  fiscal  strategy  respect  the  fiscal  rules  and  principles  of 
fiscal responsibility. 

mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(9) 

Tax  compliance  remains  low.  As  regards  Value  Added  Tax,  the  difference  between 
theoretically  expected  and  actually  collected  revenues  remains  very  high.  The  large 
informal  economy  represents  an  additional  challenge  for  tax  compliance,  while  the 
high  levels  of  undeclared  work  deprive  the  state  budget  of  significant  resources. 
Furthermore, the prevalence of cash payments facilitates tax evasion. In the past year, 
Romania  achieved  limited  progress  in  addressing  the  repeated  country-specific 
recommendation  to  strengthen  tax  compliance  and  collection.  The  introduction  of 
electronic cash registers connected to the tax administration’s IT system is progressing 
rather slowly. The tax administration is taking steps to set up a risk assessment system 
for auditing taxpayers. 

(10)  After  several  years  of  continued  efforts  to  consolidate  the  financial  sector,  financial 
stability  was  again  strained  in  2018  by  a  set  of  government  and  parliamentary 
legislative  initiatives.  The  tax  on  banks’  assets  adopted  by  the  government  via  an 
emergency  ordinance  at  the  end  of  December  2018,  without  impact  assessment  or 
stakeholder  consultation,  raised  a  number  of  serious  concerns  related  to  its  negative 
impact on banks’ prudential situation, the conduct of monetary policy and ultimately 
investment and economic growth. The manner of its adoption and its provisions have 
had  a  significant  adverse  effect  on  the  exchange  rate,  the  government’s  ability  to 
borrow on the market and ultimately on stakeholders’ perception of operational risks. 
While some controversial aspects of the tax were amended in March 2019, the changes 
were  again  adopted  via  a  government  emergency  ordinance  and  without  an  impact 
assessment.  The  most  challenging  aspects  of  the  bank  tax  on  total  assets  were 
removed.  However,  under  the  new  formulation  the  tax  may  distort  credit  incentives, 
which  could  result  in  a  misallocation  of  credit  to  the  economy.  The  potential 
implications  of  these  changes  for  monetary  policy  transmission  should  be  assessed. 
Several  legislative  initiatives  adopted  by  Parliament  at  the  end  of  2018,  although 
declared  unconstitutional  by  the  Constitutional  Court  in  March  2019,  have  put 
additional  strain  on  the  banking  sector  and  reinforced  the  overall  perception  of  an 
unpredictable  legal  framework.  Past  experience  shows  that  such  initiatives  could  be 
put forward again by the legislature.  

(11)  The new pension law, adopted by Parliament in December 2018, is likely to pose risks 
to the sustainability of public finances. The pension point, i.e. the main parameter used 
for  pension  indexation,  is  set  to  increase  by  15%  in  September  2019  and  by  40%  in 
September 2020. The pension law would change several parameters used to calculate 
pension benefits. In particular, the pension point value is set to rise, as the indexation 
factor  for  existing  pensions  would  no  longer  converge  towards  prices  but  would 
the 
instead  remain  permanently  composed  of  wages  and  prices.  Moreover, 
contributory period used to calculate a person's pension will be shortened, leading to 
higher pension  expenditure for new pensions. On the other hand, the  abolishment of 
the  correction  index  for  new  pensions  (which  used  to  partly  link  the  first  pension  to 
wages)  will  mitigate  the  overall  pension  expenditure  increase  caused  by  the  other 
parameters.  Some  structural  challenges 
that  affect  pension  adequacy  remain 
unaddressed.  The  effective  average  retirement  age  is  close  to  the  EU  average,  but  is 
not  equal  between  women  and  men.  Coupled  with  shorter  contributory  periods  for 
women, this results in a considerable pension gender gap. 

(12)  The reform of the pension system introduced in 2008 has been gradually rolled back. 
After repeated postponements of the scheduled increases in contributions to the second 
pillar  pension  funds,  which  should  have  reached  6%  of  gross  wages  by  2016, 
contributions were reduced to 3.75% of gross wages as of 2018. Second pillar pension 

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funds were further weakened by a set of measures adopted by the government via an 
emergency  ordinance  at  the  end  of  2018.  Contributions  to  these  funds  were  made 
optional  after  a  minimum  contributory  period  of  five  years.  The  minimum  capital 
requirements  for  second  pension  pillar  fund  management  companies  were  increased 
significantly,  triggering  a  risk  of  exits  by  fund  management  companies  from  the 
Romanian  market.  The  administrative  fees  levied  on  gross  contributions  were  also 
significantly  cut,  thus  potentially  affecting  the  financial  results  of  fund  management 
companies  and  increasing  the  likelihood  of  market  exits.  This  could  have  negative 
implications  for  the  development  of  the  local  capital  market  and  the  pool  of 
institutional investors, as well as depriving the economy of a much needed source of 
long term investment. Furthermore, the weakening or undoing of the second pillar will 
result in less diversified retirement income and expose pensions to higher political and 
demographic  risks.  In  March  2019,  via  an  emergency  ordinance,  the  government 
maintained the new minimum capital  requirements  for fund management  companies, 
but  postponed  to  December  2019  the  deadline  to  pay  the  entire  additional  capital. 
Other  provisions  in  the  December  2018  emergency  ordinance  that  endanger  the 
viability of second pension pillar funds remain unchanged. 

(13)  Challenges linked to the quality and inclusiveness of the education and training system 
have  a  negative  impact  on  Romania’s  inclusive  growth  potential.  Spending  on 
education remains one of the lowest in the EU, particularly at levels of education that 
are  key  to  preventing  early  school  leaving  (which  remains  high),  ensuring  equal 
opportunities  and  tackling  inequalities  later  in  life.  Participation  in  quality  early 
education and care remains below the EU average, including due to lack of facilities. 
This  has  implications  for  labour  market  participation  of  women  as  well  as  the  early 
acquisition of skills. Modernisation of the school network and optimisation to address 
demographic trends is lagging behind, with 10 % of schools being overcrowded, while 
58 %  have  excess  capacities.  The  acquisition  of  basic  and  digital  skills  faces 
significant challenges.  Teachers'  abilities to  apply  a learner-centred approach  are not 
sufficiently  developed.  Rural-urban  disparities  persist  and  vulnerable  groups, 
including  the  Roma,  continue  to  have  limited  access  to  high-quality,  inclusive 
education.  

(14)  The  labour  market  has  been  under  increasing  pressure,  as  the  unemployment  rate 
(4.2%  in  2018)  is  very  low,  while  the  labour  force  is  declining  and  skills  shortages 
persist. Women's activity rate, particularly for the young and middle-aged, is low. This 
is  mainly  due  to  personal  and  family  responsibilities  and  the  low  participation  of 
children aged 0-3 in formal childcare. Active labour market policies provide a limited 
response to labour market needs, with measures focused mainly on financial incentives 
rather  than  on  tailor-made  and  comprehensive  approaches.  The  delay  of  the  planned 
reform for the public employment service remains an important barrier for modernised 
service-delivery to employers and the unemployed. Upskilling and integrated services 
delivery  is  also  weak.  Skills  are  not  evolving  in  line  with  the  needs  of  expanding 
economic sectors, with 81% of employers having difficulties filling job vacancies. The 
ICT sector is growing, while the number of Romanians aged 20-29 holding a degree in 
science,  technology,  engineering  or  maths  fell  between  2014  and  2016.  At  present 
there  is  no  a  global  or  sector-level  assessment  of  skills  needs  and  the  forecasting  of 
skills remains unused, hampering the adaptation of the education and training system 
to  labour  market  needs.  The  roll-out  of  dual  vocational  education  and  training  to 
address skills shortages has started. However, vocational education and training is still 
considered  a  second-rate  option  by  students  and  parents  and  the  relatively  low 
employment rate for recent vocational education and training graduates indicates that 

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labour  market  relevance  is  a  challenge.  Higher  education  is  not  sufficiently  aligned 
with the labour market. Although tertiary educational attainment has doubled over the 
decade, it remains low. 

(15)  Despite  recent  improvements,  poverty  and  income  inequality  remain  high,  and 
regional  disparities  are  deepening.  One  in  three  Romanians  is  still  at  risk  of  poverty 
and social  exclusion, with particular  groups such as children, the Roma, people with 
disabilities  and  the  elderly  being  more  affected.  Social  services  have  insufficient 
quality  and  coverage,  and  uneven  geographical  distribution,  not  correlated  with 
communities’ specific needs. Only around 20% of administrative territorial units have 
licensed  social  services.  Services  are  usually  concentrated  around  richer  or  urban 
areas,  while  needs  are  more  pressing  in  poorer,  rural  areas  and  regions.  The  limited 
integration of employment, education, health and social services does not allow for the 
sustainable  inclusion  of  various  disadvantaged  groups.  People  with  disabilities  are 
given  only  limited  support  for  independent  living  and  accessing  employment.  The 
situation  of  the  Roma  community  shows  very  little  progress.  Housing  deprivation  is 
the highest in the EU and is detrimental to social inclusion. Housing policies are being 
decentralised  without  a  strategic  framework,  and  poor  communities  often  lack 
financial resources. The social reference index used as a basis for most social benefits 
has not been updated since 2008 and has also depreciated considerably in relation to 
the minimum wage. As a result, poverty rates for people with low and very low work 
intensity have increased  by half since 2010. Furthermore, social  security  for atypical 
workers  is  inadequate.  One  in  three  atypical  workers  is  at  risk  of  severe  material 
deprivation. Daily and seasonal workers do not  have formal access to social security 
rights  covering  unemployment,  maternity  leave,  accidents  and  occupational  injuries. 
The implementation of the minimum inclusion income reform initiated in 2016, which 
would increase the coverage and adequacy of social assistance, was further postponed 
to 2021. 

(16)  Social dialogue is characterised by low collective agreement coverage, in particular at 
sectoral  level,  also  due  to  the  current  definition  of  sectors.  The  authorities  have 
initiated plans to revise the definitions of economic sectors but no agreement has  yet 
been reached. Beyond the collective bargaining framework, the timely and meaningful 
involvement  of  social  partners  on  policy  issues  and  reforms  is  limited.  Most  social 
dialogue takes place formally, within the Economic and Social Council and the Social 
Dialogue  Committees.  However,  despite  the  established  framework  of  dialogue  and 
consultations, the stability and the role of these institutions has weakened over the last 
year. 

(17)  After years of moderate wage growth, Romania is experiencing one of the fastest rates 
of wage growth in the EU. This is driven by government policies increasing public and 
minimum  wages,  record  low  unemployment  rate  and  structural  labour  supply 
shortages. The minimum wage continues to be set in a non-systematic manner, without 
an objective mechanism. Consecutive increases over the years resulted in one in three 
employees earning the minimum wage in 2017, a rate almost four times higher than in 
2011. 

(18)  The healthcare system faces many challenges. Low funding, inefficient use of public 
resources  and  the  lack  of  reform  limit  the  effectiveness  of  the  health  system. 
Continued emigration has resulted in a sizeable shortage of doctors and nurses. Health 
infrastructure  and  the  prevalence  of  informal  payments  remain  sources  of  concern. 
Access  to  healthcare services for those living in  rural  areas  and vulnerable groups is 
limited.  These  factors  in  turn  have  a  negative  impact  on  the  people's  health  which 

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remains  below  the  EU  average,  despite  recent  improvements.  Improvements  in 
community  care  are  much  needed  but  are  delayed.  The  pilot  project  for  setting  up 
community care centres has started with a delay, impacting the roll-out of integrated 
care  services.  The  long-term  care  sector  is  not  ready  to  deal  with  a  rapidly  ageing 
population. There are very few at-home and day-care services, mainly concentrated in 
areas with higher income. Coverage and public spending on long-term care are among 
the  lowest  in  EU  and  access  to  long-term  care,  rehabilitation  and  palliative  care  is 
poor. 

(19)  The quality of infrastructure, including in the transport, energy, waste and wastewater 
sectors  remains  poor  and  limits  Romania’s  growth  prospects.  Despite  significant 
public  investment  after  Romania  joined  the  EU,  its  physical  infrastructure  remains 
underdeveloped. The general condition and reliability of the road and rail networks are 
very poor. The infrastructure is not keeping up with the traffic demand generated by an 
expanding economy. The road network is among the least developed in the EU and the 
reform  of  the  railway  sector  is  lagging  behind.  Greenhouse  gas  emissions  from  road 
transport  have  increased  strongly  over  the  last  five  years.  Moreover,  heavy 
underinvestment in maintenance has reduced train speed and affected delivery times of 
rail  freight  transport.  Urban  transport  suffers  from  chronic  under financing,  poor 
sector  organisation  and  the  weak  administrative  capacity  of  local  providers.  In 
infrastructure  and  energy 
addition,  energy,  waste,  water  and  wastewater 
interconnections  continue  to  show  deficiencies.  The  waste  management  system 
continues to be characterised by very low recycling of municipal waste and very high 
landfill rates. Challenges remain to achieve the energy efficiency target, in particular 
there is still a wide margin to improve energy efficiency in buildings. 

(20)  Romania’s  overall  innovative  capacity  remains  low  and  its  future  competitiveness  is 
challenged  by  the  large  productivity  and  innovation  gap  between  foreign-owned  and 
domestic  firms.  Romania’s  investment  in  research  and  development  is  the  lowest  in 
the  EU  (0.5%  of  GDP)  and  public  research  and  development  expenditure  further 
declined  from  0.32%  of  GDP  in  2011  to  0.21%  of  GDP  in  2017,  impeding  any 
capacity  building.  As  a  consequence,  the  quality  of  the  public  science  base  remains 
very  low  and  science-business  links  underdeveloped.  As  the  number  of  tertiary 
graduates  in  science,  technology,  engineering  and  mathematics  has  also  further 
declined,  skills  shortages  pose  a  great  challenge  to  the  innovative  potential  of  the 
Romanian  economy.  Digitalisation  is  a  key  challenge  if  Romanian  innovation  and 
competitiveness  are  to  improve.  Romania  scores  poorly  on  many  components  of  the 
Digital  Economy  and  Social  Index,  including  digital  public  services,  digital  skills  of 
the overall population and digitalisation of businesses. 

(21)  Romania achieved limited progress in  addressing a country specific recommendation 
to strengthen project prioritisation and preparation in public investment. The Ministry 
of Finance is in charge of preparing a priority list of public investment projects above 
RON  100  million  (EUR  21  million)  and  monitoring  their  implementation  but  the 
projects  are  managed  by  the  line  ministries.  The  list  of  priority  projects  currently 
includes  approximately  130  projects,  mostly  in  the  transport  area.  Most  of  these 
priority projects could be co-financed by the EU funds. The uptake of EU funds is held 
back  by  factors  like  limited  administrative  capacity  to  prepare,  prioritise  and 
implement  large  investment  projects.  Even  though  recently  large  infrastructure 
projects are being prepared and sent to the European Commission for approval, some 
important projects such as the Sibiu-Piteşti motorway (ensuring the connectivity with 
the  TEN-T  Rhine-Danube  and  Orient-East  Mediterranean  corridors)  are  still  missing 

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and  implementation  in  general  continues  to  lag  behind.  Moreover,  EU  funds 
absorption has so far been driven by projects prepared for the previous programming 
period  whereas  a  pipeline  of  new  projects  for  the  current  period  is  yet  to  be  fully 
developed. 

including  efficient  public  spending, 

(22)  Efficient  public  procurement  is  key  to  achieving  important  policy  objectives  in 
Romania, 
the  modernisation  of  public 
administration and promoting innovation, sustainable and inclusive growth. Romania 
has  made  limited  progress  in  addressing  the  country-specific  recommendation  to 
improve the transparency of public procurement. The efficiency of public procurement 
continues  to  be  an  issue,  while  the  irreversibility  of  certain  measures,  notably  the 
streamlining  of  the  ex-ante  control,  is  at  stake.  The  national  public  procurement 
strategy stresses the importance of a unitary ex-ante control performed by the National 
Agency for Public Procurement. Recurrent legislative initiatives risk undermining the 
achievement  of  the  objectives  in  the  strategy.  The  predictability  and  stability  of  the 
public  procurement  legislation  remain  important  challenges  and  the  national  public 
procurement strategy is not fully implemented. 

the 

sector, 

second  pension  pillar 

(23)  The conduct of public policy making has become increasingly unpredictable, weighing 
on  the  business  environment.  A  recent  example  is  the  adoption  through  government 
emergency ordinance of a set of far-reaching measures affecting the functioning of the 
banking 
fund  managers,  energy  and 
telecommunication companies, without stakeholder consultation or impact assessment. 
Regulatory impact assessments remain a formality, while their quality and actual use 
vary  substantially  across  sectors.  There  is  only  limited  quality  control  of  regulatory 
impact  assessments  and  policy  design.  There  is  no  sustainable  policy  monitoring 
mechanism  with  a  transparent  reporting  system  and  ex-post  evaluations.  Important 
legislative  initiatives  are  often  announced  just  before  adoption.  The  involvement  of 
stakeholders  in  designing  and  implementing  reforms  is  weak,  and  genuine  dialogue 
rarely  exists,  although  the  institutional  structures  for  it  are  available.  Cumbersome 
administrative procedures particularly affect small and medium-sized businesses. For 
example,  burdensome  administrative  procedures  for  setting  up  businesses  as  well  as 
regulatory 
regulated 
professions, impede further market development. The adoption of relevant legislation 
on  human  resource  management  in  public  administration  is  still  delayed.  High 
fragmentation of responsibilities and resources affects the consistency and availability 
of public services provided, especially at local level. National and regional strategies 
for different public services are not well translated into integrated measures at regional 
and local level. Funding of public services is uneven across the country and often does 
not  correspond  to  local  needs.  Factors  like  a  unified  strategic  approach  per  type  of 
service,  existing  gaps  and  needs  to  develop  new  services  are  overlooked.  Local 
authorities’ revenues lack stability and predictability. Limited action has been taken to 
improve the balance between responsibilities to be decentralised and the allocation of 
financial  resources  to  allow  local  authorities  to  deliver  quality  services.  Additional 
actions are needed to increase administrative capacity at local level.  

imposed  on  services  providers, 

requirements 

including 

(24)  State-owned enterprises have a key role in critical infrastructure sectors such as energy 
and  rail  transport.  Their  economic  and  financial  performance  has  recently  improved, 
on the back of a favourable macroeconomic environment. However, transparency and 
disclosure  of  financial  and  operational  results  have  not  improved  and  corporate 
governance rules continue to be only sparsely applied. Specific examples include the 
repeated appointment of interim boards, departing from the spirit of the law, and the 

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non-use  of  enforcement  tools  available  under  the  legislation  for  non-compliant 
companies. Risks that the legislation on state-owned enterprises could be substantially 
weakened have not  abated. This  amounts to a reversal  of progress  made  on country-
specific  recommendations  from  2015  and  2016.  As  a  result,  key  conditions  for 
promoting  the  efficient  use  of  public  resources  are  being  impaired,  and  space  is 
allowed for distorted investment decisions. The transfer of the ownership of several of 
the larger state-owned enterprises to the new Sovereign Development and Investment 
Fund  will  require  a  thorough  implementation  of  strong  corporate  governance  rules 
both for the Fund and the companies in its portfolio. 

(25)  Developments throughout the past year have raised concerns with regard to the rule of 
law  and  strengthened  previous  serious  concerns  regarding  the  irreversibility  and 
sustainability  of  Romania’s  earlier  progress  on  reforming  its  judicial  system  and 
tackling  high-level  corruption.  These  issues  are  the  subject  of  monitoring  under  the 
Cooperation and Verification Mechanism. Amendments to three justice laws are now 
in force and contain a number of measures weakening the legal guarantees for judicial 
independence. These are likely to undermine both the effectiveness of daily work by 
judges and prosecutors and public confidence in the judiciary. Pressure is being put on 
judicial institutions and on individual magistrates, including by setting up a specialised 
prosecution  section for  crimes allegedly committed by magistrates. Ongoing steps to 
amend  the  criminal  code  and  the  criminal  procedure  code  would  have  a  negative 
impact  on  the  effectiveness  of  criminal  investigations  and  trials  and  also  reduce  the 
scope  of  corruption  as  an  offence.  Further  concerns  relate  to  the  processes  for 
dismissing and appointing high-level magistrates. Recent announcements suggest that 
measures related to the reform of the justice system may be reconsidered.   

(26)  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 developing a positive socio-economic environment in the country. 

(27)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex  D  to  the  country  report9.  This  would  allow  Romania  to  make  the  best  use  of 
those funds in respect of the identified sectors, taking into account regional disparities. 
Strengthening the country’s administrative capacity for the management of these funds 
is an important factor for the success of this investment. 

(28) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Romania’s  economic  policy  and  published  it  in  the  2019 
country  report.  It  has  also  assessed  the  2019  Convergence  Programme  and  the  2019 
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.  

(29) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Convergence 
Programme and its opinion10 is reflected in particular in recommendation (1) below. 

9 
10 

SWD(2019) 1022 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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(30) 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  2019  National  Reform  Programme  and  the  2019  Convergence 
Programme.  Its  recommendations  under  Article  6  of  Regulation  (EU)  No  1176/2011 
are reflected in recommendations (1), (2) and (4), (5) below. Fiscal policies referred to 
in  recommendation  (1)  contribute  inter-alia  to  address  imbalances  linked  to 
competitiveness and the external position. 

HEREBY RECOMMENDS that Romania take action in 2019 and 2020 to: 

1. 

2. 

3. 

4. 

5. 

Ensure compliance with the Council recommendation of XX June 2019 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. 

Safeguard  financial  stability  and  the  robustness  of  the  banking  sector.  Ensure  the 
sustainability of the public pension system and the long-term viability of the second 
pillar pension funds.  

Improve the quality and inclusiveness of education, in particular for Roma and other 
disadvantaged  groups.  Improve  skills,  including  digital,  notably  by  increasing  the 
labour market  relevance  of vocational  education and training and higher  education. 
Increase  the  coverage  and  quality  of  social  services  and  complete  the  minimum 
inclusion  income  reform.  Improve  the  functioning  of  social  dialogue.  Ensure 
minimum  wage setting based on objective  criteria, consistent with  job  creation and 
competitiveness.  Improve  access  to  and  cost-efficiency  of  healthcare,  including 
through the shift to outpatient care.  

Focus investment-related economic policy on transport, notably on its sustainability, 
low  carbon  energy  and  energy  efficiency,  environmental  infrastructure  as  well  as 
innovation,  taking  into  account  regional  disparities.  Improve  preparation  and 
prioritisation  of  large  projects  and  accelerate  their  implementation.  Improve  the 
efficiency of public procurement and ensure full and sustainable implementation of 
the national public procurement strategy. 

Ensure that legislative initiatives do not undermine legal certainty by improving the 
quality  and  predictability  of  decision-making,  including  by  appropriate  stakeholder 
consultations,  effective 
impact  assessments  and  streamlined  administrative 
procedures. Strengthen the corporate governance of state-owned enterprises.  

Done at Brussels, 

For the Council 
The President 

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