COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Romania, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 522 final  COMMISSION STAFF WORKING DOCUMENT Country Report Romania 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the MIP in-depth review 

4.  Reform priorities 

4.1.  Public finances and taxation 
4.2.  Financial sector 
4.3.  Labour market, education and social policies 

4.4. Competitiveness, reforms and investment 
4.5.  Environmental Sustainability 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Romania 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table 3.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Key economic and financial indicators 

Assessment of 2019 CSR implementation 

MIP assessment matrix (*) - Romania 2020 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

1 

4 

9 

17 

21 

25 

25 
30 
33 
45 
63 

67 

75 

76 

82 

85 

90 

16 
19 
23 
76 
77 
78 
79 
80 
81 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1:  GDP growth and demand-side components 

Graph 1.2: 

Industrial production 

Graph 1.3: 

Contribution to potential growth 

Graph 1.4: 

Disparities between Romanian regions 

Graph 1.5: 

Demographic change in Romania 

Graph 1.6: 

Labour market overview 

Graph 1.7: 

Current account breakdown and capital account 

Graph 1.8: 

Harmonised index of consumer prices (HICP) 

Graph 1.9:  General government balance and output gap 

Graph 1.10: 

10 year government bond yield: Romania and peers 

Graph 1.11: 

Loans to households and non-financial corporations 

Graph 2.1:  Overall multiannual implementation of 2011-2019 CSRs to date 

Graph 4.1.1:  Drivers of change of general government balance 

Graph 4.1.2:  Gross public pension expenditure in 2018-2022 

Graph 4.1.3:  Redistributive power of the tax and benefit systems in EU Member States, 2017 

Graph 4.3.1:  Demographic growth and working age population 

Graph 4.3.2:  Developments in hiring 

Graph 4.3.3:  Outpatient use vs inpatient use 

Graph 4.3.4: 

Income inequality in Romania - S80/S20 income quintile share ratio 

Graph 4.3.5:  Severe material deprivation rate for children by educational attainment level of their 

parents 

Graph 4.4.1:  Net international  investment position 

Graph 4.4.2: 

Trade balance breakdown 

Graph 4.4.3:  Export market share by industry 

Graph 4.4.4:  RON-denominated export price evolution 

Graph 4.4.5:  Real effective exchange rate growth 

Graph 4.4.6:  Nominal unit labour cost 

Graph 4.4.7:  Value added and average labour productivity growth by manufacturing technology 

class 

Graph 4.4.8:  World rank of Romanian transport infrastructure on 13 indicators 

Graph 4.4.9:  Social needs - income distribution per region 

Graph 4.4.10:  Ease of Doing Business (2019) 

Graph 4.5.1:  EU highest GHG emissions per GDP in 2017 

Graph 4.5.2:  GHG emissions in Romania by sector 

9 

9 

10 

10 

11 

11 

12 

13 

13 

14 

14 

17 

25 

25 

27 

33 

34 

39 

40 

40 

45 

46 

46 

47 

47 

47 

49 

52 

55 

57 

63 

63 

2 

 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in Romania 

Box 4.1.1: New pension law: pension adequacy and budgetary sustainability 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.1: Investment challenges and reforms in Romania 

20 

29 

43 

48 

3 

 
 
 
 
EXECUTIVE SUMMARY 

In the absence of lasting reform efforts, growing 
fiscal  and  current  account  deficits  are  putting 
the  sustainability  of  Romania’s  economic 
growth  at  risk.  Strong  domestic  demand, 
stimulated  by  tax  cuts  and  large  wage  increases, 
has  been  the  economy’s  growth  engine  in  recent 
years.  This  consumption-led  growth  model  has 
pushed  the  country’s  current  account  and  public 
finances  into  rising  deficits.  In  addition,  adverse 
demographic developments have led to significant 
labour  and  skill  shortages,  limiting  the  country’s 
growth  potential.  Despite  an  average  growth  of 
around  5%  in  the  past  three  years,  inequality  is 
increasing  and  poverty  remains  high,  while 
regional  disparities  are  deepening.  Without  a 
correction of the  fiscal and external deficits and a 
firm commitment to implement structural reforms, 
Romania’s  convergence 
living 
standards is likely to suffer important set-backs (1).  

towards  EU 

The  economy  continues  to  grow,  albeit  at  a 
slower pace. Real GDP growth remained robust in 
2019 at 4.1% on the back of private consumption, 
with  investment  providing  support.  Growth  is 
forecast  to  ease  to  3.6%  and  3.3%  in  2020  and 
2021  respectively,  due 
industrial 
production and a softening external demand. 

to  weaker 

fiscal-led  boom 

in  domestic  demand 
The 
continues, further widening the current account 
deficit.  With  strong  private-consumption 
led 
import  growth  outpacing  exports,  the  current 
account deficit is set to deteriorate to 5.1% in 2019 
and is expected to increase to 5.4% in 2021.  

The  labour  market  continued  to  tighten,  while 
significant challenges remain. A very low labour 
force participation rate and a decline of the active 
population, due to demographic changes, including 
emigration, have resulted in labour force and skill 
shortages  and  mismatches. Labour  activation 
policies  and  adult  learning  programmes  are  not 
effective in responding to such needs. At the same 
time,  skill  mismatches  are  deepening,  while 
technological development generates a shift in the 

(1)  This  report  assesses  Romania’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy’s  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

demand for skills. Social dialogue remains limited. 
Wages  remain  low  compared  to  the  EU  average 
but  have  been  growing 
rapidly,  supporting 
employees’ purchasing power. The sustained wage 
growth,  strongly  outpacing  productivity  increases, 
may pose risks to competitiveness in the future. 

The  public  deficit  has  risen  sizably,  driven  by 
current expenditure. The public deficit continued 
to increase, above the 3% of GDP Treaty threshold 
in 2019, driven by current spending. It is projected 
to  widen  further,  in  particular  due  to  a  40% 
pension indexation scheduled for September 2020. 
As in previous years, the rules of the national fiscal 
framework have not been respected. A high public 
deficit  and  increasing  ageing  costs  result  in  high 
fiscal sustainability risks.  

The  banking  sector  has  remained  solid,  but 
financial  intermediation  is  low.  Some  damaging 
provisions  to  the  financial  sector  in  December 
2018  were  amended  in  2019  and  2020,  favouring 
banks’ resilience and a stable capitalisation, above 
the  EU  average.  However,  banks  only  play  a 
limited  role  in  providing  credit  to  corporates, 
which may be holding back the economy. 

Insufficient investment hampers the potential of 
the  economy  to  converge  to  EU  levels.  The 
quality and reliability of the road and rail networks 
is poor. Investment in sustainable transport, energy 
and  environmental  infrastructure  (i.e.  in  waste, 
wastewater  and  air  pollution)  is  lacking.  The 
energy,  waste,  wastewater  infrastructure  continue 
to 
push. 
Prioritisation,  stabilisation  and  increases  of  public 
and  private  investment  in  research,  development 
in  physical  and  digital 
and 
infrastructure  would  contribute  to  reduce  regional 
disparities and improve productivity and long-term 
growth.  

innovation  and 

investment 

important 

need 

an 

in 
Romania  has  made 
addressing 
country-specific 
recommendations.  There  has  been  substantial 
progress in: 

limited (2)  progress 
2019 

the 

  Safeguarding 

financial 

stability  and 

the 

robustness of the banking sector. 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific recommendation is presented in Annex A. 

4 

 
 
                                                           
                                                           
Executive summary 

There  has  been  some  progress  in  the  following 
areas: 

 

Improving  the  corporate  governance  of  state-
owned enterprises. 

  Ensuring  the  long-term  viability  of  the  second 

pension pillar; 

 

Implementing  the  national  public  procurement 
strategy. 

There  has  been  limited  progress  in  the  following 
areas: 

  Efforts 

to  strengthen 

tax  compliance  and 

collection; 

 

 

Improving  the  quality  and  inclusiveness  of 
education; 

Increasing  the  coverage  and  quality  of  social 
services; 

 

Improving social dialogue;  

  Developing 

a  minimum  wage 

setting 

mechanism based on objective criteria;  

 

Improving  access  and  cost-efficiency  of 
healthcare;  

  Focusing  investments  on  key  policy  areas  and 
and 

prioritisation 

strengthening 
preparation in public investment. 

project 

There has been no progress in the following areas: 

  Ensuring  that  the  national  fiscal  framework  is 

implemented; 

  Ensuring 

the  sustainability  of 

the  public 

pension system; 

 

Improving  skills  by  increasing  the  labour 
market  relevance  of  vocational  education  and 
training and higher education;  

  Completing  the  minimum  inclusion  income 

reform; 

 

Improving 
making; 

the  predictability  of  decision 

translated 

supporting 

the 
The  Social  Scoreboard 
European  Pillar  of  Social  Rights  points  to  a 
number  of  employment  and  social  challenges. 
High  economic  growth  has 
into 
improved social conditions. However, poverty and 
social  exclusion,  as  well  as  in-work  poverty, 
remain  very  high  while  income  inequalities  have 
increased.  Social  transfers  have  a  limited  impact 
on  poverty  reduction.  Inequalities  persist, 
in 
particular  for  people  in  rural  and  disadvantaged 
areas.  The  inactivity  rate  for  women  and  early 
school 
also  very  high.  The 
decentralisation  of  social  services  has  not  been 
accompanied  by  the  provision  of  proper  financial 
allocations,  thus  hampering  the  sustainability  of 
service  delivery.  The  coverage  of  public  services 
remains low. The de-institutionalisation of children 
continues to show encouraging progress. 

leaving 

are 

Romania  recorded  positive  progress  towards 
most  of  its  national  targets  of  the  Europe  2020 
is  performing  well  on 
strategy.  Romania 
rates,  national  greenhouse  gas 
employment 
emissions, 
energy 
efficiency and tertiary education. R&D investment 
and  early  school  leaving  remain  some  distance 
away from their respective targets. 

renewable-energy 

levels, 

In  terms  of  the  United  Nations’  Sustainable 
Development Goals (SDGs), Romania continues 
its  progress  towards  EU  levels (3).  In  climate 
action  (SDG13)  Romania  is  below  EU-average 
levels  in  greenhouse  gas  emissions,  energy  and 
renewable-energy 
quality 
is 
education 
performing  particularly  poorly  with  respect  to  the 
EU-average  levels,  with  high  numbers  of  early 
school-leavers  and  young  people  neither 
in 
education, employment or training. However some 
improvement can be observed in terms of trends. 

however,  Romania 

consumption. 

(SDG4) 

In 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. Annex E presents a statistical assessment of 
trends  in  relation  to  the  SDGs  during  the  past  five  years, 
based on Eurostat’s EU SDG indicator set. 

5 

 
 
                                                           
Executive summary 

improved  communication  on 

and  quality  of  legislative  proposals,  together 
with  an 
the 
reform  direction  would  help 
country’s 
decisions. 
investment 
businesses 
Despite 
implementation,  public-
procurement  efficiency  remains  an  issue,  and 
the irreversibility of certain measures should be 
further monitored. 

anchor 
improved 

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

  Adverse 

demographics 

and 
require 

existing 
structural  deficiencies 
labour 
activation  and  upskilling  measures. The 
persistent  negative  population  growth  and  the 
outward  migration  of  skilled  labour  generated 
significant  labour  force  shortages.  Inactivity 
has declined but remains one of the  highest in 
the  EU  especially  for  women.  It  also  varies 
considerably  across  regions  and  social  groups, 
which 
and 
effectiveness  of  activation  measures.  Without 
targeted  upskilling  and  re-skilling  measures 
based  on  a  comprehensive  skills  forecasting 
mechanism,  the  supply  of  certain  skills  might 
become scarce. 

adequacy 

indicates 

low 

a 

  Poverty  and  inequality  remain  high,  with 
limited  access  to  services.  One  in  three 
Romanians  is  at  risk  of  poverty  or  social 
exclusion,  with  vulnerable  groups,  including 
the  Roma,  being  the  most  exposed.  Child 
poverty and educational attainment are  closely 
linked  to  parents’  income.  In-work  poverty  is 
among  the  highest  in  the  EU  while  social 
benefits  and  minimum  income  are  failing  to 
reduce  poverty.  Despite  a  rapidly  ageing 
population, active ageing measures are missing. 
Access 
to  services  still  faces  challenges, 
the  rural-urban  divide,  regional 
deepening 
disparities and inequalities. The potential of the 
social economy to improve social conditions is 
insufficiently used. 

  The  equity,  inclusiveness  and  quality  of 
education  remain 
important  challenges. 
Education  spending  is  amongst  the  lowest  in 
the  EU.  Early  school  leaving  is  very  high,  in 
particular  for  pupils  in  rural  areas,  Roma 
children  and  children  with  disabilities.  An 

findings  of 

The  main 
review 
contained  in  this  report  and  the  related  policy 
challenges are as follows:  

in-depth 

the 

to  strong 

increasing  due 

  Romania’s current account deficit continued 
to  widen  and  its  financing  raises  concerns. 
The  current  account  deficit  is  expected  to 
import 
continue 
dynamics rather than poor export performance. 
The  composition  of  imports,  tilted  towards 
consumption goods, does not support long-term 
economic growth. The coverage of the growing 
current  account  deficit  by  foreign  direct 
investments  has  been  declining  and  past 
improvements 
international 
the 
investment  position  have  recently  started  to 
show signs of reversal.  

net 

in 

  The  risks  to  Romania’s  competitiveness 
come  from  both  cost  and  non-cost  factors. 
Labour  cost  growth  has  eased  but  remains 
among  the  highest  in  the  EU.  Wage  increases 
continue  to  outpace  solid  productivity  growth, 
also in sectors integrated in global value chains 
and open to international trade. The labour cost 
based 
rate  has 
appreciated,  although  at  a  slower  pace. 
Furthermore, non-cost factors such as the poor 
quality  of  infrastructure,  the  economy’s  low 
innovative  capacity  and  poor 
institutional 
quality  hinder the country’s ability to compete 
internationally.  

real  effective  exchange 

  Some  of  the  main  risks  to  the  financial 
sector  created  by 
the  December  2018 
legislation  have  been  averted,  but  some 
concerns  remain.  The  tax  on  banks’  assets 
was eliminated. As regards the second pension 
pillar,  the  possibility  to  opt  out  was  removed 
and 
capital 
requirements  for  fund  management  companies 
cancelled.  However,  the  overall  perception  of 
legislative 
the 
financial sector persists. 

additional  minimum 

unpredictability 

affecting 

the 

  Policy  unpredictability  continued  in  2019, 
still  some  progress  was  made  on  executing 
the  national  public  procurement  strategy. 
Persistent  uncertainty 
and 
legislative  decisions  contributed  to  an  overall 
perception  of  unpredictability 
in  public 
policymaking.  Increased  legislative  stability 

about  policy 

6 

 
 
Executive summary 

on 

services, 

including 

digital, 
citizens 
reorganisations 

use  of  regulatory  impact  assessments.  The 
development  of  an  effective  framework  for 
strategic  and  budgetary  planning  has  stalled. 
Red tape and an insufficient capacity to deliver 
are 
quality 
and 
negatively 
impacting 
businesses.  Frequent 
and 
overuse  of temporary  management  hamper the 
independence  of 
the  administration.  High 
fragmentation  of  competencies  and  resources 
continue 
to  affect  the  delivery  of  public 
services,  especially  at  local  level  and  in  poor 
communities.  Public-procurement  efficiency 
remains  an  issue,  and  the  irreversibility  of 
certain measures should be further monitored. 

  The 

of 

implementation 

corporate 
governance  for  state-owned  enterprises  has 
shown  no  significant  progress.  There  has 
been  a  deterioration  in  the  operational  and 
state-owned 
financial 
enterprises in 2018 and the first half of 2019. 

performance 

of 

  Corruption continues to be a major problem 
for  the  business  environment  in  Romania. 
While 
the  government  currently  supports 
actions  to  prevent  and  sanction  corruption, 
Romania  is  facing  important  challenges  to 
restore  progress  in  the  fight  against  corruption 
following  damages  done  in  the  past  years 
through  legislative  amendments  and  continued 
pressure on judicial institutions. 

the  2030 

  Substantial  challenges  remain  regarding  air 
pollution,  climate  change  mitigation  and 
adaptation.  Greenhouse-gas  emissions  not 
covered  by  the  EU  trading  system  are  set  to 
target. 
increase,  deviating  from 
Curbing  emissions  from  transport,  buildings 
and  agriculture  will  be  key  in  reaching  the 
target.  Investment  in  green  technologies  and 
sustainable  solutions,  and  securing  adequate 
funding  will  be  key  to  deliver  on  the  climate 
and energy objectives and shape a new growth 
model.  The  Commission’s  proposal  for  a  Just 
Transition  Mechanism  under  the  next  multi-
annual  financial  framework  for  the  period 
2021-2027,  includes  a  Just  Transition  Fund,  a 
dedicated 
scheme  under 
transition 
InvestEU, and a new public sector loan facility 
with  the  EIB.  Designed  to  ensure  a  fair 
transition towards EU climate neutrality, it will 

just 

integrated, nation-wide  strategy  targeting early 
school  leaving  is  not  yet  in  place.  Educational 
outcomes, especially in rural and economically 
improving.  The 
deprived  areas,  are  not 
acquisition  of  digital  skills  is  low,  posing 
challenges 
labour  market 
integration  of  graduates.  The  labour  market 
relevance  of  vocational  education  and  training 
and  higher  education  remains  low,  harming 
graduates’ job perspectives. 

future 

the 

for 

  The  healthcare  system  is  not  effective  in 
the 
improving  neither  accessibility  nor 
health  of  the  population.  Unmet  medical 
needs  have  increased,  with  high  urban-rural 
gaps and low coverage  for low income  groups 
and  the  elderly.  Preventive,  outpatient  and 
community  based  care  remain  under-financed 
and not covered by sufficiently targeted public 
policy  measures.  The  health  status  of  the 
population  remains  below  the  EU  average. 
Total  healthcare  spending  is  low  and  focused 
on 
inpatient  care.  Population  ageing  and 
migration are putting increasing pressure on the 
sustainability of the healthcare system.  

  Regional  disparities 

in  Romania  are 
amongst  the  highest  in  the  EU.  Significant 
gaps  across  regions  persist  in  investment, 
productivity, competitiveness and employment. 
Addressing them and prioritising investment at 
a  regional  level  would  help  increase  the 
country’s  competitiveness  and  support  long-
term growth, development and modernisation. 

the 

  Romania’s  weak  research  and  innovation 
performance 
transition 
hampers 
towards  a  knowledge-based  economy.  The 
country  continues  to  have  one  of  the  lowest 
levels  of  public  and  private  expenditure  on 
research  and  development 
the  EU, 
negatively  affecting  scientific  quality  and  the 
diffusion  of 
firms. 
Increasing  R&D  investment  and  quality  and 
supporting  innovative  firms  remain  important 
challenges.  

technology 

amongst 

in 

  The  reform  of  the  public  administration  is 
stalling,  still  some  progress  was  made  on 
executing  the  national  public  procurement 
strategy.  There  has  been  little  progress  in 
decision-making  and  the  quality  and  effective 

7 

 
 
Executive summary 

help  the  most  affected  regions  to  address  the 
social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition 
Fund,  set  up  as  part  of  the  Just  Transition 
Mechanism, are identified in Annex D. 

8 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP and potential growth 

and 

consumer 

Growth  remained  robust  in  2019,  close  to  the 
previous  year’s  level.  Real  GDP  is  estimated  to 
have  increased  by  3.9%  in  2019,  as  a  result  of 
strong 
recovering 
spending 
investment  (Graph  1.1).  After  a  drop  in  2018, 
gross  fixed  capital  formation  is  expected  to  have 
contributed positively to growth in 2019, bolstered 
mainly  by  a  booming  construction  sector.  Net 
exports’ contribution to growth is expected to have 
remained  negative,  as  softer  external  demand 
slowed  the  dynamics  of  exports,  while  imports 
were still supported by resilient domestic demand.  

September  2018,  while 
for  capital  goods 
production  entered  a  contraction  period  in  April 
2019.  At  the  end  of  Q3-2019,  more  than  70,000 
jobs  had  been  lost  in  the  manufacturing  sector 
compared  to  the  corresponding  quarter  of  2018. 
The degree of capacity utilisation in manufacturing 
began to contract in Q4-2018 (Graph 1.2).  

Graph 1.2: 

Industrial production 

Graph 1.1:  GDP growth and demand-side components 

Source: European Commission 

to  decrease 

Potential  growth  is  largely  driven  by  total 
factor  productivity  and  risks  being  hampered 
by demographic trends. Potential GDP growth is 
expected  to  have  declined  slightly  in  2019  and 
continue 
thereafter.  Total  factor 
productivity  is  projected  to  decelerate,  but  remain 
the  main  growth  contributor.  The  contribution  of 
capital accumulation is projected to remain broadly 
stable.  On  the  other  hand,  the  already  modest 
contribution  of 
turn 
increasingly  negative,  mainly  due  to  the  constant 
decrease in working age population (Graph 1.3).  

forecast 

labour 

to 

is 

2019-2021: Winter forecast 2020 for real GDP growth, 
otherwise Autumn forecast 2019 
Source: European Commission 

Growth  is  expected  to  ease  off  progressively 
over the medium term. Real GDP growth is set to 
decelerate  to  3.8%  in  2020  and  to  3.5%  in  2021, 
with  consumer  spending  as  the  main  driver  of 
growth.  Net  exports  are  forecast  to  remain  a  drag 
on growth, but slightly less so than in 2019. Lastly, 
the  contribution  of  investment  is  expected  to  stay 
positive,  albeit  at  lower  levels,  over  the  coming 
years, 
an 
acceleration in the absorption of EU funds. 

supported  by 

construction 

and 

Industrial production began to contract in 2019. 
Between the end of 2017 and the end of 2018, the 
growth rate of industrial production fell by almost 
10  percentage  points  and  turned  negative  in  Q2-
2019.  Manufacturing  declined  by  1.6%  over  the 
first three quarters of 2019. The  manufacturing of 
consumer  goods  has  decreased  every  month  since 

9 

-4-12581115Q115Q316Q116Q317Q117Q318Q118Q319Q119Q3% changeIndustrial Production VolumeIndustrial Capacity UtilisationManufacturing Employment 
   
   
1. Economic situation and outlook 

Graph 1.3:  Contribution to potential growth 

Graph 1.4:  Disparities between Romanian regions 

Source: European Commission 

Regional disparities 

In 

five  of 

GDP  per  head  continues  to  converge  with  the 
EU  average  but  regional  disparities  persist. 
Income  disparities  are  among  the  highest  in  the 
EU,  mainly  driven  by  the  large  gap  between  the 
capital  region  of  Bucharest  and  the  rest  of  the 
country. 
the  eight  Romanian 
development  regions  (NUTS  2  regions),  GDP  per 
head  grew  faster  than  the  EU  average,  while  the 
three  poorest  regions  saw  their  GDP  per  head 
shrink  between  2011  and  2017.  In  the  capital 
region, GDP per head corresponds to 144% of the 
EU average and has grown the fastest over the last 
six  years.  At  67%  of  the  EU  average,  the  Vest 
region  has  the  second  highest  GDP  per  head  in 
Romania. In the other Romanian regions, GDP per 
head ranges from 39% to 60% of the EU average 
(Graph 1.4). 

Labour  productivity  differences  between 
regions  remain  significant.  Labour  productivity 
in  the  capital  region  of  Bucharest  stands  at  122% 
of  the  EU  average,  compared  to  just  73%  in  the 
Vest  region,  the  second  most  productive  (Graph 
1.4).  Differences  in  productivity  growth  rates  are 
also  significant.  Between  2010  and  2016,  real 
productivity  grew  fastest  in  the  Vest  (8.3%)  and 
Sud-Est  (6.5%)  regions,  followed  by  the  capital 
region  (6.4%).  The  other  regions  saw  lower 
productivity growth, but still above the EU average 
(0.8%),  with  the  exception  of  Nord-Est,  where 
productivity shrunk by 1.4% per year. 

Grey areas represent the range of disparities across regions. 
(1) GDP per capita in purchasing power standard (PPS) 
(2) Gross Value Added per person employed 
(3) Percentage of GDP 
Source: European Commission 

Investment 
levels  are  highly  uneven.  Less 
developed regions need a high level of public and 
private  investment  in  order  to  catch  up  with  the 
more developed regions. Between 2014 and 2016, 
investment  in  the  Bucharest  region,  measured  as 
gross  fixed  capital  formation  as  a  percentage  of 
GDP,  was  almost  twice  the  EU  average,  while  in 
the  other  regions  investment  hovered  around  the 
EU  average.  Apart  from  the  capital  region,  the 
level  of  investment  was  above  the  EU  average  in 
only two other regions, Nord-Vest and Centru.  

Rural-urban  disparities  remain  significant. 
Positive  labour  market  developments  are  not 
benefitting  all  regions  and  population  groups 
equally. The at-risk-of-poverty rate in rural areas is 
almost  five  times  higher  than  in  cities.  Large 
regional  disparities  are  detrimental  to  long-term 
sustainable growth. Regions with significant shares 
of  the  workforce  concentrated  in  low-productivity 
sectors are characterised by relatively low salaries 
and  high  poverty  rates,  which  have  a  negative 
impact on social cohesion. 

Demography 

Romania’s  population  has  decreased  over 
recent  decades  and  is  projected  to  shrink 
further. It has fallen by 3.8 million since 1990 and 
is  projected 
to  15 million  by  2070 
(Graph 1.5), from the current level of 19.4 million, 
including 
driven  by  demographic 

change, 

to  fall 

10 

-2.00.02.04.06.08.0070809101112131415161718192021% change y-o-yforecastCapital Accumulation ContributionTotal Factor Productivity ContributionTotal Labour (Hours) ContributionPotential Growth2060100140180220GDP per capita(1),2017Productivity (2),2016Investment rate(3),2014-2016Index, EU28=100EU28Non-capital regionsMS averageCapital region   
   
1. Economic situation and outlook 

emigration.  As  a  consequence, 
the  old-age 
dependency ratio, i.e. the ratio of people aged 65+ 
relative  to  people  of  working-age  (15-64),  is 
projected to double from 26.3% in 2016 to 52.8% 
in 2070. This implies that the number of working-
age  people  for  every  person  aged  over  65  would 
fall  from  almost  four  to  just  two.  Population 
ageing  has  a  negative  impact  on  the  adequacy  of 
pensions and on future spending on healthcare and 
the long-term sustainability of public finances. 

Graph 1.5:  Demographic change in Romania 

88.8%  among 
those  with  high  educational 
attainment).  Activation  measures  are  not  fully 
effective,  especially  in  the  case  of  vulnerable 
groups.  The  weak  functioning  of  social  dialogue 
does  not  adequately  involve  social  partners  in  the 
design and implementation of reforms. 

Graph 1.6: 

Labour market overview 

Source: European Commission 

Labour market, poverty and social inclusion 

there  has  been  a  general  pick-up 

On the back of positive economic developments, 
labour  market  conditions  remain  tight.  Since 
2017, 
in 
employment,  with  an  increase  of  0.2%  in  2018 
(Graph 1.6), to a record employment rate of 70.8% 
in  Q3-2019.  This  trend  is  expected  to  continue 
with  employment  growing  further  in  2019  and 
2020. The unemployment rate fell to 3.9% in 2019, 
its lowest level since 1997.  

Despite  the  overall  positive  labour  market 
performance,  a  number  of  challenges  remain. 
Romania  has  one  of  the  lowest  labour  force 
participation  rates  in  the  EU  and  its  working-age 
population has been declining steadily since 2008, 
while  labour  and  skills  shortages  have  been 
increasing.  At  the  same  time,  the  percentage  of 
young  people  not  in  education,  employment  or 
training (NEET), standing at 14.5% in 2018, is one 
of the highest in the EU. The activity rate (for ages 
15-64 years) is still among the lowest in the EU, in 
in  Q3  2019, 
particular  for  women  (58.7% 
compared to 77.9% for men) and people with low 
educational  attainment  (43.8%  in  Q3  2019  vs 

(1)% of total population between 20-64  
(2)% of total labour force between 15-74  
(3)% of total labour force between 15-24  
(4)% of total population between 15-24 
Source: European Commission 

Wages have increased significantly in Romania 
in recent years. Nominal wages continued to grow 
at  a  fast  pace.  As  they  grew  more  than  inflation, 
real  wages  also  increased,  boosting  employees’ 
purchasing power. Wages remain low compared to 
the EU average and relatively high wage growth is 
to  be  expected  from  a  catching-up  economy. 
Public wages more than doubled between Q1-2015 
and  Q2-2019  and  have  significantly  outpaced 
wages  in  the  private  sector,  but  they  are  expected 
to  slow  down  in  2020.  The  minimum  wage  has 
also  been  increased  markedly.  While  not  yet 
directly visible, the sustained pace of wage growth 
may  nonetheless  pose  risks  to  competitiveness  in 
the  future,  if  wages  continue  to  increase  ahead  of 
productivity.  

Poverty continued to decline but inequality has 
deepened.  Despite  higher  wages  and  pensions, 
income  inequality  increased  in  2018  following  a 
two-year  decline,  while  slightly  decreasing  in 
almost all Member States. The income share of the 
poorest 40% of the population, already one  of the 

11 

051015202520102020203020402050206020702080million personsTotal15-6465+051015202530505560657075200102030405060708092010111213141516172018%%Activity rate 20-64 (lhs) (1)Employment rate 20-64 (lhs) (1)Unemployment rate 15-74 (rhs) (2)Long-term unemployment rate 15-74 (rhs) (2)Youth unemployment rate 15-24 (rhs) (3)NEET rate 15-24 (rhs) (4)    
   
1. Economic situation and outlook 

lowest  in  the  EU,  decreased.  Despite  a  further 
decline in 2018, the percentage of people at risk of 
poverty  or  social  exclusion  was  still  among  the 
highest  in  the  EU,  with   one  in  three  Romanians 
still at risk of poverty or social exclusion. In 2018, 
in-work  poverty  dropped,  but  it  still  stands  at 
15.3%.  Poverty  risks  affect  rural  areas  and 
vulnerable  groups  more  strongly  and  tend  to  be 
associated  with  low  educational  attainment  and 
unfavourable socio-economic status. Child poverty 
remains  among  the  highest  in  the  EU,  affecting 
38.1%  of  children  compared  to  an  EU  average  of 
24.3%. Social transfers have a very low impact on 
poverty reduction (European Commission, 2019d).  

Investment 

After  a  modest  performance  in  2018,  total 
investment  recovered  in  2019,  increasing  by 
more than 18% in the first three quarters of the 
year.  In  2018,  total  investment  accounted  for 
21.0% of GDP, above the EU and peer countriesʼ 
averages of 20.3% and 20.9% respectively. Private 
investment  has  dropped  to  18.3%  of  GDP  but 
remained above the averages for the rest of the EU 
and  peer  countries.  Meanwhile,  public  investment 
slightly recovered from the post-EU accession low 
in  2017,  increasing  to  2.7%  of  GDP  (see  Section 
4.4). However, it remained below the EU average 
and  much  below  the  average  of  the  neighbouring 
countries.  Total  investment  recovered  in  2019, 
increasing  by  more  than  17%  in  the  first  three 
quarters  of  the  year.  It  is  expected  to  remain 
relatively robust thanks to construction investment 
and  an  acceleration  of  spending  on  projects  co-
funded  by  the  EU  towards  the  end  of  the  current 
programming period. 

Investment  could  be  negatively  affected  by 
persistent 
Continued 
uncertainty. 
unpredictability  of  public  policies  could  hinder 
business confidence and investment decisions (see 
Section 4.4.5). Budgetary pressures resulting from 
the  new  pension  law  (see  Box  4.1.1)  also  pose  a 
downward risk to public investment.  

External position 

The current account deficit deteriorated further 
in 2019 on the back of strong domestic demand 
fuelling  imports.  Following  a  sharp  increase  in 
2018 to -4.4% of GDP, the current account deficit 
is  estimated  to  have  further  deteriorated  to  -5.1% 

of GDP in 2019 (Graph 1.7). The worsening of the 
goods  trade  balance  was  the  main  determinant  of 
this  evolution,  with  trade  deficits  in  intermediate 
and  consumer  goods  being  the  two  main  drivers. 
The  deficits  were  the  result  of  imports  still 
advancing  faster  than  exports.  The  slowdown  in 
the  growth  of 
in  services  also 
the  surplus 
contributed  to  this  trend.  Overall,  export  perform 
well and market shares increased. As in 2018, the 
current account balance continues to diverge  from 
the 
economy’s 
fundamentals, which imply a balanced position (4). 

supported 

values 

the 

by 

Graph 1.7:  Current account breakdown and capital 

account 

Source: European Commission 

of 

the 

years 

improvement 

After 
net 
international investment position shows signs of 
setback. From a trough of  some  -68% of GDP in 
2012  the  net  international  investment  position 
reached  -43.7%  of  GDP  in  2018  but  slightly 
worsened  to  -44.3%  in  Q3-2019,  following  the 
deterioration  of  the  current  account  balance.  This 
evolution  could  continue  as  GDP  growth  slows 
and  the  current  account  deficit  is  expected  to 
widen  further.  A  positive  capital  account  balance 
has  partly  mitigated,  but  not  fully  offset,  the 
country’s  net  borrowing  as  a  whole.  Past 
improvement was driven by a marked reduction of 
other  investment  (loans,  currency  and  deposits, 
trade  credit).  More  recently,  portfolio  investment 
picked  up  while  the  reserve  assets  declined 
somewhat (see Section 4.4.1). 

(4)  For  details  regarding  the  estimation  of  current  accounts’ 
fundamentals, see Coutinho, Turrini and Zeugner (2018). 

12 

-20-15-10-505101500010203040506070809101112131415161718% of GDPCapital accountSecondary income balancePrimary income balanceTrade balance - servicesTrade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+Capital Account)   
                                                           
1. Economic situation and outlook 

GDP  in  2021,  due  to  significant  increases  in  old 
age  pensions  enacted  in  summer  2019  (see  Box 
4.1.1). The structural deficit (5) is projected to rise, 
to  close  to  6%  of  potential  GDP  in  2021  (Graph 
1.9).  

Graph 1.9:  General government balance and output gap 

(1)% of potential GDP 
(2)% of GDP 
(3)% of potential GDP 
Source: Eurostat, European Commission 2019 Autumn 
Economic Forecast 

General  government  debt 
is  projected  to 
increase.  Because  of  the  widening  of  the  public 
deficit,  the  general  government  debt  is  set  to  rise 
from  35%  of  GDP  in  2018  to  40.6%  of  GDP  in 
2021.  Assuming  no  policy  change,  the  debt  is  set 
to  increase  above  90%  of  GDP  by  2030.  The 
financing  cost  of  public  debt  is  well  above  those 
observed for peer countries (Graph 1.10). Financial 
markets’  perceptions  of  sovereign  risk  are  at  the 
lower limit of the investment grade, with a ‘BBB-’ 
or equivalent rating of the sovereign debt from the 
three  major  rating  agencies.  On  10  December 
2019,  S&P  Global  Ratings  revised  its  outlook  on 
Romania  from  stable  to  negative,  due  to  its 
budgetary stance (Section 4.1.4).  

(5)  The  deficit  corrected  for  the  business  cycle  and  one-off 

operations. 

Inflation and monetary policy 

the  harmonised 

Inflation  edges  down  but  remains  among  the 
highest  in  the  EU.  After  a  peak  of  4.7%  in 
index  of 
September  2018, 
consumer prices (HICP) started to ease and inched 
slightly  below  3.9%  in  2019,  still  among  the 
highest  in  the  EU  (Graph  1.8).  The  decline  in 
HICP inflation was largely due to the fall in energy 
prices,  on  account  of 
international  oil  price 
developments.  Despite  the  moderate  decrease  in 
headline  inflation,  core  inflation  (i.e.  excluding 
energy  and  unprocessed  food)  remained  high 
throughout 2019, at an average of 3.8%, supported 
by  strong  wage  growth.  In  the  medium  term, 
headline 
to  decrease 
moderately,  to  3.4%  in  2020  and  3.3%  in  2021, 
thus  re-entering  the  National  Bank  of  Romania’s 
(NBR)  inflation  target  band  (2.5%  ±  1  pp.).  The 
NBR maintained its policy rate at 2.5% throughout 
2019 and at the beginning of 2020, while applying 
strict  control  over  money  market  liquidity  to 
counter inflationary pressures.  

is  expected 

inflation 

Graph 1.8:  Harmonised index of consumer prices (HICP) 

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

Public finances 

The public deficit has been widening, driven by 
higher  current  spending.  The  headline  deficit  is 
projected to have risen from 2.9% in 2018 to 3.6% 
of  GDP  in  2019,  mostly  driven  by  public  wage 
expenditure. The headline deficit is set to continue 
widening,  to  4.4%  of  GDP  in  2020  and  6.1%  of 

13 

-4-2024612.1109.1206.1303.1412.1409.1506.1603.1712.1709.1806.19%NBR inflation target bandNBR inflation target midpointsHICP in constant taxesHICP-6-5-4-3-2-1011112131415161718192021%Output gap (1)Headline balance (2)Structural balance (3)forecast   
 
 
   
                                                           
1. Economic situation and outlook 

Graph 1.10:  10 year government bond yield: Romania and 

Graph 1.11:  Loans to households and non-financial 

peers 

corporations 

Source: European Commission 

Source: National Bank of Romania 

Financial sector 

The banking sector’s capitalisation is above the 
EU  average,  but  some  vulnerabilities  persist. 
While  banking  sector  capitalisation  and  funding 
have  remained  robust,  some  signs  of  asset 
deterioration  have  resurfaced  with  increasing  new 
non-performing  loans  (NPL),  even  though  the 
gross NPL ratio at system-level further decreased.  
The 
remained 
significant, as government bond holdings represent 
almost  18%  of  total  assets  in  the  banking  sector, 
with  a  marked  home  bias,  compared  to  a  3.2% 
average for euro area banks. The level of financial 
intermediation in 2018 was 25.6% of GDP, below 
the EU average, limited by legislative changes and 
weaknesses in the corporate sector.  

bank-sovereign 

nexus 

has 

In 

Total  credit  continued  growing  in  2019  but  at 
slower  pace.  Credit  activity  expanded  more 
markedly  from  the  end  of  2017,  when  economic 
growth  peaked 
terms  of 
in  Romania. 
composition, around 75% of the credit went to the 
domestic  private  sector  and  around  20%  were 
loans to non-residents in 2019. A decreasing share 
of  2.8%  went  to  the  public  sector.  In  terms  of 
private  credit  composition,  households  continued 
to account for the bulk of banks’ credit allocation, 
despite  a  slow  deceleration  in  2019  (Graph  1.11). 
Loans 
to  non-financial  corporations  remained 
broadly  stable  after  an  acceleration  at  the  end  of 
2018 and beginning of 2019. 

Private  credit  remained  relatively  steady  in 
2019  but  growth  performance  was 
tilted 
towards foreign currencies. As a share, all types 
of  currency  loans  remained  broadly  unchanged  in 
2019.  However,  the  private  sector  seems  to 
demand 
in  domestic 
currency  while  loans  denominated  in  foreign 
currencies,  mainly  in  euro,  accelerated  in  2019, 
especially for non-financial corporations. Foreign-
currency  denominated  loans  to  corporations  grew 
at  the  beginning  of  2019  for  the  first  time  since 
2016 (NBR, 2019). 

less  credit  denominated 

credit  between  housing 

Over  the  last  10  years,  the  distribution  of 
household 
and 
consumer  loans  has  inverted.  In  2009,  just  23% 
of  such  loans  were  for  housing  purposes.  Since 
2016,  credit  to  households  for  housing  loans  has 
outweighed  consumer  loans.  In  2019,  this  trend 
continued,  fuelled  by  increases  in  disposable 
income and public support measures for mortgage 
lending  such  as  the  Prima  casa  (First  Home) 
programme (see Section 4.2).  

Housing market 

Residential  construction  saw  strong  growth 
while house prices were quite stable. In the third 
quarter  of  2019  residential  construction  activity 
recorded  a  33.1%  expansion  in  annual  terms,  in 
stark  contrast 
that 
characterised the sector in 2018. The development 

loss  of 

steam 

the 

to 

14 

-0.50.51.52.53.54.55.5ppsRomania, MacrobondPoland, MacrobondBulgaria, Bulgarian National BankHungary, AKK-10-505101520y-o-y % changeLoans to households, totalLoans to households, housingLoans to households, consumer and other loansLoans to non-financial corporations    
    
1. Economic situation and outlook 

was supported by the rise in household income and 
by  a  cut  in  the  VAT  rate  to  5%  for  second-home 
purchases. Growth in the sector is forecast also to 
indicated  by  positive 
continue 
consumers’  intention.  Following  healthy  growth 
rates  in  the  first  half  of  2018,  house  prices 
stagnated  in  the  second  part  of  the  year.  Prices 
started picking up again in the first half of 2019. 

in  2020,  as 

Progress towards the SDGs  (6) 

Romania is making progress towards achieving 
the  United  Nations’  Sustainable  Development 
Goals  (SDGs).  Areas  where  progress  is  more 
evident  refer  to  SDG 17  “Partnership  for  the 
goals”,  with  all  its  associated  indicators  showing 
an  improving  performance  during  the  last  five 
years.  Relatively  similar  performances  are  found 
for  SDG 1  “No  poverty”  and  SDG 13  “Climate 
action”. 
improving 
performance,  current  levels  for  some  of  these 
indicators  are  significantly  lower  than  the  EU 
average, 
“Quality 
education”, where all indicators are below the EU 
average,  and  closely  followed  by  SDG 1  “No 
poverty”  and  SDG  3  “Good  health  and  well-
being”.  

Notwithstanding 

for  SDG 4 

particularly 

this 

(6)  Annex E provides an overview of Romania’s performance 
with  regard  to  the  broad  range  of  the  United  Nations’ 
Sustainable Development Goals. 

15 

                                                           
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators 

(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.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation. 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a 
percentage of gross wage earnings 
Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for real GDP and HICP, 
Autumn forecast 2019 otherwise) 

16 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)7.60.73.97.14.43.93.83.5Potential growth (y-o-y)6.12.53.34.54.64.43.83.6Private consumption (y-o-y)12.80.04.610.07.3...Public consumption (y-o-y)1.91.20.64.22.1...Gross fixed capital formation (y-o-y)23.6-3.71.13.6-1.2...Exports of goods and services (y-o-y)13.97.012.07.66.2...Imports of goods and services (y-o-y) 27.91.410.510.89.1...Contribution to GDP growth:Domestic demand (y-o-y)15.2-1.13.27.74.7...Inventories (y-o-y)-1.40.00.30.81.2...Net exports (y-o-y)-6.41.30.4-1.4-1.4...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.7-1.2-0.40.30.20.1-0.1-0.2Capital accumulation (y-o-y)2.12.31.00.61.11.31.31.3Total factor productivity (y-o-y)4.71.42.63.63.22.92.72.6Output gap4.6-1.0-2.01.00.40.1-0.1-0.4Unemployment rate7.26.66.74.94.23.94.24.3GDP deflator (y-o-y)13.46.22.54.76.37.34.54.4Harmonised index of consumer prices (HICP, y-o-y)8.15.70.81.14.13.93.43.3Nominal compensation per employee (y-o-y)15.88.06.914.813.413.09.27.1Labour productivity (real, person employed, y-o-y)7.82.54.54.64.2...Unit labour costs (ULC, whole economy, y-o-y)7.45.32.29.88.88.85.63.8Real unit labour costs (y-o-y)-5.3-0.9-0.34.92.41.41.0-0.5Real effective exchange rate (ULC, y-o-y)9.1-3.01.27.95.93.52.41.8Real effective exchange rate (HICP, y-o-y)8.5-2.90.3-1.72.3-0.20.61.3Net savings rate of households (net saving as percentage of net disposable income)-23.2-21.1-19.4-15.4-8.9...Private credit flow, consolidated (% of GDP)14.03.0-0.81.71.9...Private sector debt, consolidated (% of GDP)43.770.660.150.947.4...of which household debt, consolidated (% of GDP)12.021.417.816.115.8...of which non-financial corporate debt, consolidated (% of GDP)31.849.342.334.831.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)1.4.13.05.14.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)-2.48.712.112.26.76.76.97.6Corporations, gross operating surplus (% of GDP)26.631.731.630.528.028.127.828.1Households, net lending (+) or net borrowing (-) (% of GDP)-5.6-7.9-9.1-11.3-6.9-6.8-6.4-5.4Deflated house price index (y-o-y)..0.73.31.3...Residential investment (% of GDP)2.02.92.52.72.0...Current account balance (% of GDP), balance of payments-10.3-6.2-0.7-2.8-4.4-5.3-5.5-5.6Trade balance (% of GDP), balance of payments-11.4-7.4-0.6-2.1-3.1...Terms of trade of goods and services (y-o-y)7.51.01.30.10.80.90.40.4Capital account balance (% of GDP)0.50.62.41.21.2...Net international investment position (% of GDP)-37.4-61.7-56.0-47.4-43.7...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-5.0-22.2-13.6-5.5-3.9...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)36.157.747.737.434.1...Export performance vs. advanced countries (% change over 5 years)84.069.724.134.521.6...Export market share, goods and services (y-o-y)13.92.37.73.04.02.50.50.0Net FDI flows (% of GDP).-2.8.-2.6-2.4...General government balance (% of GDP)-1.7-6.1-1.6-2.6-3.0-3.6-4.4-6.1Structural budget balance (% of GDP)..-1.0-3.0-2.7-3.5-4.4-5.9General government gross debt (% of GDP)14.826.938.035.135.035.537.240.6Tax-to-GDP ratio (%) (3)28.827.327.325.827.127.327.527.6Tax rate for a single person earning the average wage (%) (4).28.525.525.636.9...Tax rate for a single person earning 50% of the average wage (%) (4).25.422.722.534.6...forecast 
    
 
2. Progress with country-specific recommendations 

2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

47% 

recommendations 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Romania  have 
recorded  at  least  ‘some  progress’.  53%  of 
country-specific 
recorded 
'limited'  or  'no  progress'  (Graph  2.1).  Overall, 
Romania  has  advanced 
its 
country-specific  recommendations  since  2013. 
Even  though  efforts  have  been  made,  in  several 
policy  areas,  action  is  slow  and  the  country  must 
endeavour 
results  on 
implementing reforms.  

implementing 

tangible 

achieve 

to 

in 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
(2) 2011 annual assessment: Different country-specific 
recommendation assessment categories 
(3) The multiannual country-specific recommendations 
assessment looks at the implementation from the first year of 
adoption until the 2020 Country report 
Source: European Commission 

have 

Since  2016,  Romania  has  been  pursuing  an 
expansionary  fiscal  policy,  not  respecting  its 
fiscal framework. Such policy led to a significant 
increase  of  the  public  deficit.  Since  2016,  the 
authorities 
and 
repeatedly  derogating  from  the  national  fiscal 
rules,  thereby  rendering  them  largely  inoperable. 
Limited  progress  was  made  to  strengthen  tax 
compliance  and  tax  collection.  The  VAT  gap 
remains  the  highest  in  the  EU  although  it  is 
estimated to have decreased since 2017.  

systematically 

been 

Risks  to  fiscal  sustainability  are  high.  Due  to 
high public deficit and increasing ageing costs, in 
particular  pensions  and  health  care,  the  risks  to 
fiscal sustainability are high. These risks worsened 
in  2019,  due  to  the  adoption  of  the  new  pension 
law.  On  the  other  hand,  several  legal  provisions 
that  threatened  the  long  term  viability  of  the 
second  pension  pillar  were  abrogated  or  amended 
at the beginning of 2020. 

progress  was 

Substantial 
in 
safeguarding financial stability and the banking 
sector. The bank tax on total assets introduced by 
the  Government  Emergency  Ordinance  114/2018 
was completely removed at the beginning of 2020. 

achieved 

Access  to  quality  and 
inclusive  education 
remains  insufficient  and  skills’  improvement  is 
lacking. Furthermore, consistently low educational 
outcomes  and  high  rates  of  early  school  leaving 
also  remain.  Ensuring  equal  opportunities  for 
students  from  poor  households,  particularly  in 
rural  areas,  and  the  Roma  community  remains  a 
relevance  of 
labour  market 
challenge.  The 
vocational,  training  and  higher  education  remains 
limited  and  damages 
job  perspectives.  The 
acquisition  of  basic  and  digital  skills  showed  no 
progress,  and  would  benefit  from  methods  to 
forecast and anticipate future skill needs. 

since 

Progress  on  labour  market  reforms  is  limited. 
Few  steps  were  taken  to  increase  coverage  and 
quality  of  social  services  and  education,  however 
effective  results  are  not  yet  visible.  The  social 
reference  index,  used  as  a  basis  for  most  social 
benefits,  has  not  been  updated 
its 
introduction  in  2008.  Social  dialogue  remains 
largely  formalistic  and  modification  of  the  legal 
framework  stalled  for  a  number  of  years.  Even 
though no objective mechanism is yet in place, the 
minimum  wage  increase  of  January  2020  was 
based  on  certain  economic  indicators  such  as 
inflation 
The 
implementation of the  minimum inclusion income 
law,  adopted  in  2016,  continues  to  be  repeatedly 
postponed,  thus  no  progress  was  recorded  on  this 
front. 

productivity. 

labour 

or 

healthcare 

faces  multiple 
system 
The 
challenges.  There  has  been  limited  progress  in 
improving  access  to  healthcare.  Unmet  needs  for 
medical  examination  reported  by  patients  are 

17 

No Progress17%Limited Progress36%Some Progress41%Substantial Progress5%Full Implementation1%  
2. Progress with country-specific recommendations 

recommendations.  There  has  been  substantial 
progress on the financial and banking sectors; and 
some  progress  on  the  second-pillar  pension-fund 
viability and public procurement. Limited progress 
was  reached  on  tax  compliance  and  collection, 
education, social services and dialogue, healthcare, 
minimum wage setting, investment and investment 
prioritisation. No progress  was  made on the fiscal 
framework  and  the  public  pension  system,  skills, 
minimum 
income,  predictability  of 
decision-making  and  the  corporate  governance  of 
state-owned enterprises. 

inclusion 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 
enhancing reforms. Since 2017, such support has 
been  provided  more  than  46  projects.  In  2019, 
several  projects  were  delivered  on  the  ground, 
including support to the National Fiscal Agency on 
risk  assessment,  selection  and  auditing  of  large 
taxpayers and e-commerce transactions and to the 
Financial  Supervisor  on  developing  solutions  for 
dormant accounts on the equity market, as well as 
consolidating  risk  based  supervision  across  all 
sectors. Support was also provided to the National 
agency  for  Roma  on  monitoring  and  evaluating 
County Action Plans, to the Ministry of Labour on 
the  development  of  an  indexation  mechanism  and 
on  piloting  a  new  payment  method  for  social 
assistance benefits, and to the Ministry of Tourism 
on  the  development  of  destination  management 
organizations.  New  projects  were  initiated  in  late 
2019-early  2020  to  support  the  elaboration  of  the 
Strategy for Economic and Social Development of 
the  Jiu  Valley,  the  simplification  of  the  licensing 
system  and  the  adoption  of  quality  management 
standards  for  primary  care  and  ambulatory  care 
providers outside hospital settings. 

policy 

inpatient 

sustained 

again.  A 

increasing 
of 
incentivising  healthcare  delivered  outside  of 
hospital 
the  National 
Insurance  House  may  trigger  a  natural  shift 
towards  ambulatory  care.  The  overall  policy 
measures of the health system to facilitate this shift 
did not improve.  

settings  by 

from 

focusing 
Limited  progress  was  made  on 
in  key  policy  areas.  Railway 
investment 
infrastructure  would  benefit 
feasibility 
studies for its upgrade and works are lagging. For 
road  transport,  European  grants  were  allocated  to 
develop a multi-standard open-access fast charging 
network  along  core-network  corridors.  Some 
progress  was  recorded  on  the  acceleration  of  the 
implementation  of  environmental  infrastructure 
projects, especially in waste water, towards the end 
of  2019.  For  other  areas,  there  is  either  limited 
progress,  for 
instance  waste  projects,  or  no 
progress,  as  in  regard  to  air,  biodiversity  and 
R&I&D  projects.  For 
latter,  without  a 
significant increase in public  R&D plus improved 
regulatory  measures  to  enhance  quality,  little 
progress is expected. 

the 

There  has  been  no  progress  in  improving  the 
predictability  of  decision-making.  Predictability 
of  decision  making  remains  a  concern,  with  no 
tangible  progress.  Less  than  30%  of  the  annual 
government  plan  is  respected  and  the  number  of 
emergency ordinances is still very high, with some 
having  major  socio-economic  impact  (e.g.  GEO 
114/2018).  This 
legislation  has  no 
mandatory  ex-ante  impact  assessment  and  no 
requirement  for  public  consultations.  Ex-ante 
regulatory  impact  assessment  continues  to  be 
lacking,  with  no  legal  institutional  framework. 
Moreover,  although  different  formal  structures 
exist, 
is 
deteriorating.  

the  quality  of  public  consultations 

type  of 

Overall,  Romania  made  limited  progress (7)  in 
country-specific 
2019 
addressing 

the 

country  specific  recommendation  is  presented  in  the 
overview table in Annex A.  

(7)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 

18 

                                                           
                                                                                   
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation 

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

For CSR 4:  The regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet 
been adopted by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF 

19 

      Romania Overall assessment of progress with 2019 CSRs:  Limited progress   CSR 1: Ensure compliance with the Council Recommendation of 14 June 2019 with a view to correcting the significant deviation from the adjustment path towards the medium-term budgetary objective. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection.  Limited progress   No progress was made in ensuring that the national fiscal framework is implemented.  Limited progress was made in strengthening tax compliance and collection.     CSR 2: 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. Some progress   Substantial progress was made in safeguarding financial stability and the robustness of the banking sector.  No progress was made on ensuring the sustainability of the public pension system.  Some progress was made on ensuring the long-term viability of the 2nd pension pillar.   CSR 3: Improve the quality and inclusiveness of education, in particular for Roma and other disadvantaged groups. Improve skills, including digital, in particular 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 that the minimum wage is set 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.  CSR 4: Focus investment-related economic policy on transport, in particular on its sustainability, low-carbon energy and energy efficiency, environmental infrastructure as well as innovation, taking into account regional disparities. Improve the preparation and prioritisation of large projects and accelerate their implementation. Improve the efficiency of public procurement and ensure the full and sustainable implementation of the national public procurement strategy.  CSR 5: 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. Limited progress  Limited progress was made on improving the quality and inclusiveness of education.  No progress was made on improving skills.  Limited progress was made on increasing the coverage and quality of social services.  No progress was made on completing the minimum inclusion income reform.  Limited progress was made on improving social dialogue.   Limited progress was made on minimum wage setting.   Limited progress was made on improving access and cost-efficiency of healthcare.   Limited progress   Limited progress was made on focusing investments on key policy areas.  Limited progress was made on strengthening project prioritization and preparation in public investment.  Some progress was made on implementing the national public procurement strategy.   No progress  No progress was made on improving the predictability of decision-making.   No progress was made on improving the corporate governance of State owned enterprises.       
  
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in Romania 

Romania  is  one  of  the  countries  benefiting  most  from  EU  support.  The  financial  allocation 
from  the  EU  Cohesion  policy  funds (1)  for  Romania  amounts  to  €26.8 billion  in  the  current 
Multiannual Financial Framework (2014-2020), equivalent to around 2% of the GDP annually. By 
the end of 2019, some €28.5 billion (more than the total amount planned) was allocated to specific 
projects  and  €7.2 billion  was  reported  as  spent  by  the  selected  projects (2),  showing  a  level  of 
implementation well below the EU average. 

While  bringing  about  a  more  harmonious  development  through  reducing  economic,  social 
and  territorial  disparities,  EU  Cohesion  policy  funding  already  significantly  supports 
structural challenges in Romania. The Cohesion policy programmes for Romania have allocated 
EU  funding  of  €2.7 billion  for  smart  growth,  €13 billion  for  sustainable  growth  and  sustainable 
transport  and  €6.2 billion  for  inclusive  growth.  In  2019,  following  a  performance  review (3), 
€888 million have been made available for Romania within performing priorities. 

EU  Cohesion  policy  funding  is  contributing  to  major  transformations  of  the  Romanian 
economy by promoting growth and employment via investments, among others, in research, 
technological  development  and  innovation,  competitiveness  of  enterprises,  sustainable 
transport, employment and labour mobility.  By 2019, investments driven by EU Funds led to 
the  reconstruction  of  318 km  of  TEN-T  railway  lines,  to  works  on  4,364 km  of  new  or 
reconstructed  roads,  out  of  which  692 km  in  the  TEN-T  network  and  to  the  reconstruction  and 
modernisation  of  four  airports.  Moreover,  support  is  to  be  provided  for  2,708 micro,  small  and 
medium size enterprises as well as 178 social enterprises. Cohesion policy funding will contribute 
to  increasing  the  additional  waste  recycling  capacity  by  1,308,262 tonnes/year  and  to  ensure  a 
better  conservation  status  for  41,416 hectares  of  habitats.  In  addition,  4,207,040 persons  are 
expected  to  benefit  from  flood  protection  measures.  Approximately  350,000 persons  benefited 
from  active  labour  market  measures  and  had  access  to  integrated  educational  services.  Some 
6.34 million people received food support and about 15 million food packages were distributed. 

Agricultural and fisheries funds and other EU programmes also contribute to addressing the 
investment  needs.  The  European  Agricultural  Fund  for  Rural  Development  makes  available 
€9.6 billion  and  the  European  Maritime  and  Fisheries  Fund  €223 million  (including  the  national 
co-financing for both). Romania benefits also from other EU programmes, such as the Connecting 
Europe  Facility,  which  allocated  EU  funding  of  €1.2 billion  to  specific  projects  on  strategic 
transport  networks,  Horizon  2020,  which  allocated  EU  funding  of  €196 million  (including 
90 SMEs with about €21.2 million) and Erasmus+, which allocated €413 million so far. 

EU funding contributes to mobilisation of important private investment.  European Structural 
and Investment Funds (4) supported programmes alone mobilise additional capital by committing 
about  €457.8 million  via  financial  instruments  in  the  form  of  loans,  guarantees  and  equity.  EU 
funds  already  invest  substantial  amounts  on  actions  in  line  with  the  Sustainable  Development 
Goals (SDGs). In Romania the European Structural and Investment Funds support 13 out the 17 
SDGs and up to 95% of the expenditure is contributing to those.  

(1)  European Regional Development Fund, Cohesion Fund, European Social Fund, Youth Employment Initiative. 
(2)  https://cohesiondata.ec.europa.eu/countries/RO 
(3)  The performance review is regulated by art 22 of Regulation (EU) No 1303/2013. 
(4)  European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural 

Development Fund and European Maritime and Fisheries Fund. 

20 

 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

to  assess 

imbalances 

for  Romania 

in-depth  review 

The  2020  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken 
the 
persistence  or  unwinding  of 
imbalances 
(European  Commission,  2019e).  In  February 
2019,  Romania  was  identified  as  experiencing 
macroeconomic 
(European 
Commission,  2019f).  The  imbalances  identified 
related to risks of cost competitiveness losses and a 
widening  current  account  deficit  in  the  context  of 
an expansionary fiscal policy and an unpredictable 
business  environment.  Moreover,  risks  to  the 
functioning  of  the  financial  sector  were  also 
identified. This chapter summarises the analyses in 
the  context  of  the  Macroeconomic  Imbalances 
Procedure (MIP) in-depth review that is contained 
in various sections of this report (8).  

mainly  due  to  the  strong  nominal  GDP  growth 
more than offsetting the current account deficit.  

in  the  EU  although 

Unit  labour  cost  growth  remains  among  the 
highest 
it  started  to 
moderate.  Despite  significant  productivity  gains, 
which are to some extent a catching-up effect from 
a low starting point, increases in compensation per 
employee  have  been  significantly  outpacing 
productivity  growth  since  2016,  leading  to  a 
marked  acceleration  of  unit  labour  costs.  At  the 
end  of  2018,  unit  labour  costs  returned  to  single-
digit growth rates, but their increase is nevertheless 
expected  to  remain  above  those  of  most  Member 
States.  The  unit  labour  costs-based  real  effective 
exchange  rate,  which  started  to  increase  in  2016, 
continued to appreciate, albeit at a slower pace. 

3.1. 

IMBALANCES AND THEIR GRAVITY 

trade 

The  current  account  deficit  is  large  and  has 
been  widening  since  2014.  The  current  account 
balance reached a deficit of 4.4% of GDP in 2018 
and  is  estimated  to  have  deteriorated  to  5.1%  of 
GDP in 2019. This evolution implies an increasing 
divergence  from  the  economy's  fundamentals, 
which point to a close- to- balance current account. 
This is mainly the result of an increasing deficit in 
the 
in  goods,  spurred  by  a  fiscal-led 
consumer  spending  boom  in  times  of  high  GDP 
in  composition  are  also  a 
growth.  Changes 
concern,  as  growth 
imports  has  been 
in 
substantially  higher  for  consumer  goods  than  for 
intermediate  or  capital  goods,  meaning  that  the 
consumption  and  import  spree  is  not  likely  to 
support  the  growth  potential  of  the  economy  or 
improving  living  standards  in  a  sustainable  way. 
The  coverage  of  the  growing  current  account 
deficit by foreign direct investment and the capital 
account  has  been  declining;  instead,  portfolio 
investment  has  gained 
relevance.  The  net 
international investment position improved further 
to  –43.7%  of  GDP  in  2018,  but  started  to 
deteriorate  in  2019.  Past  improvements,  of  more 
than  20  percentage  points  since  2012,  have  been 

(8)  Analyses relevant for the in-depth review can be found in 
the  following  sections:  Public  finances  and  taxation 
(Section 4.1); Financial sector (Section 4.2), Labour market 
(Section  4.3),  Competitiveness,  reforms  and  investment 
(Section 4.4).  

rapidly, 

potentially 

Public  and  minimum  wages  have  been 
affecting 
increasing 
competitiveness.  Public  wages  continued 
to 
increase  at  double-digit  rates  in  2018  and  2019, 
although the pace of these increases is expected to 
diminish  as  of  2020.  Empirical  evidence  (Biea  et 
al,  2019)  shows  that  the  public  sector  plays  a 
leading  role  in  wage  determination  in  Romania 
which  may  lead  to  higher  private  sector  wages, 
potentially undermining cost competitiveness. The 
government-set  annual  increases  in  the  statutory 
minimum  wage,  since  2015,  have  added  to  wage 
pressures  and  reinforced  the  potential  negative 
effect  on  competitiveness.  Moreover,  non-cost 
factors  such  as  the  quality  of  infrastructure  or  the 
perceived 
policymaking 
unpredictability 
continue to pose risks to competitiveness.  

of 

Legislative  unpredictability  remains  a  concern. 
Government  Emergency  Ordinance  114/2018, 
adopted with no impact assessment or stakeholder 
consultation,  introduced  wide-ranging  measures 
with a negative impact on the financial sector and 
investments.  It  was  amended  by  three  other 
emergency ordinances in 2019 and 2020. Although 
these more recent changes repealed almost entirely 
the  most  problematic  provisions  of  the  original 
ordinance of 2018, the quick succession of changes 
relating  to  the  taxation  of  banks,  energy  and 
telecommunication companies and the functioning 
of 
the 
to 
the  second  pension  pillar  added 
perception of high legislative unpredictability. 

21 

 
                                                           
3. Summary of the main findings from the MIP in-depth review 

assessment.      The  persistent  uncertainty  about  the 
future direction of reforms could negatively affect 
firms’ investment and production decisions. 

3.3.  OVERALL ASSESSMENT 

Romania  continues  to  face  risks  in  the  form  of 
increasing  current  account  deficit  and 
an 
marked  cost  competitiveness  losses.  The  current 
account  deficit  has  been  widening  since  2014, 
reflecting an expansionary fiscal policy stimulating 
domestic  demand  and  import  growth.  Rapidly 
increasing wages have put unit labour costs under 
growing  pressure  as  productivity  gains,  although 
significant, were not enough to compensate. Wage 
pressure 
cost 
competitiveness  losses.  While  export  performance 
still holds, an economic slowdown among some of 
Romania’s  main  trading  partners  could  find  the 
country’s 
to 
current 
accommodate a drop in exports.  

ill-prepared 

translated 

account 

marked 

into 

to 

Policy  measures  have  contributed 
the 
widening  current  account  deficit  and  risks  to 
cost  competitiveness.  The  fiscal  stance  has 
remained  highly  expansionary,  continuing 
to 
stimulate  consumer  spending.  The  2020  budget 
might  not  ensure  sufficient  fiscal  consolidation. 
Past  decisions  on  public  and  minimum  wage 
increases  have  played  a  major  role  in  increasing 
risks  to  cost  competitiveness.  While  public  wages 
are  not  expected  to  increase  significantly  in  2020 
and 2021, a new minimum wage increase of 7.2% 
was  adopted  for  2020.  The  persistence  of  a  large 
discrepancy  between  a  strong  domestic  demand, 
fuelled  by  an  expansionary  fiscal  policy,  and  a 
weakening  external  demand 
in  a 
widening current account deficit, further increases 
the  government’s  and  the  economy’s  external 
financing needs. 

resulting 

Risks  to  the  financial  sector  have  abated  after 
end 2018 but regulatory uncertainty persists. In 
January  2020,  the  government  amended  the  most 
damaging  provisions  of  government  emergency 
legislative 
114/2018.  However, 
ordinance 
uncertainty  affecting  the  business  environment, 
and  in  particular  the  financial  sector,  appears  to 
persist and requires monitoring. 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES  

The  fiscal-driven  current  account  deficit  is 
forecast  to  remain  on  a  deteriorating  path. 
According  to  the  Commission’s  2019  Autumn 
Forecast,  a  further  current  account  deterioration 
beyond 5% of GDP is expected in 2020 and 2021. 
At  the  same  time,  the  fiscal  deficit  may  widen  to 
some 6% of GDP in 2021.   

The  net  international  investment  position  may 
worsen  after  years  of  improvements.  GDP 
growth,  while  still  robust,  has  slowed  from  its 
2017 peak and is expected to decelerate further in 
2020  and  2021,  while  the  current  account  is 
forecast  to  continue  to  deteriorate.  This  in  turn 
could  reverse  the  substantial  improvement  in  the 
net  international  investment  position  observed 
since  2012,  although  the  small  debt  weight  may 
mitigate  risks.  Overall,  recent  and  prospective 
developments  on  the  external  side  expose  the 
economy  to  growing  risks,  especially  in  times  of 
an  uncertain  world  economy  or 
in  case  of 
heightened risk aversion. The external financing of 
the  economy  is  also  a  concern,  with  government 
bond  yields  among  the  highest  in  the  region  and 
the sovereign ratings just at investment grade. 

A  number  of  cost  and  non-cost  factors  could 
hurt  competitiveness.  Romania’s  export  market 
shares continued to increase in 2018 supported by 
a  gradual  depreciation  of  the  national  currency. 
However,  private  sector  wages  continue 
to 
increase strongly due to a very tight labour market, 
repeated  minimum  wage  increases,  and  possible 
spill-overs 
from  strong  public  sector  wage 
increases,  potentially  affecting  the  country’s  cost 
competitiveness.  Non-cost  factors  such  as  the 
limited 
the 
of 
economy’s 
innovative  capacity  and  a 
cumbersome  business  environment  could  also 
hamper competitiveness in the future. 

availability 
low 

infrastructure, 

The  continued  unpredictable  policy-making 
weighs  on  investment.  The  uncertainty  over 
policy and  legislative decisions  has contributed in 
the  overall  perception  of 
recent  years 
unpredictability 
the  business  environment. 
Public policymaking remained difficult to forecast. 
In  early  2020,  25  Emergency  Ordinances  were 
adopted  mostly  without  consultation  or  impact 

to 

in 

22 

 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP assessment matrix (*) - Romania 2020 

(Continued on the next page) 

23 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Financial sector (see Section 4.2) and business environment/investment (see Section 4.4)   Legislative initiatives adopted in December 2018 by the Parliament and the government threatened to harm  financial stability, international capital flows and private investment, and constrained the conduct of monetary policy.  The frequent and significant legislative changes add to the overall perception of an unpredictable business environment and may affect firms’ ability to make investment decisions.  The banking sector remains nevertheless well capitalised. Its profitability declined somewhat from 16.3% in September 2018 to 13.2% in September 2019 but remained well above the EU average. In 2019 and ealry 2020, risks to financial stability and investment abated as a series of legislative amendments initially modified and eventually cancelled the most damaging provisions of Government Emergency Ordinance 114/2018. The taxation of energy companies introduced by Government Emergency Ordinance 114/2018 was also revised in early 2020. Both the original and the amending regulations were adopted without an impact assessment and proper stakeholder consultation, reflecting the persistently unpredictable legislative environment.  Government Emergency Ordinance 19/2019 de-linked the tax on banks’ assets from the interbank rate and replaced it with a flat-rate tax applicable to a reduced tax base. It also introduced provisions taking into account the banks’ size and profitability. As regards the second pension pillar, the capital requirements that had been hiked in late 2018 were significantly reduced in May 2019, mitigating to a large extent the risk of market exit by pension fund management companies. Finally, in January 2020, the government repealed the tax on banks’ assets, the possibility to opt out of the second pension pillar, the increased capital requirements for second pension pillar fund management companies and provisions on fees were revised.  External balance  (see Section 4.4.1) The current account deficit has persistently deteriorated, to an estimated 5.1% of GDP in 2019. The widening deficit has been driven mainly by a worsening trade deficit in goods, which rose from 4.3% of GDP in 2014, when the current account was close to balance, to an estimated 8.2% in 2019. The worsening of the trade balance was driven by a marked increase in imports while export market shares continued to grow. The trade balance in consumer goods shifted from a small surplus in 2014 to a deficit of 2.6% of GDP in 2018. Recent improvements of the NIIP show signs of reversal and could deteriorate further from levels that are worse than what fundamentals would suggest.  The deterioration of the external balance has taken place in a context of buoyant foreign demand and strong gains in export market shares. The trade deficit is expected to continue to widen, pushing the current account deficit to an estimated 5.3% of GDP in 2020 and 5.4% in 2021. Less favourable external conditions could lead to an even stronger than forecast worsening of the current account.  The consumption-led widening of the current account deficit is not supportive of potential GDP growth. Romaniaʼs consumer spending expanded by 10% in 2017 and 7.3% in 2018. The change in the composition of imports is worrisome. Imports of consumer goods have generally been growing faster than other imports since 2016 and this pattern was confirmed in the first 10 months of 2019. The coverage of the growing current account deficit by foreign direct investment and the capital account continued to decline and relying more on portfolio investment. The widening of the current account deficit is in large part linked to the consumption boom. A  persistently expansionary fiscal policy in times of strong GDP growth has been fostering this consumption boom through successive indirect tax cuts and substantial public and minimum wage increases, which also impact wages in the private sector.  The government deficit has deteriorated in recent years. It is estimated to have reached 3.6% of GDP in 2019 and is forecast to widen to 4.4% in 2020 and 6.1% in 2021, much reflecting the recent pension law. The financing cost of public debt has been steadily increasing since mid-2017 to levels well above those observed for peer countries. Romania’s sovereign risk ratings are at the lower limit of the investment grade and are sensitive to the future direction of fiscal policy. The financing of the broader economy can be affected as the bank-sovereign nexus has remained significant.  
 
    
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

Source: European Commission 

24 

 Gravity of the challenge Evolution and prospects Policy response Competitiveness  (see Section 4.4.1) After a moderate evolution in the wake of the crisis, unit labour costs have grown markedly in recent years. In 2018, economy-wide unit labour costs grew by about 9%, one of the highest increase in the EU. As of 2019, unit labour costs are expected to decelerate to single digit figures, while remaining among the fastest growing in the EU. The marked unit-labour-cost growh has been driven entirely by wage growth, with productivity continuing to improve at significant rates. Nominal compensation per employee increased by an average of 14.4% between 2016 and 2018. As a result, the unit-labour-costs based real effective exchange rate has appreciated continuously since 2016.  The impact of these cost and price competitiveness losses may be lagged and exacerbated in an environment of trade tensions and slowing external demand. Compensation per employee increased by 8.9% in the first three quarters of 2019. The growth pace remained higher in the public sector (14%), surpassing industry (5%) and services (6.8%).  The impact of increasing unit labour costs on price competitiveness has so far been limited. Export prices, however, resumed growth in 2017 and continued their progress in 2018 and 2019, while the corresponding real effective exchange rate started to appreciate in 2017. It continued appreciating in 2018, signalling risks to price competitiveness, but slowed down in 2019. In 2020 and 2021, unit labour costs are expected to decelerate visibly into single-digit figures, yet remaining clearly among the fastest growing in the EU. Non-cost factors such as deficient infrastructure, particularly in poorer regions, and a cumbersome business environment, fuelled by political and legislative uncertainty and unpredictability, leave only limited room to counteract cost-competitiveness developments. Repeated ad-hoc public wage and minimum wage increases have driven the acceleration of wages in the overall economy. The gross minimum wage more than doubled between July 2015 and January 2020. Around 20% of people with a full-time contract were earning the minimum wage in 2018. Wages in the public sector grew by more than 75% between 2015 and 2018, significantly outpacing the private sector. However,  public-sector wage increases are expected to moderate over the coming years.  Conclusions from the IDR analysis  The current account balance continues to deteriorate on the back of fiscal-driven domestic demand that has led to a spree of consumption goods imports. Romania has continued to gain export market shares. However, cost competitiveness has been deteriorating on the back of strong wage growth well in excess of productivity. Past legislative initiatives threatened to hurt financial stability and investment, adding to the overall perception of unpredictability.  The deterioration of the current account balance is expected to continue in the medium term, reflecting the ongoing fiscal-led private consumption boom. Strong wage growth, although decelerating, is putting further pressure on cost competitiveness. A deterioration of external conditions due to increasing trade tensions, heightened risk aversion or a slowdown in the economies of major trading partners could further trigger a significant worsening of the countryʼs current account. The financing of the economyʼs increasing external borrowing needs could also become increasingly costly as suggested by the recent path for government borrowing costs. Despite recent policy action to mitigate the negative effects on the financial sector of legislative initiatives adopted in December 2018, recurrent legislative changes have continued contributing to an overall perception of unpredictability affecting the business environment.  Policy action has contributed to the accumulation of vulnerabilities for the Romanian economy on several accounts. The expansionary fiscal policy, leading to large and widening government deficits, has repeatedly stimulated an already fast growing economy and led to the widening of the current account deficit. Increases in unit labour costs, triggered by successive public and minimum wage increases may compromise cost competitiveness. Legislative unpredictability continues to weigh on the broader business environment.  
    
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

2021,  and  of  high  fiscal  sustainability  risks 
(Section 4.1.2).  

Graph 4.1.2:  Gross public pension expenditure in 2018-2022 

4.1.1.  FISCAL POLICY (*) (9) 

The  public  deficit  has  been  increasing,  due  to 
tax  cuts  and  higher  spending  on  public  wages 
and old-age pensions. (Graph 4.1.1) Tax revenues 
dropped following cuts in consumption tax rates in 
2016-2017 and a lower personal income tax rate as 
from 2018. On the expenditure side, public wages 
significantly  increased  since  2016.  At  the  same 
time, public investment gradually fell to a post-EU 
accession  low  in  2017  and  has  increased  only 
slightly  since  then.  Therefore,  the  headline  deficit 
increased  from  0.6%  of  GDP  in  2015  to  2.9%  of 
GDP  in  2018  and  is  projected  to  have  risen  to 
3.6%  of  GDP  in  2019.  These  policies  boosted 
private  consumption  but  may  negatively  affect 
long-term growth. 

Graph 4.1.1:  Drivers of change of general government 

balance 

Source: European Commission (2019c) 

4.1.2.  DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS (10) 

Romania’s  sovereign  risk  ratings  are  at  the 
lower  limit  of  the  investment  grade  and  are 
sensitive  to the future direction of fiscal policy. 
The value of the early-detection indicator of fiscal 
stress  (ʻS0ʼ),  which  assesses  risk  within  one  year, 
is  below  its  critical  threshold.  Financial  markets’ 
perceptions of sovereign risk are at the lower limit 
of  the  investment  grade,  with  a  ‘BBB-’  or 
equivalent  rating  of  the  sovereign  debt  from  the 
three  major  rating  agencies.  However,  failure  to 
put  in  place  corrective  fiscal  measures,  offsetting 
and/or modifying the scheduled significant pension 
increases,  constitutes  a  key  downside  risk  to 
Romania's ratings. In  fact,  on 10 December 2019, 
S&P  Global  Ratings  revised 
its  outlook  on 
Romania from stable to negative precisely on these 
grounds. 

The  public  debt  is  set  to  increase  sharply,  and 
the  medium-term  fiscal  sustainability  gap  to 
expand, leading to high debt sustainability risks 

(10)  For  an  overview  of  fiscal  sustainability  assessment  see 
European  Commission  (2020).  See  also  Annex  B  of  this 
Report. 

Source: Eurostat, European Commission 2019 Autumn 
forecast 

The public deficit is projected to widen further 
due to significant increases to old-age pensions. 
(old-age 
forward,  social  expenditures 
Going 
pensions) are set to increase significantly due to a 
new  pension  law  adopted  in  summer  2019  (see 
Graph 4.1.3 and Box 4.1.1). In particular, the  law 
foresees an ad-hoc indexation of pensions by 40% 
in  September  2020  and  a 
further  upward 
recalculation  of  pensions  in  2021.  The  law  is  the 
main  driver  of  the  projected  rapid  increase  of  the 
general  government  deficit,  to  6.1%  of  GDP  in 

(9)  An  asterisk  indicates  the  analysis  contributes  to  the  in-

depth review under the MIP (see Section 3). 

25 

-5-4-3-2-1012320152016201720182019*2020*2021*% of GDPother itemsgross fixed capital formationcompensation of employeessocial contributionstax revenuessocial transfersgeneral government balance change7.47.37.37.37.27.57.88.910.312.120182019202020212022% GDPRO: previous lawRO: new pension law 
      
                                                           
     
                                                           
4.1. Public finances and taxation 

should guide the annual budget process - and send 
it  to  Parliament  by  15  August  of  the  preceding 
year.  

the  structural  deficit 

the  authorities  continued 

Again,  the  national  fiscal  framework  has  not 
been  respected.  The  fiscal  rules  laid  down  in  the 
Fiscal  Responsibility  Law  ‘remained  inoperable’ 
with respect to the 2019 and 2020 budgetary laws, 
as 
its  practice  of 
derogating  from  them  (Fiscal  Council  2019a  and 
2019d).  In  particular,  the  2019  budget  target  of  a 
headline deficit of 2.76% of GDP was inconsistent 
rule (12).  Budget 
with 
amendments  adopted  in  August  and  November 
2019  also  derogated  from  a  number  of  rules,  in 
particular, in the latter case, by increasing the 2019 
deficit  target  to  4.4%  of  GDP  (Fiscal  Council, 
2019c).  Moreover,  as  in  previous  years,  the 
government  did  not  send  an  update  of  the  fiscal 
strategy  to  Parliament  by  the  statutory  August 
deadline,  sending  it  in  December  2019  instead. 
This  again  undermined  the  guiding  role  the  fiscal 
strategy  should  have  for  the  overall  budgetary 
process.  The  2020  budget  and  the  fiscal  strategy 
in 
also  derogated  from  several  fiscal  rules, 
particular by targeting a headline deficit of 3.6% of 
GDP  in  2020  (Fiscal  Council,  2019d,  2019e  and 
2020). 

4.1.4.  TAXATION 

is  considered 

The tax structure is characterised by low levels 
of revenues, with high reliance on consumption 
taxes.  The  tax-to-GDP  ratio  was  26.3%  in  2018, 
well  below  the  EU  average  of  39.2%.  The  tax 
structure 
to 
relies  on 
economic  growth,  as 
consumption taxes, while the tax burden on labour 
(including  social  contributions)  is  low  (European 
Commission, 2019b). The limited use of recurrent 
taxes  on  immovable  property  and  environmental 
taxes leaves scope to generate revenue in a growth-
friendly manner. 

little  detrimental 

largely 

it 

The  impact  of  the  tax  system  on  reducing 
limited. 
poverty  and 

inequality 

income 

is 

(12)  The  budget  deficit 

increased  after 

the 
target  was 
submission  of  the  draft  2019  budget  to  the  parliament,  in 
direct  contradiction  to  the  Public  Finance  Law  (Fiscal 
Council 2019b). The original deficit target proposed by the 
government  (2.55%  of  GDP)  did  not  comply  with  the 
structural deficit rule neither. 

rate  shocks.  The  structure  of 

in  the  medium  term.  Due  to  a  high  structural 
primary  deficit  (which  is  driven  by  the  enacted 
significant  pension  increases),  and  assuming  no-
policy  change,  the  debt-to-GDP  ratio  is  set  on  a 
steep upward path. It is projected to exceed 90% of 
GDP  by  2030  (the  end  of  the  projection  period). 
The  debt  path  is  sensitive  to  growth,  fiscal  and 
the 
interest 
government debt in terms of maturity longer than 1 
year helps to mitigate vulnerabilities. However, the 
high share of government debt in foreign currency 
and the substantial debt holdings by non-residents 
could be aggravating factors, as could the negative 
net international investment position. Furthermore, 
the  medium-term  sustainability  gap 
indicator 
(‘S1’) shows Romania  would require  a significant 
fiscal adjustment in order to achieve the debt target 
of  60%  of  GDP  in  2034.  This  indicator  nearly 
quadrupled  with  respect  to  last  year  and  is  now 
among the highest in the EU. 

The  high  fiscal  deficit  and  increasing  ageing 
costs  cause  high  fiscal  sustainability  risks  over 
the  long  term.  The  relevant  indicator  (ʻS2ʼ), 
points to a required fiscal adjustment of 8.8 pps of 
GDP  in  order  to  ensure  that  the  public  debt  ratio 
stabilises  over  the  long  term.  This  value,  among 
the  highest  in  the  EU,  is  driven  by  the  initial 
budgetary  position  (a  contribution  of  5.1  pps  of 
GDP) and ageing costs, in particular pensions and 
health  care  (a  contribution  of  3.7  pps  of  GDP). 
Both 
law, 
approved in summer 2019. 

items  are  driven  by 

the  pension 

4.1.3.  FISCAL FRAMEWORK 

to 

requires 

The  Fiscal  Responsibility  Law  sets  national 
numerical  fiscal  rules,  which  should  guide  the 
budgetary process. It contains a structural deficit 
rule,  which 
compliance  with  or 
the  medium-term  budgetary 
convergence 
objective  of  a  structural  deficit  not  exceeding  1% 
of GDP (11). The national framework also contains 
several auxiliary rules on expenditure and revenue 
items. Furthermore, the government is required to 
prepare an update of the fiscal strategy - which sets 
out the macroeconomic assumptions, medium-term 
budget  planning  and  expenditure  ceilings  that 

(11)  The path of convergence is defined in agreement with the 
EU  institutions,  based  on  the  rules  of  the  Stability  and 
Growth Pact. 

26 

                                                           
                                                           
4.1. Public finances and taxation 

lowered  the  excise  duty  on  motor  fuels  from  1 
January  2020.  This  means 
lower  budgetary 
revenues  and  a  negative  impact  in  terms  of  the 
climate  objectives.  Moreover,  the  government 
dropped 
introduce  a  pollutants-
dependent car registration tax in 2019. 

its  plans 

to 

The value added tax (VAT) gap decreased, but 
remains among the highest in the EU. The VAT 
gap  is  the  difference  between  the  VAT  liability 
theoretically  due  and  VAT  actually  collected.  It 
thus represents lost revenue due to evasion, fraud, 
insolvencies, bankruptcies, administrative errors or 
legal  tax  optimisation.  The  VAT  gap  is  estimated 
to have marginally dropped from 35.9% in 2016 to 
35.5%  in  2017  and,  according  to  preliminary 
estimates, it lowered to 32% in 2018. However, it 
is still among the highest in the EU (CASE et al., 
2019). 

registers 

After repeated delays, there is a progress in the 
acquisition  of  electronic  cash  registers  by  the 
taxpayers.  Out  of  an  estimated  total  need  of 
750,000  cash 
for  VAT  purposes, 
approximately  580,000  taxpayers  had  them  in 
place  by  December  2019.  These  registers  are  not 
yet  connected  to  the  servers  of  the  National 
Agency  for  Fiscal  Administration  (NAFA).  The 
NAFA  is  planning  to  develop  the  IT  element  of 
this  initiative,  i.e.  the  collection,  safekeeping  and 
archiving  of  the  data,  to  be  followed  by  risk 
analysis. 

the 

implies 

As  of  February  1st,  2020,  the  split  VAT 
mechanism  will  no  longer  apply.  A  split  VAT 
mechanism 
taxpayer  has  a 
that 
separate,  special  bank  account  for  cashing  in  and 
paying out the VAT. Taxpayers making payments 
to  suppliers  using  the  mechanism  are  obliged  to 
pay  the  VAT  into  the  supplier’s  special  VAT 
account.  The  VAT  split  payment  mechanism 
introduced  by  Romania  in  2018  (mandatory  for 
insolvent or VAT indebted companies) resulted in 
disproportionate burdens on taxpayers and did not 
prove efficient in fighting fraud. Starting  in 2020, 
the  provisions  of  the  Government  Ordinance 
23/2017 regarding the split VAT mechanism were 
repealed,  however  this  needs  to  be  maintained  by 
Parliament. 

Undeclared work remains high. According to the 
Romania  Fiscal  Council,  the  value  of  the  non-
observed  economy  is  21.5%  of  GDP.  The  sectors 

low 

level  of 

tax  revenues 

Income inequality and poverty rates remain among 
the  highest  in  the  EU  (see  Section  4.3.4).  The 
relatively 
limits 
Romania's  ability  to  tackle  these  problems  via 
either  redistribution  or  through  the  provision  of 
public  goods  and  services  (see  Section  4.3).  The 
design  of  labour  taxation  is  among  the  least 
progressive  in  the  EU,  as  measured  by  the 
difference  between  the  relative  tax  burdens  for 
low- 
(European 
Commission,  2019b).  Such  design  contributes  to 
the limited impact of the tax and benefit system in 
terms of reducing income inequality (Graph 4.1.3). 

high-income 

earners 

and 

Graph 4.1.3:  Redistributive power of the tax and benefit 

systems in EU Member States, 2017 

(1) Income data adjusted for household size (equalisation). 
(2) Income inequality measured by the Gini coefficient. 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.  
(3) EU-SILC 2017 data are based on income generated in 
2016. 
Source: Commission services calculations based on Eurostat 
data 

Environmental  taxation  remains  at  a  relatively 
low  level.  Environmental  taxes (13)  amounted  to 
2.1%  of  GDP  in  2018,  below  the  EU  average  of 
2.4%.  Revenues  from  transport  fuel  taxes  as  a 
share  of  GDP  are  among  the  lowest  in  the  EU. 
(European  Commission,  2019b).  The  authorities 

(13)  Taxes on energy products (including CO2 taxes), transport 
(excluding  fuel,  which  is covered  by  the  taxes  on  energy) 
and  taxes  on  pollution  and  resources.  See  European 
Commission, 2019. 

27 

2025303540455055IEFIUKDKBENLSIATSEPTDEHRFRCYESHUCZLUMTITROEESKPLLTLVBGELGini indexMarket income inequality (pensions = market income)Disposable income inequality before social transfersDisposable income inequalityMarket income inequality (pensions = social transfer)   
                                                           
4.1. Public finances and taxation 

the  introduce  SAFT-T  files  (audit  files  for  tax 
conforming to OECD standards). 

A  tax  amnesty  was  implemented  in  summer 
2019.  Romania  does  not  have  a  voluntary 
compliance  mechanism  giving 
incentives  for 
reporting and payment of overdue tax obligations. 
Instead,  the  authorities  tend  to  enact  ad  hoc  tax 
amnesties.  The  tax  amnesty  enacted  in  summer 
2019 (15)  had  two  components:  tax  restructuring 
and  the  cancellation  of  ancillary  due  amounts 
(fines and interest). By the beginning of December 
2019, approximately 50,000 taxpayers had applied 
for  the  tax  amnesty,  most  of  them  for  the 
cancellation  of  ancillary  obligations.  The  Fiscal 
Council  (2019c)  criticised  the  measure  for  the 
moral  hazard  it  generated,  amplified  by  the  fact 
that  only  taxpayers  who  have  accumulated  a 
considerable  volume  of  outstanding  debt  were 
eligible. 
tax 
amnesties  raises  the  problem  of  optimizing  tax 
obligations over a longer period. 

frequency  of 

In  addition, 

the 

reporting  obligations 

to  simplify 
The  authorities  are  planning 
to 
procedures  and 
facilitate  tax  compliance.  NAFA  intends  to 
introduce some pre-filling for the personal income 
tax annual declaration as of 2020, with the help of 
the Private  Virtual Space. The authorities are also 
working on reducing the number of tax returns due 
from  legal  persons.  Moreover,  the  authorities  are 
analysing the possibility of extending the scope of 
electronic filling and submitting of tax returns. 

(15)  Ordinance no. 6/2019. 

of high risk are mainly construction, services, and 
textile manufacturing. According to the NAFA, the 
the 
compliance  seems 
to  have 
tax 
construction 
exemptions 
security 
contributions  and  personal  income  tax)  for  those 
working  in  the  sector.  However,  there  is  no  clear 
data available. 

sector 
(concerning 

following 

increased 

recent 

social 

in 

Coordination  between  the  labour  inspectorates 
and  the  tax  authorities  is  improving.    The  two 
institutions  sometimes  carry  joint  inspections  and 
have  coordinated  their  risk  analysis  to  a  certain 
extent. In 2019, the two institutions stepped up the 
number  of  inspections  at  various  private  agencies 
for  labour  force/employment  placement  abroad. 
NAFA is still in the process of developing specific 
indicators for use in the risk analysis, including for 
under-declared  earnings.  In  addition,  the  Labour 
Inspection  remains  relatively  under-staffed,  with 
shrinking number of labour inspectors. 

the 

The  tax  administration  continues  its  internal 
reorganisation.  NAFA  intends  to  redistribute  its 
human resources to reinforce the Large Taxpayers 
Office  and 
in 
Bucharest-Ilfov.  It  also  decided  to  centralise  the 
risk  assessment  by  creating  a  single  directorate 
under the direct coordination  of its president.  The 
National  Centre  for  Financial  Information (14)  is 
preparing the implement of several IT projects and 

tax  administration 

local 

(14)  This  Centre  was  established  at  the  end  of  2017  as 
coordinator  of  the  IT  activities  in  the  Ministry  of  Public 
Finance,  the  National  Agency  for  Fiscal  Administration, 
the  National  Agency  for  Public  Procurement  and  the 
National Prognosis Commission. 

28 

                                                           
                                                           
4.1. Public finances and taxation 

Box 4.1.1: New pension law: pension adequacy and budgetary sustainability 

The pension system in Romania faces challenges connected to low average duration of working lives 
and to the aging of the population. Romania has one of the shortest average durations of working lives in 
the EU (33.5 years compared to the EU average of 36.2) and one of the lowest employment rates for older 
workers. This negatively affects the contributory period and thus the level of pensions. Moreover, projected 
aging  of  the  population  (see  Section  1)  poses  a  challenge  to  pension  adequacy  and  sustainability  in  the 
future. The economic old-age dependency ratio, i.e. inactive population aged 65+ as a share of the employed 
population aged 15-64, is projected to double, from 39.1% in 2016 to 81.5% in 2070.  

A new pension law, enacted in  summer 2019, significantly changed several parameters of the public 
pension scheme. The pension system in Romania consists of three pillars. The first pillar is a mandatory, 
pay-as-you-go public point system. The second pillar is a partially mandatory, defined contribution scheme 
with  a  guarantee  plan,  based  on  individual  accounts,  while  the  third  pillar  is  a  voluntary,  defined 
contribution scheme based on individual accounts. A new pension law, enacted in summer 2019, contains 
the following main changes to the first pension pillar: (i) ad hoc indexation of pensions until 2021: by 15% 
from September 2019 (already included in the 2019 budget law), 40% from September 2020 and 6% from 
September 2021; (ii) from 2022 onwards, the indexation of the pensions will be 100% of the inflation rate 
plus 50% of the real average gross wage growth; (iii) starting in 2021, the correction index which used to lift 
the  first  pension  in  line  with  wages  will  be  abolished;  (iv)  new  pensions  will  be  calculated  using  at  the 
denominator a fixed contributory period of 25 years, instead of 35 (M) / 31.9 in 2022, going up to 35 as from 
2030 (F) years under the previous law; (v) existing pensions will be recalculated upwards to match this new 
formula.  The  law  also  contains  some  changes  to  the  minimum  pension,  disability  and  survivor  benefits, 
while pension, taxation as well as some provisions on pillar II, have also been modified in 2017 and 2018. 

The new pension law improves pension adequacy, however it has significant budgetary costs in a very 
short  period  and  causes  high  fiscal  sustainability  risks.  A  third  of  elderly  in  Romania  were  at  risk  of 
poverty and social exclusion in 2018, similar rate to the rest of Romanian population but much higher than 
the EU average (Section 4.3.4). Old-age pensions have been growing below the significant growth of wages 
of the last years. There are large pension adequacy gaps between different groups of pensioners. The benefit 
ratio (average public pension as a share of the average wage) amounted to 35.5% in 2016, much lower than 
the  EU  average  of  43.5%.  It  is  projected  to  decrease  to  31%  in  2070  under  the  new  law  (European 
Commission, 2019c), instead of a much lager fall to 26% in 2070 under the previous law. The benefit ratio 
for the EU as a whole is set to fall to 32.9% over the same period (European Commission, 2018b). Due to its 
implementation  schedule,  the  law  is  set  to  significantly  increase  public  spending  on  pensions  in  a  short 
period.  It  is  the  main  driver  of  the  projected  rapid increase  of  the  general  government  deficit  and  of  high 
fiscal  sustainability  risks  (Section  4.1.2).  Moreover,  the  law  is  not  accompanied  by  measures  aimed  at 
increasing labour participation and duration of working lives beyond the statutory minimum, which are key 
to improve both pension adequacy and the sustainability of the pension system. 

Source: European Commission (2018b and 2019c).  

29 

 
 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING AND INSURANCE 
DEVELOPMENTS (*)  

Despite  several  headwinds  and  some  signs  of 
asset  quality  deterioration,  the  banking  sector 
has remained resilient. The highly criticised bank 
tax  on  total  assets  was  recently  abolished.  Total 
banking  sector  capitalisation  (19%  at  the  end  of 
June  2019)  has  been  relatively  stable  for  several 
years  and  above  the  EU  average.  The  common 
equity  Tier  1  (CET1)  ratio  rose  to  17.1%  in  the 
first half of 2019, up from 18.4% at the same date 
last  year.  Even  though  non-performing  loans 
(NPLs) declined, for unsecured consumer credit in 
local  currency,  the  system-wide  NPL  ratio  fell 
further, reaching 5% at the end of June 2019. The 
stock of legacy impaired assets decreased, albeit at 
slower pace than in previous  years,  mainly due to 
the  decline  in  NPL  sales.  At  the  same  time,  the 
flow of new NPLs slightly increased.  

Financial  intermediation  remains  significantly 
below  pre-crisis  levels,  hampered  by  a  weak 
corporate 
legislative 
sector  and  various 
developments. Financial intermediation (measured 
as  the  ratio  of  total  private  sector  credit  to  GDP) 
was  25.6%  of  GDP  in  2018,  some  11  pps  below 
the  2009  level  and  roughly  three  times  below  the 
EU  average.  The  main  factors  behind  this  low 
level  are  several  legislative  headwinds  credit 
institutions have faced since 2016 and the financial 
situation of companies (very low or even negative 
capitalisation)  and  loose  financial  discipline,  that 
has constrained their access to credit. Furthermore, 
the  focus  on  retail  lending  in  the  business  models 
of  banks,  the  limited  number  of  bank  employees 
specialising in corporate lending and the low level 
in  Romania  have  also 
of  financial 
contributed  to  the  low  and  declining  trend  in 
financial intermediation since 2011. 

literacy 

The banking sector’s exposure to the real estate 
market and government debt is still significant. 
Supported  by  the  increase  in  disposable  income 
and  government  measures,  mortgage  credit  has 
expanded  significantly  in  the  post-crisis  period, 
while  consumer  lending  as  a  percentage  of  total 
lending to  households has declined.  At  the  end of 
March  2019,  almost  70%  of  all 
to 
households constituted exposure to residential real 
estate.  The  mortgage  loans  granted  under  the 
government  sponsored  First  Home  (Prima  Casa) 
significant, 
programme 

continued 

loans 

be 

to 

representing one third of the new housing loans in 
Q1 2019. However, the intended gradual reduction 
in  the  total  guaranteed  amounts  coupled  with  a 
lower  maximum  level  of  indebtedness  eligible  in 
the  new  programme  are  expected  to  create  a 
downward  trend  in  new  mortgages  granted  under 
this  programme.  Meanwhile,  the  attractiveness  of 
mortgage  products  offered  by  banks  outside  the 
First Home  programme is likely to increase. With 
government bond holdings of almost 18% of total 
banking sector assets in H1 2019 and a pronounced 
home  bias,  the  government-bank  nexus  continues 
to  remain  strong.  Given  the  current  situation  of 
public  finances,  (see  Section  4.1)  the  banking 
sector  is  exposed  to  potential  negative  spill-overs 
stemming from increases in sovereign spreads and 
interest rates. 

an 

from 

impact 

Some  of  the  measures  applicable  to  loans  to 
households  adopted  in  early  2019  would  have 
assessment. 
benefitted 
Government  Emergency  Ordinance  19/2019 
introduced  the  Consumer  Credit  Reference  Index 
(IRCC),  a  new  benchmark  interest  rate  applicable 
to  new  and  refinanced  mortgage  loans  (including 
Prima  Casa  mortgages)  and  consumer  loans,  with 
variable  interest  rates.  The  IRCC  is  calculated  as 
the arithmetic average of the daily interest rates on 
effective  interbank  transactions  and  is  updated 
quarterly and applied by banks for the next quarter. 
While  the  IRCC  was  introduced  with  the  aim  of 
lowering  the  cost  of  credit  for  households,  no 
proper impact assessment was done  to ensure that 
its  calibration  and  application  do  not  raise 
concerns regarding an unwarranted adverse impact 
on  the  transmission  mechanism  and  conduct  of 
monetary policy (16).  

The  Parliament  introduced  several  legislative 
initiatives, which could have negative impact on 
the  banking  sector.  Four  draft 
legislative 
laws  declared 
proposals,  which  build  on 
unconstitutional  in  early  2019,  were  submitted  to 
the  Senate  in  September  2019.  The  first  draft 
proposal  aims 
to  protect  consumers  against 
excessive  interest  rate  levels  by  capping  interest 
rates  for  household  loans  (including  mortgages). 
The  second  proposal  intends  to  shield  borrowers 

(16)  Further  details  on  the  IRCC  are  included  in  the  ECB 
opinion  on  the  tax  on  banks’  financial  assets  and  the 
interest  rate  benchmark  for  consumer  credit  agreements 
https://www.ecb.europa.eu/ecb/legal/pdf/en_con_2019_18_
f_sign.pdf 

30 

 
                                                           
4.2. Financial sector 

in  2018  and  98%  in  2017.  The  combined  ratio 
reached  122%  for  compulsory  car  at  the  end  of 
June 2019, due to the increase in distribution costs, 
the  higher  costs  charged  by  auto  services 
companies and more accidents and casualties.  

4.2.2.  PENSIONS - SECOND PENSION PILLAR  

for  pension 

The  headwinds  faced  by  the  second  pillar 
pension  funds  have  subsided,  but  pockets  of 
vulnerability  remain.  In  January  2020, 
the 
government abolished several provisions targeting 
the  second  pillar  pension  funds,  which  were 
introduced by the former government in December 
2018  and  May  2019.  The  minimum  capital 
fund  management 
requirements 
companies  were  restored  to  the  level  before  the 
adoption of the Government Emergency Ordinance 
114/2018.  The  provision  whereby  participants  in 
the second pillar could switch to the Pay-As-You-
Go  pillar,  after  five  years  of  contributing  to  the 
second  pillar,  was  removed.  The  administration 
fees  levied  on  gross  contributions  by  the  pension 
companies,  which  were 
fund  management 
significantly  cut  in  December  2018,  were  further 
modified in early 2020, but without prior in-depth 
analysis consulted with all relevant stakeholders.  

to 

companies.  Due 

The reduction in administration fees has had a 
negative impact on the results of pension funds 
management 
lower 
administration  fees  the  revenues  of  pension  funds 
management  companies  declined  significantly  in 
the  first  ten  months  of  2019.  Thus,  after  seven 
successive profitable years, the sector registered an 
aggregate  negative  result  as  of  October  2019. 
Since the industry is in its early years in Romania, 
detecting  any  unwarranted  adverse  effects  on  the 
performance  and  prudential  situation  of  these 
pension  fund  management  companies  from  the 
reduction in administration fees could be useful to 
allow  for  potential  further  fine-tuning  and  a 
sustainable second pillar for retirement.  

4.2.3.  CAPITAL MARKETS AND ACCESS TO 

FINANCE  

Non-bank  financing  in  Romania  has  continued 
to lag significantly behind bank credit to firms. 
Bank  loans  are 
important  external 
the  most 
financing source for firms in Romania, amounting 

from  speculative  debt-assignment  agreements  (i.e. 
sales  of  bank  loans)  by  declaring  the  borrower 
debt-free  in  the  event  that  the  outstanding  loan  is 
transferred  to  a  third  party.  A  third  proposal 
concerns 
the  protection  of  borrowers  against 
abusive or hasty foreclosures. The fourth proposal 
protects  consumers  against  the  foreign  exchange 
risk  embedded  in  credit  contracts.  Since  the  first 
three  draft  laws  would  also  apply  retroactively  to 
outstanding  loans,  they  are  likely  to  induce  moral 
hazard  and  weaken  payment  discipline  in  the 
banking sector.  

The proposed amendments to the Statute of the 
Consumer  Protection  Authority  may  increase 
its  competences  in  the  banking  sector.  A  draft 
initiated  in  2016 
legislative  proposal  already 
appeared  to  gather  new  momentum  in  Parliament 
in late 2019. It would give the National Consumer 
Protection Authority (ANPC) the right to supervise 
the financial and banking sector, by approving and 
endorsing  financial  products,  to  set  fees  for  new 
financial  products  proposed  by  both  financial  and 
non-financial  institutions,  and  to  impose  fines 
to  10%  of  revenues  at 
ranging  from  0.5% 
consolidated level (European Commission, 2017b). 
While enhancing consumer protection is important, 
some  intended  amendments  to  the  ANPC  Statute 
might interfere with the mandate of the Romanian 
Central  Bank  in  the  area  of  banking  supervision, 
particularly  in  relation  to  the  withdrawal  of  bank 
licences.  

years 

several 

of  more 

After 
benign 
developments,  strain  in  the  insurance  sector  is 
re-emerging. 
in  Romania 
Insurance  activity 
expanded  further 
in  2018,  as  gross  written 
premiums increased by roughly 4.5% compared to 
2017.  Insurance  penetration (calculated  as 
the 
share  of  gross  written  premiums  in  a  country’s 
GDP)  has  remained  subdued  and  well  below  EU 
peers.  While  life  insurance  is  underdeveloped, 
albeit increasing, the insurance sector is still highly 
dependent  on  non-life  insurance  (in  particular 
compulsory  car  insurance),  which  generated  79% 
in  2018. 
of 
Concentration  in  the  compulsory  car  insurance 
business  has 
two  players 
increased,  with 
underwriting the bulk of insurance premiums. The 
insurance  sector  has  a  combined  ratio  (calculated 
as losses and expenditures to earned premiums) for 
all business lines,  which increased to 110% at the 
end of June 2019, while it stood at roughly 103% 

the  gross  written  premiums 

31 

4.2. Financial sector 

Support  Programme  and  is  counting  on  the  pro-
active involvement of the government to ensure its 
success.  After  Romania's  upgrade  to  Secondary 
Emerging  market status by Financial Times Stock 
Exchange (FTSE) Russell and the inclusion in the 
CEEplus  Index19,  these  initiatives  could  further 
help  boost  the  Romanian  capital  market  and 
companies’  access  to  non-bank  financing.  This 
should be complemented by several initiatives and 
a  national  strategy  for  financial  literacy  following 
a memorandum signed in 2018. 

(19) The CEEplus  Index, published since 4 September 2019, is 
calculated based on the value of the portfolio of the largest 
and  liquid  companies  listed  on  stock  exchanges  from  the 
central  and  eastern  Europe  region  (Croatia,  Czech 
Republic,  Poland,  Romania,  Slovakia,  Slovenia  and 
Hungary). 

for 

to  about  11.7%  of  GDP  in  2018  (EU  average  of 
about  34%  of  GDP).  Market  based  financing  was 
with 6.2% of GDP also significantly below the EU 
average  of  49.7%  of  GDP  in  2018(17).  According 
to  surveys  by  the  National  Bank  of  Romania, 
companies  resort  primarily  to  internal  financing 
sources 
their  operational  activity  and 
investment projects. Firms’ recourse to bank loans 
is  relatively  low,  the  main  sources  of  external 
financing  being  overdrafts  and  credit 
lines. 
Companies  using  external  financing  face  higher 
financing costs and loan application rejection rates, 
in  particular  due  to  low  financial  soundness (18) 
(NBR,  2019b).  The  microfinance  sector  has 
become  the  fifth  most  active  microfinance  sector 
in  the  EU,  having  good  growth  potential  (OECD, 
2018a). 

in  high 

Access  to  risk  capital  for  innovative  start-ups 
and  scale-ups  remains  limited.  Romanian  firms 
tech  knowledge-intensive 
operating 
services  and  manufacturing  tend  to  be  more 
finance  constrained  than  firms  active  in  less 
knowledge intensive sectors are (EIB, 2019a). This 
could  be  due  to  a  lack  of  appropriate  supply  and 
financing  instruments  adapted  to  the  needs  of 
innovative  start-ups  and  scale-ups.  Romania  was 
among  the  most  attractive  destinations  in  Central 
and Eastern Europe for private equity and venture 
capital  funds  (Invest  Europe,  2018a)  and  venture 
capital  investments  have  increased  over  the  last 
four  years.  However,  the  size  of  the  market  and 
volumes are still relatively low and concentrated in 
few  sectors,  primarily  in  the  Bucharest  and  Vest 
regions (Flachenecker et al., forthcoming). Efforts 
to support business creation with various financing 
options  are  initiated  by  national  authorities,  but 
lack a targeted approach and funds (OECD 2018b). 

Various initiatives could support capital market 
development.  With  the  support  of  the  Financial 
Supervisory  Commission  (ASF),  the  process  of 
setting  up  a  central  counterparty  clearinghouse 
(CCP)  in  Romania  has  progressed  further,  which 
could  contribute  to  the  increase  in  derivative 
trading  once  operational  in  2020.  The  ASF  also 
aims  to  prepare  a  capital  market  strategy  with  the 
support  of  the  Commission’s  Structural  Reform 

(17) In this context, market based financing is calculated as ratio 
between the outstanding amounts of listed shares issued by 
non-financial corporations in Romania and GDP. 

(18)  Romania  has  the  second  highest  share  of  companies  with 

negative equity in EU (EIB 2019) 

32 

                                                           
                                                           
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET 

labour  market  developments 

Positive 
in 
Romania  continue  on  the  back  of  sustained 
economic  growth  but  labour  shortages  persist.  
The labour market dynamics remain positive, with 
the employment at a record level of 70.8% in Q3-
2019  (20),  and  the  unemployment  rate  falling  to 
3.9%.  However,  differences  in  labour  market 
outcomes  remain  between  regions  and  population 
groups.    On  the  back  of  the  positive  economic 
developments,  labour  market  conditions  remain 
tight,  with  labour  and  skills  shortages.  These  are 
exacerbated by the decline in the labour force (21).  

Demographic  change  and  migration  have  a 
strong impact on labour market dynamics. The 
population continues to decrease due to a negative 
natural  rate  of  population  growth  and  outward 
migration.  In  2018  Romanians  were  the  largest 
group  of  EU  citizens  of  working  age  (20-64) 
residing 
(2,524,000 
in  other  Member  State 
persons) (22).  The  emigration  of  working  age 
Romanians  increased  by  7%  compared  to  2017, 
calling for continuous efforts to upskill and re-skill 
the labour force remaining in the country. 

Graph 4.3.1:  Demographic growth and working age 

population 

Source: European Commission 

slight 

improvement, 

inactivity 
Despite  a 
remains  high,  with  significant  differences 
between  age  groups  and  across  regions.  The 
inactivity rate amounts to 31.6% (Q3 2019) of the 
levels  of 
overall  population.  Persistent  high 

(20)  Since  2017, 

there  has  been  a  general  pick-up 

in 
employment,  which  is  expected  to  continue  in  2019  and 
2020. 

(21)  Since  2014,  the  population  aged  20-64  has  decreased  by 

5%.  

(22)  EU  citizens  living  in  another  Member  State-  statistical 

overview, Eurostat (2019).  

inactivity are registered for  women,  young people 
aged  15-24  (71.17%),  older  people  aged  55-64 
(50.8%)  and  women  aged  15-64  (41.7%)  in  Q3 
2019.  The  inactivity  gap  between  low-  and  high 
skilled  youth remains  high (43.3 pps).  In the age 
group 20-64, family and caring responsibilities are 
often the main reasons for not seeking employment 
(23.6% of the inactive population). There are also 
regional  disparities 
inactivity  rates  (2018) 
between  Centru  (38.4%),  Sud-Est  (36.9%),  and 
Vest  (38%),  compared  to  Nord-Est  (26.3%)  and 
the capital region (26%).   

in 

in 

the 

labour  market 

Active 
policies,  mainly 
employment  subsidies,  have  little  impact  on 
reducing  inactivity.  In  2019,  the  number  of 
apprenticeship  contracts  taken-up  increased  to 
more  than  6,150  from  around  430  contracts  in 
2017,  as  subsidies  to  employers  were  doubled  in 
2018  (from  RON  1,125  to  RON  2,250).  In 
addition,  subsidies  for  employing  people  from 
disadvantaged groups also increased. However, the 
share  of  employed  persons 
total  of 
participants  in  active  measures  was  only  around 
40%,  6  months  after  participating  in  the  measure.  
There  remains  significant  scope  to  improve  the 
effectiveness  of  activation  measures,  in  particular 
for  providing  tailor-made  services  to  vulnerable 
groups,  such  as  low-skilled,  old  workers  and 
persons  with  disabilities.  While  the  employment 
rate  for  people  with  disabilities  is  below  the  EU 
average,  43.7%  vs  50.6%,  the  legal  framework 
does not effectively incentivise their employability 
and  public  employment  support  services  are 
in 
limited.  Necessary 
case 
the 
management 
relations  with 
employers  continue  to  stall,  despite  the  European 
Social Fund funding (ESF) available.   

reforms 
and 

approach 

total 

Access to the labour market remains limited for 
certain  groups.  In  2018,  the  share  of  long-term 
unemployment 
unemployment  within 
increased  to  44.1%,  after  declining  from  50%  in 
2016 to 41.4% in 2017. Around 100,000 long-term 
unemployed  are  currently  registered  with  the 
public employment services. Eighty eight per cent 
of  them  come  from  rural  areas,  around  9%  are 
Roma and more than 90% are identified as having 
a  low  level  of  employability.  Skills  mismatches 
and  lack  of  basic  skills  are  obstacles  to  tackling 
these  issues.  Public  employment  services  are  not 
effectively  tailored  to  individual  needs  and  lack 

33 

11 40011 60011 80012 00012 20012 40012 60012 80013 000-250-200-150-100-5005020082009201020112012201320142015201620172018'000 of persons'000 of personsNatural increaseNet migrationWorking age population (rhs) 
  
                                                           
4.3. Labour market, education and social policies 

the demand for labour is expected for professional 
services, sales workers and associate professionals, 
while the demand for trade and agriculture workers 
is expected to decrease. 

of 

is  among 

that  Romania 

vertical  mismatches 

The  skills  mismatch  has  persisted  over  the 
recent  years.  The  European  Skills 
Index 
measuring  the  performance  of  EU  skills  systems 
shows 
the  worst 
performers,  especially  in  skills  development  and 
the 
activation  (Cedefop,  2019).  In  addition, 
occurrence 
(over-
qualification  rate),  while  still  below  the  EU 
average,  almost  doubled  over  the  last  decade. 
Thus,  in  2018,  18%  of  workers  with  tertiary 
qualifications  were  employed  in  occupations  that 
did  not  require  that  level  of  qualification  while 
28%  of  the  employed  people  aged  25-34  with 
tertiary  education  were  occupying  a  job  that 
required  tertiary  education  but  their  education  or 
skills  did  not  match  the  requirements  of  the  job 
(Eurostat,  Mismatch  indicators).  It  points  to  a 
widening  gap  between  education  and  work. 
Technological  changes  are  expected  to  generate  a 
towards  higher  skills  and 
shift 
qualifications,  which  might  not  be  fully  met  by 
current labour supply, given the time necessary for 
the education and training system to adjust. 

in  demand 

Graph 4.3.2:  Developments in hiring 

Source: European Commission, Labour Force Survey 

The  need  for  upskilling  is  high.  In  2018,  nearly 
2.3 million  people (21.5% of adults) only had low 
educational  attainment.  In  2018,  only  0.9%  of 
adults aged 25-64 had a recent learning experience 
(EU  average  11.1%).  This 
is  particularly 
concerning given the low number of available jobs 

integration with social services, despite substantial 
funding being available. 

The  percentage  of  young  people  neither  in 
education  nor  in  employment  and  training  is 
among the highest in the EU. In 2018, 14.5% of 
young  people  (15-29  years)  were  neither  in 
education nor in employment and training (NEET), 
compared to the EU average of 14.5%. More than 
a  third  of  them  were  discouraged  workers,  short- 
long-term  unemployed (23).  Despite 
and 
the 
positive  outcomes  of  some  outreach  measures, 
inactive.  In 
around  69%  of  NEETs  remain 
addition, a very high and increasing share of young 
people leave the country.  

The  gender  gap  in  activity  and  employment 
remains high.  At 19 pps in Q3 2019, the gender 
gap  in  activity  increased  further  to  above  the  EU 
average  (10.7  pps).  In  2018,  the  share  of  active 
women  (15-64  years)  was  58.7%  (EU  average 
68.7%),  compared  to  7.9%  for  men  (EU  average 
79.4%).  The  lowest  activity  rates  were  recorded 
among  younger  (aged  15-24)  and  older  women 
(aged 55-64). Approximately 12% of women were 
inactive 
family 
responsibilities.  In  2018,  the  gender  employment 
gap  of  people  having  one  child  below  the  age  of 
six  was  as  high  as  29 pps.  High  early  school 
leaving  rates  and  insufficient  childcare  facilities 
and  services  negatively  affect  female 
labour 
market  participation  especially  in  rural  areas  (see 
Section 4.3.2).  

personal 

and 

due 

to 

industry 

(25.1%)  and 

In  a  context  of  increasing  demand  for  labour 
and  falling  unemployment,  labour  shortages 
persist in some sectors.  In the first three quarters 
of  2019,  companies  in  the  services  sector  (9.8%), 
construction 
(13.7%) 
reported  labour  shortages  as  a  factor  hindering 
production  (European  Commission,  2019f),  an 
increase compared to 2018.  Future labour demand 
is expected to shift with a need for particular skills 
in  some sectors and occupations (Cedefop, 2019). 
In 2018, job vacancies were reported mostly in the 
manufacturing  sector  (27%),  followed  by  health 
and  social  work  activities  (11%),  and  public 
administration (13%) (24). By 2030, an increase in 

(23)  Equally the same share of NEETs were in the category due 
to family responsibilities, illness or disability, and the rest 
reported other undeclared reasons.   

(24)  INSSE, Average annual number of job vacancies 2017 

34 

1,0002,0003,0004,0005,0006,000201320142015201620172018'000 personsLess than primary, primary and lower secondary education (levels 0-2)Upper secondary and post-secondary non-tertiary education (levels 3 and 4)Tertiary education (levels 5-8)                                                           
    
4.3. Labour market, education and social policies 

for 

framework 

institutional 
social  partners’ 
consultation is not adequately used to feed into the 
decision-making  process.  The  limited  capacity 
building of social partners and ineffective dialogue 
remain a concern. Social partners still do not enter 
into  voluntary  dialogue  in  order  to  address  labour 
market  challenges  and  their  involvement  and 
contribution in policymaking remains limited. The 
government  plans  to  review  the  role  of  social 
dialogue  committees  in  order  to  improve  the 
involvement of social partners. 

Discussions  on  changes  to  the  social  dialogue 
law  and  the  revision  of  economic  sectors  have 
stalled. The draft changes to the law have been in 
parliamentary procedure since June 2018. In April 
2018,  the  International  Labour  Organisation  gave 
recommendations on the legislative project but the 
follow-up  is  uncertain.  The  delineation  of  sectors 
still does not allow for sufficient representation of 
workers  or  employers  in  most  sectors,  and  there 
are  no  immediate  plans  for  improvement (26). The 
authorities 
rates  of  collective 
bargaining coverage 45%, which may be linked to 
temporarily 
collective 
mandatory for all employers, following the shift in 
social  security  contributions  from  employers  to 
employees at the end of 2017.  

report  higher 

bargaining 

becoming 

4.3.2.  EDUCATION AND SKILLS 

Underfunding and delayed reforms continue to 
hamper the equity, inclusiveness and  quality of 
education. Spending on education remains one of 
the  lowest  in  the  EU  (2.8%  of  GDP  vs  4.6%  EU 
average),  particularly  at  pre-primary  and  primary 
level,  which  account  for  just  21.8% of  the  budget 
(EU  average  32%).  Persistent  problems  with  the 
acquisition of basic skills at school (27) and the low 
the  population (28)  pose 
digital 
challenges  for  the  labour  market  integration  of 
future  graduates.  The  enrolment  rates  at  all 

literacy  of 

requiring  only  a  basic  level  of  education.  Recent 
attempts  have  been  made  to  address  the  issue  of 
upskilling  and  re-skilling.  A  new  regulation  for 
quality  assurance  in  adult  learning  is  also  under 
development. 

Wages  in  Romania  continued  to  grow  rapidly.  
In  2018,  the  nominal  compensation  per  employee 
increased by 16.3%, also due to the rapid increases 
in  public  sector  wages  and  rises  in  the  minimum 
wage. In Q1-2019, wages still posted double-digit 
growth. Compensation per employee is expected to 
continue  growing  although  at  a  gradually  slower 
pace (13% in 2019 and 9% in 2020), following the 
expected  slowdown  in  public  wages.  Real  wages 
grew faster than productivity, increasing the share 
of national income that went to labour, as was also 
the  case  in  a  number  of  other  Eastern  European 
Member  States  with  comparatively  low  labour 
shares  in  the  past (25),  contributing  to  further 
wages convergence in the EU. 

There 
is  still  no  objective  mechanism  to 
determine the  minimum wage in Romania. The 
minimum wage increased from RON 975 (€210) to 
RON 2,080  (€442)  between  2015  and  2019  and 
was raised further to RON 2,230 (€496) in January 
2020.  According  to  the  authorities,  this  latest 
increase  was  based  on  a  formula  taking  into 
account  several  economic  indicators,  such  as  the 
inflation rate and labour productivity. The decision 
was preceded by discussions with the trade unions 
and  employers'  organizations.  However,  an 
objective  mechanism  to  determine  the  minimum 
wage  is  not  yet  in  place.  While  being  among  the 
lowest  in  the  EU,  the  gross  minimum  wage  in 
Romania currently amounts to 43% of the average 
wage and 58% of the median wage. Approximately 
20%  of  people  under  a  full  time  contract  receive 
the  minimum  wage, 
in  a  highly 
compressed  wage  distribution.  This  indicates  a 
high  incidence  of  envelope  wages  that  come  as  a 
complement (see Section 4.1). 

resulting 

Social  partners  are  not  sufficiently  engaged  in 
reforms  addressing  labour  market  challenges 
and other relevant policy issues. The established 

(25)  Compared to 2018 the nominal change in the monthly rate 
in  Bulgaria  (9.81%)  and  Croatia  (9.48%),  for  instance,  is 
similar  to  the  change  in  Romania  (9.36%).  Romania 
together  with  Bulgaria  and  Lithuania,  saw  their  minimum 
wages  more  than  double  in  real  terms  since  2010 
(Eurofund, 2019) 

(26)  Both  partners  are  present  in  only  6  out  of  30  sectors. 
According to the government, a project for the revision of 
sectors has been prepared since 2018, in consultation with 
social  partners,  however  the  latter  requested  to  wait  until 
the social dialogue law was changed.   

(27)  Romania  ranks  among  the  last  countries  in  the  EU  in  the 
2018  PISA  survey  in  terms  of  mean  performance  in 
mathematics, science and reading (OECD, 2019a) 

(28)  Only 10.1% of the adult population has above basic digital 
skills, the lowest share in the EU (European Commission, 
2019g) 

35 

                                                           
                                                           
4.3. Labour market, education and social policies 

16.4%  in  2018,  almost  6  pps  above  the  EU 
average. This rate is particularly high in rural areas 
(around 25%) (31), for Roma (32) and children with 
disabilities (33).  Regional  disparities  persist,  with 
the highest rates of early leavers being recorded in 
the South-East and North-East regions, which also 
face  the  highest  poverty  levels.  The  high  rate  of 
early leavers  from education  and training in some 
regions correlates with low degrees of urbanisation 
(e.g.  North-East).  Romania  also  has  the  highest 
rate  of  early  school  leavers  for  girls  in  the  EU 
(16.1%  vs.  8.9%  EU  average),  posing  challenges 
in  terms  of  the  likely  future  persistence  of  the 
already 
gap. 
employment 
Comprehensive  measures  targeting  early  school 
leaving through tailor-made support for vulnerable 
pupils  are  not  yet  in  place.  Such  measures  would 
contribute  to  progressing  toward  SDGs  4,  5  and 
10.  

gender 

high 

to 

system  continues 

face 
The  education 
significant  challenges  in  terms  of  quality  and 
inclusiveness.  Romania  is  one  of  the  countries 
with the highest share of low achievers among 15-
year olds in all three areas tested under the OECD 
Programme  for  International  Student  Assessment 
(PISA) (34), and results have worsened since 2015. 
The  mean  score  of  pupils  in  all  three  domains  is 
the 
over  60  points  below 
equivalent  of  one-and-a-half  years  of  schooling. 
Persistent  lower  attainment  levels  are  reported  in 
rural  and  economically  deprived  areas (35), 
including  those  with  a  high  Roma  population.  In 
general, poorer students are more likely to receive 
a  lower  quality  education  (World  Bank,  2018). 
Similarly, only 4% of new university entrants have 
parents with low educational attainment (European 
Commission,  2018c).  In  2016,  the  Ministry  of 
Education  issued  a  document  banning  school 

the  EU  average, 

(31)  The  rate  is  15%  in  towns  and  4.2%  in  cities  (European 

Commission, 2019i) 

(32)  According  to  2016  data,  53%  of  Roma  had  completed 

primary education only (FRA, 2016) 

(33)  The  early  school-leaving  rate  for  persons  with  disabilities 
is  41.4%,  among  the  highest  in  the  EU  and  more  than 
double  the  EU  average  (19.6%)  whereas  the  tertiary 
attainment  rate  (22.6%)  is  significantly  below  the  EU 
average (32.4%) 

(34)  46.6%  of  15-year-olds  are  underachievers  in  mathematics 
(EU  average:  22.4%),  43.9%  in  science  (EU  average: 
21.6%) and 40.8% in reading (EU average: 21.7%) 

(35)  The difference in mean score in reading between pupils in 
urban  schools  and  those  in  rural  area  schools  is  of  110 
points,  the  equivalent  of  almost  three  years  of  schooling 
(OECD, 2019a) 

education levels remain significantly below the EU 
average. Despite recent improvement, early school 
leaving is still very high, with negative effects for 
labour  market  participation,  poverty  and  social 
inclusion.  Ideas  for  important  reforms  of  the 
educational system have been put forward by both 
the  Ministry  of  Education  and  the  Presidential 
Administration but have not yet been pursued.  

Delays in the rationalisation and modernisation 
of  the  school  infrastructure  may  affect  the 
quality  of  education.  The  school-age  population 
is  projected  to  fall  by  10%  by  2030.    Between 
2000 and 2016, Romania closed 25% of its schools 
and  17%  of  the  satellite  schools  (World  Bank, 
2018). Yet, 58% of schools still have a surplus of 
building  space,  while  22%  of  students  study  in 
overcrowded  schools,  mostly 
in  urban  areas 
(MEN,  2018).  In  addition,  equity  challenges  are 
not  effectively  addressed,  with 
long  walking 
distances  to  schools  and  kindergartens  in  rural 
areas  and  commuting  costs  posing  barriers  to 
access.  A  strategy  for  rationalising  the  school 
infrastructure  was  developed  by  the  Ministry  of 
Education but not yet adopted. 

Low participation in early childhood education 
and  care  widens  inequality  of  opportunities 
between pupils. Only 15.7% of children below the 
age  of  three  are  in  formal  childcare.  For  children 
aged between four and the compulsory school age 
participation  increased  to  89.6%  in  2017,  but 
remains  below  the  EU  average  (95.4%). This  rate 
is  even  lower  for  children  in  rural  areas (29)  and 
Roma (30).  This  has  a  detrimental  effect  on  the 
acquisition  of  basic  skills  and  on  the  social 
mobility 
disadvantaged 
backgrounds  or  marginalised  communities.  The 
coverage  of  the  kindergarten  network  improved 
but  rural-urban  disparities  persist.  Some  steps  are 
being  taken  to  increase  access  and  quality  of 
including  with  EU  structural  funds 
services, 
support. 

children 

from 

of 

Despite  recent 
improvements,  early  school 
leaving  remains  very  high,  deepening  existing 
socio-economic  disparities.  The  rate  of  early 
school leavers from education and training stood at 

(29)  Gross enrolment rates in kindergarten (age 3-6) was 85% in 
rural  areas  compared  to  97.4%  in  urban  areas  (National 
Institute for Statistics). 

(30)  Only  37%  of  Roma  children  are  enrolled  in  preschool 

education (European Commission, 2019h) 

36 

                                                           
                                                           
4.3. Labour market, education and social policies 

highest  in  the  EU  (39%  compared  to  the  EU 
average  of  15%  in  2019).  Existing  curricula, 
programmes  and  infrastructure  do  not  sufficiently 
reflect  the  need  to  increase  the  pupils’’  digital 
skills. The number of highly digitally equipped and 
connected  schools  in  Romania  is  significantly 
below the EU average. As part of the E-Education 
two  major 
2023  strategy,  Romania 
projects, ‘The computer system of Management of 
schooling’ and ‘The National Education Platform’ 
that  should  contribute 
the  digitisation  of 
education in over 4,500 schools.   

launched 

to 

Teacher  shortages,  particularly  in  rural  areas, 
together  with  limited  continuing  professional 
development  (CPD)  opportunities,  restrict  the 
quality  and  inclusiveness  of  education.  Teacher 
shortages  persist,  with  a  visible 
impact  on 
educational  outcomes.  It  remains  necessary  to 
redesign  initial  teacher  education  and  strengthen 
CPD opportunities. Initial teacher education offers 
very 
training, 
particularly  in  modern  teaching  techniques  or 
inclusive  pedagogy  (OECD,  2017).  Teachers 
reported  high  development  needs  in  Information 
and  Communications  Technology  (ICT)  teaching 
skills (21.2%), individualised learning (21.5%) and 
in  teaching  students  with  special  needs  (35.1%). 
70% of teachers report that participation in CPD is 
hindered by high costs (OECD, 2019b). 

little  preparation  and  practical 

4.3.3.  HEALTH AND LONG-TERM CARE 

The health status of the Romanian population is 
improving,  but  remains  below  the  EU  average. 
Romania had one of the lowest life expectancies at 
birth  in  the  EU  in  2017.  Ischaemic  heart  disease 
remains  the  main  cause  of  death,  although  cancer 
mortality  is on the rise. The preventable  mortality 
rate (37)  and  the  treatable  mortality  rate (38)  are 
among the highest in the EU. Moreover, shortages 
for  certain  essential  medicines  are  regularly 
reported,  while  access  to  novel  medicines  is 
limited. 

segregation,  but  adopted  the  methodology  only  in 
2020,  and  the  implementation  of  planned  actions 
has been delayed. Such measures, if implemented, 
would contribute to progressing toward SDG 10. 

In  2018, 

job  prospects. 

The  low  labour  market  relevance  of  vocational 
training  negatively  affects 
education  and 
the 
graduates’ 
employment  rate  of  vocational  education  and 
training  (VET)  graduates  increased  slightly  to 
69 % from 67.2% in 2017, but remains well below 
the EU average (79.5%). Students enrolled in VET 
programmes  had  limited  exposure  to  work-based 
learning,  with  only  10%  enrolled 
in  dual 
programmes.  The  VET  system  also  suffers  from 
poor  attainment,  with  11%  of  pupils  enrolled  in 
in  2017-2018  not  being 
professional  schools 
promoted  to  the  next  school  year  (INS,  2019). 
Romania does not perform well in skills activation 
(a  measure  of  the  transition  from  education  to 
work)  and  skills  development  (a  measure  of  the 
investment  in  education  and  training)  (Cedefop, 
2018). Some efforts are being made to increase the 
relevance  of  VET  education  but  a  comprehensive 
reform is missing.  

Participation  in  higher  education  is  low  and 
remains insufficiently aligned to labour market 
in  university  has  been 
needs.  Enrolment 
decreasing (36)  and  in  2018  tertiary  attainment  for 
the 30-34 age group declined further to 24.6% (EU 
average:  40.7%),  with  women  having  the  lowest 
participation  rate  in  the  EU  (28.1%  vs  45.8%). 
Regional  disparities  are  also  high,  with  a  tertiary 
attainment  level  of  38%  in  the  capital  region  and 
between  13%  and  15%  in  the  other  regions.  For 
degrees  in  science,  technology,  engineering  and 
mathematics  (STEM),  the  number  of  graduates 
remains  particularly 
skills 
low, 
shortages  in  the  labour  market.  While  89%  of 
tertiary  education  graduates  find  employment, 
many are hired outside their area of specialisation 
(UEFISCDI,  2015).  A  national  comprehensive 
skill  forecasting  mechanism,  per  sector  and 
qualifications, is not yet in place.  

leading 

to 

Acquisition  of  digital  skills  remains  limited.  
The  percentage  of  young  people  aged  16-19  who 
assess  their  digital  skills  as  low  is  among  the 

(36)  The  enrolment  rate  in  the  school  year  2014/2015  was 
11.6%  of  the  18-34  year  olds,  whereas  it  was  20.4%  in 
2008/2009 (European Commission, 2018).  

(37)  A  mortality  is  considered  preventable  if  death  below  the 
age  of  75  could  have  been  avoided  by  public  health 
interventions  focusing  on  wider  determinants  of  public 
factors, 
lifestyle 
health, 
socioeconomic status and environmental factors. 

such  as  behaviour 

and 

(38)  A  mortality  is  considered  as  treatable  if  death  below  the 
age of 75 could have been avoided through optimal quality 
healthcare. 

37 

                                                           
                                                           
4.3. Labour market, education and social policies 

was  among  the  worst  performing  in  the  EU  in 
terms  of  affordability  of  healthcare  and  waiting 
times.  Whereas  most  health  spending  is  publicly 
the  share  of  out-of-pocket 
financed 
expenditure  represents  a  substantial  cost  for 
individual 
out-of-pocket 
spending 
is  on  pharmaceuticals.  Furthermore, 
informal payments add to this financial burden.  

households.  Most 

(79%), 

In  2018, 

imbalances 

and  physicians. 

Territorial 
in  the  provision  of 
healthcare  services  are  large  and  expanding. 
Reported  unmet  needs  as  a  result  of  travelling 
the  highest  in  the  EU, 
distance  are  among 
reflecting  an  uneven  distribution  of  healthcare 
facilities 
some 
municipalities  had  six  time  more  physicians  per 
inhabitant  than  others,  a  difference  that  has  been 
growing  since  2012.  The  level  of  unmet  medical 
needs is some 28% higher in rural areas than in the 
country as a whole. The family physician network 
is  mainly  a  private  health  service  network,  with 
low  incentives  for  doctors  in  rural  areas,  which 
migrate  to  urban,  more  developed  areas,  leaving 
poor areas with less coverage (42).  

Spending  on  healthcare  remains 
skewed 
towards inpatient hospital care. This is despite a 
reduction  in  the  number  of  hospital  discharges. 
Associated  inefficiencies  include  the  high  use  of 
hospital beds, the low use of day surgery and lack 
of  effective  integration  of  health  service  delivery. 
The  share  of  family  physicians  (approximately 
20% of all physicians) has been steadily declining, 
raising  questions  as  to  the  capacity  to  refocus 
healthcare  delivery  away  from  hospital  inpatient 
care  (Graph  4.3.3).  Moreover,  there  is  limited 
continuity and integration between different levels 
of care. This situation testifies to a lack in capacity 
to instil principles of comprehensive performance-
based  management into  the health  system (OECD 
2019b).   

(42)  In  2017,  there  were  500  villages  without  any  provider 

(National Society for Family Medicine). 

Spending  on  healthcare  in  Romania  remains 
very  low.  About  5.2%  of  Romania’s  GDP  was 
spent on healthcare in 2017, compared to 9.8% in 
the  EU.  This  is  despite  the  fact  that  spending  on 
healthcare  as  a  share  of  total  public  spending  has 
consistently increased in previous years. Provision 
of  key  diagnostic  and  therapeutic  equipment  such 
as medical scanners and radiotherapy facilities are 
among  the  lowest  in  the  EU.  This  hints  at  the 
potential 
through 
targeted investments, also  fostering  more efficient 
spending through faster diagnosis.  

improvements 

tangible 

for 

is  underfunded  and 

Preventive  care 
its 
availability  limited.  Spending  on  preventive  care 
is considerably below the EU average (1.8% (39) v. 
3.1%).  Romania  faces  challenges  in  preventing 
some  infectious  diseases,  with  the  highest  rate  of 
tuberculosis  cases  in  the  EU  (OECD,  2019b). 
Vaccination 
rates  are  dropping,  particularly 
affecting  children.  In  addition,  health  promotion 
measures  may  have  a  role  to  play  in  curbing  the 
observed  obesity  rate,  which  has  increased  in 
particular  among  children  in  recent  years  (OECD 
to 
2019b).  Such  measures  would  contribute 
progressing toward SDGs 2 and 3. 

faces  considerable  challenges 

Romania 
in 
ensuring  access  to  healthcare.  Overall,  about 
11%  of  the  population  remains  uninsured  and  has 
only  access  to  a  restricted  basket  of  services.  The 
percentage  of  population  covered  by  a  form  of 
health  insurance  has  been  decreasing (40),  with  a 
significant  urban-rural  gap (41).  A  large  share  of 
self-employed  workers  in  agriculture  and  of  the 
rural  Roma  population  is  not  covered  by  health 
insurance. Plans  to  expand  primary  care  services 
under this restricted basked by 2023 are underway. 

Unmet  medical  needs  are  high  and  increasing. 
Significant  disparities  in  terms  of  reported  unmet 
medical needs persist between the lowest (8%) and 
highest  (2.3%)  income  groups.  In  2017,  Romania 
has the one of the highest levels of unmet medical 
needs  for  children  in  the  EU.  The  level  of  unmet 
medical needs for retired people is twice as high as 
for  the  general  population.  In  2018,  the  country 

(39)  Severe material deprivation rate for children by educational 

attainment level of their parent. 
(40)  77.02% in 2016, 86.1% in 2014 
(41)  The  percentage  of  insured  rural  population  decreased  to 
65.6%  in  2016  compared  to  66.3%  in  2015  and  75.8%  in 
2014 

38 

                                                           
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.3:  Outpatient use vs inpatient use 

4.3.4.  SOCIAL POLICIES 

still 

face 

the  unemployed, 

improve  but 
Social  conditions  continue  to 
substantial 
groups 
vulnerable 
challenges.  The  percentage  of  people  at  risk  of 
poverty or social exclusion further decreased, to a 
historically  low  level  (44)  of  32.5%  in  2018. 
However, one in three Romanians is still at risk of 
poverty  or  social  exclusion,  with  families  with 
children, 
inactive,  atypical 
workers,  Roma,  elderly  women  and  people  with 
disabilities  among  the  most  exposed.  This  rate  is 
still more than twice as high in rural areas than in 
cities.  Once 
is 
increasingly  difficult,  due  to  the  high  level  of 
intergenerational 
transmission  of  poverty  and 
inefficient  labour  activation  measures.  Regional 
disparities remain high (see Section 4.4.3). Severe 
material  and  social  deprivation  is  among  the 
highest in the EU. Close to one Romanian in two is 
unable  to  face  unexpected  expenses. Access  to 
essential  services,  such  as  energy,  is  also  a 
challenge (45).  

in  poverty,  overcoming 

it 

Rapid income growth has been accompanied by 
increasing income inequalities, while inequality 
of opportunity persists. Despite large increases in 
wages  and  pensions,  income  inequalities  remain 
high and actually deepened in 2018 (Graph 4.3.4). 
This change is driven by both income increases for 
people in the  highest income  group and decreases 
for  those  in  the  lowest  income  group.  High 
inequality is due both to high inequality of market 
incomes and to low redistributive impact of the tax 
and  benefit  system.  In  2018,  the  income  share  of 
the poorest 40% of the population saw one of  the 
greatest declines in the EU, remaining  well below 
pre-crisis levels 17.6% compared to an EU average 
of 21.5%. Children of low-skilled parents continue 
to  face  a  substantially  higher  risk  of  poverty  than 
those  of  high-skilled  parents;  a  gap  of  70.7 
percentage  points  in  2018,  well  above  the  EU 
average of 43.3pp. 

(44)  This indicator is available for Romania since 2007, when it 

amounted to 47.0%. 

(45)  In 2018, 9.6% of the population was unable to keep home 
adequately  warm  (EU  average  7.3%).  The  percentage  of 
the population with arrears on utility bills is also above the 
EU average (14.4% vs 6.6%). 

(1) Data refer to 2017 or the closest year. 
Source: Eurostat Database, OECD 

Healthcare staff shortages remain considerable. 
The  number  of  doctors  and  nurses  is    among  the 
lowest  in  Europe.  In  2018  salaries  paid  in  public 
hospitals were substantially increased. In addition, 
investments on the ground targeting the upgrading 
of  medical  facilities  are  likely  to  contribute  to 
better workforce retention. 

raises 

change 

Demographic 
sustainability 
concerns  for  the  Romanian  healthcare  system. 
This  relates  to  population  ageing  as  well  as  high 
migration.  Projections  indicate  that  these  factors 
will  imply  an  increase  by  one  fifth  in  public 
spending  on  healthcare  as  a  share  of  GDP 
(European  Commission,  2018b).  This  is  likely  to 
increased  pressures  on  health 
contribute 
spending in Romania. 

to 

services  adapted 

Romania  lacks  a  unitary  policy  framework  for 
to 
long-term  care  and 
demographic  trends.  Although  the  share  of  the 
population  aged  80+  is  expected  to  double  by 
2050, services for the elderly continue to be scarce. 
Long-term  care  falls  under  the  larger  umbrella  of 
social  and  medical  services.  Responsibilities  are 
further  scattered  among  different 
institutional 
actors  at  different  levels  (European  Commission, 
2019j). The share of the elderly population is much 
higher in rural or remote areas, and less served by 
social  services.  The  demand  for  residential  long-
term  care  services  is  largely  unmet,  due  to  the 
marginal  amount  of  non-residential  services 
provided (43) and  an 
insufficient  number  of 
workers in the field (OECD, 2019c). 

(43)  Only  0.3%  of  elderly  disabled  people  living  with  their 

families are covered by non-residential services 

39 

ATBEBGCYCZDKEEESFIFRHRDEELHU, SKIEITLTLUMTNLPLPTRO, 2010RO, 2017SESI05010015020025030035024681012Discharges per 1000 residentsDoctor consultations per residentEU average: 171  
                                                           
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.4:  Income inequality in Romania - S80/S20 
income quintile share ratio 

limited  and 

services  are 
their  geographical 
distribution  is  uneven (46).  One  in  every  eight 
women giving birth for the first time in 2017 was a 
teenager.  The  deinstitutionalisation  process  for 
children  shows  good  progress,  with  important 
steps  being  taken,  including  in  terms  of  the 
relevant  legislative  framework.  The  residential 
care  system  for  children  does  not  yet  ensure  a 
successful transition to independent living.  

are 

low  work 

High rates of child poverty signal inequalities of 
opportunity  in  the  future.  Children  with  low 
educated  parents  and  those  from  households  with 
very 
the  most 
intensity 
disadvantaged (Graph  4.3.5).  Particularly  affected 
are children in Roma communities, those living in 
rural areas and in marginalised urban communities, 
where  access  to  education  and  social  services  is 
limited.  The  decrease  in  school  enrolment  and 
increase in the dropout rate for these groups point 
to  a  polarisation  of  education  (Ministry  of 
Education, 2019) which is likely to contribute to a 
higher  poverty  rate  for  the  future  adults  (see 
Section 4.3.2). 

Graph 4.3.5:  Severe material deprivation rate for children 

by educational attainment level of their 
parents 

Source: European Commission 

Almost a quarter of elderly people face risks of 
poverty while the gender pension gap is high. In 
2018,  17.4%  of  older  people  in  Romania  were 
exposed to severe  material deprivation and 22.8% 

(46)  Licensed  social  services  distribution  fiches  at  national, 

regional and county levels, 2018 

Source: European Commission 

is  a  high 

In-work poverty has been declining but remains 
among  the  highest  in  the  EU.  In  2018,  in-work 
poverty declined but remained high at 15%. This is 
also related to a lack of quality jobs, especially in 
the  precariousness  of  non-
rural  areas,  and 
employees.  There 
rate  of  self-
employment in rural areas and a high proportion of 
non-remunerated  contributing  family  members  (in 
small family businesses) among non-employees. In 
2017,  while  only  45%  of  all  employed  persons 
were  residing  in  rural  areas,  82%  of  the  self-
employed  and  94%  of  the  contributing  family 
members  were  living  in  rural  areas.  Most  of  the 
self-employed  in  Romania  work  in  subsistence 
agriculture, some of them in construction and other 
small  family  businesses.  The  minimum  wage 
increases have resulted in higher gaps between the 
income  of  employees  and  those  of  the  self-
employed, as incomes of the latter are growing at a 
slower pace. 

Children’s  access  to  services  is  uneven,  with 
higher  costs  for  vulnerable  groups.  Monetary 
poverty  of  children  has  decreased  but  there  has 
been no progress  has been registered on access to 
services  for  children  in  vulnerable  situations. 
Children in rural areas and vulnerable groups have 
limited  access  to  (pre)school  education,  adequate 
housing.  The 
nutrition, 
and 
health 
implementation  of  measures 
the 
tackle 
to 
challenges  herein  would  contribute  to  progressing 
toward SDGs 1, 4, 5 and 10. The consumption of 
low and high-risk drugs among children and young 
people  is  increasing,  while  preventive/support 

care 

40 

4.95.05.05.05.25.225.25.086.16.26.66.87.28.37.26.57.2456789201020112012201320142015201620172018European Union - 28 countriesRomania69.168.969.069.364.655.551.352.347.031.431.334.531.627.222.625.816.214.77.19.712.98.17.46.48.53.63.601020304050607080201020112012201320142015201620172018Less than primary, primary and lower secondary education (levels 0-2)Upper secondary and post-secondary non-tertiary education (levels 3 and 4)Tertiary education (levels 5-8)   
  
                                                           
4.3. Labour market, education and social policies 

between 

complementarity 

Romania is among the highest in the EU (37.6% vs 
an  EU  average  of  28.7%).  The  lack  of  synergies 
and 
educational, 
employment and social services further aggravates 
the situation of this group. Moreover, there are no 
licensed  community  services  for  adults  with 
disabilities  (48).  The  deinstitutionalisation  of  care 
of  adults  with  disabilities  is  only  being  taken 
up slowly,  while 
funds  are 
available.  

significant  EU 

to  lack  of 

integration  of 

The 
the  Roma  community 
remains a challenge. Roma people are much more 
affected by poor housing conditions (World Bank, 
2014) (49), while discrimination in accessing social 
housing and forced evictions are still present. The 
Roma also continue to face obstacles in accessing 
health  services  due 
identification 
documents, low coverage of social security, stigma 
and discrimination. Enrolment of Roma children in 
education  is  still  below  the  country’s  average. 
Despite some progress, early school leaving is high 
and  educational  segregation  remains  a  challenge. 
The 
the  National  Roma 
Integration  Strategy  is  lagging  behind  due  to, 
among other factors, lack of coordination between 
stakeholders. Several Roma inclusion projects, co-
financed  by  the  European  Social  Fund,  are  being 
implemented, but results are not yet visible. 

implementation  of 

Homelessness  and  housing  exclusion  have 
increased.  The  determinants  of  homelessness  in 
individual 
Romania  have  been  shifting  from 
reasons  to  structural  weaknesses  such  as  mass 
evictions,  lack  of  housing  support  policies  and 
insufficient  social  housing  stock.  Nine  in  ten 
affected people reside in large urban settlements. A 
quarter of the estimated homeless are children and 
young  people.  People 
in  marginalised 
communities as well as informal temporary houses 
or  barracks  represent  a  new  form  of  housing 
exclusion.  The  number  of  people  living  in  these 
settlements  is  higher  than  the  number  of  people 
living  on  the  streets.  Approximately  200  000 
informal  settlements.  A  new 
people 
intervention 
definition  of  homelessness  and 
approach  would  facilitate  the  development  of 
services for such marginalised communities.  

living 

live 

in 

(48)  Licensed  social  services  distribution  fiches  at  national, 

regional and county levels, 2018, p.15 

(49)  Almost one third of the Roma population is living in slum 
dwellings and more than half in overcrowded dwellings.  

were at risk of poverty. These figures are similar as 
for  the  rest  of  population  in  Romania  andhigher 
than the rates for older people in the EU as a whole 
(4.7%  and  17.1%).  While  the  share  of  elderly 
exposed  to  severe  material  deprivation  (which 
measures  absolute  poverty)  has  been  falling,  their 
at-risk-of-poverty  rate  has  been  increasing,  as  the 
significant  growth  of  wages  outpaced  that  of  old-
age  pensions(47).The  new  pension  law  enacted  in 
summer 2019 is set to improve the future adequacy 
of  pensions  but  has  significant  and  unsustainable 
budgetary  costs  and 
is  not  accompanied  by 
measures  aimed  at  increasing  the  duration  of 
working  lives  beyond  the  statutory  minimum  (see 
Box 4.1.1). 

There  are  large  gaps  between  pensions  by 
gender,  moment  of  retirement,  type  of  work 
and  special  pensions.  Statutory  retirement  ages 
and full contributory periods are not equal for both 
genders. This results in an average pension that is 
significantly  lower  for  women  than  for  men  (a 
difference  of  27.8%  in  2017).  The  new  pension 
law  will  equalise  the  full  contributory  period 
among genders and will decrease the difference in 
statutory  retirement  age  by  2030.  Convergence  in 
this  field  would  contribute  to  progressing  toward 
SDG  5.  The  first  pension  also  largely  differs 
depending on the moment of the retirement for the 
persons with otherwise similar characteristics. The 
new  pension  law  aims  to  resolve  this  issue  (see 
Box  4.1.1.).  There  are  also  large  gaps  between 
pension revenues by type of work, in particular for 
workers  in  agriculture.  Romania  has  one  of  the 
most  complex  special  pension  systems  in  the  EU, 
as  it  has  special  schemes  in  virtually  all  special 
pension  categories  and  they  are  hardly  being 
streamlined  (European  Commission,  2018b).  The 
minimum  social  allowance  received  by  elderly 
with limited or without pension rights has not been 
increased  in  2020,  with  potential  adverse  impact 
on income inequality among elderly. 

People  with  disabilities  have  limited  access  to 
support  services.  The  rate  of  persons  with 
disabilities at risk of poverty or social exclusion in 

(47)  The  at-risk-of-poverty  rate  is  the  share  of  people  with  an 
equivalised  disposable  income  (after  social  transfers) 
below the at-risk-of-poverty threshold, which is set at 60 % 
of the national median equivalised disposable income after 
social  transfers.  Therefore,  this  is  a  relative  indicator  -  it 
measures low income in comparison with other residents in 
that country. 

41 

                                                           
                                                           
4.3. Labour market, education and social policies 

nominal terms) by 139%. Simulations show that, if 
the  social  reference  index  had  been  updated 
regularly  in  line  with  inflation,  the  at-risk-of-
poverty  rate  in  2019  could  have  been  reduced  by 
12%  (or  2.6  percentage  points).  A  more  generous 
indexation  in  line  with  average  net  wage  growth 
would  have  implied  a  reduction  of  44%  (or  9.3 
percentage points). 

Romania  lacks  a  minimum  floor  of  social 
protection  for  all  workers.  Coverage  of  casual 
and seasonal workers for unemployment, sickness, 
maternity,  accidents  and  occupational  injuries  is 
generally  missing.  Moreover  seasonal  workers  do 
not have access to old-age/survivors' pensions. 

The  minimum  inclusion  income  reform  has 
again  been  postponed.  Though  adopted  in  2016, 
the  entry  into  force  of  the  minimum  inclusion 
income  law  is  postponed  to  2021,  due  to  lack  of 
capacity  of  the  public  administration.  The  social 
reference  index  used  as  a  basis  for  most  social 
benefits has not been updated since its introduction 
in  2008  (European  Commission,  2019a).  The 
adequacy  of  the  minimum  income  support  thus 
remains  one  of  the  lowest  in  the  EU (European 
Commission,  2019d).  The  government  is  working 
on  operationalising  the  payment  model  (prepaid 
card) and the revision of the indexation mechanism 
for  social  assistance  benefits,  with  help  from  the 
EU.  

they 

support 

them  have 

label.  Almost  nine 

facing  significant 
is 
The  social  economy 
challenges.  The  economic 
impact  of  social 
enterprises  remains  marginal  in  Romania.  An 
estimated  6,000  de  facto  social  enterprises  are 
active  on  the  market  and  the  number  of  paid 
stands  at  19,065 
employees 
(European Commission, 2019). Only a  very small 
the  official  “social 
number  of 
enterprise” 
ten  social 
enterprises  are  associations  or  foundations,  while 
the  number  of  cooperatives,  sheltered  workshops 
and  social  insertion  enterprises  is  very  limited 
(12.6%).  The  framework  is  characterised  by  a 
insertion  enterprises, 
narrow  focus  on  social 
limited 
in 
fiscal 
accessing 
is  no 
integration of  social economy policies  with active 
labour  market  policies  for  vulnerable  groups.  The 
current legal and policy frameworks do not harness 
the  potential  of  social  enterprises  to  innovate  and 
contribute to environmental goals. 

incentives  and  difficulties 
resources.  There 

financial 

in 

remains 

service  provision 

Social 
largely 
insufficient,  particularly  in  rural  areas  (see 
Section 4.4.3). Low salaries, lack of attractiveness 
of rural areas and strict conditions of access to the 
profession  of  social  worker  hamper  the  provision 
of  social  services.  Recently, 
the  government 
broadened the access of social work technicians) in 
the integrated teams at community level in order to 
cover  the  professionals’  shortage.  However,  the 
social  work  technicians  can  only  carry  out  their 
activity  under  the  supervision  by  a  social  worker 
which  creates  other  difficulties  in  delivering  the 
social  services  at  community  level.  Coordination 
between  the  local,  county  and  national  levels 
fragmented 
remains  poor,  also  due 
distribution  of  powers 
responsibilities 
(European  Commission,  2019a).  Misalignment 
between  decentralisation  of  social  services  and 
financial means further deepened in 2019 and had 
a  negative  impact  on  the  effectiveness  of  service 
delivery at the local level (see Section 4.4.5). The 
EU co-funded pilot project to introduce integrated 
teams at community level is under implementation 
with the first results expected shortly. 

to 
and 

the 

(see 

Section 

progressivity 

The tax and benefit system has a limited impact 
on reducing poverty and income inequality. Tax 
revenues  are  relatively  low  and  tax  structure  has 
4.1.4).  
little 
Government spending on social protection is much 
lower than the EU average. Social benefits have a 
very limited impact on reducing poverty. In 2018, 
social  transfers  reduced  the  at-risk-of-poverty  rate 
by 16% and the poverty gap by 33% (compared to 
an  EU  average  of  33%  and  5%  respectively). 
Family  benefits  have  the  largest  effect  on  the 
poverty  rate,  followed  by  sickness  and  disability 
benefits. Unemployment benefits have very limited 
effect  on  the  incidence  and  depth  of  poverty, 
possibly  due  to  low  coverage  and  short  duration. 
Consequently,  the  power  of  the  tax  and  benefit 
system  (excluding  pensions)  to  reduce  income 
inequality is also limited (Graph 4.1.3). 

The  adequacy  of  social  benefits  is  severely 
affected  by  a  lack  of  indexation.  The  social 
reference  index  used  as  a  basis  for  most  social 
benefits has not been updated since its introduction 
in  2008.  Thus,  the  level  of  many  social  benefits, 
while  remaining  constant  in  nominal  terms,  has 
been decreasing in real terms. The consumer price 
index has increased by 33% over the period 2008-
2019,  while  average  net  wages  have  grown  (in 

42 

4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out twenty essential principles and rights 
in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 

protection and inclusion. 

social 

social 

Social 

increased, 

challenges 
while 

Scoreboard 
The 
supporting 
the  European 
Pillar  of  Social  Rights  points 
to  a  number  of  employment 
in 
and 
some 
Romania, 
indicators  have 
improved. 
The  levels  of  poverty,  social 
exclusion  and  early  school 
leaving  are  still  among  the 
Income 
highest 
in  Europe. 
inequalities 
and 
inequalities  persist  in  access  to 
quality  education,  healthcare 
services,  with 
and 
regional  disparities  and  a  deep 
urban-rural divide. Coverage of 
including 
public 
services, 
childcare 
healthcare 
and 
in 
remains 
services, 
particular  in  rural  areas  and 
marginalized 
among 
is  a 
communities. 
the 
misalignment 
decentralisation 
social 
services  and  the  allocation  of 
financial 
which 
hampers  the  effectiveness  of 
service  delivery  at  local  level. 
The  impact  of  social  transfers 
on poverty reduction is limited. 

  There 
between 
of 

means, 

low 

and 

In  spite  of  high  economic 
growth 
low 
unemployment  rate,  several 
labour  market 
indicators 
remain  a  matter  of  concern. 
The  gender  employment  gap 
and 
especially 
among  women,  remain  high, 
while  activation  measures  are 
Insufficient 
ineffective. 
childcare facilities and services 
are among the factors affecting 
female 
market 
labour 
participation, especially in rural 
areas.  Skills  of  the  workforce 
are not keeping up with the evolution of the labour market, in particular with regard to digital and high-end 
technological skills. Social security for atypical workers remains inadequate. While wages are increasing at 

inactivity, 

43 

4.3. Labour market, education and social policies 

a fast pace, net earnings remain comparatively very low and the risk of in-work poverty is among the highest 
in the EU. 

The  de-institutionalisation  of  social  and  health  services  for  children  continues  to  show  encouraging 
progress.  Key  to  its  success  was  the  adequate  mix  between  legislation,  policy  and  delivery  mechanisms, 
backed  by  a  good  level  of  administrative  capacity  of  the  stakeholders.  Improvements  are  expected  in  the 
areas  of  integrated  community  services  and  consolidation  of  the  social  assistants’  system,  where  the 
authorities are implementing two EU-funded strategic projects.  

44 

4.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

4.4.1.  COMPETITIVENESS AND EXTERNAL 

POSITION (*) 

could  see 
significantly. 

the  NIIP  deteriorate  even  more 

international 

-43.7%  of  GDP 

investment  position 
The  net 
(NIIP)  has  improved  significantly  but  remains 
highly  negative.  The  net  international  investment 
position  reached 
in  2018, 
improving  by  almost  24  pps  compared  to  2012 
(Graph  4.4.1).  In  2018  alone,  the  NIIP  improved 
by 3.7 pps due to strong GDP growth and despite a 
widening  current  account  deficit.  However,  this 
positive  evolution  is  showing  signs  of  reversal  as 
the  NIIP  declined  to  -44.3%  in  Q3-2019.  By 
components,  net  direct  investment  has  remained 
broadly stable as a share of GDP, averaging  -41% 
in the last eight years, but has steadily increased its 
share  in  the  net  international  investment  position. 
Portfolio investment has gained some weight over 
recent years, while other investment declined more 
visibly.  Reserves  have  been  somewhat  trending 
down in terms of GDP. 

Graph 4.4.1:  Net international investment position 

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

Further progress on improving NIIP could stall 
or  even  reverse.  The  expected  widening  of  the 
current account deficit in the next years combined 
with  a  projected  slowdown  of  GDP  growth  raise 
the  prospect  of  some  further  worsening  of 
Romaniaʼs  NIIP.  For  instance,  a  1  pp.  lower  than 
forecast  real  GDP  growth  in  2021  and  onwards 
could  result  in  the  NIIP  dropping  below  –60%  of 
GDP  by  2027.  Alternatively,  an  increase  in 
domestic  government  yields  in  2021  and  onwards 

Foreign  direct  investment  (FDI)  flows  remain 
volatile. In 2018, foreign direct investment inflows 
increased by about 18% compared to 2017. In the 
first  11  months  of  2019  they  increased  slightly 
compared to the same period in 2018. This decline 
was attributable to debt instruments and reinvested 
earnings,  while  FDI 
increased 
substantially.  The  main  countries  of  origin  for 
foreign  direct  investment  in  Romania  are  the 
Netherlands, Germany, Austria, Italy and Cyprus.  

equity 

in 

The  current  account  deficit  continued 
to 
worsen, reflecting strong domestic demand and 
imports  growth.  From  an  almost  balanced 
position  in  2014,  the  current  account  reached  a 
deficit of 4.4% of GDP in 2018 and is estimated to 
have  widened  further  to  5.1%  in  2019.  The  trade 
balance  in  goods  remains  the  main  driver  of  the 
widening current account deficit. The deficit in the 
trade  in  goods  gradually  increased  from  4.3%  of 
GDP  in  2014  to  7.3%  in  2018  and  is  expected  to 
have exceeded 8% in 2019. In the first 11 months 
of  2019,  the  current  account  balance  deteriorated 
by  21%  compared  to  the  same  period  in  2018 
mainly  on  the  back  of  a  19%  deterioration  in  the 
trade balance in goods. The surplus of the services 
balance, which increased by 1.8%, was not enough 
to  compensate  for  the  rapid  deterioration  of  the 
trade  in  goods.  The  primary  balance  remained 
negative  but  improved  by  13%.  The  secondary 
income  balance,  which  consists  mainly  of 
remittances,  increased  its  surplus  by  about  14% 
compared to January-November 2018.  

The  continued  deterioration  of  the  current 
account fuelled by an expansionary fiscal policy 
raises  macro-stability  concerns.  The  increase  of 
the current account deficit in recent years has been 
acompanied by a decline of its coverage by foreign 
direct  investments  and  the  capital  account  from 
more  than  130%  in  2017  to  less  than  75%  in  the 
first  11  months  of  2019.  In  the  event  of  an 
economic slowdown or heightened risk aversion in 
the  markets,  a  downward  adjustment  of  the 
exchange  rate  could  alleviate  the  current  account 
deficit  but  at  the  same  time  could  have  other 
effects,  e.g.  on  external  liabilities.  For  instance,  it 
could 
the 
government  debt  and  the  affordability  of  such  a 
measure would ultimately depend on the level and 

increase  significantly 

the  cost  of 

45 

-100-80-60-40-2002040050607080910111213141516171819Q3% of GDPReserve assetsNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet Int'l investment position (NIIP)NENDI (NIIP excluding non-defaultable instruments) 
     
the structure of the public debt (50). The economyʼs 
net  lending/borrowing  position  became  negative 
already  in  2017  when  the  current  account  deficit 
started  to  widen  markedly.  The  net  borrowing 
needs  come  mainly  from  households  and  the 
government, while corporations are net lenders. 

Imports  of  consumer  goods  have  grown 
significantly  faster  than  other  imports  but  are 
slowing  down.  The  deterioration  of  the  trade 
balance  was  accompanied  by  a  change  in  the 
composition  of  imports,  with  consumer  goods 
imports  growing  significantly  faster  than  those  of 
capital and intermediate goods (Graph 4.4.2). This 
evolution  has  been  fostered  by  a  fiscal  policy 
directed at increasing disposable income, which in 
turn stimulated consumer spending. Between 2015 
and 2018, consumer goods imports increased by an 
annual  average  of  11.9%.  The  corresponding 
figures for imports of intermediate goods and those 
of capital goods were 9.8% and 8.6% respectively. 
Although  in  2018  imports  of  capital  goods  grew 
much  faster 
intermediate  and 
those  of 
consumer  goods,  in  the  first  10  months  of  2019 
consumer  goods  imports  exceeded  again  by  a 
significant margin the imports of other goods.  

than 

Graph 4.4.2:  Trade balance breakdown 

4.4. Competitiveness, reforms and investment 

wood  industry  (Graph  4.4.3).  Exports  of  services 
continued  to  be  concentrated  on  transport  and 
telecommunications. 

Graph 4.4.3:  Export market share by industry 

(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 

Romaniaʼs  price  competitiveness  could  be  hurt 
by 
increasing  export  prices.  The  price  of 
exported  goods  in  the  domestic  currency  (as 
measured  by  the  export  of  goods  deflator),  fell 
each  year  between  2013  and  2016  (Graph  4.4.4) 
and resumed growth in 2017. In 2018 export prices 
for goods increased on average by 6%, while in the 
first three quarters of 2019 the growth decelerated 
to  4%  on  average,  raising  concerns  about  the 
countryʼs  price  competitiveness.  Conversely,  and 
also thanks to some nominal depreciation, the pace 
of appreciation of  the real effective exchange rate 
deflated  by  export  prices  moderated  in  2019 
following an appreciation throughout 2018.  

Source: European Commission 

Export performance remained relatively strong 
in  recent  years.  Romaniaʼs  export  market  share 
for goods and services increased by 8.9% in 2016, 
3% in 2017 and a further 4% in 2018. Over 2013-
2018,  it  increased  by  25%,  fourth  in  the  EU.  In 
2018,  Romania  gained  most  market  shares  in  the 
vehicle industry and only lost market shares in the 

(50)  While private sector indebtedness is low (47.4% of GDP in 
2018), similar risks apply in the event of a devaluation. 

46 

-25-20-15-10-505janv-15avr-15juil-15oct-15janv-16avr-16juil-16oct-16janv-17avr-17juil-17oct-17janv-18avr-18juil-18oct-18janv-19avr-19juil-19oct-19Trade balance, EUR billion,12 months rolling sumPassenger motor cars and motor spiritIntermediate goodsCapital goodsConsumer goods-15%-10%-5%0%5%10%15%%MSG - Machinery & ElectricalMSG - Vehicles, Aircraft, VesselsMSG - other sectorsIS - Machinery & ElectricalIS - Vehicles, Aircraft, VesselsIS - other sectorsTotal Market Share Change    
                                                           
   
4.4. Competitiveness, reforms and investment 

Graph 4.4.4:  RON-denominated export price evolution 

compensation  per  employee,  which  increased  by 
double  digits  in  nominal  terms  between  2016  and 
2018.  However, 
labour  cost 
decelerated as compensation per employee slowed 
down. Labour productivity per person grew by 6% 
in  2016,  4.6%  in  2017,  4.2%  in  2018  and  an 
estimated 3.9% in 2019.  

in  2019  unit 

Graph 4.4.6:  Nominal unit labour cost 

Source: European Commission 

rate 

Rapidly  increasing  unit  labour  costs  pose  risks 
to  competitiveness.  The  acceleration  of  unit 
labour  costs  has  put  pressure  on  the  real  effective 
exchange 
cost 
and 
competitiveness.  As  a  result,  the  evolution  of  the 
unit-labour-cost-deflated  real  effective  exchange 
rate, subdued until early 2016 moved into positive 
territory, putting pressure on cost competitiveness. 
(Graph 4.4.5). 

Romaniaʼs 

Graph 4.4.5:  Real effective exchange rate growth 

Source: European Commission 

cost 

have 

outpaced 
Labour 
dynamics 
productivity  developments  but  are  set 
to 
moderate.  Nominal  unit  labour  costs  started 
increasing strongly in 2016 (Graph 4.4.6), growing 
by  8.5%  in  2016,  by  9.8%  in  2017  and  8.8%  in 
2018.  This  acceleration  was  driven  entirely  by 

Source: European Commission 

The  public  sector  continued  to  be  the  main 
driver  of  nominal  unit  labour  cost  dynamics. 
Unit labour costs in the public sector increased by 
about 20% in 2017 and 2018 and by an average of 
15% in the first three quarters of 2019. Unit labour 
costs  in  other  sectors  have  seen  milder  increases, 
for  construction  where  growth  was 
except 
industry, 
in  2017  and  2018.  In 
significant 
Romaniaʼs main exporting sector, unit labour costs 
expanded less, by 6.8% in 2017, 3.9% in 2018 and 
about 4% in the first three quarters of 2019. 

of 

limits 

labour 

hinders 

infrastructure 

A  number  of  non-cost  factors  also  affect 
Romaniaʼs competitiveness negatively. The poor 
state 
businessesʼ 
effectiveness in moving goods and services across 
force  mobility  and 
borders, 
aggravates  regional  disparities.  The  economyʼs 
low  innovative  capability  is  another  key  factor 
limiting  competitiveness  (see  Section  4.4.2).  A 
cumbersome  business  environment,  marked  by 
frequent  and  unpredictable  legislative  changes, 
together  with  excessive  red  tape  and  persistent 
administration 
inefficiencies 
risks 
undermines 
reducing  the  countryʼs  attractiveness  to  foreign 
4.4.5).
investors 

investment  decisions  and 

the  public 

Section 

(see 

in 

47 

-10-5051015202009 Q12009 Q32010 Q12010 Q32011 Q12011 Q32012 Q12012 Q32013 Q12013 Q32014 Q12014 Q32015 Q12015 Q32016 Q12016 Q32017 Q12017 Q32018 Q12018 Q32019 Q12019 Q3% change   y-o-y (1)GoodsServicesGoods and services-10-505102013 Q12013 Q22013 Q32013 Q42014 Q12014 Q22014 Q32014 Q42015 Q12015 Q22015 Q32015 Q42016 Q12016 Q22016 Q32016 Q42017 Q12017 Q22017 Q32017 Q42018 Q12018 Q22018 Q32018 Q42019 Q12019 Q22019 Q3%Real effective exchange rate (deflator: unit labour costs)Real effective exchange rate (deflator: exports of goods and services)Real effective exchange rate (deflator: GDP)-12-8-404812160910111213141516171819*20*21*% change y-o-yInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour cost   
   
    
4.4. Competitiveness, reforms and investment 

Box 4.4.1: Investment challenges and reforms in Romania 

Macroeconomic perspective  

Despite the investment as a share of GDP being above the EU average, its evolution since the crisis has been 
volatile.  Following  a  modest  performance  in  2018,  characterised by  a  drop  in  the  private  investment  ratio 
and  a  recovery  in  the  public one,  total  investment  picked  up  in  2019,  increasing  by  over  18%  in  the  first 
three quarters. 

Assessment of barriers to investment and ongoing reforms 

Investment could be hampered by persistent uncertainty, both in the form of unpredictable policymaking and 
of budgetary pressures on public investment stemming from the new pension law. 

Selected barriers to investment and priority actions under way 

1.  The lack of skill improvement in the labour market hampers economic  growth prospects and acts  as a 
barrier  to  investment,  the  country  ranking  amongst  the  worst  performers  in  the  EU  according  to  the 
European Skills Index. Overall, despite progress in the inclusiveness of education, no advancement was 
made in promoting digital literacy and increasing the relevance of higher and vocational education and 
training. Moreover, the over-qualification rate, despite below EU average, has almost doubled over the 
last decade. Given the already tight labour market and current demographic trends, such issues point to a 
further worsening of skilled-labour shortages. 

2. 

In terms of research and development, the country is amongst the worst performers in the EU, spending 
just  0.5%  of  GDP  in  R&D  activities  in  2018  compared  to  the  2020  country  target  of  2%.  All  peer 
countries  in  the  region  invest  substantially  more  in  R&D  than  Romania..  This  underinvestment  has 
resulted in poor scientific quality and performance. Academia-business cooperation occurs mainly on an 
ad-hoc basis and its development is hampered by regulatory barriers. Without significant regulatory and 
budgetary changes, current measures are insufficient to tackle the underfinancing and structural problems 
affecting the research and innovation sector. 

The EU supports investment via the European Fund for Strategic Investments (EFSI). By November 
2019 total financing under the EFSI amounted to €722 million, intended to trigger €3 billion in additional 
investments.  EFSI  backing  amounted  to  approximately  €519 million  for  infrastructure  and  innovation 
projects approved and financed by the European Investment Bank, and to €203 million for agreements with 
small  and  medium  enterprises  financed  by  the  European  Investment  Fund.  By  the  end  of  2020,  EFSI  and 
other  EU  financial  instruments  will  come  under  the  roof  of  the  new,  policy-driven  InvestEU  programme, 
guaranteeing a more coherent approach and greater choice of policy implementation options. 

48 

Regulatory/ administrative burdenCSR Financial TaxationPublic administrationCSR Sector / TaxationAccess to financeCSRPublic procurement /PPPsCSR Cooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSR Insolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkCSRRetailEPL & framework for labour contracts ConstructionWages & wage settingCSR Digital Economy / TelecomEducation CSREnergyCSR TransportCSRNo 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 
4.4. Competitiveness, reforms and investment 

presence  of  FDIs  in  R&D  activities,  spill-overs 
from  foreign  to  domestic  firms  remain  limited  at 
best, with a positive effect between foreign-owned 
firms  and  domestic  suppliers  but  a  negative  one 
between horizontal competitors (NBR, 2018). 

Graph 4.4.7:  Value added and average labour productivity 

growth by manufacturing technology class 

(1) LT: Low technology sector;  
(2) MLT: Medium-low technology sector;  
(3) MHT + HT: Medium-high and high technology sector 
(merged due the low overall share of HT) 
Source: European Commission 

In services, labour productivity increased in the 
knowledge  intensive    and  the  low-knowledge-
intensive    sectors.  In  terms  of  value  added 
however,  low-knowledge  intensive  sectors  have  a 
slightly  higher  growth  rate  (Bauer  et  al,  2020).  
The  share  of  domestic  firms  in  value  added  has 
also  increased  consistently  since  2010.  Amongst 
knowledge-intensive 
labour 
productivity  gap  between  foreign  and  domestic 
firms  has  decreased  in  the  ICT  sector  despite  the 
smaller size of domestic firms on average. Labour 
market  tightness  and  financial  constraints  may 
constitute  an  obstacle  to  the  scaling  up  of  these 
domestic firms. 

activities, 

the 

Investment activity 

significant 
remains 

investment 
subdued.  The 

needs, 
Despite 
2019 
investment 
European  Investment  Bank  Investment  Survey 
(EIB,  2019)  indicates  that  less  Romanian  firms 
invest  than  the  EU  average  (71%  vs  85%).  SMEs 
and 
infrastructure  firms  are  confident  about 
expanding  investment,  but  more  service  sector 
firms  expect  a  decrease.  Meanwhie  the  share  of 
firms  operating  at  or  above  capacity  (57%) 
remains in line with that of the EU average (59%), 
especially  in  the  service  sector.  Uncertainty  about 
the  future  remains  the  most  cited  barrier  to 
average). 
investment 

72%  EU 

(81%  vs 

4.4.2.  PRODUCTIVITY AND INVESTMENT 

Productivity developments 

Productivity has been increasing since the early 
2000s,  but  Romania  has  room  to  catch  up.  On 
labour  productivity  per  person 
average,  real 
increased  by  4.8%  per  year  between  2000  and 
2019.  Since  2012,  this  performance  has  been 
driven  mainly  by  total  factor  productivity  growth, 
but both labour composition and capital deepening 
have  had  a  strong  positive  impact  on  the  trend. 
Despite the improvements, Romania’s productivity 
remains  among  the  lowest  in  the  EU  and  in  2019 
stood  at  nearly  68%  of  the  EU  average  nominal 
labour productivity.  

smaller, 

dynamics 

productivity 

less  productive  and 

Labour 
vary 
significantly across firms. Domestic firms are on 
less 
average 
innovative than larger, and  mostly  foreign-owned, 
firms  (NBR,  2018).  Despite  a  recent  shift  of 
manufacturing jobs towards more productive firms 
and  increased  allocative  efficiency,  there  is  scope 
for 
improvement.  While  foreign-owned  firms 
represented  less  than  10%  of  all  firms,  they 
accounted for almost half of gross value added and 
more  than  two-thirds  of  the  country’s  exports  in 
2016 (NBR, 2018). 

Firm  size  and  characteristics  largely  account 
for  the  low  level  of  technology  uptake.  On 
average,  small  firms  tend  to  invest  less  in  new 
technologies  and  innovation  (EIB,  2019).  Even  in 
knowledge-intensive  sectors  such  as  medium  and 
high-tech manufacturing, firms invest less in R&D 
than their peers in the region. In addition, Romania 
has one of the lowest robot densities in the region 
(IFR, 2017) and SMEs are five times less likely to 
use 
(European 
large 
Commission, 2019a).  

robots 

firms 

than 

Performance  in  the  manufacturing  sector  has 
been mixed across technology classes. Whilst the 
low  and  medium-low  technology    sectors  grew 
moderately in value added and labour productivity, 
medium-high technology  production has been the 
largest  contributor  to  growth  (Graph  4.4.7).  The 
foreign-dominated automotive industry and related 
sectors such as rubber and plastics are the driving 
forces  behind  this  development  and  have  also 
improved  export  quality.  However,  despite  the 

49 

00.020.040.060.080.10.120.1402000400060008000100001200014000160001516LT(1)171516MLT(2)1715MHT16+(3)17HT3-year Avg. Labour productivity GrowthVA Chain linked Volumes (2010) -Bil. EURValue AddedAvg. Productivity Growth   
4.4. Competitiveness, reforms and investment 

Availability of adequate transport infrastructure, of 
staff  with  the  right  skills  and  labour  market 
regulations are the next most relevant barriers (all 
around 73%). Finally, energy costs and availability 
of  finance  are  also  more  likely  to  be  cited  as 
barriers  compared 
the  corresponding  EU 
averages. 

to 

the 

More  investment  is  also  necessary  to  improve 
the 
low  quality  of  digital  and  physical 
infrastructure.  Digitalisation  efforts  have  not  yet 
led to sufficient reduction of the urban-rural divide 
integration  of  digital 
and  push  forward 
technologies  by  firms.  In  addition,  transport, 
energy  and  water  infrastructure  remain  poor, 
posing an obstacle to territorial integration. Robust 
transport  and  energy  networks  would  help 
companies  connect  with  global  markets  and 
suppliers  and  boost  their  productivity.  Countries 
with  strong  infrastructure  are  also  more  attractive 
to foreign direct investment, which can support an 
economy's shift to the production of higher value-
added goods. 

Research and innovation  

economy.  The 

Romania has yet to start its transition towards a 
knowledge-based 
country’s 
innovation performance is poor, ranking last in the 
EU  in  the  2019  European  Innovation  Scoreboard 
(European  Commission,  2019b).  Investment  in 
employee  training  and  ICT  solutions  are  lower 
than the EU average (EIB, 2019). R&D investment 
is  very  low,  with  an  R&D  intensity  of  0.51%  of 
GDP in 2018, well below the 2020 national target 
of 2% and the EU average of 2.12%. Public R&D 
investment  was  0.2%  of  GDP  in  2018.  Private 
expenditure  on  R&D  was  only  0.30%  of  GDP, 
below the EU average of 1.41%  

international 

Scientific  performance  and  academia-business 
links continue to be poor. The country still ranks 
at  the  bottom  of  the  EU  in  terms  of  top  scientific 
co-
publications 
and 
publications (European 
2018a). 
institutional 
Universities  do  not  receive  any 
funding  for  R&D,  despite  their  important  role  in 
producing  relatively  good  research.  Regulatory 
barriers (e.g. red tape, conflicting or unclear rules) 
hamper  academia-business  links,  which  tend  to 
occur on an ad-hoc basis.  

Commision, 

sectors 

The  ICT  and  automotive  sectors  show  signs  of 
innovation 
are 
potential.  Both 
predominantly export-oriented and  well integrated 
into global value chains (ANIS 2018; NBR 2018), 
and are therefore exposed to competition and high 
technological standards. The ICT sector is leading 
in high growth enterprises (51) (Flachenecker et al, 
forthcoming),  innovative  start-ups  and  successful 
scales-ups  (My-Gateway,  2019).  The  automotive 
sector  accounts  for  some  of  the  largest  business 
R&D  investment  in  the  country.  However,  since 
foreign-owned firms operating in Romania tend to 
foreign 
keep  key  R&D  activities  at 
headquarters (NBR, 2016), potential know-how or 
technology  spill-overs  remain 
limited  (NBR, 
2018). This is also visible in the R&D investment 
intensity  of  the  ICT  sector,  which  was  among  the 
lowest in the EU in 2016 (European Commission, 
2019a), whilst in the automotive sector it is lower 
than in peer countries. 

their 

economy 

knowledge-based 

Policies  supporting  the  transition  towards  a 
more 
remain 
limited.  The  economic  competitiveness,  research 
and  innovation  and  smart  specialisation  strategies 
cannot  achieve  their  stated  objectives  without  a 
sufficient  level  of  public  R&D  funding.  Besides 
the tax exemption for ICT professionals, there are 
no targeted measures for innovative start-ups. The 
‘Start-up  Nation’  programme  was  not  deemed 
well-tailored  to  the  needs  of  innovative  start-ups 
(World Bank, 2018). The scaling up of innovative 
domestic  firms  remains  challenging  due  to  the 
limited  size  of  the  local  venture  capital  market 
(Invest Europe, 2018b). Most successful measures 
for  start-ups  and  scales-ups  (e.g.  accelerators, 
business  angels,  venture  capital)  are  bottom-up 
limited  policy  support  (My-
initiatives,  with 
Gateway, 2019).  

innovation  and 

Regional initiatives to enhance growth exist, but 
risk  being  hampered  by  a  lack  of  a  robust 
national 
entrepreneurship 
ecosystem. The Romanian regions have developed 
and  are  currently  updating  Smart  specialisation 
strategies  (S3),  identifying  key  innovative  sectors 
and  projects  pipelines.  In  2019  they  continued  to 
receive tailored expertise under the Commission’s  

(51)  Enterprises  with  an  average  annualised  growth  in  the 
number of employees of more than 10% per year over a 3-
year  period  and  at  least  10  employees  when  the  growth 
began.  7.7%  of  firms  in  the  Romanian  IT  sector  are  high 
growth enterprises. 

50 

                                                           
4.4. Competitiveness, reforms and investment 

of 

is  a  member  of 

programmes,  Romania 
the 
EuroHPC73  Joint  Undertaking,  and  signed  the 
Declaration 
the  European  Blockchain 
Partnership and the Declaration on Cooperation on 
Artificial Intelligence. During 2014 to 2020, under 
the  European  Regional  Development  Fund, 
Romania is also investing more than 75 million in 
the  ICT  innovation  sector.  The  business  sector 
showed a huge interest, responding to the calls for 
projects  for  five  times  higher  than  the  available 
envelope.  For 
post-2020  EU  Funds 
programming period, the intention is to  put  major 
emphasis on digitalisation and innovation. 

the 

on 

the  National  Action  Plan 

There  are  several  initiatives  in  Romania  in  the 
field  of  cybersecurity,  but  there  is  a  need  for 
specialists in the field. The Government Decision 
271/2013  on  Cyber  Security  Strategy  of  Romania 
and 
the 
implementation  of  the  National  Cyber  Security 
System  address  the  development  of  the  cyber-
security  knowledge  of  users.  The  National  Cyber 
Security  System  facilitates  the  coordination  of 
actions at national level between public authorities 
and  the  academic  and  business  environment  and 
professional  associations.  Public  training  centres 
and  programmes  have  been  developed.  In  the 
academic  environment,  a  series  of  university 
programmes aim at increasing overall competences 
in the field. However, the main impediment in the 
development  of  cyber-security  technology  is  the 
lack of specialized human resources. In early 2020 
the  Government  adopted  a  new  Emergency 
Ordinance 
the 
Authority  for  the  Digitalisation  of  Romania.  It 
made  the  Secretary General of the  Government in 
charge  of  policy  implementation  and  strategy  at 
national level. 

the  operationalization  of 

for 

Transport infrastructure 

The  condition  and  reliability  of  transport 
infrastructure  remains  poor,  below  peers  and 
the  EU 
average (European  Commission, 
2019m).  Romania  ranks  low  in    infrastructure 
quality  for  road,  rail  efficiency,  maritime  and 
(Global 
airport 
Competitiveness  Report, 
road 
infrastructure, the TEN-T network has not yet been 
completed  and  is  missing  the  cross-Carpathian 
connection.  The 
transport 
endowment is an obstacle to territorial integration, 
leaving  certain  regions  such  as  the  Nord-Est  and 

(Graph  4.4.8) 
2019). 

lack  of  adequate 

infrastructure 

In 

in 

Catching up Regions Initiative in order to facilitate 
the  transfer  and  dissemination  of  new  technology 
between  research  organisations  and  businesses, 
research  projects,  build 
better  commercialise 
capacity  for  technology  transfer  and  promote 
innovation 
local  small  and  medium-sized 
businesses and start-ups. In 2019 the initiative led 
to  the  reallocation  of  EU  Funds  to  innovation 
projects  in  two  regions  (Nord-Est  and  Nord-Vest) 
and  will  be  carried  out  until  end  2020.  However, 
though  very  promising  in  terms  of  capacity  and 
knowledge-building, 
initiatives 
these 
cannot  achieve  full  potential  and  increase  the 
country’s performance and competitiveness unless 
a  functional  and  robust  national  innovation  and 
entrepreneurship ecosystem is set up.  

regional 

Digitalisation  

in 

broadband 

Romania  slightly  improved  in  almost  all  of  the 
Digital  Economy  and  Society  Index  (DESI, 
2019g)  dimensions.  Despite  some  stagnation, 
the  Connectivity 
Romania  performs  best 
dimension.  Fixed 
of 
coverage 
households  remained  at  around  87%  below  most 
Member States. Broadband take-up stalled at 66% 
of households, well below the EU average of 77%. 
In  general,  Romania  performs  very  well  for 
least  100  Mbps  download) 
ultrafast  (of  at 
broadband  coverage  and  take-up  (75%  and  45% 
respectively).  However,  only  39%  of  rural  areas 
are  covered  by  ultrafast  broadband,  though  still 
(European 
above 
Commission, 2019g).  

the  EU  average  of  29% 

some  efforts,  digitisation  of 

Despite 
the 
economy is lagging behind. The country launched 
the  Manifesto  for  Digital  Romania  in  2016.  This 
set  out  objectives  for  a  digital  future,  but  a  more 
comprehensive  approach  has  not  yet  been 
developed.  More  than  one  fifth  of  Romanians 
never used the internet, and less than a third have 
basic digital skills. Public services lag behind other 
EU  Member  States,  despite  having  one  of  the 
largest  shares  of  e-government  users  (7th  in  the 
EU).  Furthermore,  Romanian  businesses  are  well 
below  the  EU  average  in  integration  of  digital 
technology.  In  2018,  only  11%  of  them  used  big 
data  analysis,  9%  social  media  and  7%  cloud 
services (European Commission, 2019g).  

Measures are in place to support investment in 
digital  technologies.  In  terms  of  EU-coordinated 

51 

4.4. Competitiveness, reforms and investment 

Sud-Vest  Oltenia  isolated.  Moreover,  adequate 
multi-modal  connection  in  many  urban  areas  is 
still to be developed. 

Graph 4.4.8:  World rank of Romanian transport infrastructure 

on 13 indicators 

Promoting public transport and shifting freight 
transport  away 
from  road  could  reduce 
external  costs,  including  for  the  environment. 
to 
Although  the  Romanian  government  aims 
increase  the  share  of  rail  compared  to  road 
transport  (National  Reform  Programme  2019, 
p. 32),  plans  and  their  implementation  are  still  in 
for  Railway 
early 
Infrastructure  Development  2019-2023  assessed 
future  mobility  needs.  It  analyses  the  actions 
needed  to  develop  railway  infrastructure  and 
assesses  the  financing  needs  to  be  €12.8 billion 
over the next five years. 

stages.  The  Strategy 

(1) Rank amongst 141 World economies 
Source: Global Competitiveness Report 2019, WEF 

Regions  in  Romania  are  underperforming  in 
terms  of  infrastructure  compared  to  the  EU 
average (European  Commission,  2019m).  The 
lack of sufficient and modern transport endowment 
to  Romanian  and  European 
is  an  obstacle 
territorial  integration,  as  it  leaves  certain  regions, 
such  as  the  Nord  Est  and  Sud  Vest  Oltenia, 
isolated. 

Insufficient  upgrades  and  maintenance  has 
reduced  train  speed  and  affected  delivery 
times (OECD, 2016) (CNSDN, 2019). The reform 
of  the  railway  sector  is  lagging  behind.  The 
established  National  Rail  Reform 
recently 
Authority  is  set  to  complete  a  strategic  review  of 
the  sector  in  order  to  bring  down  costs  and 
eliminate redundant infrastructure. Completing the 
missing links in the cross-border rail sections with 
Hungary and Bulgaria, the upper railway section of 
the  Rhine–Danube  corridor,  and  advancing  works 
on the  Arad–Timisoara–Bucharest–Constanta line, 
as well as other major national connecting lines as 
listed in the General Transport Masterplan, should 
remain a priority. Despite recent investment in rail 
signalling,  in  the  context  of  the  European  rail 
traffic management system, the systems are not yet 
operational. 

A reliable transport infrastructure strategy and 
investments  would  benefit  from  prioritisation 
in 
and  stabilisation.  Investment  gaps  exist 
sustainable  transport,  including  efficient  railways, 
digitalisation, and infrastructure for alternative fuel 
use,  e.g.  for  electric  vehicles.  More  efforts  are 
the 
to 
necessary 
administrative  capacity  of 
road  agency 
(CNAIR)  and  rail  agency  (CFR),  notably  through 
the 
the  performance-based 
contracts agreed with the European Commission in 
2017  in  the  context  of  fulfilling  the  ex-ante 
conditionality on transport. 

significantly 
the 

enforcement  of 

upgrade 

Romania  has  one  the  poorest  road  safety 
records  in  the  EU.  It  registered  double  the  EU-
average number of fatalities per million inhabitants 
in  2018,  despite  a 4%  reduction  in  fatalities  since 
2017.  Contributing  factors  are  underdeveloped 
infrastructure,  especially 
for  pedestrians  and 
cyclists,  excessive  speed  and  weak  enforcement. 
Investment 
in 
maintenance and upgrades on existing roads would 
improve safety. Beyond infrastructure, Romania is 
part  of  a  knowledge-sharing  programme  to  the 
improve  administrative  capacity  to  tackle  road 
safety in an integrated manner (52). 

in  motorways  as  well  as 

Energy 

Links  to  neighbouring  countries  in  the  gas 
infrastructure. 
lack  sufficient 
market  still 
Investment  in  the  gas-transmission  infrastructure, 

(52)  Romania  benefits  from 
the  new  “EU  Road  Safety 
Exchange  Programme”, 
the  European 
financed  by 
Parliament,  and  from  the  “Safer  Transport  Platform”,  an 
advisory facility created by the Commission and the EIB in 
2019. EIB  technical  assistance  is  ongoing  in developing  a 
road safety investment programme. 

52 

617157637658647619271195588050100Total transport infrastructureAir airport efficiencyAir connectivityAir total transportMaritime port efficiencyMaritime connectivityMaritime total transportRail efficiencyRail densityRail infrastructureRoads qualityRoads connectivityRoads infrastructure   
                                                           
4.4. Competitiveness, reforms and investment 

Water 

Romania’s water policy still shows  deficiencies, 
in particular with regard to access to water and 
sanitation in rural areas, as well as quantity and 
quality  of  drinking  water.  Collection  of 
wastewater  and  connection  to  public  sanitation 
infrastructure  is  still  incomplete.  The  distance  to 
the  target  of  collecting  wastewater  generated  by 
agglomerations  >2,000  population  equivalent  is 
26%. Currently across the EU, on average 96% of 
citizens  are  connected  to  potable  water  supplies, 
only 67,5% in 2017 in Romania53. Affordability is 
the  lowest  in  the  EU  with  water  supply  and 
sanitation expenditures accounting  for over 6% of 
households’ expenditures in the poorest population 
group. 

Investments  in  wastewater  treatment  could 
address  these 
issues.  The  national  regulator 
(ANRSC)  needs  to  play  a  stronger  role  in  asset 
management,  business  plan  evaluation  and 
monitoring.  Efforts  are  needed  for  the  extension 
and  modernization  of  drinking  water  and 
wastewater 
infrastructure,  for  drinking  water 
the  modernization  of 
quality  monitoring  and 
laboratories  for  better  monitoring  of  substances 
discharged  into  the  waters.  In  a  recent  study,  the 
OECD(54)  estimates  an  investment  need  for  water 
supply  and  sanitation  of  approximately  €17.9 
billion  by  2030,  while  the  additional  costs  for 
connecting  vulnerable  and  marginalised  people  to 
public  water  supply  systems  are  of  around  EUR 
1.1 billion by 2030. 

Waste 

country 

Waste management remains a key challenge for 
Romania.  The 
be 
characterised by low recycling of municipal waste 
(14%) and high landfilling rates (70%). Moreover, 
recycling  rates  have  been  stagnated  since  2013, 
while the incineration rate has increased slightly to 

continues 

to 

53 
https://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1
&language=en&pcode=ten00012 

(54)  Source:  OECD,  draft  version:  Water-related  investment 
needs  and  financing  capabilities  in  EU  Member  States 
Report not published to date. Publication planned by early 
2020 

and 

flows 

bi-directional 

the  completion 

the 
in  2020  of 
particularly 
Romanian  sections  of 
the  Bulgaria-Romania-
Hungary-Austria (BRUA) pipeline corridor, would 
enhanced 
allow 
interconnectivity  with Bulgaria  and Hungary. In a 
second phase, BRUA is also crucial for the start of 
Black  Sea  offshore  gas  production.  This  would 
give  consumers  in  Romania  and  in  the  broader 
Central and Southeast European region, access to a 
domestic gas source, improving security of supply 
and competition. 

In 

the 

2017, 

potential. 

With  improved  infrastructure  Romania  could 
tap  into  its  potential  for  renewable  power 
generation.  A  well-developed 
and  well-
interconnected power grid is essential to exploiting 
electricity 
this 
interconnection  level  was  7%,  below  the  2020 
target of 10%. The implementation of the Planned 
Projects  of  Common  Interest  (PCI)  in  electricity 
will contribute to this goal. The Back Sea Corridor 
PCI  cluster  aims  to  relieve  grid  congestion  in 
Southeast  Romania  and  enable  the  integration  of 
renewable power  generation in both Romania and 
Bulgaria,creating a bridge to the energy markets of 
the Western Balkan countries.   

Investment  in  energy  efficiency  remains  low 
despite  good  incentives.  To  meet  the  EU  2030 
target  of  32.5%  energy  efficiency,  private 
financing  should  be  attracted  to  boost  investment 
in  energy  efficiency.  Although  the  country  has 
allocated  significant  amounts  from  the  European 
into  energy 
Structural  and  Investment  Funds 
efficiency 
(see  Section  4.5), 
absorption is very low, pointing to the need for an 
improvement in this area. 

in  buildings 

Air quality 

Supporting  measures  aimed  to  address  the 
main  sources  of  air  pollution  (e.g.  domestic 
heating,  transport,  etc.)  leading  to  air  quality 
improvement  and  upgrading  of  the  monitoring 
should  be  stepped  up.  It  is  necessary  to  ensure 
that  key  measures  supported  under  specific 
sectoral  policies  (e.g.  energy,  transport)  are  fully 
aligned  with/not  detrimental 
to  air  quality 
objectives;  The  upgrade  and  improvement  of  the 
air  quality  monitoring  network,  and  supporting  
timely  reporting  of  air  quality  data  are  of 
paramount importance.  

53 

                                                           
 
 
4.4. Competitiveness, reforms and investment 

industry)  or 

employment  in  certain  key  sectors  with  higher 
(e.g. 
(e.g.  agriculture) 
lower 
productivity  levels.  The  Vest  region  is  a  good 
example of increased competitiveness, with a score 
of  20.9  in  2019.  The  Vest  also  had  the  highest 
increase  in  the  number  of  people  employed  in 
growth  areas  such  as  ICT  (though  starting  from  a 
low  base) (55)  or  professional  and  administrative 
activities (56). This is despite the same region also 
having  areas  with  predominantly  high  polluting 
industries  and  low  productivity  rates  (such  as 
the 
agriculture), 
regional 
thereby 
the  share  of 
competitiveness  and 
population at risk of poverty. 

reducing 
increasing 

The  urban-rural  disparities  create  very  high 
income  and  opportunity  inequality  across  the 
population. The risk of poverty decreased in cities 
but  remained  relatively  constant  in  rural  areas, 
almost  five  times  higher  compared  to  cities.  The 
average overall disposable income for a household 
member in urban areas is 1.9 times higher than in 
rural ones. In 2018, the share of NEETs among the 
young  rural  resident  population  (15-24)  is  almost 
three  times  that  of  those  living  in  cities  (18.1% 
compared  to  7%).  In  2017,  of  the  total  of 
registered unemployed, 71% were from rural areas. 
The proportion of early leavers from education and 
training in 2018 was 10.5 pps higher in rural areas 
than in town and suburbs and six times higher than 
in  cities.  More  than  half  of  the  rural  employed 
population 
pension, 
unemployment  or  health  insurance,  despite  their 
compulsory  nature.  Access  to  health  care  is 
especially  poor  and  self-reported  unmet  needs  for 
medical examination was twice as high as in urban 
areas and four times higher than the EU average. 

covered 

not 

by 

is 

High  regional  and  rural-urban  disparities  in 
social  exclusion  and  poverty  rates  are  not 
compensated for by the existing social services. 
While  for  the  country  as  a  whole  28%  of  the 
existing  number  of  social  services  infrastructure 
units are currently provided for, the figure is only 
26%  for  Sud-Est  and  19%  in  Sud-Muntenia (57). 
The  difference  is  even  starker  for  certain  types  of 
social  facilities,  such  as  day  centres  for  people 
with  disabilities  or  addictions,  where  only  1%  of 

(55)  By 46% over the 2014-2018 period 
(56)  By 21% over the 2014-2018 period 
(57)  For  visualisation  and  data, 

infrastructure 
map: 
sociale.gov.ro/arcgis/home/ 

to 

refer 
local-social 
https://portalgis.servicii-

4%.  In  2017,  municipal  waste  generation  per 
capita in Romania was still considerably below the 
EU average of around 487 kgs. The Early Warning 
Report for Romania identifies the country as being 
at  risk  of  missing  the  2020  preparation  for  re-
use/recycling target for municipal waste. 

that 

Achieving  ambitious  targets  of  recycling  and 
reducing  landfilling  will  require  policy  action. 
New  requirements  arising  from  the  revised  Waste 
Framework  Directive  with  more  ambitious 
recycling  targets  for  the  period  up  to  2035,  and  a 
revised  Landfill  Directive  with  the  obligation  to 
ensure 
the  amount  of  municipal  waste 
landfilled  is  reduced  to  10%  or  less  by  2035  
necessitate  concentrated  efforts. 
  Appropriate 
policy  measures  include  in  particular  meaningful 
Pay-As-You-Throw  schemes,  functional  separate 
collection,  especially  in  the  most  populated  areas, 
improvements of waste data reporting and capacity 
building  for  municipalities,  and  investment  to 
waste prevention.  

4.4.3.  REGIONAL DISPARITIES 

the  poorest 

Regional disparities in Romania are among the 
highest  in  the  EU,  though  they  have  decreased 
slightly over the last five years. GDP per head in 
the  capital  region  was  144%  of  the  EU  average, 
while in the Nord-Est it was 39%. Nord-Est, Sud-
Est and Sud-Vest have the lowest growth rate also 
(see  Section  1). 
regions 
being 
Disparities  are  mainly  driven  by  the  significant 
investment  and  labour  productivity  gaps  between 
the capital and the rest of the country. In addition, 
in  all  Romanian  regions,  except  the  Bucharest 
region,  the  road  infrastructure  and  related  public 
investment  are  not  sufficiently  developed (see 
Section 4.4.2). The lack of specific responsibilities 
at  regional  and  county  levels  to  provide  inclusive 
public transport services increases the  isolation of 
marginalised communities and reduces their access 
to essential services. 

competitiveness 

and  productivity 

correlates  with 
Regional 
in 
levels 
employment 
important  economic  sectors. 
the  
In  2019, 
Bucharest region was the most competitive with a 
score of 55.9 (0-100) while the remaining regions 
with  scores  between  20.9  and  5.3  are  lagging 
significantly (European  Commission, 
behind 
level  of 
2019m).  This  correlates  with 

the 

54 

                                                           
4.4. Competitiveness, reforms and investment 

productivity  and  higher-growth  economic  sectors 
need  to  build  capacity.  Education  and  upskilling 
can also make a positive contribution to improved 
competitiveness if market relevance is increased.  

Lack  of  digital  connectivity  and  adequate 
infrastructure  further  deepens  the  disparities 
between  and  within  regions.  Within  regions, 
counties  with  low  connectivity  experience  a  low 
level  of  economic  growth,  whereas  the  counties 
with  good  connectivity  combined  with  significant 
investment  in  infrastructure  and  high  rates  of 
foreign  direct  investment  show  a  high  level  of 
economic growth as well as high levels of average 
salaries. In terms of internet use and activities, six 
of the eight Romanian regions are at the bottom of 
the  EU  ranking,  with  fewer  than  60%  of  adults 
making  daily  use  of  the  internet  in  2018.  The 
lowest  shares  are  recorded  in  Sud-Est  (46%)  and 
Nord-Est  (45%) (Eurostat,  2019a).  The  same 
applies  in  the  case  of  the  share  of  adults  making 
use  of  e-government  services,  where  Romania 
scores  particularly 
regions 
performing  very  poorly,  Vest  (9%),  Sud-Vest 
Oltenia  (also  9%),  Nord-Est  (7%)  and  Sud-Est 
(3%).  

low,  with 

four 

the 

society, 

In  addition,  urban-rural  disparities  also  affect 
the  development  of  Romania’s  digital  economy 
and 
country’s 
restraining 
competitiveness.  In  terms  of  digital  connectivity, 
in  2018,  only  68%  (EU  average  81%)  of 
in  rural  areas  of  Romania  had 
households 
broadband  access,  compared  to  80%  (EU  average 
86%)  in  towns  and  suburbs  and  89%  in  cities 
(Eurostat, 2019b). The same sharp divide between 
rural areas and the two other types of areas (mainly 
cities)  applies  to  the  internet  access  indicator, 
where  Romania  also  has  a  lower  overall  level  of 
internet  access  than  the  EU-28  average  (Eurostat, 
2019b).  As  far  as  digital  skills  are  concerned, 
Romania  displays  a  stark  gap  between  city-
dwellers and people living in rural areas. In 2017, 
this  digital  divide  in  overall  skills  reached  23  pps 
while the EU average is 14 pps (Eurostat Regional 
Yearbook, 2019). 

To  address  the  regional  digital  divide,  EU 
Funds have been provided under the 2014-2020 
financial  framework.  The  Romanian  Operational 
Programme  for  Competitiveness  has  earmarked 
€100 million 
the  European  Regional 
Development  Fund  (ERDF),  while  the  2014-2020 

from 

the  required  facilities  exist  in  Sud-Vest  Oltenia 
(compared  to  56%  in  Bucuresti-Ilfov  and  57%  in 
Centru).  Regions  with  the  highest  level  of  unmet 
medical  needs  (Sud-Est  5.3%  and  Sud-Muntenia 
4.9%)  also  have  below  average  levels  of  existing 
social services facilities. 

Differences  in  regional  social  indicators  are 
dampening  the  perspectives  for  future  upward 
convergence. There  is  a  high  correlation  between 
low  household  income  and  existing  poverty  rates 
on  the  one  hand  and  low  attainment  in  education 
on  the  other.  The  poor  availability  of  jobs  for  the 
low  skilled  workers  and  the  positive  effect  of 
higher  value-chain  businesses 
in  economic 
development  means 
that  advanced  skills  are 
needed  for  the  labour  population  to  make  a 
positive contribution to the upward convergence of 
regional  disparities.  The  high  number  of  early 
school  leavers  in  poorer  areas  such  as  Sud-Est 
(21.3%)  or  Nord-Est  (19.5%)  however,  and  the 
very  low  level  of  adult  upskilling  opportunities, 
remain a significant problem (Graph 4.4.9). 

Graph 4.4.9:  Social needs - income distribution per region 

Source: European Commission 

in 

improvement 

in  productivity 

Investment 
is 
needed  to  escape  the  low  competitiveness  trap. 
Regions  with  significant  shares  of  the  workforce 
low-productivity  sectors  are 
concentrated 
characterised  by  relatively 
low  dynamics  of 
business  environment, 
low  salaries  and  high 
poverty  rates,  which  have  a  negative  impact  on 
social  cohesion.  Poorer  regions  in  the  country 
therefore risk being trapped in a negative feedback 
loop. Existing industries therefore need to increase 

55 

02040608010012001020304050EU28=100% Unmet medical needs (2017)Early school leavers (2018)At-risk-of-poverty or social exclusion (2018)Income of households (2016) (rhs)   
4.4. Competitiveness, reforms and investment 

level  of  restrictiveness 

limit  market 
including  regulated  professions, 
development.  The 
in 
Romania  is  higher  compared  to  the  single  market 
average for civil engineers, architects, accountants, 
and  tourist  guides.  Removing  these  barriers  could 
stimulate competition and investment, including in 
innovation, within the services sector.  

in 

launched 

2019.  The 

A reform of the licensing system for services has 
been 
project 
‘Comprehensive  redesign  of  the  licensing  system 
in  Romania’  is  helping  Romania  to  modernise  its 
licensing  system,  strengthen  the  capacity  of  its 
licensing 
licensing 
system  with  international  best  practices.  The 
project  is  funded  by  the  European  Commission’s 
Programmeand 
Structural  Reform 
implemented by the OECD.  

institutions  and  align 

Support 

the 

Market  surveillance  of  the  single  market  for 
goods is essential in order to protect consumers 
and  ensure  a  level  playing  field  for  businesses. 
Responsibility for market surveillance of non-food 
products  is  spread  over  more  than  a  dozen 
authorities,  posing  coordination  and  prioritisation 
challenges. In order to reduce the  volume of  non-
compliant products imported from outside the EU, 
cooperation 
surveillance 
between  market 
authorities  should  be  reinforced,  as  well  as 
cooperation  between  market  surveillance  and 
customs  authorities.  Limited  financial  resources 
have an impact on the ability to carry out product 
testing.  The  number  of  non-compliance  findings 
shared with other Member States is low.  

the 

connectivity 

The  weak  performance  of  the  transport  sector 
hampers 
of 
transport 
businesses  with  the  rest  of  the  single  market.  
Businesses  take  the  quality  of  transport  services 
into  account  when  making  strategic  decisions. 
Romania  has  low  scores  in  accessibility  and 
performance of road transport. 

Energy market  

stable  and  predictable 

Romania's potential as a producer and hub for 
natural  gas  needs  to  be  underpinned  by  an 
appropriate, 
legal 
framework  in  line  with  EU  law.  The  legislative 
measures  introduced  by  emergency  ordinances 
issued 
Emergency 
Ordinance  114/2018  (2018)  and  Government 
Emergency Ordinance 19/2019 (2019i)) have had a 

(Government 

recently 

Rural  Development  Operational  Programme  had 
initially  provided  for  an  indicative  amount  of 
€25 million  from  the  European  Agricultural  Fund 
for Rural Development (EAFRD) under LEADER, 
of  which  less  than  €2 million  were  effectively 
allocated  to  broadband  infrastructure  measures. 
Under  ERDF,  in  addition  to  the  delayed  RoNet 
project,  a  new  grant  scheme  for  next-generation 
networks 
total 
estimated  budget  of  €55 million,  was  set  up  to 
provide  support  to  private  operators  deploying 
access  infrastructure  for  additional  localities  in 
under-served areas. The project started in the first 
half of 2019 and results will only be visible in the 
medium-long term. 

(NGN)  deployment,  with  a 

4.4.4.  SINGLE MARKET INTEGRATION 

Single market for goods and services 

Romania  is  increasingly  integrated  into  EU 
production chains. Romania attracts an increasing 
share  of  trade  relating  to  EU  value  chains, 
in  manufacturing  and  business 
particularly 
services. This integration has enabled market share 
gains  to  be  achieved  in  the  largest  western 
countries  (Germany,  Italy,  France),  and  a  strong 
export performance overall since 2010.  

The  automotive  cluster  is  particularly  well 
integrated into EU supply chains. It also benefits 
from  having  many  suppliers  and  component 
manufacturers  working  in  joint  ventures  with 
foreign partners. Romania is already among the top 
five  EU  countries  in  terms  of  car  manufacturing 
jobs,  employing  over  185,000  people  and 
contributing  to  almost  half  of  Romania’s  exports. 
At  the  same  time,  the  automotive  industry  is 
technologically  mature  and  will  undergo  major 
changes 
(e.g.  automation,  smart  and  green 
mobility,  new  production  and  business  models). 
Given  its  degree  of  integration  into  global  value 
chains,  significant  investment  in  intangible  assets 
such  as  R&D,  digitalisation  and  skills  would  be 
the  country’s 
required 
attractiveness as an automotive hub.  

to  maintain 

in  order 

investment. 

Removing  barriers  for  service  providers  could 
Cumbersome 
stimulate 
administrative procedures for setting up businesses 
(see  Section  4.4.6)  as  well  as 
regulatory 
imposed  on  service  providers, 
requirements 

56 

4.4. Competitiveness, reforms and investment 

performance  varies  significantly  at  sub-national 
level (World Bank, 2017). 

Graph 4.4.10: Ease of Doing Business (2019) 

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

of 

quality 

Enhancing  stability  and  predictability  would 
help  improve  the  business  environment.  The 
involvement  of  social  partners,  civil  society 
organisations  and  other  relevant  stakeholders  in 
public  policy  developments  remains  limited.  A 
recent  evaluation  finalised  by  General  Secretariat 
of the Government in 2019 the uneven application 
of the minimum rules for public consultations both 
at  central  and  local  level.  Mandatory  standardised 
procedures  are  to  be  developed,  with  the  aim  of 
increasing 
public 
consultations (Government  of  Romania,  2018). 
The government adopted important initiatives with 
limited or no impact assessment and stakeholders’ 
consultation. 
not 
mandatory  in  the  case  of  Emergency  Ordinances, 
which  reduces  the  legislative  quality.  The  process 
and the criteria used for  assessing  the opportunity 
and  quality  of  the  Emergency  Ordinances  are  not 
sufficient  nor  effective.  The  legislative  agenda  in 
Parliament  is  also  very  unpredictable.  Despite 
efforts 
the  methodological 
guidelines of  the  Annual  Working  Government 
Plan, 
is 
30% 
implemented (Government of Romania, 2019a). 

assessments 

the  Plan 

improve 

Impact 

than 

less 

are 

of 

to 

The lack of policy and  legislative predictability 
has  a  negative  effect  on  investment  decisions. 
that  Romanian  firms  see 
Survey  data  show 
uncertainty  as  regards  policy  and  labour  and 
business regulations as the main obstacles to long-
term  investment  (EIB  Investment  Survey,  2019-

negative  impact  on  market  functioning  and  could 
hamper investment in offshore-gas development in 
the  Black  Sea,  to  the  detriment  of  Romania’s  and 
the region’s supply security.   

The  lack  of  electricity  interconnectors  affects 
Romania’s  ability  to  participate  in  EU  cross-
border  electricity  trade.  Romania  remains  less 
connected  than  the  EU  average,  and  unlike  peers 
such as the Baltic region, it has not made progress 
in  developing  new  electricity 
interconnectors. 
Cross-border  exchange  of  electricity  and  gas  are 
important  cost-  and  CO2-savings.  Connecting  to 
EU  markets  can  avoid  unnecessary  investment  in 
backup generation, thereby avoiding emissions and 
costs (European Commission, 2019).     

Collaborative economy 

recently 

The collaborative economy has a strong growth 
introduced 
potential.  Romania  has 
requirements  that  are  relevant  to  the  collaborative 
economy  in  the  field  of  accommodation  and 
transport.  The  Tourism  Act  has  been  amended  to 
introduce, inter alia, an obligation for providers of 
short-term  rental  accommodation  to  register  with 
the  competent  local  public  administration,  and  to 
prohibit for platforms intermediating such services 
from  publishing  advertisements  for  unregistered 
accommodation  structures.  In  the  transport  sector, 
an  Emergency  Ordinance 
(GEO  49/2019) 
establishing  a  licensing  system  for  ride  hailing 
transport  services  was  adopted  to  regulate  the  use 
of  alternative  transport  services.  In  2018,  the 
Romanian Competition Authority launched a study 
on the collaborative economy.  

4.4.5.  REGULATORY ENVIRONMENT AND 

INSTITUTIONAL QUALITY 

Business environment 

scope 

Romania’s  business  environment  could  be 
further improved.  Romania is ranked 55th in the 
World  Bankʼs  Doing  Business  2020  report, 
indicating 
improvement 
particularly in electricity and construction permits, 
insolvency  and  protection  of  minority  investors. 
However,  performance  is  higher  than  the  EU 
average  for  enforcing  contracts,  trading  across 
borders and obtaining credit (Graph 4.4.10) but the 

further 

for 

57 

03876114152190Starting aBusinessDealing withConstruction…Getting ElectricityRegisteringPropertyGetting CreditProtectingMinority InvestorsPaying TaxesTrading acrossBordersEnforcingContractsResolvingInsolvencyEURomania   
4.4. Competitiveness, reforms and investment 

2022  and  January  2021  respectively.  While  the 
current  Government  has  stated  its  commitment  to 
repair the damages to the justice system created by 
laws,  further 
the 
the  amendments 
corrective  legislative  measures  have  not  yet  been 
adopted.  

justice 

to 

Romania  continues  to  make  efforts  to  improve 
the  enforcement  of  court  decisions.  In  April 
2019,  the  Government  approved  a  memorandum 
on ‘measures to ensure the execution of judgments 
against  a  public  debtor,  in  accordance  with  the 
case  law  of  the  European  Court  of  Human  Rights 
regarding non-execution or execution with delay of 
the  judgments  handed  down  against  a  public 
debtor’.  The  IT  application  which  will  be  used  to 
identify  the  number  of  final  court  decisions  in 
which public institutions are debtors or creditors is 
in its last stages of development.  

Corruption  continues  to  be  major  problem  for 
the  business  environment  in  Romania.  A  2019 
business Eurobarometer survey shows that 88% of 
businesses  consider  corruption  to  be  a  serious 
problem for their company when doing business in 
Romania. Since 2013, the share of companies that 
perceive  corruption  as  a  problem  increased  in 
Romania by 23 pps, the largest increase in the EU 
and  in  stark  contrast  with  the  EU  average  which 
continued to decrease (now at 37%). Overall 97% 
of businesses think that corruption is widespread in 
Romania  and  87%  say  it  is  widespread  in  public 
procurement managed by national authorities. On a 
more positive  note, 50% of respondents think that 
those  engaged  in  corruption  would  be  caught  by 
police and 43% think that those caught for bribing 
a senior official receive appropriate sanctions, both 
higher  than  the  EU  average.  Romania’s  scores  on 
the  control  of  corruption  index  of  the  World 
Governance 
the  Corruption 
Perception  Index  of  Transparency  international 
have  also  continued  to  decrease,  from  the  55th  to 
the  52nd  percentile  rank  in  2018  (World  Bank, 
2019) and from 47 to 44 points respectively.  

Indicators 

and 

implementation  of  the  national  anti-
The 
corruption  strategy  is  progressing  at  technical 
level,  the  credibility  and  impact  of  the  process 
commitment. 
requires 
the 
Corruption  prevention  measures  such  as 
internal  audits  by  each  of  the  participating  public 
institutions  and 
review  evaluation 
the  peer 
missions planned in 2018 were put in motion, both 

renewed 

political 

2020).  An  example  is  the  change  to  the  ex-ante 
control system performed by the National Agency 
for  Public  Procurement  (ANAP)  in  2019.  The 
authorities  unexpectedly  reverted  to  the  previous 
system and eliminated ex-ante controls for tenders 
co-financed  by  EU  Funds  launched  since  January 
2019.  

Protection of foreign investors has weakened in 
recent  years.  Several  shortcomings  regarding 
investor  protection,  in  particular  concerning  the 
interactions  between  foreign  investors  and  the 
state, have emerged in recent years. In this context, 
the  lack  of  appropriate  recognition  of  property 
rights  (for  instance,  weaknesses  regarding  the 
enforcement  of  property  rights  on  land)  can  have 
investor 
an  unwarranted  adverse 
sentiment and cross-border investment projects. 

impact  on 

Judicial reform and the fight against corruption 

the 

laws 

justice 

  Important 

Concerns  of  negative  impacts  on  the  justice 
system and its capacity to investigate high-level 
corruption remain as long as Romania does not 
legal 
take  corrective  measures. 
modifications  and  political  pressure  on 
the 
judiciary  in  2017,  2018  and  in  the  largest  part  of 
2019  have  affected 
the  efficiency,  quality, 
independence of the justice system and its capacity 
to  investigate  and  sanction  high-level  corruption. 
(CVM  report  2019).  The  implementation  of  the 
amended 
since  October  2018 
confirmed  the  risks  that  a  number  of  measures 
judiciary.  Several 
were  damaging 
to 
Government  Emergency  Ordinances 
further 
amending  the  justice  laws  in  2019  have  increased 
these  concerns.  The  operation  of  the  special 
prosecutor section for the investigation of offences 
committed by magistrates which was set up end of 
2018 following the amendments of the justice laws 
has  confirmed  the  concerns  expressed  by  the 
Commission, the Venice Commission and GRECO 
that  the  section  could  be  politically  influenced  to 
change 
the  course  of  high-level  corruption 
cases (European  Commission,  2019l).    In  this 
context, on 27 of December 2019, the Government 
adopted a Memorandum, in which it  supports the 
solution  of  abolishing  the  Special  Section.  The 
entry 
into  force  of  provisions  which  would 
particularly  affect  the  human  resources  of  the 
justice  system  on  early  retirement,  the  initial 
training  period  and  the  number  of  judges  on 
panels, was delayed for two more years to January 

58 

4.4. Competitiveness, reforms and investment 

owned  enterprises,  which  represents  a  financial 
risk  for 
the  state  but  also  demonstrates  a 
permissive  attitude  from  public  sector  suppliers 
and  creditors.  Interim  boards  and  managers 
became  a  standard  practice  in  most  companies. 
The  authorities  applied  60  financial  penalties  for 
administrative  offences  under 
the  corporate 
governance legislation, but the amounts tend to be 
symbolic.  Furthermore,  different  Ministries  and 
departments  involved  in  overseeing  state-owned 
enterprises  seem  to  disagree  increasingly  on  the 
respective responsibilities, despite clear allocations 
under the law. 

in  2017 

The  future  of  the  Sovereign  Development  and 
Investment  Fund  is  unclear.  The  creation  of  the 
(European 
Fund  was  announced 
Commission,  2018a).  It  should  receive  the  state’s 
shares in some 30 state-owned enterprises to boost 
investment, but with unclear objectives or strategy. 
A  first  law  was  approved  in  spring  2018  but 
rejected  by  the  Constitutional  Court  (European 
Commission,  2019a).  In  November  2018,  the 
government  addressed  the  Court’s  concerns  and 
adopted  framework  legislation.  It  accelerated  the 
assessment  of  how  to  create  the  Fund  outside  the 
budget perimeter but plans are unclear. 

Public administration and quality of institutions 

the 

reform  of 

Results  of 
the  public 
administration  system  are  not  yet  visible. 
Legislative  and  procedural  steps  in  several  areas 
will  require  time  and  active  political  involvement 
in  order  to  produce  the  expected  results.  EU 
funded  projects  aim  to  reform  human  resource 
management,  the  regulatory  impact  assessment 
system and strategic planning of public institutions 
(see below). Legislation setting up the Council for 
Human  Resources  was  adopted  by  Law  69/2019 
(Parliament of Romania, 2019) and steps are being 
taken  to  make  it  operational  as  of  January  2020. 
The  relevant 
legal  framework  for  reforming 
national  competitions  for  civil  servants  and  other 
areas of the central administration was adopted by 
Government  of  Romania  Emergency  Ordinance 
57/2019.  

Frequent  reorganisations  and  overuse  of 
temporary  management  positions  hamper 
independence  and  trust  in  the  administration. 
Since  2014,  the  number  of  civil  service  functions 
has been increasing both at central and local level, 

in  central  institutions  and  at  local  level  (90 
municipalities and county councils were evaluated 
between  April  -  November  2019).  The  inter-
institutional  cooperation  platforms  met  in  April, 
June  and  November  2019.  The  authorities  also 
report  continued  corruption  prevention  measures 
and  activities  in  central  ministries  and  public 
institutions in priority areas.  

to 

the 

legal 

framework 

Amendments 
for 
conflicts of interests and incompatibilities could 
affect  the  capacity  of  the  National  Integirty 
Agency to impose sanctions. In the last two and a 
half years five legislative proposals modifying the 
integrity laws have been adopted. In particular one 
amendment  sets  a  prescription  deadline  of  three 
years for the deeds that determine the existence of 
the state of conflict of interests or incompatibility. 
While a number of investigations had to be closed, 
it is unclear whether a sanction can still be applied 
after a final court decision, if it is only issued after 
the  end  of  the  three  years  prescription  period. 
Another amendment modified the list of applicable 
administrative 
locally  elected 
officials  found  in  conflict  of  interests.  (European 
Commission, 2019f). 

sanctions 

for 

Corporate 
enterprises  

governance 

of 

state-owned 

The  performance  of  state-owned  enterprises  is 
deteriorating.  The  operational  and 
financial 
enterprises  declined 
state-owned 
results  of 
substantially  in  2018  and  the  first  half  of  2019. 
Aggregate  profits,  at  RON 3.5 billion  in  2018, 
decreased by 53% compared to 2017 (Government 
of  Romania,  2019b),  according  to  Ministry  of 
Finance  data.  In  particular,  companies  in  the 
energy  and  transport  sectors  contribute  to  this 
situation. Arrears are also increasing again, having 
reached  RON 4.4 billion  (c.  €932 million)  at  the 
end of 2018, 11% higher than in December 2017. 

The  deterioration  of  corporate  governance 
contributes to poor performance. Romania has a 
very  solid  corporate  governance  framework  for 
state-owned  enterprises  (European  Commission, 
2017a),  but  its  implementation  has  been  limited 
(European  Commission  2018a,  2019a).  Loss-
making  companies  are  not  asked  to  restructure  or 
modify  their  business  plans.  Debts  to  the  State 
budget,  social  security  or  other  state-owned 
enterprises  amount  to  90%  of  all  arrears  by  state-

59 

4.4. Competitiveness, reforms and investment 

making  process  and  improve  oversight  of  public 
policies. 

the  potential 

The development of an effective framework for 
strategic  and  budgetary  planning  has  stalled. 
The revision of the relevant legislative  framework 
has  stalled  since  2017 (Government  of  Romania, 
2019a). This framework would establish a stronger 
link  between  the  Strategic  Programmes  of  the 
central public institution and the annual budgetary 
allocations  and  would  have 
to 
increase  the  quality  of  public  spending.  The 
changes  are  also  necessary  in  order  to  clarify  the 
and 
institutional 
responsibilities  of  relevant  public 
institutions. 
Furthermore, the strategic management role of the 
General Secretariat of the Government is still to be 
consolidated.  National  Strategic  Programmes  in 
different  sectors  report  a  lack  of  funding  of 
ongoing measures, also due to the lack of a multi-
annual  budgeting  approach.  EU  funds  continue  to 
support  the  central  and  local  administrations  in 
strengthening their strategic planning capacity, but 
results remain fragmented. 

coordination  mechanism 

Public service delivery 

by 

the  start  of 

the  Government 

Decentralisation  of  public  services  hampers 
their availability and quality, especially at local 
level  and  for  poor  communities.  Little  progress 
has  been  achieved  since 
the 
decentralisation process. An updated calendar was 
June 
discussed 
2019 (Ministry  of  Regional  Development  and 
Public  Administration,  2019)  to  speed  up  the 
adoption 
for 
sectoral 
of 
decentralisation,  and  for 
the  finalisation  and 
the  quality  and  cost  standards 
adoption  of 
developed for a number of public services. As cost 
and  quality  standards  are  not  yet  in  place,  these 
services are still under-financed, with very limited 
opportunities for further development. 

legislations 

in 

Fragmentation  of  competencies  and  resources 
continue to affect the delivery of public services. 
National  and  regional  strategies  are  not  well 
translated into integrated measures at regional and 
local  level.  Funding  of  public  services  is  uneven 
across  regions  and  territorial  administrative  units 
and does not take into account regional disparities 
and  local  needs.  Public  and  private  social  service 
providers  continue  to  compete  for  very  limited 
public funding. 

with  no  clear  strategy  and  not  in  line  with  the 
decentralisation of competences to the  local level. 
At  the  same  time,  the  share  of  vacant  positions 
remains  high.  Frequent  reorganisations  of  public 
structures 
illustrate  a  significant  degree  of 
instability.  Moreover,  the  sector  faces  significant 
ageing  challenges,  as  78.5%  of  all  staff  is  more 
than  40  years  old.  The  situation  improved  only 
marginally  with  the  increase  in  public  sector 
wages, showing that complementary measures or a 
more predictable career path is needed. 

The  quality  of  public  consultations  and 
impact  assessments  remain  a 
regulatory 
challenge.  The  General  Secretariat  of 
the 
Government  has  started  to  monitor  the  quality  of 
regulations. A public report should be available for 
the  first  time  in  spring  2020.  The  quality  and 
effective use of regulatory impact assessments and 
public  consultations  vary  significantly,  with  no 
legal institutional framework for quality control at 
governmental  level.  Options  for  setting-up  an 
independent Regulatory Impact Assessment Board 
are  currently  being  assessed.  Several  projects  are 
ongoing to reinforce the methodology and tools for 
regulatory  impact  assessments  and  to  increase 
expertise  across  the  central  public  administration. 
Public  consultations  are  generally  perceived  as 
formal and of low quality, and the involvement of 
social  partners  and  other  relevant  stakeholders  is 
limited.  In  March  2019,  a  new  version  of  the 
online  platform  for  public  consultations  was 
interactions 
launched,  which  should  facilitate 
between authorities and relevant stakeholders.  

Plan 

National 

Efforts continue to improve transparency of the 
public  administration,  with  weaker  results  at 
the  local  level.  Under  the  Open  Government 
Partnership  (OGP),  Romania  is  implementing  a 
new 
(2018-
Action 
2020) (Government  of  Romania,  2018).  The 
Romanian  OGP  website  was  re-launched  in  order 
to  provide  transparent  monitoring.  Further  efforts 
to continue improving transparency both at central 
and  local  levels  are  partly  supported  by  EU 
funds (Government  of  Romania,  2019a).  In  this 
context,  eight  briefing  sessions  were  organised  in 
various cities, attended by relevant stakeholders. A 
slightly  positive  trend  can  be  observed  in  some 
central authorities, but progress by local authorities 
has been more limited. Better quality, transparency 
and  access 
information,  would  encourage 
citizens  to  become  involved  in  the  decision-

to 

60 

4.4. Competitiveness, reforms and investment 

body  of  expertise  that  will  be  made  available  in 
order to ensure effective interoperability. 

As  of  2018,  the  eDelivery  Access  Point  is 
operational.  This  will  contribute  to  achieving 
the  Electronic  Identification, 
compliance  with 
Authentication  and  Trust  Services 
(eIDAS) 
Regulation and will support the implementation of 
access points for other service, such as e-invoicing, 
transportation, environment, health, e-tendering or 
e-justice.  The  eIDAS  node  of  Romania  is  still  in 
the  process  of  being  built  through  an  ERDF 
financed  project  (acronym  ‘SITUE’),  expected  to 
be finalised by the end of 2020.  

A new Centre for Financial Information allows 
electronic interaction with taxpayers. The centre 
was redesigned and simplified in 2018 and is now 
available via the Single Contact Point. It allows the 
government  to  communicate  electronically  with 
taxpayers  and  tax  declarations  to  be  submitted 
online. The Virtual Private Space is the system for 
management  of  citizens’  declarations  and  tax 
liabilities,  where 
are 
payment 
established,  but  it  does  not  include  a  payment 
module.  

obligations 

Several  central  and  local  authorities  provide 
simplified  procedures  via  the  Single  Contact 
Point.  The  documentation  is  available  online  but 
not  all  procedures  can  be  completed  online.  The 
Ministry of Health has simplified its procedures so 
that the approval and correction of medicine prices 
can  be  sent  electronically  and  communication  to 
operators can take place online. However, projects 
such  as  the  Disease  Registry  Project  have  stalled. 
The  National  Office  Trade  Register  has 
implemented  the  online  registration  process  for 
new  companies.  The  simplified  registration  has  a 
response  time  of  a  maximum  three  working  days. 
The  National  Office  Trade  Register  now  provides 
30 digital public services.  

Public procurement  

The  implementation  of  the  national  public 
procurement strategy is progressing. The new e-
procurement  system  (i.e.  SICAP)  has  laid  the 
foundation 
the 
procurement process. Accurate  maintenance and a 
further 
functionalities  are 
essential  for  ensuring  a  continuous  and  full 
exploitation  of  the  system.  The  adoption  of  an 

fine-tuning  of 

transparency 

for  more 

its 

in 

The  fiscal  decentralisation  process  is  slow.  The 
revenue  of  local  administrations  continues  to  lack 
stability  and  predictability, 
in  a  context  of 
increasing  competencies  and  demand  for  services 
at  local  level.  The  capacity  of  local  authorities  to 
increase  the  share  of  their  own  resources  remains 
limited. The adoption of the Code for Local Public 
postponed 
Finances 
(Government  of  Romania,  2019a).  The  low  level 
and  unpredictability  of  the  local  administrations’ 
budgets have contributed to the lack of services in 
some areas or their low-quality service delivery. 

repeatedly 

been 

has 

of 

hinders 

capacity 

the 
public 
The 
limited 
development. 
administration 
Insufficient  administrative  capacity 
to  deliver 
quality  public  services  (including  digital)  and  red 
tape are an obstacle for business and citizens, and 
thus  for  social  and  economic  development.  The 
implementation  of  simplification  measures  for 
citizens  is  delayed  due  to  bottlenecks  at  central 
level and to the low interest  of local communities 
in addressing the situation. There is a low level of 
contracting  and  implementation  of  EU  funds 
available  for  simplification  measures  for  local 
level  administration  via 
the  Administrative 
Capacity Operational Program. 

eGovernment 

Despite progress, there is considerable scope for 
improvement  in  digital  public  services.  Overall, 
Romania  still  ranks  low  in  this  respect.  There  are 
low  scores  for  pre-filled  forms  and  online  service 
completion,  which  could 
indicate  a  systemic 
problem  with  the  quality  and  usability  of  the 
services offered (European Commission, 2019g).  

The  national  administration’s  fragmented  IT 
system represents an administrative burden for 
citizens  and  businesses.  Interoperability  between 
public administration services is generally low, as 
each  public  institution  has  developed  its  own 
digital public service. As a result, it is unclear how 
much information, once submitted, is then re-used 
by  other  institutions.  The  government  decided  to 
establish  a  National  Interoperability  Framework, 
based 
Interoperability 
Framework,  but  work  still  needs  to  take  off.  A 
proposal  for  an  Interoperability  Law  has  been 
submitted  to  Parliament  discussion  in  order  to 
create  a  more  mandatory  framework  for  future 
public  digitalisation  projects  and  to  provide  for  a 

European 

the 

on 

61 

4.4. Competitiveness, reforms and investment 

duly 

prioritising 

ambitious  professionalisation  plan  is  in  line  with 
the  objectives of the  National Public Procurement 
Strategy.  However, 
and 
effectively  addressing  the  main  shortcomings  of 
the  public  procurement  system,  including  with 
respect 
socially 
responsible  procurement,  will  be  crucial  for  the 
successful  implementation  of  the  strategy  set  to 
start in early 2020.    

to  promoting  green 

and 

impact  assessments, 

Other  reform  commitments  to  improve  public 
procurement  were  stopped  or  even  reversed. 
Changes  to  the  ex-ante  control  mechanism  by 
reducing  the  sample  and  introducing  voluntary 
checks,  trigger  significant  risks  in  terms  of  the 
efficiency and the effective implementation of EU 
funds.  Without  prior  public  consultations  or  
relevant 
legislative 
changes confirm the persistent unpredictability and 
lack of confidence in the decision-making process. 
This  is  also  reflected  in  the  ambitious  number  of 
public-private  partnership  (PPP)  projects  included 
in  the  list  of  strategic  investment  projects,  while 
contracting authorities clearly lack expertise in this 
legal  framework 
to 
field.  The  changes 
regulating  institutional  responsibilities  for  PPPs 
have added a further layer of uncertainty.  

these 

the 

newly 

resources  as  well  as 

is  still  a  need  to  further  enhance 
There 
administrative  capacity  in  public  procurement. 
The 
functional  Centralised  Public 
Procurement  Body  (ONAC)  is  yet  to  build-up  its 
technical  and 
human 
professional  capacities.  ONAC  has  only  limited 
institutional 
centralised 
procurement of simple products subject to demand 
aggregation.  A  number of  legislative  changes  will 
expand  its  competence  to  health  sector  products, 
thus  adding  further  complex  challenges  to  the 
efficient functioning of the newly set institution.  

experience 

the 

in 

investigates 
The  National  Integrity  Agency 
incompatibilities and administrative conflicts of 
interests.  The  PREVENT  system  for  systematic 
ex-ante checks of conflicts of interests is now fully 
operational  and  the  National  Integrity  Agency 
reported positive results. However, the stability of 
the legal framework on  integrity continues to face 
challenges. 

62 

4.5.  ENVIRONMENTAL SUSTAINABILITY 

Graph 4.5.1:  EU highest GHG emissions per GDP in 2017 

in 

economic 

prosperity 

Combining 
with 
environmental  sustainability  is  a  key  challenge 
for Romania. Since joining the EU, Romania has 
living 
made  substantial  progress 
standards.  However,  further  economic  growth 
should help reduce the still significant gap with the 
EU  average.  At  the  same  time,  Romania,  like  the 
facing  climate  change  and 
entire  EU, 
environmental  degradation.  Such  dual  challenges 
require  coherent  policies 
to  ensure 
sustainable development. 

in  order 

raising 

is 

The  greater  frequency  of  extreme  weather 
events  already  caused  material  damage 
in 
recent times. Over the last two decades, Romania 
has  been  affected  by  severe  inland  and  coastal 
floods  and  droughts  possibly  linked  to  climate 
change.  Romania  is  amongst  the  EU  countries 
most  subject  to  large  flooding  events,  and  about 
13%  of  the  country  lies  in  floodplains.  Between 
2002  and  2012,  Romania  had  one  of  the  highest 
number of fatalities in the EU due to flooding  and 
the  largest  number  of  houses  damaged,  with  an 
estimated  total  direct  costs  of  €3.6  billion.  Future 
floods  management  investments  identified  in  the 
Flood Risks Management Plans are approximately 
€3.7  billion.  In  the  absence  of  climate  change 
policies,  the  climate  is  set  to  change  considerably 
over  the  next  50  to  100  years  leading  to  an 
estimated  8-10%  loss  in  GDP  per  capita  in 
Romania by 2100.   

Source: European Commission 

Despite  a  high  share  of  renewable  energy, 
energy  supply  remains  the  most  significant 
source  of  GHG  emissions.  Installed  capacity  for 
renewable  energy  sources  (RES)  has  increased 
significantly  over  the  last  decade.  In  2017,  the 
share  of  RES  in  overall  energy  consumption  was 
24.5%, above the EU average. While this resulted 
in falling emissions from energy supply, the sector 
still  accounted  for  30%  of  all  GHG  emissions  in 
2017 (Graph 4.5.2).  

Graph 4.5.2:  GHG emissions in Romania by sector 

is  carbon  and  energy 

the  production  of  goods  and 
Meanwhile, 
intensive. 
services 
Although  Romania  has  among 
lowest 
greenhouse gas emissions (GHG) per person in the 
EU,  the  country  has  some  of  the  highest  rates  of 
carbon  intensity  (Graph  4.5.1).  Without  changing 
production  patterns,  economic  growth  is  likely  to 
result  in  continued,  or  possibly  greater  GHG 
emissions. 

the 

(1) Mt CO2-eq = Metric tonnes of CO2 - equivalent 
Source: European Commission 

Moreover,  several  industrial  sectors  contribute 
significantly  to  emissions.  Transport,  agriculture 
and  manufacturing  show  a  somewhat  rising  trend 
(Graph 4.5.2). The agricultural sector accounts for 
17%  of  total  emissions.  Transport  in  Romania 
produced 24.7% of total CO2 emissions and 16.6% 
of  GHG 
(European 
Commission, 2019m), well below the EU average. 
In  particular,  road  transport  accounted  for  over 
90% of total transport CO2 and GHG emissions in 
the  country.  The  industry  sector,  in  addition  to 

emissions 

2017 

in 

63 

05101520Tonnes per 10,000 EUR GDP20072017(EU28 2007 average)(EU28 2017 average)0204060801001990199520002005201020152020Mt CO2-eqforecastEnergyIndustryAgricultureTransportOthers 
   
   
4.5. Environmental Sustainability 

GHG,  also  contributes  to  water  emissions  and 
waste generation.  

Energy  remains  also  the  main  air-polluting 
sector. Restructuring energy and domestic heating 
systems  (by 
facilitating  district  heating  and 
pollution controls, switching to gas and integrating 
renewables)  as  well  as  traffic  and  other  pollution 
and  prevention  control  measures  could  help 
significantly in addressing air quality. 

Air  pollution  continues  to  have  significant 
health  impacts.  The  latest  data  on  the  health 
impact  of  fine  particulate  matter  (EEA  2019 
Report  on  Air  Quality  in  Europe)  shows  that,  in 
Romania,  around  1,8  years  of  life  lost  per  1,000 
inhabitants  in  2016  were  attributable  to  exposure 
to fine particulate matter, the fourth highest in the 
EU.  In  2017,  the  limit  value  for  nitrogen  dioxide 
was exceeded in five out of 54 air quality zones, of 
the limit value for particulate matter in four and of 
the  limit  value  for  fine  particulate  matter  in  two. 
Air  quality  data  measured  by  the  Romanian 
Monitoring  Network  also  indicate  serious  and 
structural shortcomings. 

Intensive  illegal  logging  of  Romanian  forests  is 
a  recurrent  problem,  leading  to  a  reduction  of 
the natural carbon sink of forests, a significant 
loss of biodiversity, an increase in disaster risks, 
and  an  economic  loss  of  around  6  billion 
EUR/year. Romanian forests and woodland have a 
substantial  CO2  uptake,  estimated  at  25,444,000 
tonnes  (on  the  basis  of  the  LULUCF  Inventory), 
which  represents  6%  of  the  total  forest  and 
woodland  CO2  uptake  at  EU  level  (JRC,  2019). 
Illegal  logging  amounted  for  about  20  million 
m3/year  during  the  period  2013-2018,  roughly 
the same  volume  of  wood  that  is  officially  cut  in 
Romania.  These  activities  not  only  endanger 
biodiversity  and  jobs,  they  also  remove  a  natural 
means  for  protecting  against  flooding  and  for 
capturing  CO2.  A  reform  in  the  forestry  sector 
needs to be carried out as soon as possible, starting 
with  the  update  of  SUMAL,  the  revision  of  the 
Forest  Code  in  order  to  be  full  in  line  with  the 
provision  of  the  EU  Nature  laws,  enhancing  the 
administrative  capacity  of  Romsilva,  especially 
with  regards 
its  control  bodies  and  also 
transparency in relation to forests activities.  

to 

estimates, 

to  preliminary 

increase  GHG  emissions  not  covered  by  the  EU 
Emissions  Trading  System  (ETS)  by  a  maximum 
of  19%  by  2020  compared  to  2005  levels. 
these 
According 
emissions  decreased  by  2%  between  2005  and 
2018 and are projected to increase by 1% between 
2005  and  2020.  The  target  is  thus  expected  to  be 
met  by  a  margin  of  18  pps.  The  2030  target  —  a 
2% decrease compared to 2005 levels  — is  set to 
be  missed  by  a  margin  of  12%.  Emissions  are 
projected to increase above the base year: by 10% 
under  current  measures  and  by  6%  with  just  the 
being 
additional 
implemented.  

announced 

measures 

The  targets  for  the  draft  National  Energy  and 
Climate  Plan  show  a  level  of  ambition  which 
needs increasing if Romania is to meet its 2030 
targets. At the end of 2018, Romania submitted its 
draft National Energy and Climate  Plan (NECP)58 
to  the  European  Commission.  The  document 
provides a comprehensive summary on the energy 
systems  and  sets  national  targets  for  2030  for 
greenhouse  gas  reduction  and  RES.  It  is  intended 
to  reduce  the  GHG  emissions  of  the  agricultural 
sector  mainly  through  knowledge  transfer  and 
advisory services and investment support for farm 
modernisation. The proposed RES target in 2030 is 
just  27.9%.  This  is  far  below  the  country’s 
potential  cost-efficient  development  of  RES  and 
also  well  below  the  collective  EU  target  of  32% 
(Draft NECP, 2018).  

Romania  has  a  diverse  energy  mix,  with  a 
sizeable  percentage  of  renewable  energy.  There 
are  no  subsidies/incentives  for  fossil  fuels  in 
transport  and  energy  production.  Starting  with 
2011,  subsidies  were  granted  for  the  closure  of 
uncompetitive  coal  mines,  according  to  Council 
Decision 787/2010 of 10 December 2010 on State 
aid  to  facilitate  the  closure  of  uncompetitive  coal 
mines. However, authorities acknowledge the need 
for  a  better  distribution  between  fossil  and 
alternative  fuels  as  well  as  the  need  to  gradually 
reduce the share of coal and eliminate the subsidies 
for fossil fuels in energy production and transport.  

Romanian power generation companies will still 
receive  free  allocation  to  comply  with  the 
for  2021-2030. 
Emissions  Trading  System 

Romania  is  on  track  to  meet  its  2020  targets, 
but is set to miss the 2030 targets. Romania can 

58 Romania has not yet submitted the final National Energy and 

Climate Plan to the Commission 

64 

                                                           
4.5. Environmental Sustainability 

in 

interest 

level  of 

the  high 

result  of 
the 
programmes.  In  2018,  a  new  programme  was 
launched to expand the charging infrastructure for 
electric  cars  in  municipalities.  Further  measures 
include battery and plug-in hybrid electric vehicle 
purchase subsidies, registration and ownership tax 
reductions  and  infrastructure  incentives.  European 
grants  from  the  Connecting  Europe  Facility  were 
also allocated to developing a multi-standard open-
access  fast-charging  network  along  core  network 
corridors.  However,  the  high  cost  of  alternative-
fuel  vehicles,  which  only  represented  1.7%  of  the 
overall  new  car  sales  in  2018,  and  lack  of 
appropriate infrastructure, hinders their growth. 

A  successful  transition  will  require  additional 
investments  in  energy  infrastructure.  The  draft 
NECP points to an investment need of €22 billion 
in the period 2021-2030 in the energy sector alone. 
Investments  in  the  period  2025-2030,  based  on 
planned  measures,  represent  an  increase  of  47% 
compared 
investments  based  on  existing 
measures, and most of the investments (82%) need 
to  be  channelled  to  satisfy  demand,  which  is 
forecast  to  grow  significantly  as  a  result  of 
economic growth. 

to 

lead 

to  an 

increase 

Given  the  challenge  of  achieving  sustainable 
growth,  a  coherent  and  operational  strategy 
could provide support. The shift to a low carbon 
economy  might 
the 
unemployment rate especially in regions with low-
productivity  carbon-intensive  industries.  It  would 
also boost labour market demand for medium and 
high-skilled workers in different sectors, including 
in  the  renewable  energy  sector.  In  the  affected 
regions,  the  current  lack  of  integrated  social 
re-skilling  and 
services 
upskilling  delivery  mechanisms  is  also  likely  to 
contribute to an increase the number of persons at 
risk  of  poverty  as  well  as  deepen  regional 
disparities.  Against  this  backdrop,  a  coherent 
strategy  covering  the  different  dimensions  of  this 
transition could identify the instruments needed to 
mitigate the negative effects, while also identifying 
opportunities and synergies. 

together  with  weak 

Following the ETS revision of 2017, the Romanian 
power  generators  are  not  under  the  same  pressure 
as  others  in  Europe  to  seek  efficiency  gains.  It  is 
however still unclear how this will be compensated 
by  other  pricing  mechanisms  to  incentivise  the 
decarbonisation of the power sector. 

The building sector has a central role to play in 
achieving  the  energy  efficiency  and  climate 
targets  for  2030.  The  energy  consumption  in  the 
household  sector  and  the  tertiary  sector  (offices, 
business  premises  and  other  non-residential 
buildings) represents 45% of the total final energy 
consumption  in  Romania  (European  Commission, 
2017).  About  53%  of  residential  buildings  were 
built  before  1970  and  over  90%  before  1989,  all 
with  poor  energy  performance.  However,  an 
ambitious  long-term  renovation  strategy  and  by 
strengthening  the  implementation  of  the  existing 
provisions, would support the building sector. The 
Increasing  Energy 
National  Programme  on 
Efficiency  in  Residential  Blocks,  which  already 
resulted  in  over  70000  apartments  for  which  the 
thermic 
finalised 
throughout the country, has been extended for the 
period 2019-2020  with  a  total  allocated  budget  of 
€10.4  million  for  a  three-year  period.  Further 
measures  are  still  needed  in  order  to  address  the 
low energy performance of buildings and stimulate 
old-building renovation. 

rehabilitation 

been 

has 

footprint. 

to  reduce 

New vehicle sales of passenger cars increased by 
over  22%  between  2017  and  2018,  and 
registrations of goods vehicles increased by over 
10% (European  Commission,  2019m).  With 
more  road  vehicles  used,  alternative  fuels  have  to 
play  a  greater  role 
the  sector’s 
In  2018,  Romania 
environmental 
submitted  its  National  Policy  Framework  for 
Alternative  Fuels  to  the  European  Commission. 
The  country  has  established  targets  for  most 
mandatory fuels and modes established targets, but 
the  framework  does  not  contain  one  for  liquefied 
natural  gas  refuelling  points  to  be  put  in  place 
along  the  road  TEN-T  Core  Network  for  heavy-
duty vehicles. 

Other  measures  are  in  place  to  support  the 
uptake  of  alternative  fuels,  but  there  is  still  a 
long  way  to  go.  Two  scrapping  programmes  will 
support  the  reduction  of  car  emissions.  Initial 
financial  allocations  for  both  were  approximately 
of €65 million, later increased by €36 million, as a 

The  Just  Transition  Fund  could  support  the 
diversification  of  the  economy  towards  low-
carbon  intensive  activities.  Romania  still  relies 
heavily on coal for energy production. Coal mining 
and 
the  respective  power  plants  are  mainly 
concentrated  in  the  Hunedoara  and  Gorj  counties. 

65 

4.5. Environmental Sustainability 

the 

impact  on 

regions  and 

the  Jiu  Valley  became  part  of 

Moreover,  energy  intensive  manufacturing  and 
heavy  industries  are  present  in  the  Dolj,  Galați, 
Prahova  and  Mureş  counties.  Phasing  out  these 
sectors  would  have  a  significant  negative  socio-
economic 
local 
communities.  Efforts  are  already  under  way:  in 
2018, 
the 
in  Transition 
Commission’s  Coal  Regions 
initiative  (59)  and  a  strategy  is  under  way  for  the 
transition  away  from  coal,  with  technical  support 
from  the  EU  (pwc,  2019).  By  means  of  the  Just 
Transition Fund these efforts can be extended to all 
regions  and  areas  concerned  and  ultimately 
mitigate  these  transition  shocks  via  the  necessary 
reconversion and modernisation efforts. Dedicated 
investment guidance for the Just Transition Fund is 
provided in Annex D.  

(59)  It led to a first stocktaking of needs and opportunities and 

the tentative flagging of possible further initiatives.  

66 

                                                           
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (1) 

2019 country-specific recommendations (CSRs)  

the  significant  deviation  from 

CSR  1:  Ensure  compliance  with  the  Council 
recommendation  of  14  June  2019  with  a  view  to 
correcting 
the 
the  medium-term 
toward 
adjustment  path 
budgetary objective. Ensure the full application of 
the  fiscal  framework.  Strengthen  tax  compliance 
and collection.  

Romania  has  made  limited  progress  in  addressing 
CSR 1  

the 

with 

compliance 

Ensure 
Council 
recommendation  of  14  June  2019  with  a  view  to 
correcting 
the 
adjustment  path 
the  medium-term 
budgetary objective.  

the  significant  deviation  from 

toward 

Compliance  with  the  Stability  and  Growth  Pact  is 
outside  the  scope  of  assessment  of  the  Country 
Specific Recommendations in the Country Report. 

Ensure the full application of the fiscal framework.  No progress. As in previous years, the national fiscal 
framework  has  not  been  respected.  The  fiscal  rules 
laid down in the Fiscal Responsibility Law “remained 
inoperable”  with  respect  to  the  2019  and  2020 
budgetary  laws,  as  the  authorities  continued  its 
practice  of  derogating  from  them  (Fiscal  Council 
2019a  and  2019d).  In  particular,  the  2019  budget 
target  of  a  headline  deficit  of  2.76%  of  GDP  was 
inconsistent  with  the  structural  deficit  rule.  Budget 
amendments  adopted  in  August  and  November  2019 
also derogated from a  number of rules, in particular, 
in the latter case, by increasing the 2019 deficit target 
to  4.4%  of  GDP  (Fiscal  Council,  2019c).  Moreover, 
as  in  previous  years,  the  authorities  did  not  send  an 
to 
update  of 
Parliament by the  statutory  August deadline, thereby 
undermining  its  guiding  role.  The  2020  budget  and 
the accompanying fiscal strategy also derogated from 
several  fiscal  rules,  in  particular  by  targeting  a 
headline  deficit  of  3.6%  of  GDP  (Fiscal  Council, 
2019d and 2019e). 

the  medium-term  fiscal  strategy 

Strengthen tax compliance and collection.  

Limited  progress.  Compliance  ratios  for  filing  tax 
declarations  have  remained  relatively  stable.  The 
VAT  gap  is  estimated  to  have  dropped  marginally 
from 35.9% in 2016 to 35.5% in 2017 and, according 
to  preliminary  estimates,  to  have  fallen  to  32%  in 
2018.  However,  it  still  is  among  the  highest  in  the 
EU.  The  National  Agency  for  Fiscal  Administration 
did  not  meet  its  revenue  collection  targets  for  2019, 
partially  because  of  an  over-optimistic  prognosis  of 
these targets. 

67 

 
 
A. Overview Table 

CSR  2:  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.  

Romania has made some progress in addressing CSR 
2  

Safeguard financial stability and the robustness of 
the banking sector.  

Substantial  progress.  The  bank  tax  on  total  assets 
introduced  by  Government  Emergency  Ordinance 
114/2018 was removed starting from the beginning of 
2020.  

Ensure  the  sustainability  of  the  public  pension 
system and  

No progress. Fiscal sustainability indicators point to 
high  risks.  Due  to  a  high  structural  primary  deficit 
(which is driven by the significant pension increases 
contained  in  the  new  pension  law  of  summer  2019), 
and  assuming  no-policy  change,  the  debt-to-GDP 
ratio is set on a fast increasing and upward path. It is 
projected  to  rise  from  35%  in  2018  to  beyond  the 
90%  of  GDP  by  2030.  The  medium-term 
sustainability  gap  indicator  (‘S1’)  nearly  quadrupled 
with respect to last year and is now among the highest 
in the EU. This means that Romania would require a 
significant fiscal adjustment to achieve the debt target 
of  60%  of  GDP  in  2034.  The  long-term  fiscal 
sustainability  indicator  (ʻS2ʼ),  points  to  a  required 
fiscal adjustment of 8.8 pps of GDP in order to ensure 
that the public debt ratio stabilises over the long term. 
This value, one of the highest among EU countries, is 
driven  by 
(a 
contribution of 5.1 pps of GDP) and ageing costs, in 
particular pensions and health care (a contribution of 
3.7 pps  of  GDP).  Both  items  are  driven  by  the  new 
pension law. 

initial  budgetary  position 

the 

the long-term viability of the second pillar pension 
funds.  

Some progress. Several provisions of GEO 114/2018 
that  threatened  the  long  term  viability  of  the  second 
pension  pillar  were  repealed  or  amended  at  the 
beginning of 2020. Thus, the possibility of opting out 
of  the  second  pension  pillar  after  a  contributory 
period  of  5  years  was  eliminated  and  the  increased 
minimum capital requirements were eliminated. Also, 
the  significant  reduction  of  the  administrative  fees 
that 
fund  management 
reversed.  These 
charge  was 
companies 
administration  fees  were  even  further  modified,  but 
without  prior  impact  assessment  consulted  with  all 
relevant stakeholders. 

second  pension  pillar 

can 

68 

 
A. Overview Table 

Romania  has  made  limited  progress  in  addressing 
CSR 3  

CSR  3:  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 
the  coverage  and 
higher  education.  Increase 
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.  

the  quality  and 

inclusiveness  of 
Improve 
education,  in  particular  for  Roma  and  other 
disadvantaged groups.  

Limited  progress.  Challenges  of  quality  and 
inclusiveness  of  education  persist,  in  particular  ,  in 
particular  in  rural  areas  and  for  Roma  and  other 
disadvantaged 
low 
educational  outcomes  and  high  rates  of  early  school 
leaving.  Some  reforms  are  underway  but  their 
implementation  is  delayed  and  results  are  yet  to  be 
seen.  

groups,  with 

consistent 

including  digital,  notably  by 
Improve  skills, 
increasing 
relevance  of 
labour  market 
the 
vocational  education  and  training  and  higher 
education.  

No progress. Urgent measures are needed to address 
problems with the acquisition of basic skills at school 
and improve the digital literacy of the population. The 
percentage  of  young  people  who  assess  their  digital 
skills  as  low  is  the  highest  in  the  EU  (41%  vs  14% 
EU  average).  Students  enrolled  in  VET  programs 
have  limited  exposure  to  work-based  learning.  The 
low  labour  market  relevance  of  vocational  education 
and  training  and  higher  education  has  a  negative 
impact  on  graduates’  job  prospects  (69%  of  VET 
graduates  are  employed  vs  79.5%  EU  average).  The 
ESF is supporting efforts to increase the relevance of 
VET, but a comprehensive reform is lacking.  

Increase 
services  

the  coverage  and  quality  of  social 

Limited progress. The social reference index, used as 
a basis for most social benefits, has not been updated 
since  its  introduction  in  2008.  Progress  in  the 
provision  of  social  services  remains  insufficient,  in 
particular  in  rural  areas.  Misalignment  between 
decentralization  of  social  services  and  financial 
means  increased  further  in  2019,  with  a  negative 
impact  on  the  effectiveness  and  quality  of  service 
delivery at local level and for poor communities. The 
EU  co-funded  pilot  project  to  introduce  integrated 
teams  at  community  level  is  under  implementation 
with the first visible results expected in 2020.  

69 

 
A. Overview Table 

Complete the minimum inclusion income reform.  No  progress.  The  implementation  of  the    minimum 

inclusion income has been again postponed to 2021. 

Improve the functioning of social dialogue.  

this 

report 

remains 

framework, 

involvement  of  social 
Limited  progress.  The 
partners in policymaking remains limited. Despite the 
established 
rather  a 
procedural requirement than a genuine dialogue. The 
rates  of  collective 
increased 
authorities 
bargaining coverage  (45% in 2019). This could result 
from  collective  bargaining  becoming  temporarily 
mandatory  for  all  employers,  following  the  shift  of 
social  security  contributions  in  2017.  However,  the 
situation  of  collective  bargaining  at  sector  level  has 
not  changed.  Discussions  on  changes 
the 
legislative framework and the revision of sectors have 
stalled.  

to 

Ensure  minimum  wage setting based on objective 
criteria, 
and 
competitiveness.  

consistent  with 

creation 

job 

Limited  progress.  According  to  the  authorities,  the 
increase in the  minimum  wage as of 1 January 2020 
was  based  on  a  formula  taking  several  economic 
indicators into account, such as the inflation rate and 
labour  productivity.  The  decision  was  preceded  by 
discussions  with  the  trade  unions  and  employers’ 
organisations.  However,  an  objective  mechanism  is 
not yet in place. 

Improve  access 
healthcare, 
outpatient care.  

to  and  cost-efficiency  of 
to 

through 

shift 

the 

including 

Limited progress. There has been limited progress in 
improving  access  to  healthcare.  Unmet  needs  for 
medical  examination  reported  by  patients  are  high 
and 
increasing  again.  A  sustained  policy  of 
incentivising  healthcare  delivered  outside  of  hospital 
inpatient  settings  by  the  National  Insurance  House 
may  trigger  a  natural  shift  towards  ambulatory  care. 
The  overall  policy  measures  of  the  Romanian  health 
system to facilitate this shift did not improve. 

Romania  has  made  limited  progress  in  addressing 
CSR 4  

and 

energy 

energy 

CSR 4: Focus investment-related economic policy 
on  transport,  notably  on  its  sustainability,  low 
carbon 
efficiency, 
environmental infrastructure as well as innovation, 
taking  into  account  regional  disparities.  Improve 
preparation and prioritisation of large projects and 
accelerate 
the 
efficiency  of  public  procurement  and  ensure  full 
and  sustainable  implementation  of  the  national 
public procurement strategy.  

implementation.  Improve 

their 

70 

A. Overview Table 

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.  

in  environmental 

Limited  progress.  Limited  progress  was  made  in 
drafting  feasibility  studies  for  upgrading  railway 
infrastructure,  and  work  is  lagging  considerably 
behind. This is mostly due to a lack of administrative 
capacity  and  inefficient  procurement  procedures. 
European  grants  have  been  allocated  to  develop  a 
multi-standard  open-access  fast  charging  network 
along  the  TEN-T  core  network  corridors.  However, 
no  projects  are  planned  so  far  to  ensure  alternative 
clean  fuel  supply  facilities  in  ports.  There  has  been 
some  progress 
infrastructure 
investment,  especially  in  waste  water  projects,  and 
the  implementation  of  projects  accelerated  towards 
the  end  of  2019.  In  other  areas,  progress  is  more 
limited, particularly for waste projects. With regard to 
nature/biodiversity and air projects there has been no 
real  progress,  even  though  funds  are  available.  No 
progress  was  made  on  research  and  innovation.  
Reported official measures are insufficient to address 
both  the  under-financing  of  R&I  and  the  structural 
problems in the public science base and R&D private 
sector.  Without  a  significant  increase  in  the  public 
R&D  budget  plus  related  regulatory  measures  to 
increase  R&D  quality  and  innovation,  little  progress 
is expected. 

Improve  preparation  and  prioritisation  of  large 
projects and accelerate their implementation.  

Limited progress. In the twin context of the current 
EU  cohesion  policy  funds  implementation  and  the 
preparation  of  the  next  programming  period  (2021-
2027), the Romanian authorities have started to speed 
up  the  implementation  of  large  projects  and  have 
submitted to the Commission a number of projects in 
fields  such  as  transport,  health  and  wastewater 
management.  However,  the  Fiscal  Strategy  2020-
2022 adopted in December 2019 contains low levels 
of  planned  capital  expenditure  and  of  planned 
spending on projects co-financed by the EU.   

71 

 
A. Overview Table 

Improve  the efficiency of public procurement and 
ensure  full  and  sustainable  implementation  of  the 
national public procurement strategy.  

in 

Some  progress.  While  some  progress 
the 
implementation  of  certain  commitments  under  the 
national public procurement  strategy has been  made, 
others  were  stopped  or  even  reversed.  The  new  e-
procurement  system,  the  adoption  of  an  ambitious 
national  professionalisation  strategy  as  well  as  the 
newly functional centralised public procurement body 
the 
(ONAC)  are  positive  examples.  However, 
changes  to  the  ex-ante  control  mechanism  create 
significant  risks  in  terms  of  the  efficiency  and 
implementation of EU funds. Moreover, the persistent 
unpredictability  of  the  legislative  changes  in  the 
public  procurement  field,  made  without  prior  public 
consultations  and 
impact  assessments, 
reinforces  the  lack  of  confidence  in  the  public 
procurement  system  and  ultimately  affects 
its 
efficiency.  

relevant 

Romania has made no progress in addressing CSR 5  

CSR  5:  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.  

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.  

of 

use 

regulatory 

No  progress.  Predictability  of  decision  making 
remains  a  concern,  with  no  tangible  progress.  Less 
than 30% of the annual government plan is respected 
and the number of emergency ordinances is still very 
high, with some having major socio-economic impact 
(Ex. GEO 114/2018). There is no mandatory ex-ante 
impact  assessment  for  emergency  ordinances  and  no 
requirement for public consultations. The quality and 
effective 
impact 
ex-ante 
assessments  continue  to  vary  significantly,  with  no 
legal  institutional  framework  for  a  quality  control 
function  at  governmental  level.  Moreover,  although 
different formal structures exist, the quality of public 
consultations is deteriorating. Public consultations are 
generally perceived as formal and of low quality, and 
the involvement of social partners and other relevant 
stakeholders  is  limited.  Social  partners  and  other 
relevant  stakeholders  report  not  being  adequately 
consulted.  However,  several  EU  funded  projects  are 
ongoing  to  reinforce  the  methodology  and  tools  for 
regulatory impact assessments and to increase know-
how  across  the  central  public  administration.  In 
March 2019, a new version of the online platform for 
to  facilitate 
public  consultations  was 
relevant 
interactions  between 
amending 
stakeholders. 

authorities 

legislation 

Important 

launched 

and 

72 

A. Overview Table 

Strengthen  the  corporate  governance  of  state-
owned enterprises.  

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 70 %.  

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

government  emergency  ordinance  114/2018  was 
adopted  in  the  first  half  of  the  year  without  impact 
assessment and proper stakeholder consultation. 

No  progress.  The  corporate  governance  law  is  still 
only  loosely  applied.  The  appointment  of  interim 
boards has become a standard practice. The financial 
penalties  applied  for  administrative  offences  are 
symbolic  and  do  not  have  the  power  to  change  the 
overall  behaviour.  The  operational  and  financial 
results of most state-owned enterprises deteriorated in 
2019.  

The national target is considered to have been already 
achieved, as the employment rate in the age group 20-
64 is at 70.5% in Q2-2019, showing a steady increase 
over recent years. 

Romania will not achieve the R&D intensity target by 
2020. The country’s R&D intensity in 2018 was only 
0.51%  of  GDP,  thus  ranking  last  in  the  EU.  The 
country  has  consistently  ranked  at  the  bottom  of  the 
EU  in  recent  years.  Public  expenditure  on  R&D  has 
continuously fallen since 2011 from 0.32% of GDP to 
0.20% in 2018. On the other hand, business enterprise 
expenditure  on  R&D  (BERD)  has  increased  from 
0.12% of GDP in 2013 to 0.30% in 2018.  EU-funded 
investments  in  R&D  infrastructure  are  slowly  taking 
off,  but  they  are  unlikely  to  address  the  chronic 
under-funding of the research and innovation system. 

National  greenhouse  gas  (GHG)  emissions  target:  
- 19 % in 2020 compared with 2005 (in sectors not 
included in the EU emissions trading scheme)  

Romania  is  on  track  to  meet  its  target.  According  to 
preliminary  estimates,  GHG  emissions  decreased  by 
2%  between  2005  and  2018  and  are  projected  to 
increase by 1% between 2005 and 2020. The target is 
thus expected to be met with a margin of 18 pps. 

2020 renewable energy target: 24 %  

target 

With  24.8%  renewable  energy  share  in  gross  final 
consumption,  Romania  is  on  track  in  attaining  its 
for  2020.  Emergency 
renewable  energy 
Ordinance  No  24/2017  was  approved  by  Law 
184/2018,  and 
the 
renewable energy support scheme, providing support 
to  promoting  renewable  energy  in  a  sustainable 
manner  while  ensuring  a  reasonable  consumer 
impact. This approach aims to bring the much needed 

  amendments 

introduced 

to 

73 

 
 
 
A. Overview Table 

stability  and  predictability 
renewable energy sector. 

to 

the  Romanian 

Energy  efficiency,  2020  energy  consumption 
targets:  

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

In  2017,  Romania  has  achieved  only  53%  of  its 
required  end-use  energy  savings  obligation  for  the 
period  2014-2020  under 
the  Energy  Efficiency 
Directive,  which  puts  at  risk  its  ability  to  fulfil  the 
obligation  by  2020.  The  energy  consumption 
continued to increase, in all the sectors. 

Early school/training leaving target: 11.3 %.  

The  rate  of  early  school  leaving  decreased  to  16.4% 
in 2018, but the target is still far from being achieved. 
Albeit  the  decrease  from  2017  was  significant  (1.7 
points), the rate has stagnated overall since 2009 and 
Romania  still  has  one  of  the  highest  early  school 
leaving rates in the EU.   

Tertiary  education  target:  26.7  %  of  population 
aged 30-34.  

In  2018,  the  progress  made  on  tertiary  attainment  in 
the  past  decade  has  been  reversed,  and  the  rate  has 
decreased  compared  to  2017  from  26.3%  to  24.6%, 
remaining the lowest rate in the EU. 

Target for reducing the number of people at risk of 
poverty  or  social  exclusion,  expressed  as  an 
absolute  number  of  people:  580,000  (base  year 
2010: 8.4 million).  

The national target is considered to have already been 
achieved. In absolute terms, the number of people no 
longer  at  risk  of  poverty  or  social  exclusion  since 
2008 had already hit 2,755,000 in 2018. 

(1) The following categories are used to assess progress in implementing the 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 official communication to the national Parliament/relevant parliamentary committees or the European 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 legislative 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. 

Limited progress: The Member State has:  
announced certain measures but these address the CSR only 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  fully  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. 

74 

ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

75 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio35.035.537.240.645.851.156.762.368.073.679.385.191.2Changes in the ratio (-1+2+3)-0.10.51.73.45.25.35.65.75.65.75.75.76.2of which(1) Primary balance (1.1+1.2+1.3)-1.8-2.4-3.2-4.8-6.5-6.4-6.3-6.2-6.3-6.3-6.3-6.4-6.4(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-1.6-2.3-3.1-4.6-6.4-6.3-6.3-6.2-6.3-6.3-6.3-6.4-6.4(1.1.1) Structural primary balance (bef. CoA)-1.6-2.3-3.1-4.6-4.6-4.6-4.6-4.6-4.6-4.6-4.6-4.6-4.6(1.1.2) Cost of ageing1.81.71.61.61.61.61.61.71.7(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.0-0.1-0.1-0.1(1.2) Cyclical component0.10.00.0-0.1-0.10.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures-0.3-0.10.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-2.0-2.5-1.5-1.4-1.3-1.0-0.7-0.6-0.6-0.6-0.6-0.6-0.2(2.1) Interest expenditure1.21.21.21.31.51.82.12.42.73.03.43.74.0(2.2) Growth effect-1.3-1.3-1.2-1.1-1.3-1.5-1.6-1.6-1.8-2.0-2.2-2.3-2.2(2.3) Inflation effect-1.9-2.4-1.5-1.6-1.5-1.4-1.2-1.4-1.5-1.7-1.8-1.9-2.1(3) Stock-flow adjustments0.10.50.00.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). RO - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. 203040506070809010011020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ROBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario203040506070809010011020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -ROp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline203040506070809010011020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ROBaselineHistorical SPB scenarioSGP scenario203040506070809010011020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ROBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryHIGHMEDIUMHIGHHIGHHIGHMEDIUMDebt level (2030)91.273.494.296.1102.9Debt peak year20302030203020302030Percentile rank96.0%88.0%Probability debt higher96.2%Dif. between percentiles35.0HIGHLong termHIGH(S2 = 8.8)S1S2Short termLOW(S0 = 0.4)DSAHIGHDebt sustainability analysis (detail)Medium termHIGHHIGH(S1 = 5.7) 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualised. 
* Measured in basis points. 
Sources: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

76 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)60.157.655.552.651.448.4Share of assets of the five largest banks (% of total assets)54.257.459.159.561.6-Foreign ownership of banking system (% of total assets)(2)90.090.591.477.374.974.5Financial soundness indicators:(2)              - non-performing loans (% of total loans)20.713.49.76.65.35.0              - capital adequacy ratio (%)17.718.919.219.419.719.0              - return on equity (%)(3)-15.211.310.611.713.613.0Bank loans to the private sector (year-on-year % change)(1)-1.34.53.37.19.99.6Lending for house purchase (year-on-year % change)(1)9.215.513.413.212.910.8Loan-to-deposit ratio(2)67.267.668.269.271.773.6Central bank liquidity as % of liabilities(1)----0.00.0Private debt (% of GDP)62.158.053.750.947.4-Gross external debt (% of GDP)(2) - public21.819.619.018.017.317.2    - private28.926.828.227.927.026.0Long-term interest rate spread versus Bund (basis points)*333.1297.8322.9364.1429.0478.2Credit default swap spreads for sovereign securities (5-year)*137.4110.0105.992.583.585.2 
 
 
    
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(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 2019.       
(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 2019 for the employment rate, unemployment rate and gender employment gap.  
Source: Eurostat 

77 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)18.119.118.518.116.4:Gender employment gap (pps)16.717.517.617.118.318.8Income inequality, measured as quintile share ratio (S80/S20)7.28.37.26.57.2:At-risk-of-poverty or social exclusion rate(1) (AROPE)40.337.438.835.732.5:Young people neither in employment nor in education and training (% of population aged 15-24)17.018.117.415.214.5:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)65.766.066.368.869.970.9Unemployment rate(2) (15-74 years)6.86.85.94.94.23.9Long-term unemployment rate (as % of active population)2.83.03.02.01.81.8Gross disposable income of households in real terms per capita(3) (Index 2008=100) 99.3106.0116.4131.1145.5:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)862189879609:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)0.335.008.51:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)12.813.314.216.616.1:Children aged less than 3 years in formal childcare2.69.417.415.713.2:Self-reported unmet need for medical care9.89.46.54.74.9: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.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.  
Sources: Eurostat, OECD 

78 

Labour market indicators201420152016201720182019 5Activity rate (15-64)65.766.165.667.367.868.5Employment in current job by durationFrom 0 to 11 months5.06.24.95.84.9:From 12 to 23 months6.07.46.46.76.8:From 24 to 59 months20.019.520.519.823.4:60 months or over69.066.868.267.764.9:Employment growth* (% change from previous year)0.8-0.9-1.02.60.2-0.4Employment rate of women(% of female population aged 20-64)57.357.257.460.260.661.3Employment rate of men (% of male population aged 20-64)74.074.775.077.378.980.1Employment rate of older workers* (% of population aged 55-64)43.141.142.844.546.347.7Part-time employment* (% of total employment, aged 15-64)8.78.87.46.86.56.3Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)1.51.41.41.21.11.4Transition rate from temporary to permanent employment(3-year average)57.856.556.156.962.7:Youth unemployment rate (% active population aged 15-24)24.021.720.618.316.216.3Gender gap in part-time employment1.20.60.40.20.60.6Gender pay gap(2) (in undadjusted form)4.55.85.23.5::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)1.51.31.21.10.9:Underachievement in education(3):39.9::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)25.025.625.626.324.6:Variation in performance explained by students' socio-economic status(4):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. 
Sources: Eurostat, OECD 

79 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare3.93.93.83.93.9:Disability1.11.11.11.00.9:Old age and survivors8.08.07.97.97.9:Family/children1.21.21.31.41.1:Unemployment0.20.10.10.10.1:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.20.20.20.20.1:Total14.614.414.314.414.1:of which: means-tested benefits0.60.60.60.50.6:General government expenditure by function (% of GDP)Social protection11.511.411.411.511.7:Health4.04.04.24.04.3:Education2.83.03.13.32.8:Out-of-pocket expenditure on healthcare20.220.321.320.820.5:Children at risk of poverty or social exclusion (% of people aged 0-17)*51.450.746.849.241.738.1At-risk-of-poverty  rate(1) (% of total population)23.025.125.425.323.623.5In-work at-risk-of-poverty rate (% of persons employed)18.419.818.818.917.415.3Severe material deprivation rate(2)  (% of total population)29.825.922.723.819.716.8Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan16.14.91.61.41.20.0Tenant, rent at market price21.232.853.046.027.223.8Proportion of people living in low work intensity households(4) (% of people aged 0-59)7.67.27.98.26.97.4Poverty thresholds, expressed in national currency at constant prices*388839914253451851676228Healthy life yearsFemales5.25.75.75.65.1:Males5.85.96.36.25.9:Aggregate replacement ratio for pensions(5)0.70.70.60.70.60.5Connectivity dimension of the Digital Economy and Society Index (DESI)(6):43.946.249.854.1:GINI coefficient before taxes and transfers*51.852.154.154.452.3:GINI coefficient after taxes and transfers*34.034.737.434.733.135.1 
 
    
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators. 
1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.  
4 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 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage population aged 15-64 having completed tertiary education.       
6 Percentage population aged 20-24 having attained at least upper secondary education.       
7 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.       
8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
9 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).    
Sources: 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). 

80 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.980.198.522.175.163.27Labour productivity growth in construction4.722.706.845.37-10.854.86Labour productivity growth in market services3.850.643.103.595.51-0.04Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry-3.550.59-0.067.246.6010.74ULC growth in construction-3.96-12.104.96-2.9021.3319.21ULC growth in market services3.015.72-0.1710.657.0013.06Business environment201320142015201620172018Time needed to enforce contracts3 (days)512512512512512512Time needed to start a business3 (days)8.08.08.012.012.035.0Outcome of applications by SMEs for bank loans40.990.940.460.360.690.75Research and innovation201320142015201620172018R&D intensity0.390.380.490.480.500.51General government expenditure on education as % of GDP2.803.003.103.302.80:Employed people with tertiary education and/or people employed in S&T as % of total employment242426272727Population having completed tertiary education5141415151516Young people with upper secondary education6808080808082Trade balance of high technology products as % of GDP-1.96-1.66-1.75-1.60-1.88-1.78Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall::1.691.86OECD PMR7, retail::1.801.35OECD PMR7, professional services8:::2.57OECD PMR7, network industries9::1.971.73 
 
   
 
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 including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.  
Aggregated supplier concentration index: Herfindahl index covering 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. Smaller values indicate larger diversification.  
* European Commission and European Environment Agency - 2018 provisional data.  
Sources: 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). 

81 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.240.230.220.210.210.20Carbon intensity kg / €0.860.830.800.750.70-Resource intensity (reciprocal of resource productivity)kg / €2.662.683.072.972.552.47Waste intensity kg / €-1.26-1.17--Energy balance of trade % GDP-1.9-1.4-0.9-0.9-1.3-1.6Weighting of energy in HICP%12.4512.2112.2511.9412.0811.79Difference between energy price change and inflation p.p.5.00.12.8-1.01.67.0Real unit of energy cost% of value added27.626.526.626.7--Ratio of environmental taxes to labour taxesratio0.200.210.240.260.24-Environmental taxes% GDP2.12.42.52.42.02.1Sectoral Industry energy intensity kgoe / € 0.150.140.140.130.120.12Real unit energy cost for manufacturing industry excl. refining% of value added21.220.620.420.3--Share of energy-intensive industries in the economy% GDP11.4212.0312.3412.3912.4012.33Electricity prices for medium-sized industrial users€ / kWh0.090.080.080.080.080.08Gas prices for medium-sized industrial users€ / kWh0.030.030.030.030.030.03Public R&D for energy % GDP0.010.020.010.020.010.01Public R&D for environmental protection% GDP0.020.010.010.020.010.01Municipal waste recycling rate%13.213.113.213.314.011.1Share of GHG emissions covered by ETS*%36.837.036.335.235.034.8Transport energy intensitykgoe / €0.540.530.480.430.430.41Transport carbon intensitykg / €0.700.680.700.680.700.68Security of energy supplyEnergy import dependency%18.116.416.421.623.1-Aggregated supplier concentration indexHHI18.816.421.529.226.1-Diversification of energy mixHHI22.923.123.023.123.223.3 
    
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR ROMANIA 

Building  on  the  Commission  proposal,  this  Annex  (60)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Romania.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Romania, assessed in the report. This Annex 
provides the basis for a dialogue between Romania and the Commission services as well as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Romania (61). 

Coal mining in Romania is concentrated within the two sub-regions of Jiu Valley and Rovinari/Turceni, 
which are situated in the counties of Hunedoara and Gorj. 

The two counties employ 90% of the entire Romanian mining work force, and the total number of jobs 
depending directly on coal extraction or coal fired energy production represents 18 600, with another 10 
000  indirectly  depending  on  coal.  Hunedoara  and  Gorj  represent  some  90%  of  greenhouse  gas  (GHG) 
emissions  caused  by  Romania’s  coal  fired  power  plants,  or  approximately  30%  of  all  Romanian  GHG 
emissions stemming from mining and manufacturing.  Moving away from fossil fuel extraction and use is 
likely to put these jobs at risk. 

Moreover,  both  counties  have  a  number  of  carbon  intensive  industrial  facilities,  which  adds  to  the 
decarbonisation  challenge,  as  many  of  these  companies  are  expected  to  undergo  restructuring  before 
2030,  which  could  also  negatively  influence  employment.  Based  on  this  preliminary  assessment,  it 
appears warranted that the Just Transition Fund concentrates its intervention on these geographical areas. 

In order to tackle the related transition challenges, high priority investment needs have been identified to 
alleviate the socio-economic costs of the transition. Key actions of the Just Transition Fund could  target 
in particular: 

 

 

 

 

 

 

 

investment  in  regeneration  and  decontamination  of  sites,  land  restoration  and  repurposing 
projects; 

investment  in  the  deployment  of  technology  and  infrastructures  for  affordable  clean  energy, 
greenhouse gas emission reduction, energy efficiency and renewable energy; 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion;  

investment  in  the  creation  of  new  firms,  including  through  business  incubators  and  consulting 
services; 

investment in research and innovation activities and fostering transfer of advanced technologies 

upskilling and reskilling of workers; 

job-search assistance to jobseekers; 

(60)  This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM  (2020)  22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for  the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM (2020) 23). 

(61) SWD(2019) 1022 final 

82 

 
                                                           
D. Investment guidance on Just Transition Fund 2021-2027 for Romania 

 

 

active inclusion of jobseekers; 

technical assistance. 

These counties are expected to suffer from substantial job losses, which might not be entirely offset by 
the creation and development of SMEs. Exceptionally, and where necessary for the implementation of the 
territorial  just  transition  plan,  support  to  productive  investments  in  large  enterprises  could  therefore  be 
considered. 

Furthermore,  industrial  sites  in  these  counties,  performing  activities  listed  in  Annex  I  to  Directive 
2003/87/EC,  employ  a  substantial  number  of  workers  and  their  activity  is  at  risk  due  to  their  high 
greenhouse gas emissions. Support to investments to reduce the emissions could be considered, provided 
that  they  achieve  a  substantial  reduction  of  emissions  (going  substantially  below  the  relevant 
benchmarks used  for  free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the 
investments are compatible with the European Green Deal. 

Within  the  counties  of  Dolj,  Galați,  Prahova  and  Mureş  a  significant  number  of  the  work  force  is 
employed in fossil fuel power and heat generation or energy intensive manufacturing and heavy industry 
(chemicals,  metal  processing  cement,  fertilisers,  etc.).  These  counties  represent  approximately  35%  of 
Romanian’s GHG emission stemming from mining and manufacturing. 

As  the  sectors  identified  are  expected  to  undergo  significant  changes  related  to  the  necessary  energy 
transition, it appears warranted that the Just Transition Fund also intervenes in these geographical areas to 
accompany them in their reconversion. 

In order to tackle these challenges, high priority investment needs have also been identified to alleviate 
the  socio-economic  costs  of  the  transition.  Key  actions  of  the  Just  Transition  Fund  could    target  in 
particular: 

 

 

 

 

 

 

 

 

 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 

investment  in  the  creation  of  new  firms,  including  through  business  incubators  and  consulting 
services; 

investment in research and innovation activities and fostering transfer of advanced technologies; 

investment  in  the  deployment  of  technology  and  infrastructures  for  affordable  clean  energy, 
energy efficiency and renewable energy; 

investment in digitalization; 

investment  in  regeneration  and  decontamination  of  sites,  land  restoration  and  repurposing 
projects; 

investment  in  enhancing  the  circular  economy,  including  through  waste  prevention,  reduction, 
and resource efficiency, reuse repair and recycling; 

upskilling- and reskilling of workers; 

active inclusion of jobseekers; 

83 

D. Investment guidance on Just Transition Fund 2021-2027 for Romania 

 

technical assistance. 

These four counties are expected to experience substantial job losses, which might not be entirely offset 
by the creation and development of SMEs; support to productive investments in large  enterprises could 
therefore be considered. 

Furthermore,  industrial  sites  in  these  counties,  performing  activities  listed  in  Annex  I  to  Directive 
2003/87/EC,  employ  a  substantial  number  of  workers  and  their  activity  is  at  risk  due  to  their  high 
greenhouse gas emissions; support to investments to reduce the emissions could be considered, provided 
that they achieve a substantial reduction of emissions (going substantially below the relevant benchmarks 
used  for  free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the  investments  are 
compatible with the European Green Deal. 

84 

 
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS  

Assessment of Romania’s short-term progress towards the SDGs (62) 

Table E.1 shows the data for Romania and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (63). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Romania’s progress towards the SDGs 

 (62) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(63)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

85 

 
 
                                                           
 
  
 
References 

Table (continued) 

(Continued on the next page) 

86 

 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

87 

 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

88 

 
 
 
 
   
 
References 

Table (continued) 

Source: Eurostat 

89 

 
 
 
 
   
 
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