Source: EURLEX
Language: en
Format: md

*|*

# 52014SC0424

**COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and convergence programme for ROMANIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Romania’s 2014 national reform programme and delivering a Council opinion on Romania’s 2014 convergence programme /\* SWD/2014/0424 final \*/**

  

CONTENTS

Executive summary. 3

1............ Introduction. 5

2............ Economic Situation and Outlook. 6

3............ Challenges and Assessment of policy
agenda. 7

3.1......... Fiscal policy and taxation. 7

3.2......... Financial sector 13

3.3......... Labour market, education and social
policies. 14

3.4......... Structural measures promoting sustainable
growth and competitiveness. 20

3.5......... Modernisation of public administration. 26

4............ Conclusions. 31

Overview table. 33

Annex... 38

Executive summary

With the support of two successive EU/IMF programmes, Romania has succeeded in restoring macroeconomic stability, re-establishing market access
for the government, and safeguarding financial stability. According the Commission 2014 spring forecast, real GDP
growth in Romania reached 3.5 % in 2013 thanks
to a strong export performance. Real GDP growth is forecast to slow down somewhat
in 2014 and 2015. External imbalances have substantially diminished, but Romania's current account deficit is expected to widen slightly in 2014-15. The public
finances situation has improved and the excessive deficit procedure was
abrogated in July 2013. Youth unemployment is high while overall
employment rate remains low.

Overall, Romania has made some progress in addressing the 2013 country-specific recommendations. The 2011-13 EU/IMF financial assistance programme was completed,
public finance situation has further
improved and some progress has been recorded in key structural areas: energy price deregulation
has kept up pace, the absorption of EU funds has significantly improved, health
care reform has continued, while business environment has been strengthened. However,
progress in addressing many of the other recommendations has been limited.

Despite
recent improvements, Romania still needs to act on a
number of structural reforms and to fully
implement the current EU/IMF financial assistance
programme. Attention should be paid to the country’s administrative capacity, tax compliance, health sector, business
environment, labour market performance, poverty and social inclusion, education
as well as to efficiency in transport and energy sectors.

·
Public finances: The general government deficit, which fell to 2.3
% of GDP in 2013, is forecast to improve somewhat in 2014 and 2015. Achieving the
medium-term objective of a deficit of 1 % of GDP in structural terms in 2015
will be challenging.

·
Taxation: Low tax
compliance and high tax evasion remain a drag on public finances, while the tax
wedge on labour for low- and-middle income earners does not incentivise job
creation. Greater reliance on energy and environmental taxation, other than
transport fuel taxes, could also be considered.

·
Labour markets, education and poverty: Labour-market
participation has seen only limited progress and the skills and productivity of
the labour force remain a challenge. Youth unemployment and the integration of
the most vulnerable groups of the society both in the education system and in
the labour force must continue to be addressed. Education and training need to improve
and be better correlated with the requirements of the labour market. The system
of social transfers remains highly inefficient in tackling the persistently
high poverty and income inequalities, including among the Roma people..

·
Health sector: The
overall health status of the population is still worrying, with very high rates
of infant mortality and low life expectancy at birth. Recent progresses in
health care reform have not yet been consolidated. Informal payments are
widespread and hinder the efficiency, quality and accessibility of the system.

·
Modernisation of public administration: Weak administrative capacity remains a core
challenge for Romania. The legal
framework is unstable, inter-ministerial coordination is insufficient,
bureaucracy is excessive and the human resource framework is inconsistent.
Recent improvements in the absorption of EU funds and in management and control
systems need to be consolidated. Efforts to tackle shortcomings in public
procurement are to be stepped up.

·
Business environment and competitiveness: Low quality of regulations and insufficient assessment of their
potential impact are a source of uncertainty and a risk for business. Research
and innovation performance should be improved as it is hindered by limited and
dispersed resources and by an inappropriate legal framework.

·
Energy, transport and environment: The removal of regulated prices for gas and electricity needs to
continue in line with the announced
plans and integration with the EU energy market must accelerate. In transport
and energy sectors, efficiency gains and quality improvements as well as reforms
to corporate governance in state-owned companies has been insufficient. More
concrete actions are needed to implement energy efficiency measures. Waste
management requires decisive action.

1.
Introduction

In May 2013, the
Commission proposed a set of country-specific recommendations (CSRs) for
economic and structural reform policies for Romania. On the basis of these
recommendations, the Council of the European Union adopted eight CSRs in the form
of a Council Recommendation on 9 July 2013. These CSRs concerned the EU/IMF
financial assistance programme, public finances, health, the labour market, education,
poverty and social exclusion, administrative capacity, the justice system and
fight against corruption, the business environment, state-owned enterprises, energy
and infrastructure. This staff working document assesses the state of
implementation of these recommendations in Romania.

The staff working document
assesses policy measures in light of the findings of the Commission's Annual
Growth Survey 2014 (AGS)[1]
and the third annual Alert Mechanism Report (AMR)[2], which
were published in November 2013. The Annual Growth Survey (AGS) sets out the
Commission's proposals for building the necessary common understanding about
the priorities for action at national and EU level in 2014. It identifies five
priorities to guide Member States towards renewed growth: pursuing
differentiated, growth-friendly fiscal consolidation; restoring normal lending
to the economy; promoting growth and competitiveness for today and tomorrow;
tackling unemployment and the social consequences of the crisis; and
modernising public administration. The AMR serves as an initial screening
device to determine whether macroeconomic imbalances exist or risk emerging in
Member States. The AMR found positive signs that macroeconomic imbalances in Europe are being corrected. To ensure that a complete and durable rebalancing is achieved,
16 Member States were selected for a review of developments in the accumulation
and unwinding of imbalances. These in-depth reviews were published on 5 March
2014 along with a Commission communication.[3]
Romania was not covered by an in-depth study.

In July 2013 Romania applied for a third EU/IMF financial assistance programme. The new 2-year programme
was approved by the Council on 22 October. It provides precautionary support of
up to EUR 4 billion until end-September 2015, equally split between the EU and
the IMF. The new programme aims at consolidating macroeconomic, fiscal and
financial stability, and at enhancing structural reforms that should increase
the resilience and the growth potential of the Romanian economy. There is a
clear complementarity with some of the CSRs.

Against the background
of the 2013 Council Recommendations, the AGS and the AMR, Romania presented updates of its national reform programme on 6 May 2014 and its convergence
programme on 5 May 2014. These programmes provide detailed information on
progress made since July 2013 and on the plans of the government. The
information contained in these programmes provides the basis for the assessment
made in this staff working document.

These programmes
provide detailed information on progress made since July 2013, though future
plans are indicative. The information contained in these programmes provides
the basis for the assessment made in this staff working document. The
programmes submitted went through a limited consultation process involving the
national parliament, local authorities and other stakeholders.[4]

2.
Economic Situation
and Outlook

Economic
Situation

In
2013, Romania continued to
reduce its internal and external imbalances, progressively closing the output
gap and significantly reducing the current account deficit. Growth
was in 2013 above expectations reaching a 5-year high of
3.5 % driven by a strong export performance on the back of a robust industrial output and an abundant harvest. Unemployment
increased somewhat, to 7.3 %, while employment rate remained low but broadly unchanged,
just under 64 %. Inflation sharply
declined in the second half of 2013, with the HICP annual
average reaching 3.2 %.

Successful fiscal consolidation under two joint EU/IMF financial
assistance programmes allowed the abrogation of the Excessive Deficit Procedure
in July 2013. After falling to 3 % of GDP in
2012 and the exit from the excessive deficit procedure in July 2013, the general
government deficit has further decreased to 2.3 % of GDP in ESA terms by the
end of 2013.

External balances and financial markets conditions have
significantly improved in 2013. The current account
deficit declined significantly in 2013, to around 1 % of GDP, largely due to a
much lower trade deficit. Exports were driven by transport equipment, machinery
and agricultural goods, while imports remained subdued mainly due to a weak
domestic demand. An improvement in financial markets through 2013 and in early
2014 eased sovereign financing conditions and permitted large issuances, longer
maturities and lower average yields.

Economic
Outlook

Growth
is forecast to decelerate in 2014 and 2015 as the main growth drivers are
expected to rebalance towards domestic demand. According to the
Commission 2014 spring forecast, growth is expected to be around 2.4 % in 2014
and 2.5 % in 2015 while inflation is
projected to decelerate further to an annual average of 2.5 % in 2014 as
falling food prices are set to generate historical lows in the first half of
2014. It is expected to pick up somewhat in 2015 to an annual average of 3.3 %.
On the external side, the current account is projected to stabilise at 1.2 % of
GDP in 2014 and to widen gradually in 2015, to around 1.6 %
of GDP,
on
the back of a strengthening domestic demand.

The
labour market is expected to recover only slowly in 2014 and 2015. The
employment rate for the 20-64 age group stagnated in 2013, 63.9 % of total
employment and it is expected to increase only slowly but it will nevertheless
remain significantly
below the EU-28 average of 68.4 %. Unemployment
rate increased in 2013 to 7.3 % but it is expected to decrease somewhat to 7.2 %
and 7.1 % in 2014 and 2015, respectively. Youth unemployment remains high,
at 23.7 % in 2013.

The convergence
programme and the national reform programme share the same economic outlook.
Growth is expected to average 2.9 % over the period 2014-2017, reducing
unemployment to 6.7 % by 2017. The macroeconomic scenario underpinning the
budgetary projections in the programme is plausible. This scenario is broadly
in line with the Commission’ 2014 spring forecast. However, the projected
reduction in unemployment seems somewhat optimistic. The growth estimates do
not include any impact from structural reforms as the measures presented in the
national reform programme are not quantified.

3.
Challenges and Assessment of policy agenda
3.1.
Fiscal policy and taxation

Budgetary
developments and debt dynamics

The
objective of the programme is to achieve the medium-term objective in 2015 and
remain at the medium-term objective thereafter.
The medium-term objective is unchanged and the underlying path is more
back-loaded than previously. The medium-term objective chosen by Romania, of -1 % of GDP in structural terms, the same as in the previous convergence
programme, reflects the objectives of the Stability and Growth Pact. The
programme also confirms the previous target date for achieving the medium-term
objective, but the underlying trajectory is now back-loaded, while it was
frontloaded in the previous (2013) programme.[5]

The
2013 general government deficit was 2.3 % of GDP in ESA terms, which is
somewhat lower than expected. The 2013 budget deficit outcome of
2.3 % of GDP was lower than the authorities' target of 2.6 % of GDP.
The previous (2013) version of the programme envisaged a deficit of 2.4 %
of GDP. However, in late 2013, the authorities revised the deficit target
upwards to 2.6 % of GDP to allow for more co-financing of EU Funds towards
the end of the year, which was agreed under the BoP program. The outturn was,
in the end, 2.3 % of GDP, due to a positive surprise in net lending/
borrowing of the state-owned companies included in general government definition.
This corresponds to a (recalculated) structural effort[6] of
0.7 % of GDP relative to the previous year.

For
2014, the program projection of a general government deficit of 2.2 % of GDP is
in line with the Commission 2014 spring forecast, but is higher than foreseen
in the previous programme. The deficit target was loosened
compared to the previous (2013) version of the convergence programme by 0.2 %
of GDP, mainly on account of higher expenditure for co-financing EU Funds,
which are implemented in the budget in the form of an adjustor,[7] as
mentioned in the programme. This is consistent with the investment clause
granted to Romania for 2014[8] and
is in line with the framework of the current BoP programme. The convergence
programme mentions the main measures strengthening revenues and some
expenditure-side measures which are not fully quantified (see box 1). The
headline projection in the convergence programme entails a structural effort of
zero (as recalculated) and an effort of -0.1 % of GDP according to the Commission
2014 spring forecast. The structural balance position is the same (-1.8 %
of GDP); the difference in the estimated effort originates from slight differences
in structural balances before rounding.

The
programme projects a deficit of -1.4 % of GDP in ESA terms in 2015 which
relies on unspecified measures, while the Commission 2014 spring forecast a
deficit of -1.9 % of GDP using the customary no-policy-change assumption.
With a largely similar macroeconomic forecast, the differences stem mostly from
the assumptions used, as well as from the composition of the fiscal adjustment.
The consolidation foreseen by the programme is expenditure-driven in 2015, with
an adjustment of 0.6 % of GDP in total expenditures compared to the
previous year, mostly in social assistance and capital, and an increase in
revenues of 0.2 % of GDP compared to the previous year. The programme does
not specify the measures to reach the projected deficit. Using the
no-policy-change assumption, the Commission 2014 spring forecast largely
constant expenditures as a percentage of GDP in 2015 compared to the previous
year and 0.2 % of GDP higher revenues than the previous year, in line with
the gradual shift towards domestic demand-driven growth. The structural effort
foreseen by the Commission is 0.2 % of GDP, while the budgetary plans
outlined in the programme foresee a (recalculated) structural effort of 0.8 %
of GDP.

The
programme envisages achieving the medium-term objective in 2015
and maintaining it thereafter. Based on the (recalculated) structural
balance, the programme envisages achieving the medium-term objective in 2015 by
reaching a structural balance of -1.0 % of GDP in 2015. The
programme projects a further reduction in the nominal government balance, from
-1.4 % of GDP in 2015 to -1.1 % of GDP in 2017, which is mainly
revenue-driven. The revenue is forecast to increase from 33.6 % of GDP in
2015 to 34 % of GDP in 2017. In structural terms, based on the
(recalculated) structural effort, this entails the preservation of the medium-term
objective.

The
programme debt projections are broadly in line with the Commission 2014 spring
forecast and well below 60 % of GDP. Debt is forecast
to increase temporarily from 38.5 % of GDP in 2013 to 40.1 % of GDP
in 2015 in the Commission 2014 spring forecast and to 39.9 % of GDP in the
programme. Thereafter, the programme foresees a reduction in the debt-to-GDP
ratio to 38.5 % in 2017, mostly due to a decrease in the primary balance.

|| Box 1. Main budgetary measures This box provides an overview of the main discretionary measures with a significant budgetary impact (of at least 0.1 % of GDP) mentioned in the programme. The so-called "investment clause" is also indirectly referred to in the programmme as "the adjustor" and quantified. The programme does not specify the measures underlying the proposed fiscal path for 2015-2017. Main budgetary measures ||

|| Revenue || Expenditure ||

|| 2014 ||

|| · Measure increasing social contributions (0.1 % of GDP) · Measure increasing property tax on constructions, other than builduings (0.1 % of GDP) · Measures increasing excise and other special taxes (0.4 % of GDP) || · Expenditure increase for co-finanicing EU Funds corresponding to the "investment clause" (0.2 % of GDP) · Payment of part of court decisions related to public sector wages (0.3 % of GDP) · Maintaining most public sector wages unchanged; increase salaries only for some categories of teachers (impact not quantified) · Increasing the minimum guaranteed income by 4.5 % (impact not quantified) · Pension indexation with 3.75 % (impact not quantified) ||

|| 2015 ||

|| · Not specified || · Not specified ||

|| Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national authorities. A positive sign implies that revenue / expenditure increases as a consequence of this measure. Please note that the impact reported by the authorities is in cash terms, not in ESA. ||

Romania is
compliant with the Pact in 2013. The 2014 budgetary plans announced in the
programme are broadly in line with the Pact, as the investment clause allows
for a temporary deviation, but downside risks remain.
Based on the structural effort as well as the growth in expenditures in line
with the expenditure benchmark, Romania complies with the Pact in 2013. For
2014, the Commission 2014 spring forecasts an increase in the structural
deficit by 0.1 % of GDP, while the required adjustment is at least 0.1 %
of GDP in 2014. However, the investment clause allows for a temporary deviation
from the path towards the medium-term objective, which should be recovered in
the following year. Therefore, for 2014, Romania is considered to be broadly in
line with the Pact. Expenditure growth in 2014 is in line with the expenditure
benchmark, as recalculated based on the programme scenario and as forecast by
the Commission. The programme projects no change in the structural balance for
2014. Nevertheless, several measures announced publicly, although not with
sufficient detail, point to the risk of fiscal slippages as compared with the
approved budget. In particular, the government's intentions to reduce social
security contributions by 5 percentage points in mid-2014 also risks to have a
negative impact on the 2014 budget, if not fully compensated by another
structural measure. Moreover, tax collection is below expectations for the
first quarter of 2014. As the structural balance is deteriorating slightly
compared to the previous year, further deterioration should be avoided to
ensure that Romania remains compliant with the Pact by the end of 2014.

Box 2. Romania's status vis-à-vis the Stability and Growth Pact

Romania is subject to
the preventive arm of the Pact since 2013 and has not yet reached its
Medium-Term Objective. It is expected to reach its medium-term objective in
2015 and maintain it thereafter. Therefore, it should ensure sufficient
progress towards its medium-term objective by 2015.

In
2015, based on the Commission 2014 spring forecast and given the implementation
of the investment clause, Romania is at risk of a significant deviation from
the requirements of the Pact. The investment clause allows for a
temporary deviation from the path towards the medium-term objective in 2014,
which should be recovered in the following year. The structural effort of 0.2%
of GDP in 2015, as projected by the Commission, falls short of both the minimum
required effort in 2015 (0.5% of GDP) and of the 0.2% of GDP deviation due to
the investment clause to be recovered in 2015. Expenditures are projected to
grow at a rate above the applicable expenditure benchmark rate for Romania in 2015. The programme projects a (recalculated) structural effort of 0.8% of GDP in
2015, thereby reaching the medium-term objective, but does not specify the
corresponding measures. Following an overall assessment of the Member State’s budgetary developments, with the structural balance as a reference,
including an analysis of expenditure net of discretionary revenue measures, a
significant deviation from the adjustment path towards the medium-term
objective is to be expected in 2015.

Fiscal
framework

The
Fiscal Responsibility Law was amended in order to implement the Fiscal Compact. Romania ratified the Treaty on Stability, Coordination and Governance (TSCG) in the
Economic and Monetary Union and declared its intention to be bound by the
provisions of Title III (Fiscal Compact) as of 1 January 2013. The Fiscal
Responsibility Law was therefore amended in December 2013 to implement Fiscal
Compact provisions, in particular to introduce a structural balance rule and an
automatic correction mechanism. This adds to the already existing three-year
rolling medium-term budgetary framework and existing numerical fiscal rules
related with overall and primary balance, personnel expenditure and total
expenditure. The role of the independent fiscal council, which was set up in
2010, was strengthened.

Proper
enforcement of existing rules is needed to ensure their effectiveness and overall
fiscal discipline. In the past, fiscal rules were breached
at several occasions, which the Fiscal Council has duly pointed out. Improving
compliance is thus crucial with a view to establishing a culture of fiscal
stability. In this respect, it is advisable to assess the causes for the past
breaches and to take necessary measures to ensure compliance in the future. In
line with EU/IMF program conditionality, the authorities should continue the
work towards improving the content of the Fiscal Strategy, in particular in
relation to assumptions and analysis of fiscal risks, as well as towards
improving the quality of fiscal impact assessments. The institutional setting
to prioritise public investments and guiding technical principles were
significantly improved over the past year. This has yet to translate into
medium-term investment planning to be fully in line with medium-term budgetary
planning.

Long-term
sustainability

Romania
faces low
fiscal sustainability risks in the medium-term and medium fiscal sustainability
risks in the long-term. Government debt
(38.4 % of GDP in 2013 and slightly to rise to 40.1 % in 2015) is
currently below the 60 % of GDP Treaty threshold, and projected to remain
at around 40% until 2020. It is then projected to slowly rise by 2030 but
remain below the reference value. The convergence
programme, if fully implemented, would confirm debt to be on an increasing path
until 2030 yet remaining below the 60 % of GDP reference value in 2030. According
to the methodology used for the EC Fiscal Sustainability report,[9] Romania faces low fiscal sustainability risks in the medium-term.[10] In
the long-term, Romania faces medium fiscal sustainability risks that are
primarily explained by the projected ageing (mainly pension-related) costs
contributing with 3.7 pp. of GDP over the very long run. The long-term
sustainability gap[11] showing
the adjustment effort needed to ensure that the debt-to-GDP ratio is not on an
ever-increasing path is at 4.5 % of GDP. This highlights
the importance of a sustainable pension system overall, including of the need
to safeguard the achievements of the 2010 pension reform and the need to retain
the second pillar and the existing schedule for the transfer of contributions
from pillar one to pillar two. Overall, risks would be
higher in the event of the structural primary balance reverting to lower values
observed in the past, such as the average for 2004-2013. It is therefore
appropriate for Romania to contain age-related expenditure[12]
growth to contribute to the sustainability of public finances in the long term. In
particular, in
order to improve the sustainability and adequacy of the pension system,
prolonging working and contributory careers would be necessary as ratio
of employed contributors to people drawing pensions is currently very low. [13]

Tax
system

Low
tax compliance and high tax evasion
remain major challenges, especially in VAT and labour taxation areas. The
tax-to-GDP ratio is the second lowest in the EU-28, at 28.9 % in 2013.[14] Tax
fraud and tax avoidance in the areas of VAT, excises, social security
contributions and income taxation remain a major challenge.[15] At 42 %
on average between 2000 and 2011, the value-added tax (VAT) compliance
gap was higher than in any other member state.[16] The
tax compliance time for businesses is moderately high in Romania in EU comparison, reaching around 200 hours for a standard medium-sized company[17].

While
the tax compliance strategy is being implemented, tangible progress has been
limited.
Despite the implementation of the tax compliance strategy 2013-2017, tangible
progress in voluntary tax compliance and in fighting undeclared work is
limited. Within the strategy, only medium-term indicators are set and there are
no intermediate indicators or concrete targets for the individual measures. The
restructuring of the National Agency for Fiscal Administration (ANAF) led to
the creation of a new anti-fraud department, but not all staff has yet been
recruited and trained. A risk analysis aiming at identifying regions and
business sectors with higher risk of non-compliance is yet to be undertaken.

Romania
could further improve the efficiency of its VAT collection system[18] and
step up administrative cooperation with other Member States’ revenue
authorities to tackle cross-border VAT fraud. The
legislation to streamline VAT-reimbursement procedures is still being drafted.
The impact on revenue of a reduced VAT rate for bakery products introduced in
September 2013 in order to reduce non-compliance in the sector and of the
reverse-charge mechanism introduced in certain areas is still to be assessed. According
to a recent report on VAT administrative cooperation,[19] Romania tends to reply late to requests for information from other EU Member States’ tax
administrations and makes a limited use of multilateral control in VAT, a
useful tool to tackle cross-border VAT fraud, especially in cooperation with
neighbouring countries. It is furthermore crucial to improve compliance, in
particular with respect to VAT and excise duties, of small, often locally operating
companies in order to ensure a level playing field for all competitors.

About
25 % of employees in Romania worked without formal arrangements in 2012, yet
progress in addressing the country-specific recommendation to better fight
undeclared work is limited. The number of undeclared workers rose by
more than 20 % between 2009 and 2012, to 1.445 million.[20]
Although controls at the national level identify every week, on average, more
than 300 non-declared employees,[21] the
follow-up could be improved.[22] While
several measures were adopted in the past years to tackle undeclared work, but
no new measure was adopted in response to the 2013 country-specific
recommendation. A pilot compliance project targeting undeclared labour and tax
evasion is planned for 2014.

Romania’s tax revenue
composition is generally favourable to growth but further fine-tuning can be
beneficial. Romania has one of the most
‘growth-friendly’ tax compositions in the EU, with one of the lowest an
implicit tax rates on labour, at 30.4 %, and the second highest share of
consumption taxes. Indirect taxes
have been substantially above the EU average[23]
while direct taxation has been substantially below the EU average.[24] While
for those earning the average wage, tax wedge on labour[25] has been
below the EU-average, the tax wedge on labour for low- and
middle-income earners is well above the EU average.[26] The
discrepancy between the relatively high tax wedge on labour (calculated on the
basis of the legal tax obligation) and the low implicit tax rate on labour
(calculated on the basis of actual tax receipts) could reflect a high amount of
concealed earnings. Reducing the tax wedge on low- and middle-income wage
earners could help reducing disincentives to employment, help fighting
undeclared work and under-declared earnings. Plans announced by the government go
in the right direction, but suggest an untargeted reduction of social
contributions. Any reduction of the tax wedge would need to be implemented in a
budgetary-neutral way. So far, no specific proposal in that direction has been made.

Energy and environmental taxation, other than
transport fuel taxes, could be strengthened. Both
environmental taxation and non-fuel taxation on transport have been below the
EU average.[27] There
has been some progress regarding the recommendation on environmental taxation
but there is scope for improvement. The vehicle taxation system was
improved but the
impact of the new "environmental stamp" tax (linked to CO2 emissions,
payable once) introduced in March 2013 is still to be assessed. Excise duties
on fuel have been increased in April 2014 and have been indexed to consumer
prices in order to account for inflation. Yet, the share of energy
and environmental taxes other than transport fuel taxes in
total tax revenue in Romania remains low. To increase
reliance on environmental taxation, it is advisable not to delay the
introduction of the landfill tax (see Section 3.4 for further details).

3.2.
Financial sector

The
capitalisation of Romania's banking sector remains stable and liquidity
conditions have continued to improve, even if the increase in impaired assets
has put pressure on profitability. Non-performing loans (90 days
overdue) further increased to 21.9 % at the end-2013 compared to 18.2 %
at the end-2012. This has continued to be mitigated by the prudent loan-loss
provisioning policy of the banking sector supervisor, but had an impact on
profitability. The banking sector recorded in 2013 a return on equity of just 1.28%.
On the positive side, the capital adequacy ratio was about 15 % at
end-2013 and liquidity conditions benefitted from to the on-going deleveraging
process and an increase in retail deposits.

The authorities have made some progress as regards the bank
resolution framework and the assessment of asset quality in the banking sector,
including restructured loans. The banking law was
amended and the authorities have committed to complete by September 2014, ahead
of the deadline, the transposition of the EU bank resolution and recovery
directive. Albeit with some delays, the National Bank of Romania has completed the analysis on the asset quality in the banking sector and the banks'
write-off policies were clarified. Further solutions to allow banks to
write-off fully provisioned loans without forgoing the legal rights to recover
these loans are also being explored. On-site inspections of the restructured
loans portfolios and IT systems of 20 banks resulted in additional loan-loss
provisions. The setting up of a specialised court for dealing with abusive
clauses in loan contracts, decided in December 2013, is also positive.

The functioning of the Authority for Financial Supervision could
be further strengthened. Some, very limited progress
was made with assessing the Authority for Financial
Supervision staff and staffing levels as an external consultancy company
evaluated staff in middle management positions. However, the decision by the Authority for Financial Supervision not
to assess the entire staff is not in line with the conditionality in the
financial assistance programme's MoU.

Access
to finance is a key challenge for small and medium-size
enterprises (SMEs) in Romania. Problems are due both to supply
and to demand. Credit growth was negative in 2013 and it is expected to remain
constrained by the deleveraging process of the banking sector after a long
period of deteriorating asset quality.[28] The average interest rate for
loans up to 1 million euros is the second highest in the EU while the cost of
credit is about 17 % higher for SMEs than for larger enterprises. Funding
conditions for SMEs are estimated to have tightened in the first half of 2014.[29]

Some
progress was made in addressing the recommendation to ease and diversify access
to finance for SMEs. The scheme of
state guarantees for bank lending to SMEs[30] was
re-launched in 2014 under more favourable conditions. Its take-up is yet to be
seen. Other measures include the de minimis scheme and support to young
entrepreneurs. A formal evaluation of these measures is advisable to increase
their efficiency. However, alternative forms of financing remain
largely unavailable.

There
is scope to continue to ease access to finance for SMEs and to substantially
diversify the sources of financing. Risk capital
remains underdeveloped and venture capital investment declined 74 %
between 2007 and 2012, making Romania one of the worst performers in the EU.
The country needs to introduce appropriate incentives and a regulatory
framework to promote the development of early-stage venture capital, including
investor and entrepreneur protection legislation. Appropriate training schemes
and advice could also increase the investment-readiness of entrepreneurs.

3.3.
Labour market[31], education and social policies

Despite recent economic recovery, labour market and
education systems continue to under-perform, with low labour market activity
rate and weak labour productivity. Progress in education and social inclusion
remains limited, with Roma integration remaining one of the most challenging
issues. In 2013, Romania received country-specific
recommendations concerning labour market participation, education and
vocational training, health care and alleviation of poverty. The analysis in
this staff working document leads to the conclusion that Romania has made
limited progress on overall labour market participation, education reform, early
school leaving, increasing efficiency and effectiveness of social transfers,
and Roma integration, some progress related to youth unemployment and health (for
the full CSR assessment see the overview table in Section 4).

Labour
market participation, employability and productivity

High
inactivity, insufficient utilisation of the labour potential and the need to
increase the quality and productivity of the workforce remain key challenges in
Romania.
Despite
a strong pick-up in economic growth in 2013, the labour market has not
recovered.[32] Employment
and activity rates continue to be among the lowest in the EU. Women, the young
and older people and people from rural and disadvantaged areas are especially
affected by inactivity. The rate of young people not in education, employment,
or training (NEET) is significantly above the EU average and is increasing.[33] On
the back of very low spending, participation in lifelong learning and the
take-up of active labour market policies remain among the lowest in the EU. [34] There are no quality
personalised public employment services, no integration of active and passive
labour market policies, nor support services for employers. Female
employment is hindered by the low provision and access to affordable quality
childcare facilities (particularly for children under 3 years) while the
duration of working lives is hampered by low employment among seniors and
limited active ageing measures. The Roma and the disabled face even greater
difficulties in accessing the formal labour market. Despite progress registered
in recent years, labour productivity[35] is
still one of the lowest in the EU.

Progress
has been limited in addressing the recommendation to improve labour market
participation by strengthening active
labour-market policies (ALMPs) and promoting lifelong learning. A National
Employment Strategy 2013-2020 aims to improve skills
and adaptability across disadvantaged target groups, but it is too early to be
assessed. The
amended Law on unemployment insurance and employment stimulation has put
renewed emphasis on ALMPs, in particular vocational education and training,
recognition of prior learning, and mobility incentives yet these efforts are
insufficient while the national lifelong learning strategy is delayed. As
regards attracting older workers to the labour market, beside existing
schemes exist but the National Strategy for Active Ageing is still under
preparation.
Facilitating
access to affordable quality childcare services would help women to participate
in the labour market.

There
has also been limited progress in addressing the recommendation to improve the
capacity of the National Employment Agency. While some
measures, of a limited scale, aimed at delivering self-services, reinforcing
local employment agencies, developing IT systems and a professional card have
been taken with support of EU funds, the Public Employment Services need
to be strengthened by reducing caseloads, diversifying services and integrating
them in a coherent offer for jobseekers and employers and through the
introduction of transparent performance management system. The provisions of active
labour market measures needs to be more flexible moving towards an integrated
offer that corresponds to the labour market needs.

There
are currently no clear guidelines for a transparent minimum wage setting that
would take into account the economic, labour market and labour income factors. Minimum
wage increases have been significant (around 12 % on average per year) since
2011, while overall minimum wage remains relatively low in comparison to the
average wage.[36] The
minimum wage is established through national law but there is a need for
reduced discretion and increased transparency in the process of minimum wage
setting, with the objectives of reducing uncertainty and of striking a right
balance between supporting employment and competitiveness on one hand, and
safeguarding labour income on the other. In particular, establishing clear
guidelines, in effective consultation with social partners, should contribute
to the evolution of the minimum wage in line with the underlying cyclical
conditions.

Romania has
made some progress in addressing the recommendation to fight youth unemployment. The
authorities adopted a National Plan for Youth Employment in April 2013 that was
followed-up by legislative improvements in the area of apprenticeships and a
new law on traineeships.[37] As a
result, by end-2013, around 30 000 young people received an employment offer
and over 44 000 students benefitted from career orientation programmes. In
addition, two Youth Guarantee-type pilot schemes were introduced to cater for
10 000 young people without high-school diploma. Proper
monitoring and careful evaluation of the outcomes, as well as of existing
measures for youth would be warranted for further developing the Youth
Guarantee Implementation Plan for 2014-2015.

Box
3. The delivery of the Youth Guarantee
(YG) in Romania[38]

The most important
challenges to deliver a Youth Guarantee (YG)[39]
in Romania are:

- Insufficient
administrative capacity of the PES, foreseen as the main YG service provider,
to offer individualised services to all young unemployed and those NEETs not
registered;[40]

- Rigid service
provision and insufficiently diversified offer of activation measures and of
training and education to young people;

- Lack of sufficient
outreach activities to non-registered young NEETs and in particular to the young
Roma;

- Lack of a genuine
involvement of the private sector in apprenticeship and dual training
initiatives, as well as traineeships for university graduates.

Education
and skills

Raising
the quality of education, addressing the high
early-school-leaving rate, improving the labour-market relevance of tertiary
education and increasing participation remain a major
challenge in Romania. In the 2012 PISA results, Romania was the second worst performer in reading and science and the third worst performer
in maths out of the EU-28 Member States. Digital skills are the lowest in the
EU.[41]
Learning outcomes at the end of upper-secondary education are low, especially
in the case of vocational education and training (VET). The low attractiveness
of the teaching profession and insufficient initial training of teachers are
further factors that have negative impact on education quality.

Limited
progress was made in speeding up the education reform, including the building
up of administrative capacity at both central and local level, and the
evaluation of the impact of the reforms. The
Framework Curriculum Plan on primary education and the implementing methodology
were approved. The Education Act was amended in December 2013
addressing access to high school and vocational education and training, skill
testing, financing of pre-university schools and funding of higher education
and provision of general facilities for pupils. Plans to finalise pending
methodologies necessary to implement the education law adopted in 2011 and to
decentralise remain unfulfilled. Overall, reforms have been limited. Despite
some initiatives, progress in strengthening administrative capacity,
including management skills at regional and schools level, remains low. Evidence-based
policymaking continues to be a challenge. Basic-skills programmes are still
needed, particularly for Roma children who experience high illiteracy rates and
low skilled adults from rural areas.

Limited
progress was made in addressing the recommendation to implement the national
strategy on early school leaving (ESL) focusing on better access to quality
early childhood education. At 17.4 % in 2013, the rate of
early school leavers continues to be one of the highest in the EU. The
existing social support programmes remained in place in 2013 but an overarching
strategy on ESL is significantly delayed. The
uneven availability of early childhood education and care services remains
problematic and childcare services do not sufficiently support child
development.[42] Developing
a data collection system to monitor and evaluate the effectiveness of measures set
to increase participation in secondary education is a challenge.

Romania has
made limited progress in addressing the recommendation to step up reforms in
vocational education and training (VET). Reforms
implemented as pilot initiatives are yet to be mainstreamed. Job counselling
and validation of informal and non-formal training remain underdeveloped while VET
pathways are not flexible and there are no post-secondary specialised VET
programmes. In recent years several projects were implemented aiming at
revising the curriculum and strengthening social and school partnerships but the
scope is limited. Furthermore, proper resourcing of the counselling and
guidance system, as well as greater involvement of businesses in work-based
learning and apprenticeships remain a challenge.

Limited
progress was made in addressing the recommendation to further align tertiary
education with the needs of the labour market and to improve access for
disadvantaged people. The relevance of higher education to the
labour market remains a challenge. Important skills mismatches persist between
universities' offer and the labour market and the link between business and the
academia remains weak. Most university graduates are employed either in
professions not corresponding to their training or in jobs requiring lower
levels of qualification. A strategy on tertiary education is being prepared and
should address the relevance of higher education for the labour market and the
inclusiveness of tertiary education. The current merit-based state support to
university fees largely fails to reach students from the most disadvantaged
groups. A database with information on 50 000 graduates from 50 universities
and an update of the National Register of Qualifications in Higher Education
are being prepared. A better association of private sector in teaching
activities remains a challenge.

School
segregation of Roma is still a major issue, despite clear prohibition. The
estimated ESL rate among Roma remains alarmingly high at 93 %.[43] The
existing programmes for inclusion of Roma in the education system that comprise
the
inclusion of Roma in pre-school, the use of the Romani language in schools and
training of Roma school mediators[44] have
continued. Improving access to inclusive quality education, and scaling up and reinforcing
educational support measures to increase Roma school attendance and performance
remains a challenge.

Poverty
and social inclusion

Poverty
reduction remains a major challenge with a worrying situation regarding the
in-work poor. In 2012, the rate of people at risk of poverty or
social exclusion continued to be the second-highest in the EU. Nearly 30 %
of Romanian population suffers from severe material deprivation. Gross
household incomes have been declining and the inequality remains at very high
levels as job creation is weak, self-employment in subsistence agriculture is
significant, and there is a high share of unpaid family workers.[45] Families
with children are particularly exposed. The in-work poverty rate continued to
increase.[46] The
impact of social transfers (excluding pensions) in reducing poverty
significantly decreased in 2012, remaining far below the EU average and being
particularly low in the case of children.

There
has been limited progress in addressing the recommendation to improve the
effectiveness and efficiency of social transfers and to strengthen their link
with activation measures. The unemployment and social assistance
benefit system is characterised by low coverage especially with regard to some
of the poorest segments of the population[47] and low
adequacy, as recent increases in social transfers mainly compensated for the
increases in gas and electricity prices. A national strategy on poverty
reduction and social inclusion is still under preparation. The introduction of
the Minimum Insertion Income which would simplify social assistance by
combining three existing social transfers (the Guaranteed Minimum Income, the
family allowance and the heating benefits) was expected to
be implemented in 2015 but is being delayed now to 2016. The
link between social benefits and activation is still weak. The social economy
law that is supposed to foster social inclusion of disadvantaged groups is
still not adopted. Romania needs to advance the social assistance reform and develop
and implement a comprehensive national strategy for social inclusion and
poverty reduction.

There
was only limited progress in speeding up the transition from institutional to
alternative care for children deprived of parental care. The
number of children in public and private placement centres was reduced by more
than half[48]
since 2000 by developing family type services. In 2013, 18 community services
were set up and other 109 have been contracted. However, there is still a large
share of old-style, un-refurbished institutions. Many of these children are
still not enrolled in any form of education and their integration in society is
very difficult. There is still a high number of persons with disabilities in
large residential institutions, while community services and personal
assistance for the disabled are not sufficiently developed, also in terms of
funding and quality control. A national strategy on protecting and promoting
the child's rights 2014-20 is planned for adoption by end-2014. It includes
measures on the transition from institutional to alternative care for children
and on the prevention of abandonment and abuse.

There
has been limited progress in addressing the recommendation to equalise
pensionable age for men and women. The adequacy of women's pensions
is low. Women's
working and contributory careers are much shorter than those of men so that
their retirement incomes are lower and women aged 65+ register an
at-risk-of-poverty rate that is double that of men. The
amendments to the pension law to equalise the pensionable age between men and
women as of 2035 have been adopted by the government and are still under
debate in
the Parliament. The legal amendment could improve pension adequacy,[49] if
underpinned by measures to encourage older workers to remain in the labour
market and thus prolong their working and contributory careers.

Health
care

The
Romanian health care system faces several major challenges, including poor
health outcomes, low funding and an inefficient use of resources.
Life expectancy is considerably below the EU average, the rate of infant
mortality is the highest in the EU and life expectancy at birth among the
lowest. There is a mismatch between spending commitments and available funding.
In the past, this led to the accumulation of arrears, particularly in the
hospital sector and to large budget overruns. Yet, Romanians are the second
highest in the EU likely to have unmet needs for medical examination because of
the cost.

Romania
made some progress in addressing the recommendation to pursue health sector
reforms to increase its efficiency, quality and accessibility.
Health care reforms continued throughout 2013. The Ministry of Health's
strategic Action Plan 2013-2014 includes a wide variety of reform and
efficiency measures.[50]
Further elements of the reform are strengthening of the financial and quality
controls and improvements in the procurement system of medicines and medical
devices in hospitals. Some of the measures are incurring delays and suffer from
a lack of resources and the services' low capacity. In 2013, the government
presented a National Health Strategy 2014-2020 aimed at improving health outcomes
by, amongst others, moving towards a more equitable access to quality health
services. Strengthening outpatient care is being addressed through a hospital
care reform and the implementation of the basic and minimum benefits package.

Informal
payments are widespread in the Romanian public health care system[51] and
hinder accessibility, efficiency and the quality of the system. The
extent of informal payments in health care is estimated to be at around 280
million euros annually. According to the 2013 Special Eurobarometer on
corruption, 28 % of Romanian respondents who visited public medical
facilities in the preceding year had to make an extra payment, or offer a gift
or donation besides the official fee. This is the highest percentage in the EU,
far above the EU average of 5 %. Half of the respondents felt they had to make
an extra payment or offer a gift before care was given. Several plans to
address informal payments have been considered by the Ministry of Health, but without
concrete results. The system of co-payments that is being implemented since
March 2013 uses coupons to reduce the risk of informal payments, but only small
fixed amounts are involved.

Roma
integration

Roma
people are still faced with low labour-market participation, an overwhelming
incidence of informal employment and underemployment, a high in-work poverty
rate associated with low qualifications and a low educational attainment. Many
Roma are not covered for health insurance, have difficulties in accessing
social services, face poor housing conditions and are victims of
discrimination. The rate of Roma households in severe material deprivation is
alarmingly high: 84% report lack of water, sewage or electricity.[52]

Romania has
made limited progress in addressing the recommendation to ensure a concrete
delivery of the National Roma integration strategy (NRIS). Budgeted
NRIS measures are, in general, long-running interventions aimed at Roma which
have been in place for years (such as positive discrimination programmes in
education and the mediators programme). Roma are also targeted through the
mainstream programmes and several specific projects have been
implemented in 2013, yet available funds have been insufficient, and
there is no system for monitoring progress of policy measures. Furthermore, no
effective coordination between stakeholders and between different layers of
government is in place while scope of interventions has been limited. It is
essential to continue programmes for integrating Roma into the labour market
with focus on personalised activation services as well as to scale up and
reinforce educational support measures. The revision of NRIS has not been yet
finalised and the implementation of the revised action plans has been delayed.
Implementation and mainstreaming of policies and programs in the field of
social inclusion have been delayed, due to a lack of implementation capacity
and funding.

3.4.
Structural measures
promoting sustainable growth and competitiveness

Romania belongs to the catching-up
group of EU countries in terms of competitiveness performance.[53] As
discussed earlier, competitiveness remains weak due to low labour productivity.
Yet productivity of other production factors also remains low. At
around 52.8 % of the EU-28 average (in purchasing power parity), Romania’s GDP per capita is one of the most telling indicators of the country’s catching-up
needs. SME sector is particularly weak: Romania's
SMEs are hampered by their low profitability and the lack of business
sophistication[54]
and they lag considerably behind other EU Member States in terms of the
contribution of SMEs to exports.[55] The
reasons are manigfold: administrative burden on businesses
remains high; public and private investment in research and innovation remains
low and is discouraged by the regulatory framework; infrastructure, in
particular rail, is underdeveloped and is dominated by under-performing
state-owned companies; over-regulation and inefficiency are still high in the
energy sector. In 2013, Romania received country-specific
recommendations on strengthening business environment, improving research and
innovation and promoting competition and efficiency in network industries. The
analysis in this staff working document leads to the conclusion that Romania
has made some progress in energy reform, in particular in areas of energy price
liberalisation and cross-border integration of energy networks, while the
country has made limited progress in improving business environment,
strengthening research and innovation, improving transport infrastructure and
broadband (for the full CSR assessment see the overview table in Section 4).

Research
and innovation

Competitiveness
is strongly affected by a weak research and innovation capacity. Manufacturing
plays a stronger role in Romania than in most other EU countries (24.8 %
of total value added, compared to the EU average of 15.5 %), but the
country is a modest innovator.[56] Integration of
research, innovation and industrial policies is limited and cooperation between
institutions responsible for policy design and those responsible for
implementation is insufficient. The low quality
of the science and unclear and contradictory provisions on intellectual
property rights are a deterrent for private investors. Low
and scattered public funding, the absence of a multi-annual funding framework
and a lack of coordination within the government undermines the
effectiveness of the public research system. Support
to knowledge-based start-ups, funding for product development or incentives to
cooperation between large firms, innovative SMEs and universities is missing.

Romania
has shown limited progress in addressing the recommendation to ensure a better
link between research, innovation and industry, in
particular by prioritising research and development activities that have the
potential to attract private investment. The
new 2014-2020 National Strategy for Research and Innovation which includes an
important component of smart specialisation is a welcomed step, but its
implementation is still uncertain. The 2014-20 National Research,
Technological Development and Innovation Strategy, and a National
Strategy for Competitiveness 2014-20 are currently under public
debate, but
coordination between the different strategies remains weak. The
on-going evaluation of the research institutions has produced some improvements
of the institutional mid-term strategies, but a comprehensive approach aiming
at a possible concentration of institutional resources is still lacking.[57] Some
public-private cooperation initiatives, associated with the development of
clusters,[58]
succeeded in gathering together policy makers, public research institutions,
large companies and SMEs. Well-targeted support measures would be instrumental
to support their further development. The increase in 2013 in the tax
deductibility of the R&D investment from 20 % to 50 % and the
draft law on employee innovation sent to the parliament are welcomed efforts to
increase private investment in research and innovation.

Reform
of state-owned companies

Network industries, in particular the energy and rail sectors, are
dominated by the state-owned enterprises. Arrears and operational losses that
remain the norm in many of these state-owned enterprises are a risk for the
government budget and a limit to the growth potential.

Limited progress was made in addressing the recommendation to
continue the corporate governance reform of the state-owned energy and transport
companies. There was also some progress in reinforcing
performance incentives in state-owned rail enterprises. Yet overall, restructuring of state-owned enterprises has been slow and the
privatisation deadlines agreed under the financial assistance programme might
not materialise. Only a limited number of SOEs have boards selected on
the basis of competitive and merit-oriented procedures. An independent assessment of the implementation of the government emergency
ordinance[59] on corporate governance has been
delayed and a recent government ordinance on remuneration of board members[60]
departs from international best practices.

The Romanian economy would benefit from greater efforts in
restructuring of state-owned enterprises, including privatisation, and better
corporate governance practices. A
study on the implementation of the current corporate governance law for
state-owned companies can no longer be postponed. New
legislation on the remuneration of civil servants participating in SOEs boards,
general shareholders meetings and privatisation commissions is to be prepared by
end-June 2014, as agreed under the financial assistance programme. Plans to
increase transparency and public disclosure by publishing the composition of the
different boards on the SOEs' and government's website would also be steps in
the right direction. This could be usefully complemented by the public
disclosure of the remuneration of the board members.

Transport
infrastructure and ICT

The
underdeveloped
basic transport infrastructure continues to be a bottleneck to growth in Romania[61]. High
growth
of the vehicle fleet and the low quality of the road infrastructure hamper
businesses and the economy and contribute to the highest level of road
fatalities in the EU[62].
The cost recovery for road infrastructure continues to be very low and there is
no differentiation of road charges according to environmental standards[63].
Poor maintenance of the railway network and insufficient incentives hamper the
development of a customer orientated approach in the state owned railway
enterprises. Safety and reliability have been affected and travel times have
been increasing. As a consequence, railway transport has witnessed a declining in
freight and passenger demand. Consumers' assessment of train services
is fifth lowest in the EU, with the lowest EU trust that the operators would
comply with consumer protection rules.[64] There
is no policy strategy in place to upgrade the inland waterways infrastructure.
Intermodal transport remains underdeveloped.

Some
progress has been made in addressing the recommendations to strengthen
independence of the regulatory authorities yet competition remains limited. The
independence of the rail regulatory authority has been strengthened, as the
ministry representatives have been removed from the regulator's board. Its
secretariat has been established on a permanent basis within the Competition
Council. However, the independence of the rail accident investigation body from
the rail safety authority remains limited.[65] The completion
of a study on competitive tendering of the public service obligation contract
for the passenger rail can be viewed as a first step to improve the situation.
Yet, overall, competition in rail services remains limited, as the state still
relies exclusively on direct award of infrastructure concessions and rail
passenger services contracts.

Limited
progress was made in addressing the recommendation to adopt a comprehensive
transport master plan. The lack of a
comprehensive long-term transport plan for all modes of transport
hinders the possibility for a coordinated transport investment policy. The
2014-18 motorway strategy adopted in December 2013 pre-judges the transport master
plan. The government's commitment to allocate 2 % of GDP to the transport
sector is a positive development but has not yet been operationalized.

Progress
in addressing the recommendation on improving broadband infrastructure remains
limited contributing together with other factors[66]
to a lowest take-up of internet in the EU. Fixed broadband
coverage is significantly lower than the EU average, especially in non-urban
areas affected by market failure thus requiring substantial investment. The
new Electronic Communication Infrastructure law adopted in 2013 was helpful in
empowering the National Regulatory Authority to monitor and map the existing
and planned telecom infrastructures yet the secondary legislation is still
outstanding. The deployment of broadband networks is hindered by the lengthy
and cumbersome process for obtaining authorisations for construction works. Additional
uncertainty was introduced by the fact that a recent amendment to the fiscal
code imposing a new tax for special constructions (including telecom
infrastructure) has not yet been followed up by clear methodology to calculate
the exact amount of the tax. The Digital Agenda Strategy and Next Generation
Networks Broadband plan, key documents that are expected to outline the
strategic vision for broadband development are being delayed and need to be
finalised as a matter of priority.

Energy markets

Energy market functioning as regards competition and efficiency is
still not fully effective. The gas wholesale market continues to be highly
illiquid so that the benefits of competition have not yet materialised. Overall
energy efficiency remains low. Although required by the EU law, there is still
no full unbundling of Transmission System Operators in electricity and gas. Romania's integration with the EU energy market remains weak despite some progress in
improving cross-border integration. Finally, the phasing out of electricity and
gas price, while so far being successfully implemented, is under constant
pressure.

As to the recommendation to promote competition and efficiency in
the energy markets, limited progress has been achieved as energy market
functioning is still weak, in particular with regard to gas. Whereas the electricity wholesale market has become more liquid,
in particular by corporates, the gas wholesale market continues to be highly
illiquid, with the benefits of competition still to be realised. Some
measures to improve market functioning were adopted, such as enabling very
small quantities of gas exports on the Romania – Hungary link yet these volumes
are insufficient for a full market integration. Unbundling of the Transmission
System Operators saw limited progress with conditional certification decisions
being issued so that full unbundling remains a challenge. The attribution of
the Transmission System Operators and energy production and supply to separate
public entities and assuring independent dispatching are still outstanding and
suffered a setback with the adoption of an emergency decree in February 2014
that undid some of the progress made in 2013. A significant number of
regulatory measures such as gas codes that are crucial to foster gas trading
liquidity are still to be implemented; they may have to be complemented by
other liquidity fostering measures.

Substantial progress has been achieved in addressing the
recommendation to remove regulated gas and electricity prices. Price regulation in the electricity market for corporate customers
ended in 2013 while for gas it is expected to happen in July 2014, ahead of the
agreed timetable. The liberalisation of household
electricity and gas retail prices has been following the agreed roadmaps. It is
important that the subsequent phasing-out of gas and electricity price
regulation continues in line with agreed roadmaps thus creating incentives for
investments in domestic production, improved services and delivery systems and
a more efficient use of energy.

Romania's integration with the EU
energy market remains weak despite some progress in
improving cross-border integration. There was limited progress as regards Romania's participation in market coupling with the electricity markets of Hungary, the Czech Republic and Slovakia. Upgrading of internal lines and aged network assets is
slow due to the limited financial capacities of the transmission system
operators, but of particular importance in view of the need to accommodate the large
deployment of wind and photovoltaic sources. Projects
with the Republic of Moldova and Bulgaria, both enabling reverse flows, have
progressed but are not yet operational. A second
project with Bulgaria is foreseen to be finalised by the end of 2014. Another
project in Romania to connect the transmission system with transit pipelines is
delayed. More efforts are needed to complete these projects and enable
physical reverse flows as the existing network limitations currently prevent
the integration of not just Romania but also Bulgaria and Greece into the internal gas market. Integration would allow the diversification of gas
supplies in the region. This will alleviate the high dependence on a single
supplier and potentially contribute to lower import gas prices, which are
currently the highest within the EU. Gas network development would enable Romania to take advantage of these benefits and to obtain access to the Caspian gas coming to Greece through the foreseen Trans-Adriatic pipeline. Moreover, in view of the development
of gas resources in the Black Sea, export capacity will need to be in place in
order for Romania to make full use of the opportunity to become a gas exporting
country. Therefore, as infrastructure development is a lengthy process,
pursuing network development now will not only bring economic benefits to Romania, but will increase security of supply and gas source diversification in the EU's
South Eastern region.

Greenhouse gas emissions and energy efficiency

Romania
remains one of the most energy and carbon-intensive economies in the EU, due to
industry and residential buildings. Romania's energy intensity is
more than twice the EU average,[67]
largely due to the high share of energy-intensive industries and the significant
share of solid fuels in the energy mix. Energy consumption in manufacturing
grew by an annual rate of 3 % in 2005-11 and represents 25 % of the
country's total energy consumption. The energy intensity of the residential
buildings is also high compared to the EU average, significantly due to
inefficiencies in the district heating system and in thermal insulation of
buildings. Romanian households spend more than 13 % of their available
income on energy, one of the highest rates in the EU. The energy infrastructure
of Romania is poorly maintained and transmission losses are high.

Greenhouse gas emissions in the transport sector may become a
risk. Romania decreased greenhouse gas
(GHG) emissions by 7 % between
2005 and 2012[68] and is expected to meet its 2020
non-ETS GHG emissions by a large margin. This notwithstanding, Romania's emissions from the transport sector have increased steadily since 1990, reaching
a share of total emissions of 12 %.[69]
This increase has been driven mainly by the increase in the motorisation rate
that can still be expected to increase.[70]

Progress in implementing the 2013 recommendation to improve energy
efficiency remains limited. Various programmes focused
on improving the efficiency of energy production and in particular in promoting
the use of high-efficiency cogeneration. Large-scale programs that have been
set up for the thermal insulation of buildings and the rehabilitation of
district heating systems yielded some improvements. In 2013, the government
adopted
legislation making energy certification for a real estate that is sold or let
mandatory and there has been some progress in improving energy efficiency in
the industrial sector. The government also
contemplates various measures to promote energy efficiency, ranging from the
establishment of an Energy Efficiency Investments
Fund to stepping up the use of energy audits in all sectors, from expanding training
programs for energy auditors to implementing awareness-raising and advice
campaigns to consumers. However, these plans are
still to be translated into practice. Energy price deregulation is expected to
bring incentives to enhance energy efficiency. Yet concrete action and
commitment of necessary administrative and financial resources are needed to
further improve energy efficiency in the housing, district heating, industry
and urban transport sectors. It is necessary to swiftly implement the related
EU legislation (particularly Energy Efficiency and Energy Performance of
Buildings Directives) and to
promote the energy services market, including energy performance contracting.

Waste management and environment

Romania is
the worst performing EU member state as concerns the municipal waste management. Waste
treatment is characterised by low recycling[71]
and high landfilling rates, even if Romania produces below-average volumes of municipal waste.[72] The relevant
strategies and instruments to divert the waste from landfills are not in place and
there is no comprehensive enforcement action against illegal landfilling. Romania is
late in adopting the waste management plans and the waste prevention programmes
required by the EU acquis. More decisive action is needed on the landfill tax, expected to be enforced in 2014 but postponed
to 2017. Economic instruments in place are too limited to prompt and
cover the costs of separate collection and recycling (e.g. limited Extended Producer’s Responsibility, lack of 'Pay as
You Throw' schemes).

Poor air quality and flood prevention continue to be a problem in Romania. The main sources of air pollution remain domestic solid
fuel use by households and the energy sector. A
restructuring of the energy and domestic heating system (switching to gas,
district heating and pollution controls) and other pollution and prevention
control measures could significantly contribute to address the problem. Flood
prevention should be stepped up, and alternatives to dikes and other traditional
protection measures should be exploited.

Business environment and SMEs

Poor
quality of regulations and the lack of transparency and predictability of the
regulatory framework hinder businesses and citizens. The
management of the regulatory stock has not been a priority. Complex procedures
are still in place when it comes to obtaining electricity, dealing with
construction permits, paying taxes or dealing with insolvencies.[73]

Romania made
limited progress in addressing the recommendation to reduce the administrative
burden and improve the quality of regulations. A Strategy for
SMEs and Business Environment and the Action Plan for 2014-16 are being
prepared and a law on enhancing SMEs was adopted in April 2014. The Better
Regulation strategy is under revision and a common methodology for impact
assessments including the SME test is being prepared, although the original
timing could not be respected. A project to quantify information obligations
stemming from legislation, initiated in 2011, will be completed in 2014 and is
to be accompanied by a Simplification Action Plan. Yet there is scope for
further progress as tangible outcomes are yet to materialise. Tailored support
services for SMEs need to be developed. A comprehensive codification would
ensure the rationalisation and consolidation of the regulatory stock, while systematic
evaluations by policy areas would permit to assess whether regulations remain
fit for purpose. Stakeholders' consultation needs to be more consistent between
ministries.

Additional
effort has to be put in building up the export capacity of SMEs. A
National Export Strategy for 2014-20 has been prepared, but has not yet been
adopted. To facilitate access to international markets, the SME export support
services include trade missions, co-financing for participation in
international trade fairs, a trade portal and market studies. But their scope
remains very limited. The export promotion project
establishing a 'passport-to-export' scheme will set up pilot export centres in
early 2015. The electronic trade portal registered a 44 % increase in
visitors in 2013 compared to 2012. The trade councillor scheme that assisted
3100 SMEs in 2012 might not be enhanced due to the lack of funding.

Despite some reform efforts undertaken in early 2014, unclear land
ownership rights continue to represent a challenge for Romania's business environment. The lack of
reliable information on real estate rights has negative impact on the
development of both rural and urban areas, with investments in infrastructure,
housing and land markets and environmental actions being affected. In terms of land
registry coverage, Romania lags seriously behind its neighbouring countries. Less
than 50 % of real estate (and real estate rights) are registered in the land
book system and only around 15 % of real estate records are verified and
registered digitally. The digital coverage is particularly low in rural areas. To speed up digital registration significant funding has been
allocated in 2014 and a number of legal amendments have been drafted but their
adoption by the government remains uncertain. The status of the land
registration agency has been upgraded in March 2014 allowing for a higher
degree of autonomy and improved funding as of September 2014. An improved
digital registry would be highly beneficial for Romania's business environment.

The
regulatory framework on insolvency has recently been strengthened to help
better deal with companies in difficulties, to allow early rescue of viable
companies and speedy exit of non-viable ones. Until very
recently, the
regulatory framework on insolvency was suffering from a number of shortcomings
leading insolvency
procedures being among the lengthiest in the EU (3.3 years on average, twice
the OECD average). These shortcomings have negative implications for the
recovery rates of creditors[74]
and implicitly for investment in the country. The amendments
to the insolvency code adopted by the Parliament in April 2014 address most of
these shortcomings and bring the code more in line with international best
practices. The
procedures were made more effective through the introduction of provisions on
pre-insolvency, creditor differentiation, the 'second chance' provisions and
ensured automatic stay mechanism while preserving the equal treatment of all
creditors within the procedure and a reasonable time for the reorganization
plan to be implemented.

3.5.
Modernisation of public administration

Overall weak
administrative capacity, low EU funds' absorption and still weak justice system
represent a continuous challenge for Romania. In 2013, Romania received country-specific recommendations on strengthening administrative capacity,
fighting corruption and strengthening the judicial system. The analysis in this
staff working document leads to the conclusion that Romania has made significant
progress in EU funds' absorption, some progress in justice system reform while
the country has made limited progress in improving governance and quality of
public administration, public procurement and e-government (for the full CSR
assessment see the overview table in Section 4).

Administrative capacity

The weak capacity of the public administration to develop and
implement policies remains a core challenge for Romania, affecting
decision-making and ultimately not allowing for the provision of public services of
sufficient quality. The mechanisms for coordination within
and between different levels of government remain weak. The public governance is characterised by an unstable legal
framework and excessive bureaucracy. The public administration is undermined by
an inconsistent human resources framework covering staff recruitment,
stability, career development, training and independence of the civil service.

Romania has made
limited progress in addressing the recommendation to strengthen governance and the quality of public administration. The
structural causes that led to a low administrative capacity were analysed by an
inter-ministerial working group in 2013. Based
on this evaluation,[75] a
strategy on strengthening public administration 2014-20 is being prepared. The
strategy needs to be accompanied by an action plan with concrete
short- and medium-term measures. A central delivery unit to improve the policy
prioritisation, implementation and coordination with particular
reference to the implementation of the EU country-specific recommendations has
been created yet it is not fully functional. To better
prioritise government policies an annual working plan of the government was
approved for the first time in 2014. To strengthen the link between decision-making
and budget allocations a Strategic Planning Council was
revived, yet it is not yet fully operational.

In
order to effectively implement a coherent and coordinated vision for the public
administration there is a need for stronger political leadership and commitment
in support of the reforms. A
proper functioning public administration requires an institutional
structure to take ownership and coordination of the public administration
reform and strong civil society involvement. The public administration reform
would need to include a strategic approach
regarding management in public administration, including human resources
management, an appropriate strategic planning system and an adequate
substantiation of the decision-making process, the availability of relevant
information and data to support the formulation and evaluation of public
policies, more use of IT&C tools, and strengthening
administrative capacity at local level in the context of decentralization.[76]

EU funds' absorption

Despite
significant progress in addressing the country-specific recommendation, EU funds' absorption remains the lowest in the EU. Since
June 2013, when the absorption rate was 18.4 %, it almost
doubled between until December 2013 but Romania still has the lowest absorption rate in the EU.[77] The
loss of EU funds could be avoided in 2013, but significant risks in this regard
remain for 2014 and 2015. The funds' absorption remains
constrained by an insufficient administrative capacity to manage programmes and
projects and a poor co-ordination between line ministries, those responsible
for sector policies and institutions responsible for funds management.
Continuously weak management and control systems and public procurement
practices may negatively impact the preparations for and implementation of the
next generation of programmes.

Public procurement

Shortcomings in public procurement lie mostly in the quality of
the legal framework, the lack of coherence and efficiency of the institutional
system and an insufficient administrative capacity. The
legal framework, although overall acceptable, suffers from instability and a
lack of coherence. Frequent changes of legislation aimed at solving individual
problems and sectorial legislation incompatible with general legislation and
the European legal framework are a source of uncertainty for stakeholders. The
institutional set-up, with multiple actors and frequently overlapping
responsibilities is not equipped to tackle the shortcomings. Guidance as well
as decisions of review bodies is often inconsistent. Cooperation among
institutions could be improved; clearly defined and sustainably assigned
responsibilities and means to ensure their consistency need to be put in place.
Contracting authorities lack the necessary human resources and expertise to
prepare sound tender documents, define adequate selection and award criteria,
evaluate the offers, and ensure correct execution of the contracts. Similarly,
there is frequent recourse to artificial shortcuts such as shortening deadlines
or transferring unreasonable risks and obligations to contractors. Efforts have
been undertaken to improve guidance by central authorities to contracting
authorities and to draft standard tender specifications, however this guidance
remains insufficient. Fraud, corruption and conflicts of interests continue to
be concerns for contracting authorities. Tailor-made
specifications often lead to a low number of candidates while inadequate
selection criteria lead to a high number of disqualifications.

Limited progress has been achieved in addressing the recommendation
to improve public procurement. In 2013, the codification
of the public procurement code was completed, and guidelines were developed for
contracting authorities to align their public procurement practices. The
national Strategy for Public Procurement 2014-2020 has been adopted and in 2014, an action plan has been prepared that should help, once
implemented, further simplify and make more flexible public procurement
procedures.
Efforts to prevent conflict of interests have not yet delivered sufficient
results. The National Integrity Agency (ANI) signed in February 2014 a
Memorandum of Understanding with the aim to ensuring an effective ex-ante
verification of conflict of interest in the award process of public procurement
contracts. In the first phase, this would be applicable only to the EU funds,
but it should be later enlarged to include all domestic public procurement. The
system should be operational by end-2014. The
transposition of the new public procurement directives represents an ideal
opportunity for a strategic, systemic and in-depth review of the Romanian
public procurement system aimed at fostering transparent, smart and efficient
public procurement. A faster transition to e-procurement is encouraged.

E-government

The take-up of e-government in Romania is the lowest in the EU.[78] A
greater reliance on electronic data exchange, online interfaces and
interoperability could significantly facilitate administrative procedures for
businesses and citizens. E-government take-up by Romanian citizens aged
24-54 is 37 %, the third-lowest in the EU while take-up by enterprises is
the lowest, at 59 %.[79]

Romania has made little progress
regarding recommendation to improve e-government. An e-government
strategy was adopted in December 2013 but implementation of reforms related to
data sharing and interoperability is slow. A National
Strategy on the Digital Agenda and a Next Generation Access network plan are
currently being developed. The usability of the Point of Single
Contact is poor and a significant number of administrative procedures are not
available online or cannot always be completed online. Streamlining of two
electronic platforms that currently provide different services to SMEs in the
areas of 'business-to-government' and 'business–to-business' is still
outstanding. The application of the EU Small Business Act ‘only once’ principle
and a
fully functioning Point of Single Contact should be pursued as priorities.

Justice system and fight against corruption

The
quality, independence and efficiency of the Romanian justice system remain a
concern. In
2013, the independence of justice continued to be challenged through
politically motivated attacks, political interference in key appointments and
non-respect for court decisions. Inconsistency of court decisions and lack of
predictability in the interpretation of the law remain major irritants for the
business community. Furthermore, courts and prosecution continue to struggle
with very high workloads. Corruption, both petty and political, remains a
systemic problem in Romania.

Romania
has made some progress in addressing the recommendation to improve the quality,
independence and efficiency of the judicial system. As to improving quality and efficiency, some measures were
taken in 2013. Thus, the Civil Code and the Code of Civil Procedures entered
into force in February 2013, and the Criminal Code and the Code of Criminal
Procedure on 1st February 2014. The new Commercial Code is now applied for all
new cases since February 2013. The capacity to resolve
administrative cases at 1st instance courts increased, even if a
large influx of cases[80] led
to an important increase in the backlogs by end-2012.[81] Backlogs
also increased in litigious civil and commercial cases and in enforcement cases.[82] Solutions
to diminish the number of cases treated by the courts, such as mediation, have
been recently introduced and a number of family matters (e.g. divorces) can now
be dealt with by notaries, but their take-up is so far limited. A Strategy for
Justice 2014-18 aiming at further improving the functioning of the judicial
system is being prepared and there is an on-going project to redesign the
judicial map, but the support of parliament remains uncertain. The
availability of ICT tools for the registration and management of cases and for
electronic communication between courts and parties has improved but the use of e-justice tools remains low. Efficiency can be further
improved, in particular through introduction of regular evaluations of courts’
activities and quality standards.[83] As to independence, Romania has the second worst rating in
the EU as to the perceived independence of justice. The
January 2014[84]
report of the Cooperation and Verification Mechanism shows that the
independence of the judiciary continues to be threatened through politically
motivated attacks, political interference in key appointments and non-respect
for court decisions.

Corruption, both petty and political, remains a systemic problem
in Romania. Corruption scandals and convictions of
political figures at national and local level continue to be revealed. Corruption
cases from all public services are reported on a regular basis, including
police, health, and education. In 2013, important corruption cases were also
revealed in the justice system.[85] The national Integrity Agency has drawn up about 450 reports last
year on conflicts of interests and incompatibilities. Studies and polling
evidence also reveal a perception that the level of corruption in Romania is particularly high by European standards.[86]

Romania has
made some progress in addressing the recommendation to fight corruption. Key
anti-corruption institutions have continued to build a track record with a
series of significant convictions.[87] A
number of important cases have advanced through the legal system. The fight
against petty corruption in all sectors such as health, education, public
procurement has become more a priority, both at the prevention and prosecution
side, but the national anti-corruption strategy needs further developing and
the track record of bringing cases to trial and ensuring final sentences are
effectively applied has not yet improved. In 2013, there
were many examples of resistance to integrity and anti-corruption measures at
political and administrative levels and the effective enforcement of court
decisions, including confiscation of criminal assets, remains problematic.

Box 4: Potential
impact of structural reforms on growth – a benchmarking exercise

Structural
reforms are crucial for boosting growth. It is therefore important to know the
potential benefits of these reforms. Benefits of structural reforms can be
assessed with the help of economic models. The Commission uses its QUEST model
to determine how structural reforms in a given Member State would affect growth
if the Member State narrowed its gap vis-à-vis the average of the three best EU
performers on key indicators such as the degree of competition or labour market
participation. Improvements on these indicators could raise GDP by about
11 % in a 10-year period. Some reforms could have an effect even within a
relatively short time horizon. The model simulations corroborate the analysis
of Section 3.3, according to which the largest gains would likely stem from
lower goods sector mark-ups and higher participation rates among women. In
addition, the simulations expect important gains from improving active labour
market policies and better integration of elderly in the labour market.

Table:
Structural indicators, targets, and potential GDP effects[88]

Source: Commission services. Note: Simulations assume that all
Member States undertake reforms which close their structural gaps by half. The
table shows the contribution of each reform to total GDP after five and ten
years. If the country is above the benchmark for a given indicator, we do not
simulate the impact of reform measures in that area; however, the Member State in question can still benefit from measures taken by other Member States. \*The
long-run effect of increasing the share of high-skilled labour in the
population could be 3.6 % of GDP and of decreasing the share of low-skilled
labour could be 2.8 %. \*\*EU average is set as the benchmark.

4.
Conclusions

Romania made substantial progress towards restoring macroeconomic stability, consolidating its public
finances, re-establishing market access for the sovereign, and safeguarding
financial stability. However,
the record in terms of structural reforms has been far less substantial,
leading Romania to potentially face substantial challenges in the future. To sustain economic growth and to consolidate recent gains in terms
of internal and external imbalances, it is advisable that Romania continues its fiscal consolidation and accelerates the implementation of structural
reforms. This requires addressing a vast agenda of policy areas: administrative capacity, taxation, labour market participation,
education, health, poverty and social inclusion, business environment, energy
and transport, and the management of the state-owned companies. It is a
challenge that can only bet met with strong political ownership and
determination.

The analysis in this
staff working document leads to the conclusion that Romania has made some
progress in addressing the country-specific recommendations issued in 2013. There was substantial progress in completing the 2011-13 EU/IMF
financial assistance programme and in pursuing fiscal consolidation, as well as
energy price deregulation. Some progress has been registered in some key economic areas, including
fiscal governance, tax administration, the absorption of EU funds, cross-border
integration of energy networks, and improving the business environment. Health
care reform and youth unemployment are also areas where some progress was
registered. For the remaining recommendations the assessment is less positive,
as progress was deemed limited. This includes labour market participation and
poverty reduction, Roma integration, education and training, public
administration, e-government, research and innovation, and transport. If
properly addressed, these reform areas can greatly contribute to increase growth
and job creation, and to reduce inequalities and poverty.

The submitted
national reform programme and convergence programme contain a detailed
assessment of reform measures as well as macroeconomic and fiscal projections. The national reform programme and convergence programme submitted by
Romania set out policy measures that address most of the challenges identified
in last year's staff working document and Europe 2020 priorities, and a broad
coherence between the two documents has been ensured. The
programme confirms Romania's commitment to address shortcomings in the areas of
fiscal consolidation, EU funds' absorption, public administration, energy price
reform, health care and education. Yet, while the
documents give a thorough account of previous reform efforts, they do not
provide sufficient details on future reform plans. Also,
in some areas, in particular as regards fighting poverty and social inclusion
of Roma the programmes lack ambition to address the challenges in a
comprehensive way. The objective of the convergence programme
is to achieve the medium-term objective in 2015 and remain at the medium-term
objective thereafter yet it relies on unspecified measures and the underlying
path is more back-loaded than previously. On the basis of the recalculated structural
balance, a significant deviation from the adjustment path towards the medium-term
objective can be expected.

As
such, challenges identified in July 2013 and reiterated in the Annual
Growth Survey remain valid. To promote sustainable
growth and job creation, Romania needs to continue the implementation of the
EU/IMF financial assistance programme, to improve tax collection and reduce
fiscal disincentives for low- and middle-income earners, continue pension and
health care reforms, increase employability and revamp the education and
training system, increase the integration of disadvantaged groups of the
population, improve administrative capacity, strengthen business environment
and state-owned enterprises management, and continue reforms in energy and
transport sectors.

Overview table[89]

2013 commitments || Summary assessment

Country-specific recommendations (CSRs)

CSR 1: Complete the EU/IMF financial assistance programme. || Romania has made substantial progress in addressing CSR 1. · The 2011-13 EU/IMF programme has been completed. A new balance of payments programme was agreed in autumn 2013.

CSR 2: Ensure growth-friendly fiscal consolidation and implement the budgetary strategy for the year 2013 and beyond as envisaged, thus ensuring achieving the medium-term objective by 2015. Improve tax collection by implementing a comprehensive tax compliance strategy and fight undeclared work. In parallel, explore ways to increase reliance on environmental taxes. Continue the pension reform started in 2010 by equalising the pensionable age for men and women and by promoting the employability of older workers. || Romania has made some progress in addressing CSR 2. · Substantial progress: Romania’s excessive deficit procedure was abrogated. Fiscal consolidation continues with the aim to reach the medium-term objective by 2015 but risks remain. · Some progress: Some measures have been taken, including increasing the capacity of the anti-fraud administration. Yet tangible progress in voluntary tax compliance and fighting undeclared work is limited. · Some progress: There has been an increase of transport fuel excises; however there has been not progress regarding increasing reliance on energy and environmental taxes other than transport fuel taxes.  · Limited progress: The amendments to the pension law to equalise pensionable age between men and women have been adopted by the government and are in the Parliament. The National Strategy for Active Ageing to promote the employability of older workers is delayed.

CSR 3: Pursue health sector reforms to increase its efficiency, quality and accessibility, in particular for disadvantaged people and remote and isolated communities. Reduce the excessive use of hospital care, including by strengthening outpatient care. || Romania has made some progress in addressing CSR 3. · Some progress: A comprehensive reform of the health care system is on-going. The basic benefits package was re-designed and is being implemented. The implementation of the minimum package is being delayed to 2015. · Limited progress: The Ministry of Health has developed a plan to reduce hospital beds by 6 000 beds over the period 2014-2016 by strengthening ambulatory care, but implementation is still outstanding.

CSR 4: Improve labour-market participation, as well as employability and productivity of the labour force, by reviewing and strengthening active labour-market policies, providing training and individualised services, and promoting lifelong learning. Enhance the capacity of the National Employment Agency to increase the quality and coverage of its services. In order to fight youth unemployment, implement rapidly the National Plan for Youth Employment, including for example through a Youth Guarantee. To alleviate poverty, improve the effectiveness and efficiency of social transfers with a particular focus on children. Complete the social assistance reform by adopting the relevant legislation and strengthening its link with activation measures. Ensure concrete delivery of the National Roma Integration Strategy. || Romania has made limited progress in addressing CSR 4. · Limited progress: The laws on unemployment insurance and employment stimulation were amended to support active labour market measures. The National Employment Strategy 2013-2020 was adopted in December 2013. There was very limited progress on promoting lifelong learning. · Limited progress: Despite some measures taken the capacity of National Employment Agency remains limited. · Some progress: The 2013 National Plan for Youth Employment was partially implemented, including through the amendments of the Apprenticeship Law and a new traineeship law adopted in December 2013. The Youth Guarantee initiative is being implemented. · Limited progress: There was a revision of the minimum guaranteed income and the law on family allowance was amended. Measures were taken to protect vulnerable consumers against the increase of energy and gas prices. The minimum insertion income program that was expected to be implemented starting with 2015 is being delayed. The social economy law is under debate in Parliament. The strategy for social inclusion and combating poverty is in preparation. · Limited progress: The revision of the National Roma Integration Strategy and its Action Plans, announced at the beginning of 2013 is still not completed.

CSR 5: Speed up the education reform including the building up of administrative capacity at both central and local levels and evaluate the impact of the reforms. Step up reforms in vocational education and training. Further align tertiary education with the needs of the labour market and improve access for disadvantaged people. Implement a national strategy on early school leaving focusing on better access to quality early childhood education, including for Roma children. Speed up the transition from institutional to alternative care for children deprived of parental care. || Romania has made limited progress in addressing CSR 5. · Limited progress in building up of administrative capacity at both central and local level and evaluating the impact of the reforms. · Limited progress in stepping up reforms in vocational education and training. A vocational education and training scheme introduced in 2013 was somewhat expanded and improved in scope but its coverage is insufficient. · Limited progress in further aligning tertiary education with the needs of the labour market and improving access for disadvantaged people. The finalisation of the strategy on tertiary education addressing the issues of access and labour market transition is delayed. Some progress has been achieved in updating qualifications for higher education. · Limited progress in implementing a national strategy on early school leaving focusing on better access to quality early childhood education, including for Roma children. The strategy on early school leaving is delayed. · Limited progress: A national strategy for protecting and promoting the rights of the child is under preparation and is planned for adoption by end-2014.

CSR 6: Strengthen governance and the quality of institutions and the public administration, in particular by improving the capacity for strategic and budgetary planning, by increasing the professionalism of the public service through improved human resource management and by strengthening the mechanisms for coordination between the different levels of government. Significantly improve the quality of regulations through the use of impact assessments, and systematic evaluations. Step up efforts to accelerate the absorption of EU funds in particular by strengthening management and control systems and improving public procurement. || Romania has made limited progress in addressing CSR 6. · Limited progress on budgetary planning; limited progress on improved human resource management; some progress on coordination within the government though the establishment of the Delivery Unit and drafting of the national administrative capacity strategy. · Limited progress on improving quality of regulation. The national Better Regulation strategy for 2008-2013 is under revision. The common methodology for impact assessments, including the SME test will be ready only by end-2015. The legislation on impact assessment will be codified in 2014. · Some progress on better absorption of EU funds (as the structural and cohesion funds absorption rate increased from 11.5 % at end-2012 to 33.7 % at end-2013). Limited progress with respect to improving public procurement, Efforts to prevent conflict of interests and transparency issues in public procurement have not delivered sufficient results so far.

CSR 7: Improve and simplify the business environment in particular through reducing administrative burdens on SMEs and implementing a coherent e-government strategy. Ease and diversify access to finance for SMEs. Ensure closer links between research, innovation and industry, in particular by prioritising research and development activities that have the potential to attract private investment. Step up efforts to improve the quality, independence and efficiency of the judicial system in resolving cases and fight corruption more effectively. || Romania has made limited progress in addressing CSR 7. · Some progress in reducing the administrative burden and simplify the business environment. The quantification of the information obligations is on-going and new simplification Action Plan is to be prepared in 2014. · No progress: no coherent e-government strategy and limited interoperability. · Some progress: The scheme for state guarantees for bank lending has been improved and re-launched in 2014. No progress has been achieved as regards the development of alternative forms of financing for companies. Access to finance for SMEs remains difficult and costly and the funding conditions to SMEs are expected to tighten during next months. · No progress: There is a lack of formal coordination between the Innovation Strategy, Competitiveness Strategy, Industrial Policy Strategy and SMEs Strategy. A National Strategy for Competitiveness and the National Strategy for Research and Innovation for 2014-2020 including a component on smart specialisation are in drafting stage, with multi-annual financing not secured. · Some progress in improving the quality, independence and efficiency of the judicial system.

CSR 8: Promote competition and efficiency in network industries, by ensuring the independence and capacity of national regulatory authorities, and by continuing the corporate governance reform of state-owned enterprises in the energy and transport sectors. Adopt a comprehensive long-term transport plan and improve broadband infrastructure. Continue to remove regulated gas and electricity prices and improve energy efficiency. Improve the cross-border integration of energy networks and speed up implementation of the gas interconnection projects. || Romania has made limited progress in addressing CSR 8. · Fully addressed: the independence of the rail regulatory authority has been sufficiently strengthened. · Limited progress in corporate governance reform of SOEs in transport and energy. · Limited progress has been made in the adoption of a comprehensive long-term transport plan. · Limited progress on improving broadband infrastructure. · Fully addressed: Romania follows the agreed roadmap on liberalisation of retail energy prices. · Limited progress: More concrete actions and clear commitment of necessary resources are needed to implement energy efficiency programmes and relevant EU legislation. · Some progress with improving cross-border integration: gas exports are possible; some gas interconnections have been established; no progress in electricity interconnections.

Europe 2020 (national targets and progress)

Policy field target || Progress achieved

Employment rate target (age group 20-64): 70 % || The national target of 70 % by 2020 remains very ambitious and difficult to reach. At 63.9 %, the employment rate remained practically unchanged in 2013 in comparison to 2012.

R&D target: 2 % by 2020 || The R&D target is very ambitious and is difficult to reach. To attain the 2020 target, an average annual growth rate of 21.5 % in R&D intensity over the period 2012-20 is required (the average annual growth rate for 2007-2010 was of -4.2 %). In 2012, both the business R&D and the public R&D intensity have decreased compared to 2011: business R&D was only 0.12 % of GDP (ranked 27th in EU) and the public R&D was 0.3 % (ranked 27th in EU).

Early school leaving target: 11.3 % || No progress towards meeting the target. The early school leaving rate stagnates at 17.3 % in 2013. A strategy on early school leaving is being delayed.

Tertiary education target: 26.7% || Some progress towards meeting the target. The tertiary attainment rate has improved from 21.8 % in 2012 to 22.8 % in 2013. A decrease in enrolment and graduation rates has been registered in the last three years and this may put at risk the attainment of the target. A strategy on higher education is being delayed.

Greenhouse gas (GHG) emissions target: +19 % (compared to 2005 emissions, ETS emissions are not covered by the national target) || Inventory data shows that in 2012 Romania has decreased non-ETS emissions by 7 %[90] as compared to 2005. According to the latest projections submitted to the Commission and taking into account existing measures Romania is expected to increase its non-ETS GHG emissions by 7 % in 2020,[91] thus remaining below its target by a margin of 12pp.

2020 Renewable energy target: 24 % Share of renewable energy in all modes of transport: 10 % || Romania is on track for meeting its 2020 renewable energy (RES) target. The share of RES in 2012 reached 22.92 % of total gross energy consumption in 2012 (preliminary Eurostat data), well above the benchmark set by the indicative trajectory in the Renewable Energy Directive for 2011/2012 of 19 % and close to the 2020 objective. In order to remain on track to achieve its 2020 objective, it is beneficial to pay attention to preserving the regulatory stability and investors' confidence. Preliminary figures stand at 4.15 % for the transport sector.

Energy Efficiency target: 10 Mtoe or a 19 % reduction in primary energy consumption (compared to the PRIMES 2007 projection) By 2020: level of 42.99 Mtoe primary consumption and 30.32 Mtoes final energy consumption   || Romania has important potential to improve energy efficiency. Swift actions will be paramount to implement the Energy Efficiency Directive and the Energy Performance of Buildings Directive. The housing, district heating, industry and transport sectors remain should be the focus of multi-prone action. In addition, efforts for capacity building, awareness raising and information dissemination would need to be stepped up.

Risk of poverty or social exclusion target: reducing the number of people at risk of poverty by 580 000 people (compared to 2008). || In order to monitor this target, Romania opted for using one of the three sub-indicators of the headline indicator, the ‘at-risk-of-poverty rate’ that showed a slight improvement from 23.4 % in 2008 to 22.6 % in 2012. In absolute terms, 164 000 people were lifted out of the risk of poverty between 2008 and 2012.

Annex

Standard
Tables

Table I. Macro-economic indicators

 Table
II. Comparison of macroeconomic developments and forecasts

Table
III. Composition of the budgetary adjustment

Table
IV. Debt dynamics

Table
V. Sustainability indicators

Table
VI. Taxation indicators

Table
VII. Financial market indicators

Table
VIII. Labour market and social indicators

Table
IX. Product market performance and policy indicators

Table
X. Green Growth

List of
indicators used in Box 4 on the potential impact on growth of structural
reforms.

Final goods sector mark-ups: Price-cost
margin, i.e. the difference between the selling price of a good or service and
its cost. Final goods mark-ups are proxied by the mark-ups in selected services
sectors (transport and storage, post and telecommunications, electricity, gas
and water supply, hotels and restaurants and financial intermediation but
excluding real estate and renting of machinery and equipment and other business
activities[92]).

Source: Commission services estimation
using the methodology of Roeger, W. (1995). "Can imperfect
Competition explain the Difference between primal and dual Productivity?" Journal
of Political Economy Vol. 103(2) pp. 316-30, based on
EUKLEMS 1996-2007 data.

Entry costs: Cost of
starting a business in the intermediate sector as a share of income per capita.
The intermediate sector is proxied by the manufacturing sector in the model.

Source: World Bank, Doing Business
Database. www.doingbusiness.org. 2012 data.

Implicit consumption tax rate:
Defined as total taxes on consumption over the value of private consumption. In
the simulations it is used as a proxy for shifting taxation away from labour to
indirect taxes. The implicit consumption tax-rates are increased (halving the
gap vis-à-vis the best performers) while labour tax-rates are reduced so that
the combined impact is ex-ante budgetary neutral.

Source: European Commission, Taxation
trends in the European Union, 2013 edition, Luxembourg, 2013. 2011 data.

Shares of high-skilled and low-skilled: The
share of high skilled workers is increased, the share of low-skilled workers is
reduced (halving the gap vis-à-vis the best performers). Low-skilled correspond
to ISCED 0-2 categories; high-skilled correspond to scientists (in mathematics
and computing, engineering, manufacturing and construction). The remainder is
medium-skilled.

Source: EUROSTAT. 2012 data or latest
available.

Female non-participation rate: Share
of women of working age not in paid work and not looking for paid work in total
female working-age population

Source: EUROSTAT. 2012 data or latest
available.

Low-skilled male non-participation
rates: Share
of low-skilled men of working age not in paid work and not looking for paid
work in total male working-age population

Source: EUROSTAT. 2012 data or latest
available.

Elderly non-participation rates (55‑64
years): Share
of the population aged 55‑64 years not in paid work and not looking for
paid work in total population aged 55‑64 years.

Source: EUROSTAT. 2012 data or latest
available.

ALMP: Active Labour
Market Policy expenditures as a share of GDP over the share of unemployed in
the population.

Source: EUROSTAT. 2011 data or latest
available.

Benefit replacement rate: Share
of a worker's pre-unemployment income that is paid out by the unemployment
insurance scheme. Average of net replacement rates over 60 months of
unemployment.

Source:
OECD, Benefits and Wages Statistics. www.oecd.org/els/benefitsandwagesstatistics.htm.
2012 data.

[1] COM(2013) 800 final.

[2] COM(2013) 790 final.

[3] Aside from the 16 Member States identified in the AMR, Ireland was also covered by an in-depth review, following the conclusion by the Council
that it should be fully integrated into the normal surveillance framework after
the successful completion of its financial assistance programme.

[4] The programme was prepared on the basis of the contributions of
line ministries and the Working Group on Europe 2020 strategy. It is based on
seven national reform programmes that were prepared in sectoral working groups
coordinated by the Ministry of Foreign Affairs. Two committees in the
parliament have been informed about the content of the national reform
programme.

[5] In relation to the 2015 budgetary year the authorities mention in a
footnote in the convergence programme that the fiscal path to reach the medium-term objective
"does not include the adjustor for financing EU funds projects with
positive long-term effects on the growth potential and does not include
situations foreseen in the TSCG Art 3, paragraph 1(c) and 3(b)".

[6] Cyclically - adjusted balance net of one-off and temporary
measures, recalculated by the Commission services on the basis of the
information provided in the programme, using the commonly agreed methodology.

[7] The "adjustor" ensures that the resources can only be
used for co-financing EU Funds and not for other type of spending. In the event
of a slower implementation of EU-funded projects and therefore of a smaller
need for co-financing, the deficit target should be adjusted downwards
accordingly.

[8] According to the Commission note
to the EFC "The investment clause in the preventive arm of the Stability
and Growth pact: preliminary assessment of eligibility", Romania was considered eligible, as follows: "Romania is eligible in principle to the
clause. Within the framework of the current financial assistance programme, it
was agreed with the Romanian authorities to lower the adjustment foreseen in
2014 by 0.2% of GDP and to maintain the medium-term
objective achievement in 2015."

[9] http://ec.europa.eu/economy\_finance/publications/european\_economy/2012/pdf/ee-2012-8\_en.pdf

[10] For definition and explanation see Table V. The medium-term
sustainability gap (S1) indicator that is -0.5% of GDP for Romania shows the
upfront adjustment effort required, in terms of a steady improvement in the
structural primary balance to be introduced until 2020, and then sustained for
a decade, to bring debt ratios to 60% of GDP in 2030, including financing for
any additional expenditure until the target date, arising from an ageing
population.

[11] See Table V.

[12] Ageing costs comprise long-term projections of public age-related
expenditure on pension, health care, long-term care, education and unemployment
benefits. See the 2012 EC Ageing Report for details.

[13] There are 1.2 pensioners per salaried
worker.

[14] Source: Ameco database.

[15] 13.8% of the GDP, according to the Fiscal Council's Annual Report
2012.

[16]. Source: VAT-gap study produced for the European Commission; 2011
data, the most recent available. For details see http://ec.europa.eu/taxation\_customs/resources/documents/common/publications/studies/vat-gap.pdf.

[17] PwC – Paying Taxes 2014: http://www.pwc.com/gx/en/paying-taxes/assets/pwc-paying-taxes-2014.pdf.

[18] European Commission (2014) Report from the Commission to the
Council and the European Parliament Seventh report under Article 12 of
Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures,
COM(2014) 69 final

[19] European Commission (2014) Commission staff working document
accompanying the document Report from the Commission to the Council and the
European Parliament on the application of Council Regulation (EU) No 904/2010
concerning administrative cooperation and combating fraud in the field of VAT,
SWD(2014)39 final.

[20] Fiscal Council, Annual Report 2012.

[21] http://www.inspectmun.ro/site/RELATII%20DE%20MUNCA/Relatii%20de%20Munca.html.

[22] After almost 97 000 inspections, around 5 000 new
employment contracts have been concluded in 2013 and additional salary incomes
and social contributions of RON 1.4 million have been registered.

[23] Accounting for 47.2 % of overall tax
revenues in 2012 (against an EU-28 average of 34.5 %).

[24] Representing 21.6 % (against an EU-28 average of 33.4 %).

[25] Defined as overall tax burden (both employee's and employer's
contributions or taxes) of a legally employed person.

[26] For singles earning 67 % of the average
wage it was 43.4 % in 2012, well above the EU-27 average of 39.9 %;
for singles at 50 % of the average wage, it was 42.4 % against the EU-27
average of 34.1 %.

[27] Environmental taxation represented 1.9% of GDP in 2012 (EU-28
average: 2.4%), while non-fuel taxation on transport was 0.2 % of GDP (EU-28
average: 0.5%).

[28] Romania ranks 22nd out of the 28 member states in the
2013 access to finance index.

[29] According to the last CESEE Bank Lending Survey, conducted in H2
2013, banks expected to decrease supply of SME loans by 30 % in the subsequent
six months, while SMEs demand for loans was expected to increase by 20% over
the same period. Banks’ terms and conditions, such as the size of loans and
collateral requirements, were expected to tighten further.

[30] Guarantees for lending to SMEs are relatively important in Romania. Outstanding guarantees in the banks' portfolio represent 1.3 % of GDP, the 4th
highest in the EU according to 2012 data by the European Association of Mutual
Guarantee Societies (data available only for 19 Member States).

[31] For further details, see the 2014 Joint Employment Report,
COM(2013)801, which includes a scoreboard of key employment and social
indicators.

[32] The unemployment rate increased to 7.3 % while employment decreased
somewhat – see section 2.

[33] NEET rate was 16.8 % in 2012.

[34]The take-up of active labour market policies was the third-lowest in
the EU in 2011. This is also reflected in the
correspondent budgetary allocation which stood in 2011 at 0.03% of GDP vs.
0.54 % in the EU-27 in 2012.

[35] Measured as a percentage of the EU total in
purchasing power parity

[36] In 2012, Romania's minimum wage was 34% of the average monthly
earnings, the third lowest in the EU.

[37] Amended Apprenticeship Law (Law
no.179/2013) and the new Traineeships Law (Law no. 335/2013).

[38] Romania presented a Youth Guarantee Implementation Plan, entitled
"Romanian Youth Guarantee Implementation Plans (RYGIP) 2014 - 2015"
in December 2013 and a revised version in April 2014.

[39] Pursuant to the Council Recommendation of
22 April 2013 on establishing a Youth Guarantee (2013/C 120/01): "ensure
that all young people under the age of 25 years receive a good-quality offer of
employment, continued education, an apprenticeship or a traineeship within a
period of four months of becoming unemployed or leaving formal education".

[40] Young unemployed amounted in February 2014 to 72 300 (PES), while non-registered NEET were estimated at 450 000 in Q4 2012 (Romanian National Institute of
Statistics).

[41] 85 % of the population have no or low digital skills. Romania has also the lowest share of ICT specialists.

[42] In
2011, only 41% of children between the age of 3 and the mandatory school age
were in formal childcare, making Romania the country with the lowest childcare
coverage in the EU. For 0-3 year old, this figure is 2%.  (European Commission:
"Barcelona Objectives: the development of childcare facilities for young
children in Europe", 2013, p. 9).

[43] FRA (2014), Education: The situation of Roma in 11 EU Member
States. Roma Survey - Data in Focus (forthcoming).

[44] The employed trained mediators remain nevertheless low in numbers
in comparison with the total number of trained mediators and the needs.

[45] Out
of
around 8.4m jobs only over 4m jobs are salaried. The very high level of
self-employment (2.1m, 25% of all jobs) is associated with subsistence
agriculture and a lack of alternatives rather than entrepreneurship. A further
1.4m (20% of all jobs) is unremunerated family labour.

[46] 18.9% in 2012, more than double the EU average and the highest in
the EU.

[47] Non-coverage rate of the jobless poor (by social benefits other
than childcare) is the 6th highest (at 39.1%), while the net income
of people on social assistance relative to the median income is the 3rd
lowest (at 23.3%) (Source ESDE, 2013).

[48] From 57 181 in December 2000 to 22 124 in September 2013

[49] As of 2013, the pension point value is annually indexed so as to
ensure better adequacy.

[50] It includes a new basket of benefits, an updated list of reimbursed
medicines, the development of health-technology assessment and reform of the
hospital sector.

[51]
European Commission, EU anti-corruption report, 2014.

[52] Only 29 % of Roma declared to be in paid employment (including
full-time, part-time, ad-hoc jobs, self-employment), while 46 % of
declared Roma with no medical insurance are in paid work FRA (2014), Poverty
and Employment: The situation of Roma in 11 EU Member States, Roma Survey -
Data in Focus (forthcoming).

[53] Industrial Performance Scoreboard 2013: http://ec.europa.eu/enterprise/policies/industrial-competitiveness/monitoring-member-states/files/scoreboard-2013\_en.pdf

[54] In terms of business sophistication, Romania ranks 101 out of 148
countries in the 2014 Global Competitiveness Report (World Economic Forum).

[55] According to 2010 data, 1 % of SMEs in Romania export outside the EU, compared to the EU average of 4 %.

[56] Romania ranks 25th in the EU-28 Innovation Union
Scoreboard 2014 and is close to the bottom in all ranks of innovation by SMEs.

[57] Romania's overall R&D intensity, at 0.42 % in
2012, is the lowest in the EU. The public R&D intensity in 2012 was
0.3 % GDP (27th out of 28 EU member states) while the EU
average was 0.74 %. The
national public budget for R&I is low (0.22 % of GDP in 2012). The
private investment in R&D is also very low (0.12 % of GDP in 2012) and
remains one of the lowest in the EU.

[58] The scientific driven cluster European Light Infrastructure in
Magurele; the strategic driven cluster the Danube-Danube Delta-Black Sea
Institute or the business driven cluster Cluj Innovation City.

[59] GEO 109/2011

[60] GO 26/2013

[61] Romania ranks lowest in the EU on satisfaction with the quality of
road infrastructure according to the World Economic Forum, The Global
Competitiveness Report 2013-2014.

[62] With a reported 98 dead per million inhabitants according to the
first preliminary figures for 2013, Romania has almost twice the average EU
road fatality rate of 51 dead per million inhabitants in the same year

[63] An electronic vignette (time based) system is currently in place.
There is no differentiation of vignette rates according to environmental
standards.

[64] 10th Consumer Markets Scoreboard, to be published in mid-June 2014,
http://ec.europa.eu/consumers/consumer\_research.
Romania also ranked fifth lowest EU-wide in an aggregate index of
satisfaction with railway stations and travels (Flash Eurobarometer 382a,
http://ec.europa.eu/public\_opinion/flash/fl\_382a\_en.pdf).

[65] The functions of both institutions are subordinated to the AFER
(Autoritatea Feroviara Romana) board which is composed, among others, of
officials from the Ministry of Transport and Infrastructure.

[66] Other factors are a low affordability (the
share of family income spent on broadband access is one of the highest in the
EU) and
low level of digital skills

[67] European Commission "Member States'
energy dependence: an indicator-based assessment", April 2013. http://ec.europa.eu/economy\_finance/publications/occasional\_paper/2013/pdf/ocp145\_en.pdf

[68] Based on GHG emission inventory for 2012 from 15 April 2014
submission to the UNFCCC.

[69] Data from the European Environment Agency – Trends and Projections
in Europe 2013 http://www.eea.europa.eu/publications/trends-and-projections-2013.

[70] At 203 passenger cars
per 1 000 inhabitants, the motorisation rate in Romania is still the
lowest in EU-28.

[71] The country’s recycling rate is 1 %, well below the EU
average.

[72] EUROSTAT 2012 data.

[73] World Bank, Doing Business 2014. Romania performs poorly on the
ease of doing business, even compared with its regional peers: 174th position
out of 189 countries in obtaining electricity, 136th in construction
permits, 134th in paying taxes, or 99th in settling
insolvency.

[74] The current average is 30 cents on the dollar, as opposed to 70.6
cents on the dollar in the OECD countries.

[75] According to this evaluation, the root cause of the weaknesses may be found in the
politicisation of public administration facing constant reorganizations and
reshuffling of institutions, personalization of decision making, instability of
the civil service, absence of a coherent and shared strategic vision for the
development of the country, excessive bureaucracy and overregulated
environment, conservative attitude and resistance to change,
de-professionalization, insufficient accountability and transparency.

[76] In 2013, the Romanian Government proposed a Decentralisation law
through a Government Emergency Ordinance, which was ruled unconstitutional in
January 2014.

[77] 35 % of structural and cohesion funds have been claimed as of
end-January 2014.

[78] According to the 2013 Digital Agenda Scoreboard Report, e-government
take-up by Romanian citizens aged 24-54 is 37 %, the third-lowest in the
EU, while take-up by enterprises is the lowest, at 59 %.

[79] 2013 Digital Agenda Scoreboard Report.

[80] From 100 663 in
2010 to 229 619 in 2012. Source: Council of Europe (CEPEJ), Study on
the functioning of judicial systems in the EU Member States: Facts and figures
from the CEPEJ 2012-2014 evaluation exercise, study prepared for the
European Commission (DG Justice)

[81] Source: European Commission, The 2014 EU Justice
Scoreboard

[82] Source: European Commission, The 2014 EU Justice
Scoreboard

[83] A comprehensive evaluation of the Romanian judicial system
http://courtoptimization.wix.com/ewmi#

[84] CVM report 2014, COM(2014) 37

[85] According to Romanian authorities, as regards DNA indictments, 1 496
defendants were sentenced by final judgment; almost half of them had political
functions, including a former Prime Minister, a Minister, eight members of the
Parliament, one State Secretary, 26 Mayors, Vice-mayors and County Prefects, 50
directors from state companies and public bodies, 60 officials of the
supervisory authorities.

[86] EU anti-corruption report, COM (2014) 38 final. Annex 23. Special Eurobarometer survey on Corruption 397/2013,
published in February 2014.

[87] According to Romanian authorities, in the last seven years, the indictments
of the National Anticorruption Directorate/ DNA (prosecution level) were confirmed
by final conviction decisions in 90.25%. More than 80% of National Agency of
Integrity (ANI) decisions on incompatibilities as well as of the administrative
decisions regarding the conflict of interests were confirmed.

[88] Final goods sector
mark-ups is the difference between the selling price of a good/service and its
cost. Entry cost refers to the cost of starting a business in the intermediate
sector. The implicit consumption tax rate is a proxy for shifting taxation away
from labour to indirect taxes. The benefit replacement rate is the % of a worker's pre-unemployment income that is
paid out by the unemployment scheme. For a detailed explanation of indicators see
Annex.

[89] The following categories are used to assess progress in
implementing the 2013 country specific recommendation: No progress: The Member
State has neither announced nor adopted any measures to address the CSR. This
category also applies if a Member State has commissioned a study group to
evaluate possible measures. Limited progress: The Member State has announced
some measures to address the CSR, but these measures appear insufficient and/or
their adoption/implementation is at risk. Some progress: The Member State has
announced or adopted measures to address the CSR. These measures are promising,
but not all of them have been implemented yet and implementation is not certain
in all cases. Substantial progress: The Member State has adopted measures, most
of which have been implemented. These measures go a long way in addressing the
CSR. Fully addressed: The Member State has adopted and implemented measures
that address the CSR appropriately.

[90] Based on updated GHG emission inventory for 2012 from 15 April 2014 - submission
to UNFCCC.

[91] Data from the European Environment Agency –
Trends and Projections in Europe 2013 http://www.eea.europa.eu/publications/trends-and-projections-2013.

[92] The real estate sector is excluded because of statistical difficulties
of estimating a mark-up in this sector. The sector renting of machinery and equipment
and other business activities is conceptually part of intermediate goods sector.

[Top](#document1)