Romania:limited progress on addressing the 2017 EU recommendations

Romania has made limited progress on addressing the three 2017 country-specific recommendations, shows Country Report Romania 2018 released on Wednesday, 7 March 2018, by the European Commission. No progress was made on how the minimum wage is set and on equalizing the pensionable age for men and women or on ensuring that the national fiscal framework is implemented, Report says.

According to the European Commission, there was limited progress in strengthening tax compliance and collection, limited progress on improving access to quality mainstream education. In the healthcare system, limited progress was made on shifting to outpatient care and some progress was achieved on curbing informal payments. There was limited progress on adopting legislation to ensure a professional and independent civil service and on prioritizing public investment. By contrast, there was some progress on fighting undeclared work while limited progress was made on strengthening targeted labor activation measures.

"The legislative measures adopted in 2017 have reversed substantial progress in the previous year with regard to strengthening corporate governance of state-owned companies, indicating a significant rebound on previous reforms", the European Commission report says.

Some progress was made on implementing the national public procurement strategy, but sustainability of measures and irreversibility of reforms should be further monitored, EC Report says. Regarding progress in reaching the national targets under the Europe 2020 strategy, Romania is performing well in the areas of employment rates, national greenhouse gas emission, renewable energy, energy efficiency and tertiary education. The national target for reducing the number of people at risk of poverty or social exclusion has already been reached. However, research and development intensity and early school leaving remain some distance away from their respective targets.

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

Romania has not yet achieved a mature social dialogue, and on social protection and inclusion, challenges remain.

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

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

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

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

• The weak performance of the education system limits growth prospects in the long run. Low attainment levels in basic skills and digital skills, persistently high early school leaving, poor Roma inclusion and rural-urban disparities in education result in lost human capital and growth potential. Quality assurance and initial teacher education programs face challenges. Vocational education and training Executive summary 3 remains a second choice option and in most cases is not adapted to labor market needs. Access to adult learning is limited, in particular for the low-skilled.

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

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

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

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

Source: European Commission – Country Report Romania 2018, 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011