Overview

At 3.7 percent, Romania had one of the highest growth in the European Union (EU) in 2015, driven primarily by the domestic demand. Over the last 26 years, the country has made considerable progress in developing the institutions for a market economy. Joining the European Union (EU) in 2007 was a driving force for reform and modernization.

Romania’s macroeconomic situation is stable, with low inflation and external deficits, but risks are important. Growth is strong, fueled by the fiscal relaxation and by improvements in the labor market. Gradual improvements in labor demand and recent wage policy changes have led to rapid increases in wages. Economic growth has also positively impacted employment, but improvements in labor force participation and job creation have been below expectations, signaling continued rigidities in the labor market, including skills mismatch.

Sustainable long-term growth entails that Romania adopts measures that assure compliance with its fiscal targets while clearing arrears, improving the quality of spending and strengthening tax collection. Romania must improve living standards while meeting the fiscal targets and continue structural reforms, with a focus on energy, transport and public administration, whilst ensuring continued financial sector stability.

Accelerating the implementation of structural reforms is important to sustain growth. The government has made some progress on this agenda in recent years, in particular with respect to SOE governance and energy reforms. Yet, Romania lags behind other EU member states along a series of important dimensions. Key reform areas include public expenditure management, tax administration, energy, transport, health, cadaster and property registration, and the public enterprise sector. The World Bank supports Romania’s structural reform agenda through a Development Policy Loan (DPL) series aimed at boosting economic growth and enhancing the efficiency of fiscal policy.

Challenges to accelerate growth in the country include uncertainty in the Eurozone and exports markets, political developments in the context of the local and parliamentary elections, and the absorption of EU funds.

One of Romania’s key priorities continues to be upgrading the skills of its population to meet the Europe 2020 targets and bring the level of achievement of Romanian children in key subjects to current levels found in most European countries. A National Education Law in force since early 2011 promotes changes in virtually all areas of education. Another priority is reforming the health sector with a focus on promoting cost-effective outpatient and primary care services, rationalizing the hospital infrastructure and reducing inefficiencies and waste in the sector.

Once considered a breadbasket for Europe, agriculture plays an important role in Romania.  However the sector requires further development. Romania has the highest proportion of rural population in the EU (45%), the highest incidence of rural poverty (over 70%), and one of the largest gaps in living and social standards between rural and urban areas.

Under the Europe 2020 strategy, Romania has committed to reduce the population at risk of poverty by 580,000 persons and to achieve an employment rate of 70 percent by 2020. By 2013, only a third of the poverty target had been achieved. One in five Romanians is income poor, and a large share of income poverty is persistent, in that three-quarters of the poor have been poor for at least three years. One-third of the population is severely deprived materially in the sense of not being able to afford items considered to be desirable or even necessary to lead an adequate life. Decreases in the poverty rate pre-2010 reversed in 2010–13, resulting in a marginal decline in poverty of less than 1 percent between 2008 and 2013. 

Last Updated: Apr 07, 2016

Romania joined the International Bank for Reconstruction and Development (IBRD) in 1972, the International Finance Corporation (IFC) in 1991, and the Multilateral Investment Guarantee Agency (MIGA) in 1992.  Lending was discontinued in the early 1980s and resumed in 1991.Through the first quarter of 2014, IBRD has committed $9.395 billion through 76 projects.

Since 1991, Bank lending has been in four stages:

  • 1991-1994: supported Romania’s transition to a market economy;
  • 1994-2004: supported reforms in energy, education, infrastructure and the land market; 1997-2004 supported poverty reduction, reform of the state and environmental protection;
  • 2005-2010: supported institution building, governance reform and EU accession;
  • 2010-2012: support to systemic reforms (public finances, public administration, financial sector, education, health, social assistance, social security, mobilization of EU funds) and mitigation of economic and financial crisis.

The change in government priorities translated into an increasing share of policy-based lending, from 10% in Fiscal Years (FYs) 05-08 to 73% in FYs 10-12.

While the number of investment lending projects in the portfolio is declining, the Bank program of analytical and advisory (AAA) work is growing. The current portfolio in the country includes 10 investment projects and 7 pieces of AAA work.

The Bank’s analytical work program is supporting public finance, education, health, regional development, labor and social protection, and the Modernization of the Public Administration (MAP).

Bank support to Romania is focused on three EU-related cross-sectoral themes:

  • Theme 1: Policy reforms to reap the benefits of EU membership and meet the objectives of the Europe 2020 strategy. Supporting ongoing structural reforms and new policy actions in line with the National Reform Program (NRP) is critical for Romania to achieve greater convergence with EU Member States.
  • Theme 2: Modernization of public institutions to enhance resource allocation and absorption of EU funds. Over the past years, the Bank carried out reviews of 12 public institutions in Romania.
  • Theme 3: Complementing EU funding—the availability of EU Structural Funds makes Bank financing a minor instrument for Romania. However, the Bank can complement EU support by financing activities that are not covered by Structural Funds or alternative instruments.

International Finance Corporation (IFC)

IFC has invested a total of $2.5 billion in 81 projects, supporting around $3.7 billion in investment. As of February 29, 2016, IFC’s Committed Portfolio in Romania stands at $565 million.($463 million outstanding).

At present, Romania is IFC’s fourth-largest country exposure in the Central and Eastern Europe region after Turkey, Russia, and Ukraine, accounting for 1.2 percent of its outstanding global portfolio. While vulnerabilities from the Eurozone crisis and global economic downturn persist, IFC will continue to play a countercyclical role through selective private sector investments. IFC has a role to play through the selective financing of private sector projects, with an emphasis on helping the country to absorb EU funds in priority areas such as agriculture and infrastructure, plus ongoing financial sector support.IFC has implemented 26 advisory services projects since 1990 in a variety of sectors, but currently, few active advisory projects remain. Two projects also focus on climate change by improving district heating for Timisoara and Botosani, while two others are focused on supporting systemic banks: risk management advisory for the largest local player in the banking sector, Banca Transilvania and complex training program for strengthening BCR’s capacity as large SME lender.

Multilateral Investment Guarantee Agency (MIGA)

MIGA has guaranteed 13 projects in Romania, including Raiffeisen Zentralbank, Austria’s equity investment in Banca Agricola. It also guaranteed the loans accommodated by Volksbanken Austria to modernize Colţea Clinical Hospital and those provided by Raiffeisen Bank for enlarging loan operations for small- and medium-sized enterprises (SMEs).

MIGA’s outstanding guarantee portfolio in Romania consists of three contracts in the financial sector. The agency’s gross exposure in Romania was about $102 million (equivalent to 1.4% of MIGA’s gross exposure), while the exposure net of reinsurance amounts to about $55 million (also equivalent to 1.4% of MIGA’s net exposure).

Last Updated: Apr 07, 2016

Since 1991, World Bank projects in Romania have supported reforms in energy, education, infrastructure and the land market; supported poverty reduction, reform of the state and environmental protection, provided support for institution building, governance reform and EU accession. Since 2010, the World Bank’s broad-based advisory service program in Romania, reaching almost 20 public institutions, has helped the country lay the foundations for a modern public administration. The Romania advisory services program included social inclusion and poverty, agriculture, climate change, competition, private sector, education, transport, and urban planning. The support provided to the Government of Romania helped formulate sector policies and inform the preparation of the European Union Partnership Agreement, operational programmes, national and local development strategies including the development of five national strategies on social inclusion and poverty reduction, active aging, early school leaving, tertiary education, and lifelong learning helping meet European Union ex-ante conditionalities.

Some of Romania’s recent development results include:

Integrated Nutrient Pollution Control

The Integrated Nutrient Pollution Control Project aims to support the Government of Romania to meet the EU Nitrates Directive requirements by reducing nutrient discharges into bodies of water, promoting behavioral change at the community level, and strengthening institutional and regulatory capacity. The Integrated Nutrient Pollution Control project (INPCP) co-financing Global Environment Facility (GEF) has the specific objective of reducing, over the long term, the discharge of nutrients into bodies of water leading into the Danube River and Black Sea through integrated land and water management.

Some of the intermediate results of the project include: (i) a major public awareness campaign, critical for helping Romania to achieve the EU’s Nitrate Directive’s objectives, is under implementation, and support to the Ministry of Environment Waters and Forests (MEWF) and awareness to the Ministry of European Funds to ensure that proposals and funds are included under new Operational Programs (2014–20) for implementation of the EU Nitrate Directive; (ii) construction and delivery of 75 communal and 1,136 household manure platforms in nine training and demonstration sites (TDS) and 25 nitrate vulnerable zone (NVZ) communes; (iii) purchase and delivery of 4,014 household waste segregation plastic bins; (iv) procurement and delivery of equipment for animal waste management (including 56 front loaders, 62 tractors, 124 agricultural trailers, 56 vacuum tankers, and 56 manure spreaders); (v) tree planting on 182 hectares in 57 communes; (vi) completion and delivery of the extension of the Voina Training Center; (vii) nine  small scale community systems (sewage collection and treatment facilities) completed in seven communes; (viii) extending the national groundwater monitoring network managed by ANAR with the construction of 63 piezometers in nine river basins.

Justice Sector Reform

The Romania Judicial Reform Project has the following development objectives: (i) improvement of judicial efficiency and transparency; (ii) upgrading of court infrastructure and automation; and (iii) institution building for the main judicial governing bodies, all with the purpose of improving the accountability of the judiciary and addressing corruption concerns.

The project has supported the rehabilitation or construction of 12 out of the 19 buildings included in the project and works are ongoing for an additional four buildings. Some key JRP achievements so far are: the revision of the Civil Code and Criminal Procedures Code; finalization of the impact assessment required for the implementation of the new civil, criminal, civil procedure, and criminal procedure codes; completion of technical assistance related to determining the optimal volume of work of judges and court clerks and ensuring the quality of court activity; completion of the High Level Systems Analysis, Detailed Action Planning, and Procurement Support for a Resource Management System, and development of Quality Management Systems and Communications Strategies for the Ministry of Justice and the Superior Council of the Magistracy.  


LENDING

Romania: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments