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