Romania’s prudent macroeconomic management enabled a quick recovery from the global financial crisis. However, growth was near zero in 2012 and is projected at around 1.2% for 2013. Key challenges are to achieve steady economic growth and improve living standards. Read More »
Romania has made considerable progress developing institutions compatible with a market economy in the last 20 years, and joining the European Union (EU) in 2007 was a driving force for reform and modernization.
When the global financial crisis hit in 2008-09, Romania made a quick recovery thanks to prudent macroeconomic management. The crisis prompted long-needed reforms, with support from the international financial institutions, in health, education, the financial sector, public financial management, public administration, social insurance, and social assistance. Some of these reforms address short-term responses to the crisis, while others are anchored in a coherent longer-term strategy.
While the implementation of a bold package of macro-stabilization and structural measures - supported by a multilateral program with the World Bank, International Monetary Fund (IMF), and the European Commission (EC) - helped lead the country toward growth in 2011, a series of factors has left Romania vulnerable to exogenous shocks and growth was around zero in 2012. Economic activity is expected to pick up only slightly in 2013, with a projected growth rate of 1.2%.
Challenges to accelerate growth in the country include uncertainty in the eurozone and exports markets, political developments in the context of local and parliamentary elections, and absorption of EU funds. In the medium term, the key challenge for Romania is to achieve steady economic growth and improve living standards while meeting fiscal targets, and to continue structural reforms and the modernization of the public administration.
Sustainable long-term growth entails that Romania adopt measures that assure compliance with fiscal targets while clearing arrears and improving quality of spending and strengthening tax collections; progress on the structural reform agenda with a focus on energy and transport sectors; and ensure continued financial-sector stability.
The National Bank of Romania (NBR) and the Government took strong measures to safeguard the stability of financial markets, and banks weathered the stress well. Since the international financial support package, the exchange rate has remained broadly stable.
Romania’s energy sector is dominated by state-owned enterprises (SOEs), which the Government has initiated measures to improve, as well as to enhance competition, and attract private capital needed to boost competitiveness in the sector.
Access to health care in Romania is skewed towards the wealthy. Almost half of the poor do not seek care when needed, and of the public funds allocated for healthcare, much is wasted on inefficient and unnecessary services or treatments. The current health system is heavily biased towards costly inpatient hospital care.
The Government’s health reforms promote cost-effective outpatient and primary care services, introduce co-payments, rationalize hospital infrastructure, regulate the introduction of new drugs and technologies, and review the basic benefit package reimbursed by the public health insurance system.
Once considered a breadbasket for Europe, agriculture plays an important role in Romania however the sector is underdeveloped. Despite the highest proportion of rural population in the EU (45%), Romania has the highest incidence of rural poverty (over 70%), and one of the largest gaps in living and social standards between rural and urban areas. Romania imports an increasing proportion of its food needs, even though almost 30% of employment is in agriculture.
Romania has not yet taken advantage of EU Structural Funds for Environmental Protection and Climate Change worth EUR 4.5 million. However, they are committed to achieving the EU’s 20-20-20 climate and renewable energy targets, which are designed to reduce carbon dioxide emissions by 20%, increase the renewable energy share of the energy mix to 20%, and improve energy efficiency by 20%, all by 2020. To do so they need to prepare a comprehensive program for funding climate change and green growth under the next programming period for EU financing (2014-20), among many other things.
One of Romania’s key priorities continues to be upgrading the skills of its population to meet 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.
Romania’s poverty rate declined dramatically between 2000-2008, from 36% in 2000 to 5.7% in 2008. In 2009, poverty declined further to 4.4%, due to increased social protection and insurance spending. However, despite large strides, the poverty rate in Romania is still among the highest in the EU.
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 FY05-08 to 73% in FY10-12.
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 year and a half, 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.
IFC has invested a total of $1.58 billion in 72 projects, supporting around $3.7 billion in investment. IFC’s Committed Portfolio in Romania stands at $611 million ($600 million outstanding). Romania is IFC’s fourth largest country exposure in the CEU region after Russia, Turkey and Ukraine, accounting for 1.8% of the outstanding global portfolio.
IFC is targeting commitments of around $160 million in FY12, not including mobilization. While vulnerabilities from the eurozone crisis and global economic downturn persist, IFC will continue to play a countercyclical role through selective private sector investments.
IFC has implemented 25 Advisory Services projects in Romania since 1990 in a variety of sectors. IFC has no active advisory programs in Romania, but is developing a possible PPP advisory project in the healthcare sector.
MIGA has guaranteed 13 projects in Romania, including Raiffeisen Zentralbank, Austria’s equity investment in Banca Agricola. It also guaranteed the loans accommodated by Volksbanken Austria to modernize Colţea Clinical Hospital and those provided by Raiffeisen Bank for enlarging loan operations for small- and medium-enterprises (SMEs).
MIGA’s outstanding guarantee portfolio in Romania consists of three contracts in the financial sector. At the end of FY 2010, the agency’s gross exposure in Romania was about US$ 102 million (equivalent to 1.4% of MIGA’s gross exposure), while the exposure net of reinsurance amounts to about US$ 55 million (also equivalent to 1.4% of MIGA’s net exposure).
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; and between 2010-2012 have focused their support on systemic reforms in public finances, public administration, the financial sector, education, health, social assistance, social security, mobilization of EU funds, and mitigation of the economic and financial crisis.
The Bank’s analytical work is supporting public finance, education, health, regional development, labor and social protection, and the Modernization of the Public Administration (MAP).
Some of Romania’s recent development results include:
Health Sector Reform The Health Sector Reform 2 Project strives to improve health in Romania by decreasing morbidity and premature deaths, providing equitable access to health services, improving efficiency of the health system and rehabilitating maternity and neonatal care units.
The project supports the procurement and delivery of medical equipment for the entire network of maternities, as well as the training of the medical staff (both doctors and nurses) in order to improve the quality of services. A new referral system was developed, and its implementation is well under way. The Maternal Mortality Rate decreased from 0.24% in 2004 to 0.14% in 2009, while the Neonatal Death Rate decreased from 9.6% to 5.6% within the same time frame.
The Project supported the establishment of in-take emergency units and intensive care units in the emergency hospitals, as well as improved communications for the integrated emergency dispatch centers under the EU unique call number (112). As a result, the response time for emergency services decreased for all types of emergencies. Also, the 24-hour death rate among the patients treated in the in-take rooms and then admitted to the ICU decreased from 5.78% to 3.67%.
Social Inclusion and Poverty Reduction The Social Inclusion Project is improving the living conditions and the social inclusion of the most disadvantaged and vulnerable people in Romania, including the Roma, and strengthening the administration of social assistance benefits.
Three-fourths of the funds are being distributed to projects relating to Roma priorities, kindergartens for children at risk, shelters for victims of domestic violence, and persons with disabilities. Living conditions are being improved in 130 poor Roma settlements as a result of the investments in community infrastructure (sanitation, water supply, roads, and electricity supply) as access to social services has increased through establishment of community centers.
The construction and rehabilitation of kindergartens is currently underway in 27 communities with a majority of Roma population to improve the Roma children’s access to inclusive early childhood education, preparing them for school attendance.
Modernizing Agricultural Knowledge and Information Systems The Modernizing Agricultural Knowledge and Information Systems Project is helping Romania comply with the agricultural acquis communautaire and to help the agrifood sector take advantage of the benefits and opportunities arising from EU membership. The primary beneficiaries are small- and middle-sized farmers with the potential to become commercial. Project results so far include:
Three Border Inspection Posts constructed and equipped in accordance with EU specifications to assure the safeguarding of the European Food Safety Standards at Romania’s external EU borders;
Establishment of regional laboratories for food safety;
Investments in phyto-sanitary units throughout the country to improve implementation of food safety controls;
Agricultural research institutions were transformed into National Research Institutes that are internationally recognized and successfully competing on the European market. They are also generating substantial revenue through third-party funding;
1.3 million farmers and rural entrepreneurs have been provided with training in EU common Agricultural Policy requirements.
Mining Sector Reform The Mine Closure, Environmental and Socioeconomic Regeneration Project is supporting environmentally friendly mine closures in Romania, returning former mine land to other social and economic purposes and improving the mining sector’s environmental performance. The Socio-Economic Regeneration component is also scaling up job creation measures, supporting local development activities through community capacity building and financing of economic infrastructure and social services, and strengthening the capacity to implement the socio-economic regeneration program.
Result highlights include the permanent closure of 26 mines and mining enterprises in an environmentally and technically sound manner and the rehabilitation and transformation of 467 hectares of land previously under mining company usage for public or private use in localities. The socioeconomic regeneration component of the project has created over 7,666 jobs, supported 187 localities in developing local economic development plans, completed 21 municipal infrastructure projects and implemented 522 small grants and 189 social development schemes for mining communities.