Overview

Strategy

Since joining the International Bank for Reconstruction and Development (IBRD) in 1972, Romania has received US$13.6 billion in commitments for over 117 IBRD loans, guarantees, and grants covering a broad range  of sectors. 

Under the Country Partnership Framework (CPF) for FY19–23, the World Bank supports Romania’s efforts to accelerate structural reforms. The overarching long-term objective of the CPF is to support the country’s convergence with the EU through robust, sustainable, and equitable growth and enhanced competitiveness.

The Bank engages in Romania through the full range of its instruments: development policy lending, investment lending, Advisory Services and Analytics (ASA), and especially Reimbursable Advisory Services (RAS). Engagement over FY19–23 aims at advancing poverty reduction and promoting shared prosperity through three pillars, which are: 

• Ensuring equal opportunities for alladvancing growth and private sector job creation;
• Catalyzing private sector growth and competitiveness; and
• Building resilience to shocks.

Key Engagement

The Romania program consists of a portfolio of seven projects, one trust fund, and a program of 37 ASA tasks, of which 26 are RAS. The active lending portfolio amounts to US$1.4 billion in net commitments (US$778 million undisbursed), supplemented by one recipient-executed trust fund of over US$3.07 million (US$0.64 million undisbursed).

ASAs address themes of major interest, ranging from partnerships for marginalized Roma to improved fiscal effectiveness. The ongoing 14 RAS activities amount to over US$40.3 million and support the General Secretariat of the Government, the Ministry of Education, the National Authority for the Protection of Children’s Rights and Adoption, the National Agency for Public Procurement, the Romanian Agency for Quality Assurance in Higher Education, the Ministry of Public Finance, the Municipality of Constanta, Bucharest District 5 City Hall, and the Municipality of Brasov. Since 2010, almost 60 RAS agreements, totaling roughly US$100 million, have been signed.

The Bank’s RAS program, launched in 2010, has diagnosed structural bottlenecks to growth and made recommendations for capacity building, many of which were implemented in 2012-15 under the Memorandum of Understanding (MoU) supporting the implementation of EU Structural and Cohesion Funds in Romania and the modernization of public administration.

In January 2016, the World Bank and the Government of Romania signed an MoU effective until 2023 that provides a framework for continued World Bank support to Romania’s efforts to advance structural reforms, improve public administration, and achieve faster EU convergence. After the successful experience of the past five years, the new MoU includes an extension of the advisory services to the entire ESIF 2014-20, including, for the first time in Europe, access to the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund.

Last Updated: Apr 17, 2018

Economy

RECENT ECONOMIC DEVELOPMENTS

Romania’s GDP grew by 4% in the first half of 2018, the sixth highest in the EU. Private consumption remained the main driver of growth, up 4.3% yearon-year (y-o-y), fueled by tax cuts, hikes in minimum and public sector wages, and increases in pensions that boosted disposable income. Investment, up 0.5% (y-o-y), underperformed despite the availability of EU funds. On the production side, information and communications technology (ICT) (up 5.3%) and industry (up 4.3%) were the main drivers of growth. Construction underperformed (down 0.4%), reflecting the sluggishness in the residential segment and the timid recovery in public infrastructure.

Higher disposable income and the pickup in consumption boosted inflation to 5.4% in June 2018. In response to inflationary pressures, the National Bank of Romania increased the policy rate three times in 2018 to 2.5%. This came amid robust private sector credit growth (up 6.8% as of June 2018) and concerns about the perspective of the fiscal stance.

The labor market benefited from the economic growth. Unemployment was close to historical lows at 4.5% as of June 2018, and real wages increased by 8.4% (y-o-y). Nonetheless, the low employment rate at 63.1%, coupled with high youth unemployment at 16.8% as of the first quarter of 2018, reflect persistent structural rigidities in the labor market.

The budget deficit widened to 1.6% of the projected GDP in the first half of 2018, driven by the increases in recurrent expenditure. Increases in public wages and pensions led to a 24.4% hike in the compensation of employees and a 17% increase in current spending. On the revenue side, the reduction of the income tax rate from 16 to 10% starting on January 1, 2018 led to a 21.5% contraction in personal income tax revenues. The impact of these measures was only partially offset by the increase in social contribution revenues (up 36.8%), reflecting the transfer of the social contribution burden from employers to employees.

ECONOMIC OUTLOOK

The economy is projected to continue growing at around potential in 2018, albeit at a slower pace than in 2017. GDP will likely expand by around 4.1% in 2018, driven by the fiscal stimulus and aided by the demand from Europe. Continued growth in consumption is expected to widen the current account deficit to 4.1% in 2018.

The National Bank of Romania anticipates a gradual subsequent decline in inflation to 3.5% at the end of 2018, reflecting a lower contribution from fuel and administrative prices as well as a slowdown in private consumption dynamics, as no further fiscal boost to  real disposable household income is envisioned for the rest of the year. However, the recent inflation spikes will push the annual average inflation rate to close to 5% in 2018.

The fiscal measures passed in 2017 and 2018 have put pressure on the consolidated budget deficit. Nonetheless, the Government has stated that, as in 2017, it would be ready to promote adjustment measures should the deficit threaten the 3% ceiling. The widening of the fiscal deficit toward 3% would push public debt to 45.4% of GDP at end-2020 from 43.3% in 2017. Despite this, public debt remains one of the lowest in the EU.

Strong private consumption, aided by the expansionary fiscal policy and continued growth in real wages, partly supported by minimum wage increases, should boost real incomes and lead to further declines in poverty incidence.

The US$5.50 per day (2011 purchasing power parity) poverty rate is projected to decline to 22.3% in 2018, 21.7% in 2019, and 21.0% in 2020.

This is consistent with the trend of the rate for those at risk of poverty or social exclusion (AROPE) for Romania based on the EU’s Statistics on Income and Living Conditions (SILC), indicating that severe material deprivation has decreased significantly. 

Last Updated: Oct 11, 2018

Highlighted Project

Building a Greener and Cleaner Environment in Romania

Since 2007, the World Bank has supported Romania’s nationwide efforts to combat nutrient pollution.

Agricultural production in Romania is concentrated in small farms under 5 hectares in size, the majority of which keep animals in the vicinity of the household without adequate collection and storage facilities for animal waste. Such environmentally unfriendly practices lead to the pollution of groundwater and  pose a general health hazard for Romania’s rural population, such as the incidence of blue baby disease, which can lead to infant death.

The Integrated Nutrient Pollution Control Project (INPCP) supports the country’s efforts to reduce the discharge of nutrients (nitrogen and phosphorus) into water bodies and helps Romania comply with the provisions of the EU Nitrates Directive on a national scale. The project is currently the only intervention in Romania that finances direct investments in rural communities.

To date, INPCP has financed 82 platforms for the management and storage of animal waste in 77 rural communities around the country. These platforms have been equipped with new tractors, bins, and other essential tools needed to improve livestock manure management and prevent nitrates and other dangerous minerals from contaminating soil and water supplies.

The project also financed several sewerage networks and wastewater treatment plants and the first pilot biogas installation in the city of Seini, Maramures County. The facility employs an integrated approach to addressing manure disposal, while generating biogas and electricity for the local community.

In 2016, a €48 million additional financing was approved to scale up investments in addressing nutrient pollution. Approximately 30,000 small farms are expected to benefit from support for manure collection and composting facilities, manure management, biogas production from animal waste, and sewage and wastewater treatment in about 100 highly vulnerable communes.

The project aims to enhance public awareness about nitrate pollution and capture citizen feedback on implementation challenges and experiences to inform broader national efforts to reduce nutrient pollution.

Active Projects - One Pagers (PDF)

Last Updated: Oct 11, 2018