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OPINION

The Path to Growth and Greater Opportunities for All Romanians

December 16, 2016


Authors: Anca Dragu, Romanian Minister of Public Finances, and Elisabetta Capannelli, World Bank Country Manager for Romania and Hungary

On December 15, 2016, the Executive Board of the World Bank successfully approved a loan of Euro 500 million for Romania – the Second Fiscal Effectiveness and Growth Development Policy Loan (DPL). Usually we communicate such information through somewhat dry press releases, picked up mainly by the economic press.

This time we thought we should explain in more detail to the Romanian public how this type of operation, called a DPL, will support Romania’s economic policies and institutions in recognition of its efforts to modernize. A DPL is a non-earmarked loan that represents a seal of approval by the international community of the good health of a country and of its desire to change.

Let us forget the technical briefs prepared for specialists and allow us to present the impact of this DPL for the general public. Let us highlight what an achievement this is for Romania. The reforms promoted through this project are important for Romania and they deserve closer scrutiny and better recognition.

We are cognizant that for economists it is at times difficult to present reforms. They are often considered a proxy for tough times and for painful changes, and the poor are weary they may not be protected. But the reforms Romania has embarked on deserve special recognition, including because they are bi-partisan in nature. They include a set of measures that were achieved following discussions over the last 2-3 years with several governments and with more than one finance minister.

The reforms supported by the DPL have enjoyed strong support across the political spectrum and have the active support of Parliament, which is good news for their long-term sustainability. We consider these to be at the core of a reform agenda for the country as a whole.

The objective of these reforms is to strengthen the growth potential and adjustment capacity of the Romanian economy; to facilitate its convergence process with the rest of the EU countries; and to support poverty reduction and improve inclusion for all citizens of Romania. Let us present a few examples of the measures implemented through the DPL program.

First, Romania has adopted a new social assistance law, called the Minimum Social Inclusion Income Law. We have decided to focus on this law as a priority because Romania still has the second highest level of poverty in the EU. And that is unacceptable. Through this law, we expect to improve the targeting and expand the coverage and generosity of the benefits of several ongoing social assistance programs, which will be consolidated and modernized.

When the program will start being implemented, around half a million Romanians will be lifted out of deep poverty and it will be easier for the poor and vulnerable to receive social assistance payments, while reducing the administrative costs of the program.

Second, we have approved a new corporate governance law for State-Owned Enterprises (SOE) (Law 111/2016). It was needed because Romania has the largest number of SOEs in the EU, many of them still making losses rather than positively contributing to the prosperity of Romanian citizens. This is not about the privatization of SOEs, but about boosting the competitiveness of the state enterprises to create jobs and improve the quality of their services offered to citizens.

Through the new legal framework, we hope to attract good professionals, mostly Romanians, with a solid track record of performance, to join the management of SOEs and to run these in a non-politicized manner.

Third, we have launched the reform of the cadaster system. The new legal framework for cadaster still needs to be further developed, but the legal improvements made will now enable free and systematic registration of properties for more than one million Romanians. This will especially benefit rural areas and marginalized communities, including the Roma.

Currently, only around 15 percent of the rural land and 51 percent of urban land is registered, the lowest figures in Europe. The new framework will accelerate registration and strengthen the security of land tenure. This will yield improvements in productivity, greater agricultural investment, and participation in the rental and land market, including for farmers.

Through these reforms, we hope to achieve higher sustainable growth, more and better jobs, and better living standards for Romanians. But achieving these goals is easier said than done.

This year, Romania will have the highest economic growth in the EU. This remarkable performance could continue in 2017. In fact, over the last 16 years, Romania has had one of the highest growth levels in the EU, which led to convergence improvement, taking our GDP per capita in Purchasing Power Standards (PPS) from 26 percent of the EU average in 2000 to an estimated 59 percent at the end of 2016.

Convergence with the rest of the EU in terms of living standards and productivity is clearly underway. This progress could not have been achieved without many of the bold but rewarding reforms, some stealth while others more visible, of the kind presented above.  

Romania’s good economic performance comes in a rather gloomy global and European context. We are seeing growing social and political tensions in many countries and an increased tendency towards populism and polarization. Economic growth remains low in many EU member states, accompanied by an increase in mistrust in public institutions and public anxiety.

Given these uncertainties which surround us, we need to remain open-minded and vigilant. Macroeconomic and fiscal slippages would risk putting us in a situation similar to that of 2008. The modernization of the economy is not yet complete and significant parts of the population are still excluded from opportunities and access to quality public services.

The World Bank and Romania recently celebrated the 25th partnership anniversary of the Bank’s presence in Romania, and the approval of this new operation represents a seal of approval that Romania can pull together its resources and will for the good of its citizens. Romania will need to continue to pursue sustained reforms to be able to become more resilient and to provide a better standard of living for all Romanians.

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