Esteemed organizers and guests,
It is an honor to be here with you to tackle burning issues around Romania’s development. Today’s discussion takes place during a time of unprecedented challenge.
In addition to the suffering of those mourning over their loved ones after having lost the battle with COVID-19, we are witnessing severe impacts of the pandemic on many aspects of our life, economy and society, hindering years of prosperity.
COVID-19 has triggered the sharpest recession in Europe since World War II. We have discussed this extensively in our latest EU Regular Economic Report titled Inclusive Growth at a Crossroads published this summer. But more importantly, it was felt by so many of us and those around us.
The COVID-19 pandemic has taken its toll on Romania as well. Before the onset of the pandemic, Romania experienced one of the highest growth rates in the EU. This has led to rising household incomes, booming urban centers, and to a significant decline in the share of the population living in poverty. For example, poverty fell from almost 30 percent in 2013 to under 11 percent in 2018. However, with COVID-19, poverty has not only stopped declining but, according to our estimates, an additional 800.000 people were at risk of poverty one year after the start of the pandemic.
Other areas seriously impacted by the pandemic include education, health, investment, productivity, and potential growth.
From our studies, we have also seen food security remaining a concern in marginalized rural areas and communities with large Roma settlements. For example, one year from the start of the pandemic, 7 percent of surveyed families reported scaling back on food consumption to cope with the crisis triggered by the pandemic. Currently, with increasing food prices, the situation might have even worsened.
On the education front, COVID-19 has exacerbated inequalities for children who were already struggling at school, for those with less support at home or with limited access to internet and computers. Before the pandemic, as recorded by PISA assessment in 2018, the share of functionally illiterate students in Romania was very high, at 41 percent. In simple words, 41 percent of our kids could read the text but could not comprehend it. Now, our estimates suggest that one year into pandemic, this indicator went up by additional 10 percent, which means that every other child in post-pandemic Romania may be functionally illiterate.
Turning towards the impact on the pandemic on private sector, a key pillar of the economy, we should note that in Romania, like in other EU countries, firms have been significantly affected. Through our surveys, we have found that firm sales dropped by more than a third between May and July 2020 (relative to 2019 numbers). Furthermore, our Regular Economic Report shows that smaller and younger firms were hit harder, and benefited less from public support.
On the economic side, Romania’s economy contracted by 3.9 percent in 2020, which is significant but still less pronounced than the EU average of 5.9 percent. Yet, Romania fell back into the upper-middle-income group of countries, after being classified by the World Bank as a high-income country for the first time, based on the 2019 data[1].
But every crisis has a silver lining. So, allow me now to shift the discussion towards the opportunities that this crisis presents.
According to our regional Economic Update launched last month, Romania’s economy is projected to expand by around 7 percent in 2021, which should allow poverty to go back to declining trend already this year.
In the coming years, Romania will benefit from unprecedented levels of EU funding of almost 80 billion Euro under the EU’s Multi-annual Financial Framework for 2021–27, as well as under the Recovery and Resilience Facility. These resources, when used effectively, can help Romania to recover faster from the pandemic and build back in a sustainable, green and inclusive way.
We encourage the central and local authorities to focus on fully absorbing these funds, maximizing their impact, particularly through well-designed investments in health care, education, support for job creation, small and medium enterprises development, and other vital parts of the economy.
In the short term, addressing vaccine hesitancy is crucial for containing the COVID-19 crisis and limiting its health, economic and social impacts. We hope to see continuing the upward vaccination trend that we have observed over the past couple of weeks.
But as recovery becomes firmly established, Romania must tackle fiscal consolidation to avoid an unsustainable increase in public debt and to alleviate the concerns of the business community and markets. Given the large budget deficit and the limited fiscal space, I cannot stress more how critical the efficient absorption of the EU funds is for a sustainable economic recovery.
The strength of Romania’s recovery will depend on the government’s progress in two key areas - one is strengthening institutions, to ensure that they respond to the needs of the citizens and businesses; and the second is successful completion of long-awaited structural reforms in key areas, including pensions, public pay and employment, revenue mobilization, and expenditure efficiency.
In the recovery process, we encourage the government to also ensure that the most vulnerable and poor benefit from the economic upturn. Worldwide experience shows that a prosperous society is also an inclusive one. Inequality is still a major challenge in Romania. Can we really say that Romania prospers when important parts of our society do not benefit from this prosperity? Not really. The inclusion agenda requires more commitment and customized solutions in order for each and every Romanian citizen to benefit from the country’s wealth.
Finally, speaking about silver-lining, we cannot not mention digitalization. The ICT, or the information, communication and technology sector in Romania, has thrived even during COVID-19 crisis. In 2020, it expanded by over 10 percent in real terms and was the fastest-growing segment of the economy. The government should tap into the local expertise and market to leverage the opportunities brought by digital technologies – this is the case for the public administration, but also for firms and individuals. Another good news is that the National Resilience and Recovery Plan will enable greater investment in this area, with 20 percent of the funds to be directed towards supporting the digital development of the country.
At the World Bank, we support Romania in its journey to converge with its EU peers. Our technical and financial support aims to help the country to build stronger institutions and pursue reforms to enable a more prosperous and inclusive country. We invite you to find out more about our work from our online and social media channels.
I salute the initiative of the National Institute of Statistics, one of our counterparts in Romania, to organize, jointly with its media partner, such a large-scale conference and to bring together so many decision-makers, policymakers, and stakeholders. There is no better moment to come together and collaborate than now, as we all need to step up our efforts towards a more green, inclusive and resilient Romania.
Thank you.
[1] (per capita income of $12,610).
