Despite Romania’s progress in implementing the recommendations of the European Commission (EC), „the structural challenges may dampen the medium-term outlook,” mentions the report on Romania.
The report is part of the „winter package” of assessments published Wednesday by the EC on the member states’ progress in meeting the economic and social priorities.
„For the first time since 2008, actual output was above potential and is expected to remain so in 2017-2018„, says the report that raises the question of boosting the domestic demand by „expansionary fiscal policies„.
This policy might lead to an increased cost of deficit financing.
The European Commission estimated the 2016 growth at 4.9%, “fuelled by pro-cyclical fiscal measures” that will bring the budget deficit to 3.6% of GDP in 2017 and 3.9% 2018.
The public debt ratio „is expected to deteriorate but to remain below 60% of GDP”.
Taxation, financial stability, and laws
Also, the fiscal rules from the Fiscal Responsibility Law are well designed, but the budget law was non-compliant with those provisions.
The financial stability improved in 2016, but some legislative initiatives tend to undermine legal predictability and investor’s confidence, says the EC report.
The Commission argues that the full impact of the debt discharge law remains difficult to assess, adding that this piece of legislation should be revised to integrate the decision of the Constitutional Court.
The European Commission has invoked the potential risk caused by certain legislative initiatives. Concerns are related to a draft law on the National Agency for Consumer Protection that may affect the mandate of the National Bank of Romania and its prudential supervisory powers on credit institutions, as well as a draft law that may restrict the independence of the National Bank placing the institution under a tighter parliamentary control.
Progress and corruption
The report notes that Romania has made certain progress in meeting the EC recommendations, but this progress was „limited on the credibility of fiscal institutions, tax collection and compliance, and financial stability”.
Assessment of progress made by EU members states in implementing the EC recommendations
There was „some progress” made in the areas of employment, minimum wage, education, and pensions. Also, there has been some progress made in the healthcare, public administration and state-owned companies areas and some progress in rural areas, transportation and investment.
EC also says that Romania’s progress made in 2016 „particularly in governance, employment policies and poverty reduction” are not „anchored in a sustainable manner”.
Some structural reforms are at risk of being undone, while others have stagnated.
„The irreversibility of progress in the fight against corruption was recently put at risk. In the absence of an impetus in Romania’s structural reform agenda, competitiveness and potential growth will be constrained,” says the report.
