The European Commission (EC) shows in the 2017 country report on Romania that, by reversing the consolidation trend, the fiscal policy turned pro-cyclical in 2016 and the deficit is widening. Driven by significant tax cuts and expenditure hikes, the general government deficit will increase further to 3.6% in 2017 and 3.9% in 2018. Contrary to the forecast that the Government presented, which provides for maintaining the deficit below 3% of GDP in 2017 and future decrease.
The structural deficit is projected to widen from below 1 % in 2015 to about 4% of GDP in 2017, well above the medium-term objective assumed by Romania (1% of GDP) in 2013. The EC foresees that the public debt ratio in the medium and long term will increase (again contrary to the official forecast of the Government from Victoria Palace).
The evolution of the structural changes casts a shadow on medium-term perspectives, despite some progress achieved in governance, employment policies and poverty reduction, the implementation of which is not irreversible yet. Other areas have stagnated and the fight against corruption has been questioned.
In the absence of a drive that would speed up structural reforms, competitiveness (non-price) and growth potential will be constrained.
The relatively low use of the labour force limits the growth. Romania is below the EU average in terms of activity rates for women, the low-skilled, young people and people with disabilities. Paradoxically, low unemployment is accompanied by one of the highest inactivity rates in the EU.
Despite reinforced controls, undeclared work remains prevalent, with the due consequences in reducing both the labour supply and fiscal revenue. The objective of full equalization of retirement age for women and men remains to be fulfilled.
Poverty is declining but high income inequality persists. The EC signals the reduction of the redistributive effects of the tax and public funds transfer system. Poverty and social exclusion persist for young people, families with children, people with disabilities, Roma, the rural population and inactive people.
Although measures have been taken to improve the healthcare sector, the system suffers from inefficiency, corruption, and limited accessibility. The EC indicates the absence of a national strategy on the medical workforce in healthcare, shortages of health professionals, affecting mainly rural areas and the chronic low funding of the sector.
The unequal provision of quality education weakens human capital potential. Underachievement in basic skills and the provision of quality education to disadvantaged groups in particular students in rural areas and Roma remains problematic. The relatively high early school leaving and low tertiary attainment do not allow offsetting the persistent emigration in search for a well-paid job.
Surprisingly, the EC report indicates that the public investment spending is among the highest in the EU in the last decade but at the same time, the perceived quality (! -editor’s note) of infrastructure ranks among the lowest in the EU.
Inefficient public spending, high bureaucracy and low provision of e-government services are major obstacles to boosting productivity.
Public administration reform accelerated in 2016 but is not yet complete. Although measures have been taken in multiple areas, secondary legislation, strategic planning, and court decisions have not been systematically implemented. Delays and potential reversals of recent reforms in the administration are holding back investment.
