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EC Report: Romanian govt policy jeopardises fiscal consolidation gains, anti-graft effort

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The European Commission (EC) said on Wednesday that Romania's hard-won fiscal consolidation gains and anti-graft efforts are at risk of being reversed due to the government's policy.

Overall, Romania made some progress in addressing the 2016 country-specific recommendations, the Commission said in a report on macroeconomic imbalances. "There was overall limited progress on credibility of fiscal institutions, on tax compliance and collection and financial stability. In contrast there was overall some progress on employment, minimum wage setting, education and pensions."

The Commission noted that the Romanian economy has been on a cyclical upswing for the past two years, and reiterated its forecasts for growth of 4.4% in 2017 and 3.7% in 2018.

(Please find the report on:file:///home/cristiana/Downloads/2017-european-semester-country-report-romania-en.pdf)

"Since 2009, Romania pursued a significant fiscal consolidation which led to achieving its medium-term objective in 2014 and 2015. However, the authorities are pursuing an expansionary fiscal policy that led to a substantial departure from the objective," the Commission said.

As growth was driven mainly by private consumption supported by fiscal stimulus, this boost is likely to be short-lived in the absence of reforms to enhance potential growth, the EC said. "The fiscal impulse and strong domestic consumption lifted cyclical growth in 2016, closing the output gap. However, in the longer run, structural growth will remain constrained in the absence of sufficient progress on implementing structural reforms, including structural fiscal reforms," it added.

The Commission also said it is equally concerned about Romania's backtracking in the fight against corruption. Although the country has made substantial progress in the investigation of high-level corruption, the anti-graft fight against this scourge was recently put at risk through the government's actions, it commented.

"The irreversibility of progress in the fight against corruption was recently put at risk. Romania's track record has pointed toward the growing irreversibility of reforms, as a number of internal safeguards have been put in place against abrupt reversal. However, in an emergency procedure on 31 January 2017, the Government introduced amendments to the Criminal Code, affecting the fight against corruption.  Such initiatives risk challenging the progress already made over the past 10 years in this field," the Commission said.

The Commission also noted that one of Romania's most serious long-term problems is that its labour force continues to shrink. Since 2007 the population has shrunk by 6%, the third highest decrease in the EU. The population is ageing and by 2020 the working-age population between 20-64 years old is expected to have declined further by around 4%, while the number of elderly people is likely to have increased by 13% by 2060.

"With the projected continued emigration of predominantly young people, coupled with limited return migration, the country risks losing further labour resources. This, in turn, may slow down productivity growth and income convergence and have a downward impact on potential growth, EC said.

Also,  some potential labour supply remains largely untapped, as inactivity remains one of the highest in the EU. Groups such as Roma, women and the rural population continue to face challenges on the labour market, the EC report showed.

The Roma minority in Romania is also affected by the high poverty levels in Romania, which remain among the highest in the EU. "The risk is also high for inactive people. Education and health outcomes remain unsatisfactory, especially for the most affected by poverty and social exclusion. Poor education and health outcomes in turn hinder employability," the commission said.

Romania registered one of the highest levels regarding wage inequality of EU

Romania registered one of the highest levels regarding wage inequality of the European Union (EU) and the situation is increasing, a county report published on Wednesday by the European Commission points out. 

"Poverty and social exclusion remains on a high level. Although decreasing, poverty risk and social exclusion is persisting among the young NEETs ("Not in Education, Employment or Training" - e.n.), families with children, and persons with disabilities. Compared to the urban environment, twice as many people residing in the rural environment are living in marginalized communities and they face social problems, home issues and unemployment. The share of people who live in poor quality houses and consume more than 40 percent of their incomes on it, is reported as one of the highest of the EU," the document reveals. 

According to the report, poverty among workers is twice as high compared to the EU average and this is due to the large share of unpaid families from the rural environment. Romania recorded one of the highest levels regarding revenues' inequality of the EU and the situation is increasing. 

"Poverty and social exclusion is high especially among the Roma population. The risk of poverty and social exclusion among the Roma population is three times higher than the rest of the population. It's higher compared to other member states which have a significant Roma minority. The Roma population is concentrated in marginalized communities and almost two thirds of it lives in houses that don't have minimal sanitary amenities," the quoted source mentions.

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