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Country Report 2016 of EC points out several vulnerabilities of Romania's economy
The Country Report 2016 of the European Commission, handed out to media in a specialist conference on Friday, points out several vulnerabilities of Romania's economy.
"An expansionary fiscal policy in a strong growth environment is a source of concern. Strong economic growth in 2015 was reinforced by tax cuts and public wage increases. These were decided in an ad hoc manner and approved outside the budget process without provision for their financing as laid down in national legislation. Further expansionary fiscal measures became effective from January 2016 and more are planned for 2017. The fiscal deficit is expected to more than triple as a percentage of GDP in only two years. This undermines the budgetary consolidation gradually achieved over the last years and indicates that the fiscal framework has not been applied effectively to ensure fiscal sustainability," reads the executive summary of the document.
"At the same time, potential growth is constrained by inefficient public investment planning and coordination, the lowest EU funds absorption rate, an unfavourable business environment, low research and development intensity and protracted structural reforms, including of state-owned enterprises. Fiscal expansion, stimulating primarily domestic consumption, in the context of an already robust economic growth without supplementary supply-side measures could lead to new internal and external imbalances," the report also mentions.
According to the Country Report 2016, Romania has made limited progress in tax compliance, and no progress in equalising the pensionable age for men and women.
"Romania has made limited progress in addressing the 2015 country-specific recommendations. The third balance-of-payments financial assistance programme (2013-2015) ended in September 2015 without any completed review. Romania remained at its medium-term objective in 2015, but is forecast to deviate significantly from it in 2016 and 2017. Limited progress was made in tax compliance. No progress was made on equalising the pensionable age for men and women. Limited progress was made in adequately staffing the National Employment Agency, strengthening active labour market measures, and reducing early school leaving. Some progress was made as regards the provision and quality of early childhood education and care, especially for children above three years old," reads the executive summary of the document.
"With the financial assistance programme over, market confidence will rest on preserving financial sector stability and implementing sustainable fiscal policy and structural reforms. The third consecutive balance-of-payments assistance programme for Romania (2013-2015) ended in September. Given the disbursements made under the first programme (2009-2011), Romania will be under post-programme surveillance until spring 2018, when 70 percent of the loan from the European Union is expected to be repaid. Preserving favourable market conditions and balanced growth prospects as well as promoting positive social and labour market outcomes are linked to the implementation of structural reforms to improve competitiveness, employment and social cohesion," the report also mentions.
The report is a European Commission staff working document; it does not constitute the official position of the Commission, nor does it prejudge any such position.