Romania has made limited progress with the 2019 country-specific recommendations, taking into account that the substantial progress made in the financial and banking sectors have been counteracted by the lack of progress regarding the fiscal framework, the public pension system, the minimum inclusion income, predictability in the decision-making process and the governance of state-owned companies, shows the Country Report published on Wednesday by the European Commission.
According to the document, Romania has made substantial progress regarding in safeguarding financial stability and solidarity of the banking sector, and some progress in ensuring the long-term viability of the second pension pillar, as well as in respect to the implementation of the national public procurement strategy.
Moreover, the Community Executive argues that Romania has made limited progress in its efforts to strengthen tax compliance and collection, improving the quality and inclusiveness of education, social dialogue, developing a minimum wage setting mechanism based on objective criteria, improving access and cost-efficiency of healthcare, focusing investments on key policy areas and strengthening public investments projects.
“Romania registered no progress in what concerns the implementation of the national fiscal framework, in ensuring the stability of the public pension system, completing the reform of the minimum income for inclusion, improving predictability of the decision-making process and improving governance of state-owned companies”, the EC report mentions.
According to the Country Report, since the start of the European semester in 2011, 47 percent of all the country-specific recommendations for Romania have recorded at least “some progress,” whereas 53 percent recorded “limited” or “no progress.”
“Overall, Romania has advanced in implementing its country-specific recommendations since 2013. Even though efforts have been made, in several policy areas, action is slow and the country must endeavour to achieve tangible results on implementing reforms,” according to the EC Report.
The European Commission published on Wednesday the 27 country reports of the analysis called “2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No.1176/2011.”
Romania’s government deficit to reach 6.1 percent of the GDP in 2021
The new pensions law is the main factor causing the rapid increase in the general government deficit up to 6.1 percent of the GDP in 2021, and the high fiscal sustainability risks, the European Commission estimated in the Country Report for Romania published on Wednesday.
Moreover, Romania’s ratings are at the lower limit of the “investment grade” with a “BBB-” or the equivalent rating of the sovereign debt from the three major rating agencies, the assessments being much more sensitive to the future direction of the fiscal policy, the EC warned. The value of the early-detection indicator of fiscal stress (“SO”), which assesses risk within one year is below its critical threshold.
“However, failure to put in place corrective fiscal measures, offsetting and/or modifying the scheduled significant pension increases, constitutes a key downside risk to Romania’s ratings. In fact, on 10 December 2019, S&P Global Ratings revised its outlook on Romania from stable to negative precisely on these grounds,” the Country Report shows.
Romania’s public debt might significantly increase and the medium-term fiscal sustainability gap would expand, leading to high debt sustainability risks in the medium term. By 2030, the debt would exceed 90 percent of the GDP. The high fiscal deficit and the increase of costs due to the population ageing causes high risks in terms of long-term budget sustainability, the EC mentions.