EC: Corruption and public procurement fraud remain a challenge for Romania

Newsroom 27/02/2015 | 11:07

Persistent weaknesses in public administration and in the overall business environment weigh on the country’s economy, shows the European Commission country report for Romania 2015.

According to the report, civil society observers have noted major differences in the number of cases identified and pursued in different parts of the country and by various agencies. Authorities at local level are particularly affected by the lack of transparency in the allocation of public funds and the risks of corruption in awarding public contracts at the local level being substantial. The repeated use of exceptions affects the transparency and openness of the market and creates the potential for corruption.

Under successive assistance programmes, key macroeconomic imbalances in Romania concerning the current account and fiscal policy have been considerably reduced and financial sector stability has been maintained, also reads the report.

Despite important reforms, deficiencies in the business environment might threaten much needed investment and Romania’s export capacity. Structural funds could significantly contribute to financing important investments, but implementation continues to face major obstacles. Access to finance remains difficult, particularly for small and medium sized enterprises. Energy and transport infrastructure continues to be a bottleneck to growth. Insufficient quality of education and its mismatch with the labor market, limited public administration capacity and an unstable tax policy constrain investments and exports.

Inefficiencies in state-owned enterprises dominating key sectors like energy and transport are a burden on public finances and a drag to the entire economy.

There are also positive findings, such as private debt has been contained and financial sector stability has been preserved, although external and internal vulnerabilities remain.

The Country Report also analyzed macroeconomic and structural issues having found that tax compliance remains limited, while tax policy is rather unstable. Frequent changes to the tax system contribute to instability in the business environment.

In terms of labor-market, dynamics show signs of improvement, but structural issues persist. Poverty and social exclusion continue to affect a large proportion of the population.

The Country Report also reveals the following policy challenges stemming from the analysis of macroeconomic imbalances: risks for maintaining fiscal policy and financial sector stability remain, but can be subdued by implementing in full the agreements reached in the balance of payments programme and by ensuring a smooth transition to post-programme surveillance, including strengthening domestic anchors. The main challenges ahead regard: accelerating the pace of structural reforms to improve competitiveness and expand growth; building-up public research capacities in order to develop new sources of growth through research and innovation in the middle term; making best use of EU structural funds to enhance investment, innovation, and employment.

In terms of investment, the level remains above EU average. Investment accounts for almost 24 percent of GDP in Romania as opposed to 19 percent of GDP in the EU, in 2013. However, the contribution of investment to the overall competitiveness and growth potential is hampered by unstable priorities over time for public investment, which represents almost 20 percent of total investment (or 5 percent of GDP).

Also regarding investment, the report shows that Romania does not fully utilize the available funding for investments. Access to finance is the most problematic factor for doing business in Romania according to the World Economic Forum’s 2014-2015 report on global competitiveness. Not only EU structural funds, but also banking loans and financial markets proved to be little used.

Labor productivity in Romania is the second lowest in the EU, reads to EC report. Romania faced a decrease of around 4 percent in labor productivity during 2008-2010, and fell by an additional 0.5 percent during 2011-2012. In 2013 labor productivity grew by almost 5 percent, providing the first clear indication of an improvement. The labor productivity losses of the last years can be seen as an indication of the low level of adjustment capacity in the economy.

Staff

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