In the absence of “solid” reforms, the deficits will remain very high, leading to the increase of the debt and leaving Romania vulnerable, a report of the European Commission shows

Since its accession to the EU, the GDP per capita of Romania has increased from 44 % of the EU average to almost 80 % in 2024. However, although they have stimulated household revenues and domestic demand, the recent salary increases, especially in the public sector, have contributed to budgetary deficits and high account, shows this year's country report this year

In addition, it is specified in the document, the infrastructure overcome and inadequate, the relatively low research and development capacity and the persistent lack of qualified personnel prevent Romania's transition to a higher added value.

It is essential to support the private sector and the business environment, say the authors of the document, to help Romania move on to a new growth model.

So far, the country has largely based on the advantages offered by the lower costs of the labor, but would benefit from the gradual reorientation to investments in new technologies and in innovation.

The vulnerabilities of Romania increased as the public deficit and the current account deficit were emphasized, the report shows.

The increase of the internal demand induced by the taxation also led to the increase of imports. Together with a lower external demand, this has increased the commercial deficit, increasing the current account deficit to 8.4 % of GDP.

In the absence of firm budgetary consolidation and solid structural reforms, it is likely that the public deficit and the current account deficit will remain at very high levels, leading to the growth of debt and leaving Romania vulnerable to changing the perception of investors and external shocks, say the authors of the document.

No reforms and investments underlying an extension were implemented and had to be made by April 30

In 2024, the net expenses in Romania increased by 19.9 %. “This is due to the high increase of salaries in the public sector (+21.5 % compared to 2023) and social transfers, including pensions (+19.5 % compared to 2023). The commission envisages that, in 2025, net expenses will increase by 5.4 %, thus exceeding the maximum increase rate recommended by the Council,” the report said.

The cumulative growth rate of net expenses in 2024 and 2025, taken together, is estimated at 26.4 %, a value that also exceeds the maximum level recommended by the council.

Some of the reforms and investments underlying an extension were not implemented and which had to be made until April 30, such as the essential reform that consists of revising the tax and tax system, says the Commission.

In 2024, the occupancy rate of people between the ages of 20 and 64 increased to 69.5 %, but remains among the lowest in the EU. “There are two reasons that lead to this situation: one of these is the low participation rate on the labor market of women, young people, poorly qualified people, people with disabilities and Roma; the second is the large number of people who practice subsistence agriculture or who work at cross -border level,” the document shows.

Unemployment among young people also increased in 2024 and remains among the highest in the EU, along with the high percentage of young people who are not professionally classified and no educational or training program.

The relatively small banking sector in Romania, insufficiently developed capital markets and weak capitalization make the access of enterprises difficult for financing

More than half of the entrepreneurs perceive bank loans as expensive and believe that limited access to funding is a major obstacle to carrying out economic activities. Therefore, the largest source of investment financing for enterprises is internal financing (72 % of the total). Total banking assets in Romania easily exceed 50 % of GDP, much less than similar economies in the region and than EU media.

Investments in maintenance and improvement of transport infrastructure remain insufficient.

The transport network of Romania is among the shortest and least dense in the EU, due to inefficient and insufficient public investments.

Romania is among the EU countries that have made the least progress in the construction of the trans-European transport network (TEN-T). The main highway corridors are still insufficiently developed, only 997 km at the end of 2023, which represents only 5.6 % of the total national road network. However, it is expected to make progress regarding the construction of highways, over 400 km to be delivered until 2026 with the funds of the recovery and resilience and cohesion policy.

The railway infrastructure of Romania is extended, but slow, only partially electrified (~ 40 %) and is based on railways and outdated trains.

This causes significant delays, which makes trains less attractive than buses and coaches.

Substantial funds are available in the cohesion policy and the recovery and resilience plan for the railway projects, but the progress made in their implementation has been modest so far. In this context, it remains important to continue the implementation of the planned priorities, paying special attention to the investments in the railway network, including the implementation of the European railway traffic management and sustainable transport, as well as the completion of TEN-T networks, both rail and road.

The approach of these deficiencies could contribute to the reduction of the shuttle time: among the EU countries, Romania is located in the lower part of the standings, extending only three countries, about 43 % of the working population spending daily over 30 minutes by making the shuttle.

Romanian enterprises are facing constraints due to regulatory task. Almost a quarter of these allocate over 10 % of their staff to regulatory requirements – a much higher weight than in the EU countries with higher incomes, such as Finland, and even higher than in similar countries in the region, such as Bulgaria and Hungary.

According to enterprises, fiscal and legislative uncertainty represents a barrier to investment.

Romania competes worldwide for foreign direct investments, but 90 % of Romanian companies mention the uncertainty as the largest barrier to long -term investments.

As regularly emphasized by enterprise associations, public consultations as part of the legislative process are only a superficial formality.

For example, consultation periods last less than 24 hours, no training periods (which should last six months), public finances do not have a medium and long term orientation, and the structures of dialogue and consultation between industries and the government are absent. Under these conditions, companies indicate that they suspend their investments. Ensuring the stability and predictability of the investment framework by avoiding rapid policy changes and consistent application of existing norms are essential for stimulating productivity and competitiveness of enterprises.

The commercial integration of Romania in the single market is below the EU average[28%ofGDPcomparedto42%ofGDPin2024[28%dinPIBfațăde42%dinPIBîn2024

A fair, efficient, simple and transparent tax system is important to ensure predictability. The annual fiscal contribution of small and medium -sized enterprises to the budget remains low, because the eligible small enterprises are taxed at a preferential rate of either 1 % or 3 % of their turnover, according to specific criteria.

Access to the single market is an opportunity that many small and medium -sized enterprises in Romania could exploit. In the last 20 years, the trade in goods has increased significantly, although the commercial integration of Romania on the single market is below the EU average[28%ofGDPcomparedto42%ofGDPin2024[28%dinPIBfațăde42%dinPIBîn2024

The effects of measures to improve the performance of public procurement were not observed.

The public procurement system in Romania continues to face challenges in terms of transparency, efficiency and respect for EU standards. Romania continues the reforms (supported by the recovery and resilience mechanism) meant to simplify the procedures and to strengthen the institutional capacity by providing specialized training programs to civil servants involved in public procurement.

Other improvements would be beneficial 2023-2027, especially regarding: (i) professionalization and insurance of the personnel necessary for the contracting authorities; (ii) the foreseeability of the requests for proposals, offering the companies clear and stable guidelines, sufficient time to submit quality offers and the proportionality between the level of the requirements and the size of the financing and (III) a better alignment of the requests for proposals for the financing priorities of the small and medium -sized enterprises.

The full document can be consulted here