OECD Economic Survey of Romania 2022 - Presentation

2022 OECD ECONOMIC SURVEY OF ROMANIA Unleashing Romania’s potential

28 January 2022 @OECD

@OECDeconomy

www.oecd.org/economy/romania-economic-snapshot/

Key messages Romania recovered fast from the COVID-19 crisis, but risks to the outlook are high.

Reforms are needed to address macroeconomic imbalances and to improve fiscal sustainability.

Reviving productivity growth involves enhanced business environment and stronger rule of law.

Addressing labour market needs and its vulnerabilities requires better education and public employment services.

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Policies for a strong and resilient recovery

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Income convergence has been fast Real GDP per capita % of the OECD average

Source: OECD National Accounts Database.

4

The economic rebound has been strong Real GDP

Index, 2019=100

Note: Peers consists of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, Slovenia, and Poland.

Source: OECD Economic Outlook: Statistics and Projections (database).

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The labour market is resilient Unemployment rate % of labour force

Source: OECD Economic Outlook: Statistics and Projections (database).

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The vaccination rollout has been slow Share of the population fully vaccinated Per cent

Note: Peers consists of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, Slovenia, and Poland.

Source: Calculations based on Our World in Data database.

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Inflation has increased rapidly Headline inflation Y-o-y % changes

Note: The shaded area represents the target band of the National Bank of Romania.

Source: OECD Economic Outlook: Statistics and Projections (database).

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Macroeconomic imbalances have deteriorated Fiscal and current account balances % of GDP

Source: OECD Economic Outlook: Statistics and Projections (database).

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The economic recovery is set to continue Annual percentage change 2019

2020

2021

2022

2023

Gross domestic product

4.2

-3.7

6.3

4.5

4.5

Inflation (%)

3.8

2.6

5.0

6.6

3.6

-4.4

-9.3

-8.0

-6.6

-5.3

35.3

47.2

50.3

54.1

57.1

General government balance (% of GDP)

fiscal

General government gross debt (Maastricht, % of GDP)

Source: OECD Economic Outlook: Statistics and Projections (database) and updates.

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Sizeable EU funds will support investment Amounts of EU funds

Total allocation, per cent of GDP, 2020

Source: OECD calculations based on European Commission (2021) “The EU’s 2021-2027 longterm budget & Next Generation EU, Facts and figures”.

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Administrative capacities need strengthening to fasten absorption Absorption of EU Funds

Cumulative execution by country for the 2014-2020 period, as of end 2020

Source: OECD calculations based on European Commission (2021) “The EU’s 2021-2027 longterm budget & Next Generation EU, Facts and figures”.

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Recommendations for a strong and resilient recovery Consider extending the COVID-19 certificate to access a broader range of activities and for some professions.

Intensify efforts to reach out the rural population, by multiplying the number of mobile vaccination centres and engaging local actors.

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Recommendations for a strong and resilient recovery Reactivate fiscal support if the economic situation deteriorates, while targeting measures to the most vulnerable and affected.

Ensure an effective implementation of the NextGeneration EU plan by strengthening coordination among stakeholders and monitoring mechanisms.

Continue to gradually increase the policy interest rate if needed to keep inflation expectations well anchored.

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Ensuring the sustainability of public finances

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Ageing will impact fiscal sustainability General government debt, Maastricht definition % of GDP

Source: Adapted from OECD Economic Outlook: Statistics and Projections (database); and Longterm baseline projections; European Commission (2021), The 2021 Ageing Report.

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Tax revenues are relatively low Tax revenues % of GDP

Note: Peers is the unweighted average of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia.

Source: OECD Revenue Statistics; and Eurostat.

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Tax compliance needs to improve VAT Gap

% of VAT total tax liability, 2018

Note: The VAT gap measures the difference between the expected VAT revenue and the amount actually collected.

Source: European Commission (2020), "VAT Gap in the 28 EU Member States".

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Recommendations for sustainable public finances Establish a credible medium-term consolidation plan.

Gradually reduce the fiscal deficit to maintain the sustainability of public finances, should the recovery develop as expected.

Increase incentives to work longer, notably by increasing legal retirement age with life expectancy.

Revise the benefit formula to ensure the financial sustainability of the pension system.

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Recommendations for sustainable public finances

Improving the tax system by : •

Further modernizing the tax administration.

•

Eliminating inefficient reduced tax rates and special tax provisions.

•

Considering increasing recurrent taxes on immovable property, while exempting the poorest households.

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Addressing labour market needs and vulnerabilities

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The working age population has been falling rapidly Working-age population

15-64 year old, % change 2000-2020

Source: United Nations Population Statistics.

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Labour resources remain untapped Employment rate % of population

Note: Peers consist of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia.

Source: OECD Labour Force Statistics.

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Participation is low for some groups Participation rate % of population, 2020

Note: Data for Roma refer to 2016, The OECD average for Roma is the average of Czech Republic, Greece, Spain, Hungary, Portugal, and Slovak Republic.

Source: OECD; Eurostat,; and European Union Agency for Fundamental Rights.

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Inequality in education is large Impact of socioeconomic status on educational outcomes

Percentage of variance in reading performance explained by socio-economic status

Source: OECD PISA 2018 Results (Volume II).

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School dropouts are high Rate of Early Leavers from Education and Training % of the total population aged 18 to 24, 2018 or latest

Note: Early leavers refers to persons aged 18 to 24 who have finished no more than a lower secondary education and are not involved in further education or training.

Source: OECD, Education database.

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Few adults get training Participation in education and training last 4 weeks, % of 25-64 year-olds, 2019

Source: Eurostat (2020), Participation rate in education and training (last 4 weeks).

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Active labour market policies should be stepped up Participation in active labour market policies % of registered unemployed, 2019 or latest year available

Source: European Commission, Labour Market Policy database.

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Access to early childhood education can improve Percentage of children enrolled in early childhood education and care services 2019 or latest available

Source: OECD Family Database; and Eurostat, EU-SILC survey database.

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Recommendations to address labour market needs and vulnerabilities Dedicate more resources to reach vulnerable jobseekers, especially in marginalised communities, and to training programmes.

Accelerate measures to support students at risk of dropping out of school and to address learning gaps, especially in disadvantaged areas.

Provide affordable and good-quality early childhood education and care and long-term care services.

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Strengthening productivity and greening growth

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Productivity is low Productivity

GDP per hour worked, 2019, USD current PPPs

Source: OECD Productivity Indicators.

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Innovative start-ups are scarce Highly-innovative start-ups Per million inhabitants, 2018

Source: OECD calculation based on Crunchbase.

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Regulation is too complex OECD Indicators of Product Market Regulation 2018, index scale 0-6 from least to most restrictive

Note: PEERS comprises the Czech Republic, Hungary, Lithuania, Latvia, Slovakia, Slovenia, and Poland.

Source: OECD (2018), Product Market Regulation Database.

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Court congestion lengthens the resolution of bankruptcies Number of pending bankruptcy cases in courts per 100 inhabitant As of end 2018

Source: European Commission for the Efficiency of Justice (CEPEJ).

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Corruption is perceived to be high Corruption Perception Index Scale 0 (worst) to 100 (best), 2020

Source: Transparency International.

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The quality of transport infrastructure is low Quality of infrastructure

Global Competitiveness Index, scale from 1 to 7 (best), 2018

Source: World Economic Forum, Global Competitiveness Index.

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Efforts to reduce emissions should continue Net greenhouse gas emissions Tonnes of CO2 equivalent per capita

EU 2050 target

Source: OECD Environment database; Eurostat and OECD calculations.

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Exposure to air pollution is high Population exposure and premature deaths

Source: OECD Green Growth Indicators.

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Recommendations for strengthening productivity and greening growth Simplify the licence and permit enhancing the use of online services.

system,

Strengthen the insolvency regime, notably by introducing out-of-court mechanisms.

Reduce further the use of emergency decrees and conduct a proper impact assessment before implementing new laws.

Provide the National Anti-Corruption Directorate the necessary resources, authorised power and independence to conduct investigations.

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Recommendations for strengthening productivity and greening growth Expand support to households to transition away from polluting stoves and improve isolation of buildings.

Increase investments in renewable electricity generation such as wind and solar, by extending support to new installations.

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For more information

www.oecd.og/economy/romania-economic-snapshot/ @OECD @OECDeconomy Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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