Overall, Romania made some progress in addressing the 2016 country-specific recommendations, the Commission said in a report on macroeconomic imbalances. "There was overall limited progress on credibility of fiscal institutions, on tax compliance and collection and financial stability. In contrast there was overall some progress on employment, minimum wage setting, education and pensions."
The Commission noted that the Romanian economy has been on a cyclical upswing for the past two years, and reiterated its forecasts for growth of 4.4% in 2017 and 3.7% in 2018.
"Since 2009, Romania pursued a significant fiscal consolidation which led to achieving its medium-term objective in 2014 and 2015. However, the authorities are pursuing an expansionary fiscal policy that led to a substantial departure from the objective," the Commission said.
As growth was driven mainly by private consumption supported by fiscal stimulus, this boost is likely to be short-lived in the absence of reforms to enhance potential growth, the EC said. "The fiscal impulse and strong domestic consumption lifted cyclical growth in 2016, closing the output gap. However, in the longer run, structural growth will remain constrained in the absence of sufficient progress on implementing structural reforms, including structural fiscal reforms," it added.
The Commission also said it is equally concerned about Romania's backtracking in the fight against corruption. Although the country has made substantial progress in the investigation of high-level corruption, the anti-graft fight against this scourge was recently put at risk through the government's actions, it commented.
"The irreversibility of progress in the fight against corruption was recently put at risk. Romania's track record has pointed toward the growing irreversibility of reforms, as a number of internal safeguards have been put in place against abrupt reversal. However, in an emergency procedure on 31 January 2017, the Government introduced amendments to the Criminal Code, affecting the fight against corruption. Such initiatives risk challenging the progress already made over the past 10 years in this field," the Commission said.
The emergency decree which amended the Criminal Code was approved by the Social Democrat led-government on January 31 at night and hastily published in the country's Official Gazette, sparking the biggest rallies since the fall of communism in 1989. The decree would have made abuse of office punishable by jail only if the sums involved exceeded 200,000 lei ($47,500/44,000 euro). Yielding to pressure from the protesters, the government repealed the decree on February 5, but street rallies continue for a 22nd day in a row, with demands for the government's resignation.
On Tuesday, Romania's parliament definitively ditched the controversial decree.
The Commission also noted that one of Romania's most serious long-term problems is that its labour force continues to shrink. Since 2007 the population has shrunk by 6%, the third highest decrease in the EU. The population is ageing and by 2020 the working-age population between 20-64 years old is expected to have declined further by around 4%, while the number of elderly people is likely to have increased by 13% by 2060.
"With the projected continued emigration of predominantly young people, coupled with limited return migration, the country risks losing further labour resources. This, in turn, may slow down productivity growth and income convergence and have a downward impact on potential growth, EC said.
Also, some potential labour supply remains largely untapped, as inactivity remains one of the highest in the EU. Groups such as Roma, women and the rural population continue to face challenges on the labour market, the EC report showed.
The Roma minority in Romania is also affected by the high poverty levels in Romania, which remain among the highest in the EU. "The risk is also high for inactive people. Education and health outcomes remain unsatisfactory, especially for the most affected by poverty and social exclusion. Poor education and health outcomes in turn hinder employability," the commission said.
