OECD Economic Surveys: Romania 2022
Over the last two decades, Romania has converged rapidly towards the OECD average income per capita. Its economy has also proved resilient: after a deep contraction in 2020 triggered by the coronavirus pandemic, activity has rebounded fast. However, short and medium term challenges remain. The recent surge in inflation and the new pandemic wave require prudent macroeconomic policies. Eventually, fiscal sustainability needs to improve to cope with ageing. Productivity levels remain well below the OECD average, calling for reducing competition barriers, raising human capital, enhancing the regulatory framework, and improving transport infrastructure. Romania should seize the opportunity provided by the NextGeneration EU plan to boost investments for the green and digital transitions. Poverty remains high and some groups have difficulties to join the labour market. Active labour market policies need to be reinforced and access to training is a pre-requisite for addressing skills shortages. Finally, pursuing convergence to the highest OECD standards requires improving the rule of law and fighting corruption.
SPECIAL FEATURES: STRENGTHENING THE BUSINESS ENVIRONMENT FOR PRODUCTIVITY CONVERGENCE; IMPROVING LABOUR MARKET CONDITIONS FOR STRONGER AND INCLUSIVE GROWTH
Strengthening the business environment for productivity convergence
While Romania’s speed of convergence to the average income levels of the OECD has been impressive since the early 2000s, significant gaps to higher income countries remain. This mostly reflects the poor performance of domestically-oriented firms, with a large and increasing productivity gap between exporting firms and domestically-oriented ones. To reinvigorate productivity growth in the domestic business sector, structural reforms are needed to address three main policy challenges. Firstly, regulatory barriers to firm entry, especially in professional services, are high and governance of SOEs is poor. Removing impediments to competition and promoting better governance are vital to boost productivity growth. Secondly, reforms to reduce inefficiencies of the insolvency regime and the judicial system are urgently needed to facilitate the exit of non-viable firms and restore a dynamic business environment. These challenges have become even more imminent following the COVID-19 crisis, which most likely requires some reallocation of activities. Thirdly, poor quality of transport infrastructure exacerbates regional disparities and undermines economic prosperity. Increasing public investment through improved absorption of EU Funds is essential to close infrastructure gaps.
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