The report notes there has been substantial progress on the financial and banking sectors and some progress on the second-pillar pension-fund viability and public procurement.
Limited progress was reached on tax compliance and collection, education, social services and dialogue, healthcare, minimum wage setting, investment and investment prioritization.
Income inequality and poverty rates in Romania remain among the highest in the EU, the report noted.
Romania continues to face risks in the form of an increasing current account deficit and marked cost competitiveness losses. The current account deficit has been widening since 2014, reflecting an expansionary fiscal policy stimulating domestic demand and import growth. Rapidly increasing wages have put unit labor costs under growing pressure as productivity gains, although significant, were not enough to compensate.
Policy measures have contributed to the widening current account deficit and risks to cost competitiveness. The fiscal stance has remained highly expansionary, continuing to stimulate consumer spending. The 2020 budget might not ensure sufficient fiscal consolidation, the EC noted.
Risks to the financial sector have abated after end 2018 but regulatory uncertainty persists. In January 2020, the government amended the most damaging provisions of government emergency ordinance 114/2018. However, legislative uncertainty affecting the business environment, and in particular the financial sector, appears to persist and requires monitoring.
Underfunding and delayed reforms continue to hamper the equity, inclusiveness and quality of education. Spending on education remains one of the lowest in the EU (2.8% of GDP vs 4.6% EU average), particularly at pre-primary and primary level, which account for just 21.8% of the budget (EU average 32%).
Spending on healthcare in Romania remains very low. About 5.2% of Romania’s GDP was spent on healthcare in 2017, compared to 9.8% in the EU, the report noted. Preventive care is underfunded and its availability limited.
Corruption continues to be major problem for the business environment in Romania. A 2019 business Eurobarometer survey shows that 88% of businesses consider corruption to be a serious problem for their company when doing business in Romania.