Commission Report 2002 (Romania)

2.2. Summary of economic developments since 1997

Romania's macroeconomic performance has been mixed but is showing signs of improvement. Over the period, the average growth rate has been negative, inflation high and the sustainability of the external accounts a frequent source of concern. A lack of restructuring has underpinned a low rate of unemployment but a high rate of underemployment. Since mid-2000, however, macroeconomic trends have improved distinctly, building upon the cumulative impact of successive rounds of incomplete structural reforms, a more favourable external environment and, crucially, the adoption of a more balanced and responsive policy mix. Growth has resumed, inflation declined and external vulnerability decreased.

Despite notable advances, transition-related reforms still need to be completed. Romania is a late starter in the reform process, with key measures in the area of liberalisation and enterprise reform starting to be taken only in early 1997. Although further progress has been achieved since then, especially in the banking sector, reforms have failed to gain significant momentum as the authorities have struggled to implement stated policies in a difficult political and economic environment. Price and trade liberalisation has advanced with the progressive application of the Europe Agreement trade provisions, and, recently, a significant adjustment in administered prices. The weight of the private sector also increased as the privatisation of large state-owned enterprises started. Although still awaiting privatisation, integrated energy companies have been unbundled and their markets partially opened up. The structure of the banking sector has been overhauled and the regulatory framework considerably strengthened in a belated response to serious financial difficulties. Progress has also been made on establishing the legal framework and basic institutions for a market economy. However, most of these reforms still need to be completed. Most importantly, budget constraints have been only partially tightened as poor payment discipline, large tax arrears, and weak bankruptcy procedures have allowed several nonviable enterprises to survive, hindering the reallocation of resources to more efficient uses.

Romania has not made progress in real convergence with EU per capita income levels. GDP per capita in purchasing power parity was only 25% of the EU average in 2001. Regional income disparities are moderate. At 35% of the EU average over the 1997-99 period, per capita income in the Bucharest region was some 40% higher than the national average and some 85% above the level in the poorest region. Since 1997, the economic activity rate has averaged 70% and the employment rate 65%. Both have declined over the period. Totalling 6.2% of the labour force on average, unemployment was considerably higher among the young and slightly more pronounced among male job-seekers. Although regional disparities in unemployment have been small, unrestructured public enterprises and inefficient agricultural activities account for a significant share of employment in certain areas.

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