Ben Conigrave
OECD
Philip Hemmings
OECD
OECD Economic Surveys: Romania 2024
OECD Economic Surveys: Romania
Abstract
Achieving high rates of private investment and productivity growth requires policy changes to improve the environment for business. Structural reform momentum from the Recovery and Resilience Plan should, if sustained, help to improve regulations, strengthen competition, and upgrade Romania’s infrastructure and institutions. An ongoing challenge is to improve predictability in law making. Policy instability continues to discourage investment and risks increasing with elections expected in 2024. Efforts to improve financial inclusion and combat corruption would aid efficient resource reallocation, supporting higher productivity.
Romania continues to post stronger productivity growth than more advanced economies (Figure 3.1 panel A). But the pace of improvement has slowed compared with the country’s own past performance, and with it Romania’s rate of income convergence on more advanced economies. This matters because the technological frontier is still some distance away (Chapter 2). EU-funded infrastructure spending is spurring capital accumulation, Romania’s most reliable productivity driver (Figure 3.1 panel B). But the climate for private investment is challenging. On top of increased capital costs, slow trade, and regional instability, firms have had to navigate shifting fiscal policies (Chapter 2).
For Romania to stay attractive as a business destination, structural reform momentum must continue. Regulatory changes now underway will reduce firms’ costs of operating in Romania, boosting investment. But more can be done to remove market and policy barriers impeding the efficient movement of resources to highly productive firms. The first section of this chapter reviews Romania’s progress improving the regulatory and institutional environment for business since the previous Survey. Measures considered in this section include reforms to ease burdensome regulations, strengthen competition, build better institutions, lift absorption of EU funds, and improve policy predictability. Subsequent sections look in more detail at reforms to address barriers to credit access, and continue fighting corruption – both of which would support investment and facilitate efficient resource reallocation in Romania’s economy.
Note: Labour productivity is measured as real gross domestic product per hour worked. Panel B: “Labour quality” is an estimate of the return to labour productivity growth from human capital improvements, proxied by years of schooling.
Source: OECD Productivity database; The Conference Board, Total Economy Database.
Easing burdensome regulations
Recent investments are making it easier to create businesses in Romania, an issue examined in the previous Survey. Digital registration procedures aim to cut the time and cost involved in starting firms. Continued efforts to reduce paperwork, and move transactions online, will lower firms’ administrative costs of operating in Romania.
Manufacturing firms stand to benefit from simpler routes to licences. From mid 2025, an electronic “One Stop Shop” will provide access to multiple industrial certifications. Needless bureaucratic hurdles are being removed, including redundant permit renewals. Building on these efforts, a new government initiative will simplify licensing in commercial and service sector activities. By removing red tape, the licensing reforms aim to strengthen Romania’s competitiveness, encouraging investment and job creation.
Strengthening governance of state-owned enterprises
The previous Survey underscored Romania’s need for a strong governance framework to address underperformance by state-owned enterprises (SOEs). SOEs accounted for around 8.1% of gross value added in the economy in 2021 (Fiscal Council, 2023[1]). A recent review by Romania’s Fiscal Council found that SOEs’ economic and financial performance improved in the economic recovery from the COVID-19 pandemic. But SOE performance indicators such as net profit remained worse than in 2017. The deterioration in outcomes coincided with decreased commitment to core SOE governance principles from 2018 (Fiscal Council, 2023[1]). A 2023 OECD review found that existing rules designed to monitor performance, professionalise boards, and shield governing bodies from political influence were rarely observed in practice (OECD, 2023[2]). Requirements to disclose financial statements and audit reports have in the past been frequently disregarded, consistent with inadequate oversight. The OECD review found that sanction powers vested in the Ministry of Finance were often used but appeared to be too soft to deter rule breaking.
New legislation tightens SOE governance. Legislative changes in 2023 strengthen the separation of regulatory and ownership functions within public authorities. The new laws clarify responsibilities for reporting of state-owned firms’ audited financial information, outline transparent procedures for the appointment and remuneration of directors, and set term limits on temporary appointments to boards. The rules bar officials including senators, lawmakers, members of government and mayors from appointment as SOE directors or administrators. As well as tightening provisions aimed at levelling competition between private and state-owned businesses, the legislation establishes a new agency for monitoring SOE performance. Coordinated through the General Secretariat of the Government, the new agency is tasked with monitoring and evaluating compliance and sanctioning deviations from SOE corporate governance rules. If properly implemented, the reinforced governance framework could help address past concerns around SOE mismanagement. Bringing corporate governance in line with OECD standards – both in laws and in practice – would ensure better use of public funds and could improve efficient resource allocations in the economy, strengthening productivity.
Building better institutions
Romania’s institutions continue to improve. The previous Survey noted efforts to safeguard judicial independence. Romania’s progress strengthening the rule of law, a precondition for a functioning market economy, saw the European Commission close the Cooperation and Verification Mechanism (CVM) which had been overseeing judicial reforms.
Improving court system efficiency remains a priority. Plans to digitise judicial processes should reduce costs for firms using Romania’s courts. Pressure on court resources could be relieved by expanding access to non-judicial procedures in commercial matters. Excessive court involvement in insolvency proceedings can delay the resolution of financially distressed firms. While magistrates, or court-appointed officers, are still needed to uphold parties’ rights, shifting some stages of insolvency processes out of court could reduce costs and free up judges for other matters. The previous Survey identified scope to improve the efficiency of Romania’s insolvency mechanisms, which could have broader payoffs to productivity (Adalet McGowan and Andrews, 2018[3]). Recent analysis by the National Bank of Romania suggests insolvency procedures tend to be long, typically lasting over twelve months. More than half of insolvent firms had been in the procedure for over four years (NBR, 2023[4]). Greater use is being made of preventive proceedings, but these could be more effective (NBR, 2023[4]).
Improving investment management to lift absorption of EU funds
Rapid and effective absorption of EU funds would boost business investment and future productivity. Grants and loans available to Romania through the EU Recovery and Resilience Facility (EUR 28.5 billion, 10% of 2022 GDP) support private as well as public investment. Beyond direct effects on private activity during construction, major infrastructure projects, once completed, will benefit firms as well as households, including by driving down costs. Accessing funds for RRP investments requires that the government push through important and sometimes unpopular reforms agreed with the European Commission. Difficulties completing reforms to special occupational pensions (Chapter 2) and the process of altering the Recovery and Resilience Plan itself delayed the preparation of Romania’s request for a third tranche of RRF funds, which was submitted in December 2023 following RRP amendments. Like other EU countries, the Romanian authorities have renegotiated parts of the initial plan with the European Commission. This was done in part to accommodate a downward revision (by EUR 2.1 billion) of the total grants available to Romania. In November 2023 the European Commission approved revisions modifying some RRP measures and including a new REPowerEU chapter aimed at strengthening Romania’s energy security and decarbonising the country’s energy mix (Chapter 5).
Limits on government administrative capacity – a problem highlighted in the previous Survey – pose constraints on absorption of EU funds (OECD, 2022[5]). Implementation progress for the recent 2014-20 programming period accelerated recently but absorption in the initial years was below the EU average (Figure 3.2). Better planning and investment management would support implementation of RRP and Social Policy fund projects. This will require upgrading administrative capacity in government, itself a focus of RRP investments. Measures are underway to improve the efficiency of public procurement. In addition to investments in electronic forms, invoicing and payment systems, Romania’s RRP includes measures to roll out procurement training to civil servants and contracting staff and establish centralised procurement bodies for local authorities. Complementary reforms aim to improve coordination in government, enhance data collection and IT systems, and strengthen programme evaluation. These changes should have benefits beyond current EU programmes. For instance, better digital infrastructure and data management should improve government services and reduce firms’ costs of interacting with public authorities. Such measures should accompany support for local government capacity, including in under-resourced regions where EU-funded investments can close gaps in infrastructure and service provision.
Setting a stable policy foundation for investment
As underscored in the previous Survey, predictable policymaking would improve investment conditions in Romania. The total number of emergency ordinances adopted in 2023 was lower than in previous years. But emergency decrees continue to be used for major legislative changes, contributing to policy uncertainty. New tax measures were rushed into force in January 2024 after expedited legislative procedures bypassing Romania’s Parliament. With little warning, businesses had three months to prepare for significant policy changes aimed at reducing the budget deficit. Some of the announced provisions unwound tax concessions implemented only nine months earlier. Fiscal policy adjustments are normal, including to respond to changing priorities and economic conditions. But rapid-fire policymaking, often without proper consultation or impact assessment, can discourage investment and erode confidence in government. Fulfilling RRP commitments to curtail use of emergency decrees, and systematise impact assessments, would build trust in democratic institutions and reduce policy risks to business in Romania. The legal and methodological framework for impact assessments was revised in 2022. A methodology for drafting evaluation reports has been adopted and an independent board – the Consultative Council for the Impact Assessment of Normative Acts – established to scrutinise impact studies of government legislative priorities. New rules also require ex post review of emergency ordinances two years after a decree’s adoption.
Note: Panel A: “Cohesion Policy” refers to the European Social Fund, European Regional Development Fund, Cohesion Fund, and support for the European Territorial Co-operation”. The graph shows the total allocation over the period 2021-27 in current prices. “RRF Grants” refers to the maximum grant allocations from the Recovery and Resilience Facility over the period 2021-26.
Source: OECD calculations based on data released by the European Commission as of 8 December 2023.
Barriers to finance can impede resource reallocations important for productivity growth. Romania’s financial markets are shallow compared with those of its peers and OECD countries. Banks dominate a financial system in which capital markets are still maturing (OECD, 2022[6]) (see below). Total private sector deposits and loans are small relative to Romania’s GDP (Chapter 2). This reflects the large share of Romanian households that own homes outright and foreign-owned firms’ ability to source internal finance from parent companies. Access to loans is reportedly also limited in a country where financial inclusion is low (NBR, 2023[7]). Past reviews have found that credit access is bad in Romania’s cities but especially weak in rural areas (World Bank, 2020[8]). Isolated from large markets by poor transport infrastructure, many areas lack the physical branches needed for in-person banking (World Bank, 2023[9]). This can be important when a firm’s growth prospects are costly to assess without local knowledge. As in other countries, small and young businesses – a special focus of this chapter – typically find it hard to obtain external finance. Financing options are often limited for unincorporated enterprises, particularly small services-sector firms with limited credit histories, no collateral, and no access to trade finance. Such firms instead typically fund operations through reinvested earnings (NBR, 2023[7]).
Reflecting patchy access to finance, a large informal economy, and large numbers of undercapitalised firms (NBR, 2023[4]), demand for credit is on the whole weak. Policy instability and low implied taxation of small firms’ distributed dividends (see Chapter 2) may influence levels of investment and borrowing. High rates of financial illiteracy among some segments of the population also appears to reduce total credit demand. Low rates of bank account ownership are symptomatic of underused credit markets and inefficiently deployed resources (Figure 3.3). Low-income individuals (57%) and adults outside the labour force (54%) are among those least likely to have a bank account. Even among higher earners, World Bank Global Findex data suggest an unusually large share of people eschew banks. For adults in the top three income quintiles, bank account ownership in Romania (77%) is below rates in Bulgaria (91%), Hungary (93%) and Poland (97%). Directed through financial intermediaries to private sector borrowers, available funds could make individuals better off and expand young firms’ growth opportunities. This section of the chapter examines policies that can remove barriers to finance, strengthen trust in the financial system, and support capital market development.
% of population aged 15 and over with a bank account
Note: The graph shows the percentage of survey respondents who report having an account, by themselves or together with someone else, at a bank or other financial institution or report personally using a mobile money service in the past year.
Source: World Bank, The Global Findex Database 2021.
More can be done to remove supply-side constraints on financial development
Time-consuming collateral enforcement procedures discourage asset-backed lending to firms. Romania's laws adequately balance lender and borrower rights in the event of foreclosure. But past reviews have found that extensive court involvement slows foreclosure proceedings (EBRD, 2015[10]). A 2020 World Bank study found that while Romanian legislation allows loans to be secured by movable assets, banks tend in practice to be reluctant to accept assets other than land as collateral (World Bank, 2020[8]). Multiple opportunities for borrowers to appeal court decisions draw out resolution processes. International evidence suggests protracted and overly formal procedures can increase lenders’ costs when borrowers default on loans secured by collateral (for instance, property or equipment) (van Hoenselaar et al., 2021[11]). This could make lenders more cautious when it comes to extending asset-based finance to small businesses, limiting options for those unable to obtain unsecured credit or state-subsidised finance. Access to non-judicial foreclosure mechanisms, typically involving a notice period and opportunity to pay arrears, can reduce the time and cost involved in enforcing mortgages (van Hoenselaar et al., 2021[11]). Romania’s existing processes should be reviewed with the aim of condensing the time needed to enforce security – in this, the country could draw on practices applied in OECD countries (Box 3.1). As long as courts remain involved, reforms to improve judicial efficiency should lower the cost of debt recovery. This would reduce risks to banks from asset-based financing, encouraging lending to SMEs (OECD, 2015[12]).
Many common law OECD jurisdictions have nonjudicial foreclosure processes. This includes the United Kingdom, certain provinces of Canada and certain states of Australia and the United States. Many, but not all, civil law European countries apply judicial enforcement procedures, as are used in Romania (van Hoenselaar et al., 2021[11]) (IMF, 2013[13]). An exception is the Netherlands. There, enforcement proceedings can start relatively soon after a missed loan repayment. Lenders have access to summary foreclosure procedures, allowing forced sale of a mortgaged property. Parties can agree at the outset that courts must determine a default has occurred before security is enforced. Alternatively, borrowers are able to go to court to prevent a forced sale if, in their view, conditions for enforcement have not been met (DLA Piper, 2020[14]). A recent OECD comparison of arrangements in high-income countries found that out-of-court foreclosure proceedings are often faster and less costly than in-court procedures (van Hoenselaar et al., 2021[11]).
Some types of non-standard lending appear underutilised by Romanian firms. Laws enable factoring, leasing and warehouse receipt-based financing – all of which forms of lending that can be useful to small businesses. Leasing is the most common form of finance supplied to firms by non-bank lenders in Romania (NBR, 2023[15]). In contrast, little use is made of factoring or warehouse receipts. Such instruments can benefit firms lacking credit histories or standard forms of collateral – this includes agricultural producers (in the case of warehouse receipts) and higher-risk SMEs (factoring) (Table 3.2). As in many other countries, unfavourable value added tax treatment may discourage use of factoring in Romania (OECD, 2015[16]). Whereas banking and insurance services are VAT exempt, other financial services, including factoring, are subject to the standard VAT rate of 19%, consistent with EU directives. Past reviews have found that Romania’s warehouse receipt system is poorly supervised, with lenders inadequately protected against fraud (World Bank, 2020[8]). Better oversight of the system could strengthen lenders’ confidence in warehouse receipts and improve access to finance for rural SMEs.
Addressing information barriers to lending: completing title registration in rural areas
Laws and institutions are in place already to improve lenders’ information on would-be clients, facilitating credit decisions. Services offered by Romania’s public credit-reporting agency (CCR), a banking-sector credit bureau (BdC), and private credit reporting agencies reduce lenders’ potential costs of assessing customers’ creditworthiness. EU accounting, auditing and financial reporting rules – all of which are transposed into Romanian laws – improve access to standardised information, further shrinking a possible barrier to finance.
Informal firms would usually lack information needed to support loan requests. Information critical to lender appraisals, such as clients’ credit histories and financial accounts, is opaque for those operating in the grey economy. Getting more businesses into the formal economy – including with reforms to lower costs of complying with Romania’s taxes and regulations (Chapter 2) – should indirectly expand access to credit as more firms build up paper trails needed to support credit applications. Stronger tax enforcement (Chapter 2) might also help rein in informal lending, reducing distortions in financial intermediation.
Patchy land title registration creates challenges for asset-based finance in parts of the country. The national cadastre on land ownership is relatively complete for urban areas. But gaps in the cadastre are larger for rural areas (IMF, 2022[17]), where low market turnover slows the rate of point-of-sale registration. Difficulty establishing land ownership, whether by registered title or other means, adds hurdles to asset-based finance for small farm owners, of which there are many in Romania’s fragmented agricultural industry (Figure 3.4). Past reviews have found that loan rejection rates for Romanian farmers are above EU averages, leading many turning to friends and relatives for finance (Fi-compass, 2020[18]). A 2022 IMF study reported estimates that it might take 10 years to reach full title coverage in the national register (IMF, 2022[17]). Keeping up the government’s programme for systematic title registration will help close gaps in the cadastre. A related priority is to resolve remaining legal disputes over land title, a relic of the restitution process at the end of the communist era.
Land market frictions may add to difficulties accessing market credit and slow development in rural areas. Limited property market activity would create challenges for lenders seeking to assess the value of clients’ land in parts of Romania. For loans secured by mortgages over land classed as “agricultural”, difficulties selling properties subject to foreclosure could discourage financing of small firms. Processes for selling farms in Romania are administratively burdensome, being subject to a complicated system of pre-emptive purchaser rights and protracted sale notice periods (Vranken, Tabeau and Roebeling, 2021[19]). There may be scope to moderate land market rules without compromising strategic objectives, notably food security.
Note: Panel A: The graph shows the share of farm holdings with utilised agricultural area smaller than two hectares in 2020. Panel B: Farm output is influenced by local growing conditions. Romania has experienced episodes of severe drought in recent years.
Source: Eurostat; OECD calculations.
Ensuring state finance programmes complement private supply of credit
Government and EU-funded programmes expand credit access in Romania. State support aims to extend finance to creditworthy firms underserved by market lenders – for instance, due to the difficulty of evaluating a young firm’s growth potential.
A new state-owned credit institution, the Investment and Development Bank (IDB), will from 2026 provide a source of financing to small businesses. The IDB will be supervised by Romania’s central bank and have a share capital of RON 3 billion (EUR 600 million) – equivalent to roughly 1.6% of total loans to non-financial corporations. Like similar institutions in other countries, interventions by the development bank would set out to boost firms’ productivity, including through innovation and export opportunities. It is not yet clear how IDB support, modest on its own, would interact with subsidised credit already offered to Romanian firms through other schemes. A small but not insignificant share of firms access loans from the government (3%), the European Union (3%), or credit guarantee funds (4%) (NBR, 2023[7]).
Designing cost-effective state finance programmes is not easy (OECD, 2018[20]). Programmes often fail to expand credit access in a commercial manner. Inadequate screening of undercapitalised loan applicants can increase default risk. In such instances, non-performing loans are transferred to the state, increasing budget deficits and public debt. Good governance and administration will be needed to contain costs of support provided through Romania’s new development bank, ensure the programme performs as intended, and avoid its manipulation for political goals. Regular evaluation will be important to keep the bank on track and avoid crowding out market lending (Box 3.2). Above all else, roll out of the programme should not distract the government from its main role in improving institutions needed for an effective financial system.
Romania can learn from approaches in OECD countries to collect data and evaluate the performance of state-backed financing programmes. It is important to regularly assess whether programmes expand access to debt finance (known as “additionality”), either by lowering credit costs or making financing available to more businesses. Regular reviews should assess impacts on beneficiaries’ performance (investments, productivity, default risk) but also broader economic effects (for instance, job creation). The latter requires analysis of scenarios that might have eventuated without government intervention. Even if state financing programmes boost activity, they still distort resource allocations in the economy, including possibly by propping up non-viable businesses. While unintentional, schemes can also penalise firms ineligible for support, disrupt capital market development or reduce demand for unsubsidised credit. Routine evaluations should assess a programme’s costs and financial sustainability, including with respect to credit under-pricing, operational expenses and defaults.
Source: OECD (2018[20])
Building knowledge and trust in the financial system
Lifting financial literacy could encourage use of financial services by businesses and build trust in the financial system. The state of financial knowledge in Romania reflects both general gaps in education and the relatively short history of private financial markets in the country since the early 1990s. Studies suggest individuals’ knowledge of concepts such as interest rates, inflation and risk diversification is lower in Romania than in other Eastern European countries (for example, see Beckmann and Kiesl-Reiter (2023[21])). In general, across countries, financial illiteracy tends to be higher among the young and old than in middle-age groups; women and those with less schooling also tend to have less financial knowledge, as do those outside employment (Lusardi and Mitchell, 2011[22]). Among firms, financial knowledge is typically lower among managers of small businesses compared with those heading big firms (OECD, 2023[23]). A recent OECD study returned mixed findings on the financial literacy of SME owners and managers in Romania (OECD, 2023[23]). Relatively few respondents (45%) understood the difference between dividends and loan repayments. A sizable share demonstrated uncommercial behaviours around financial management. Only half (48%) kept separate household and business financial accounts. Many of these findings corroborate recent survey evidence collected by Romania’s central bank (NBR, 2023[7]).
Financial education initiatives should continue. The National Bank of Romania and the Ministry of Education, together with other public agencies, convene events aimed at improving financial literacy, which is also part of the national curriculum. These activities are carried out within the National Financial Education Strategy. Cost-effective financial inclusion initiatives should continue, backed by assessment of where gaps in financial literacy are largest, and which people and firms would benefit most from support. Current initiatives rightly focus on improving awareness of financial services, including among young people and firms. Such efforts could over time encourage greater uptake of banking services and insurance (Chapter 5), among other products, particularly if financial educators make progress in rural areas, with small firms, and among people with less education. As well as expanding growth opportunities for small businesses and reducing firms’ exposure to financial risk – for instance, linked to foreign-currency borrowing (Chapter 2) – better financial literacy could also encourage people to save for retirement. Regular evaluation will be important to ensure financial education initiatives achieve their goals. In assessing the cost and effectiveness of financial literacy interventions, Romania can draw on approaches used in OECD countries. A recent review showed that countries often rely on a mix of qualitative evaluations and quantitative information, including through literacy surveys (OECD, 2022[24]). Parallel efforts aimed at avoiding overly burdensome procedures for credit applications could further support use of financial services.
Romania’s National Financial Education Strategy was revised and relaunched in 2023. A new TOP Entrepreneurship project, coordinated by the National Bank of Romania, aims to develop entrepreneurs’ financial knowledge. In addition to improving financial behaviour, a series of conferences, seminars and workshops hope to expand firms’ use of financial products and services. From 2024 a new online portal will also offer firms free data and information, including on financial discipline, financing solutions offered by banks and non-bank lenders, tools for digitalising financial activities, and information on cyber security related to banking and financial activity.
Source: National Bank of Romania, Press release: Launch of the TOP Entrepreneurship project, 11 October 2023.
Removing obstacles to capital market development
As in other Eastern European countries, domestic capital markets are small in Romania. The value of corporate bond issuances in the ten years to 2019 was worth 0.01% of GDP, lower than in Hungary (0.3%) and Poland (0.5%) (OECD, 2022[6]). Listings in Romania’s public equity markets picked up in the past decade but are small in number compared with peers Czechia and Poland (but higher than in Hungary) (OECD, 2022[6]).
Capital markets should deepen with economic development. Greater use of bond financing could expand the supply of long-term credit to business-sector borrowers, and at lower cost than bank lending. The share market will continue to mainly benefit large firms. Private equity (including venture capital) can, however, play a role in funding promising start-ups, including those deploying new technologies. Unlike bank lending, equity market investors accept higher risks with compensation of larger returns when businesses succeed. Such markets can provide more efficient mechanisms for managing risks than bank lending (Mehrotra and Schanz, 2020[25]).
A 2022 OECD Capital Market Review of Romania identified barriers impeding bond listing and issuing new equity through the share market (OECD, 2022[6]). The Review advised reducing the time required to list bonds. It questioned the need for an extraordinary general meeting to issue a bond and suggested that additional capacity at the Financial Supervisory Authority could reduce delays approving prospectuses. The report also recommended reviewing capital raising procedures to improve conditions for stock market listing. It identified scope to increase secondary stock market liquidity and recommended improving collateral management to support securities lending and derivatives market operations.
Corruption can also discourage investment and impede efficient resource reallocation. Romania continues to make progress in combatting corruption, but much remains to be done. World Bank indicators show advances in the control of corruption (Figure 3.5). Eurostat’s Eurobarometer survey results also indicate positive developments. In 2019, only 7% of respondents said that corruption had declined over the previous three years; in 2022, the share was 19% (European Commission, 2022[26]). However, Romania continues to rank poorly in Transparency International’s indicator of perceived corruption (Figure 3.5). Also, the Eurobarometer survey still indicates widespread acceptance of corrupt behaviours. In the 2022 questionnaire 54% of Romania’s respondents thought it acceptable to give a gift in order to get something from the public administration or a public service; the equivalent figure across the EU-27 is 28%.
Corruption in Romania is wide ranging. It extends from high-profile cases involving politicians and senior government and company executives, for instance peddling favours or taking bribes, to corrupt practices involving lower levels of public officials, local government, professionals and the general public. Areas particularly vulnerable to corruption include public procurement, activities of state-owned enterprises, and in the healthcare and education sectors (Table 3.3). Tackling corruption requires policy action on multiple fronts. Measures targeting the conduct of the legislature and the judicial system are important, along with specific policies for vulnerable sectors. Structural reforms outside dedicated anti-corruption policy can contribute. For instance, digitalisation of public services and tax collection (see discussion of taxation elsewhere in this Survey) is thought to help combat corruption by lowering the costs of complying with regulations and taxes (Fanea-Ivanovici et al., 2019[27]).
As elsewhere, corruption in Romania is undoubtedly damaging the economy and society. Corruption distorts markets, makes the business environment less predictable, hinders the functioning of institutions, and imposes social costs. Evidence linking corruption and socio-economic outcomes has been around for some time (for instance (Mauro, 1995[28])). Corruption is likely exacerbating many of Romania’s socio-economic challenges. For instance, recent research underscores that corruption is among the factors driving emigration, including in Romania (Crisan, Crisan-Mitra and Dragos, 2018[29]) and discourages labour-market migration within the country (Cooray and Dzhumashev, 2018[30]).
Sources: Transparency International (2023), Policy paper on boosting integrity in Romanian Public procurement, OECD (2023) Strengthening Romania’s Integrity and Anti-corruption Measures.
Note: ‘Peers’ is the unweighted average of Bulgaria, Czechia, Hungary, and Poland. Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project, V-Dem Dataset v12.
Continuing to improve Romania’s anti-corruption system
Romania’s anti-corruption system is improving. A recent OECD report (OECD, 2023[31]) commends the latest National Anti-corruption Strategy, which covers the period 2021-25, for its risks-based approach that aims to better concentrate policy where the corruption risks are greatest. In November 2022, the European Commission determined that Romania had made sufficient progress to terminate the Cooperation and Verification Mechanism (CVM), which the EU created for Romania and Bulgaria to monitor and address shortfalls in the fields of judicial reform and corruption when they joined the EU in 2007. Furthermore, policy progress on combatting corruption and strengthening institutions is being made via the Resilience and Recovery Plan. Commission oversight of anti-corruption efforts continues through its annual “Rule of Law” reports, which are conducted for all member countries. Romania’s participation in the OECD’s Anti-Bribery Convention is spurring efforts to address the problem of bribery of foreign public officials. Romania ratified the OECD Anti-Bribery Convention in July 2023. In October 2023 the Working Group on Bribery in International Business Transactions completed its Phase 1 evaluation, which assesses the legislative framework against the Convention’s standards. The Phase 2 evaluation will examine how Romania’s legislative framework is implemented in practice.
Despite advances, the National Anti-Corruption Directorate (DNA) could still be more effective. A staffing target detailed in the Recovery and Resilience Plan has been achieved (a key Recommendation in the 2022 Survey, see Table 3.4). Also, the administration of prosecutor hiring has reverted back to the Directorate. However, an stringent seniority hiring criteria for prosecutors remains in place that has been criticised for excessively limiting the potential intake. Justice Law reforms in 2019 included an increase in the seniority requirement for DNA prosecutors from six to ten years. Though the EU Commission found that this created issues for maintaining DNA staff levels, a 2021 Constitutional Court decision upheld the requirement on the grounds that the DNA, as a specialised structure within the Public Prosecutions Office attached to the High Court of Cassation and Justice, should have the same seniority requirements as that Office (OECD, 2023[32]). There is a shortage of police officers specialized in working with the judiciary on corruption issues.
Progress in developing mechanisms that dissuade corruption (integrity systems, in effect preventative measures) is slow. This issue was underscored in the 2022 Survey and, encouragingly, is prominent in Romania’s National Anti-corruption Strategy 2021-25. The Strategy outlines measures to strengthen dissemination of integrity agendas (mechanisms for aligning individual and organizational priorities), monitor implementation, identify and report integrity incidents and raise awareness of corruption. Despite this strategic emphasis, it appears there are shortfalls in effective on-the-ground progress to improve conduct in office. A recent OECD assessment (OECD, 2023[31]) included surveys of ethics counsellors in public administration and found that many have limited capacities to bring about concrete change; integrity plans have increasingly become overly formalised box ticking exercises.
Reforms aimed at the legislature and courts would support broader anti-corruption efforts
Shortfalls also remain in anti-corruption measures aimed at the legislature. Recent progress has included a new legislative framework on conflicts of interests. However there has been little advance in strengthening the oversight of lobbying (a recommendation in the 2022 Survey, see Table 3.4). A registry for recording meetings was extended to local-government officials. However, making entries to the registry remains voluntary, including for members of the government, and there is no verification process for the accuracy of the records (European Commission, 2023[34]). Furthermore, there are still no rules on lobbying for Members of Parliament. Notably absent are rules on the engagement of Members with lobbyists, and clear restrictions on gifts, hospitality, favours and other benefits.
Judicial reform still has some way to go. A 2022 revision of the Justice Laws has reinforced safeguards for judicial independence, including through reforms to the disciplinary regime for magistrates (European Commission, 2023[34]). In addition, a reform of Romania’s Codes of Criminal Law and Criminal Procedure has been adopted that includes amendments to legislation covering the crime of abuse of office. However, issues remain to be resolved, including addressing a shortage of magistrates (European Commission, 2023[34]). A specific problem of delays and inappropriate annulments of corruption court cases has emerged. A Government Emergency Ordinance was adopted in 2022 to clarify the statute of limitations on corruption cases, but a delayed legislative response has led to the closing of corruption cases and the annulment of convictions (European Commission, 2023[34]) (Box 3.4).
In July 2023 the European Union Court of Justice ruled that the Romanian judiciary should disregard decisions by the top national court which have led to thousands of corruption cases being closed since 2022. A ruling by Romania's Constitutional Court in 2018 eliminated exceptions to a statute of limitations for various crimes, including fraud. After the government failed to replace the previous rules with new legislation for four years, the Constitutional Court ruled in 2022 that cases could be closed retroactively.
Source: Reuters
Corrupt practices in certain sectors remain widespread. A recent OECD report (OECD, 2023[31]) attributes continuing problems in health care to weak integrity management. Similarly, in the education sector it finds the several mechanisms in place to combat corruption are poorly co-ordinated and that some are not effective. Challenges among state-owned enterprises include weaknesses in ownership arrangements and inadequate implementation of risk-management and internal control mechanisms.
References
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