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Quick Facts
- Population:
- GDP (PPP):
- $481.5 billion
- 7.0% growth
- 4.5% 5-year compound annual growth
- $24,508 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Romania’s economic freedom score is 68.6, making its economy the 42nd freest in the 2019 Index. Its overall score has decreased by 0.8 point, with declines in judicial effectiveness and investment freedom exceeding improvements in property rights, the tax burden, and government spending. Romania is ranked 21st among 44 countries in the Europe region, and its overall score exactly matches the regional average and is above the world average.
Putting at risk the country’s hard-won macroeconomic stability, the government has yielded to political pressure to relax fiscal policy, raise the minimum wage, and delay additional structural reforms. Efforts to privatize state-owned enterprises have stalled, and progress on improving the business environment has been uneven. Significant tax evasion further jeopardizes the fiscal deficit and public debt burden. Foreign investors find the unpredictable regulatory system discouraging. Corruption is endemic at all levels of government and undermines the rule of law.
Background
Romania’s transition to a free-market economy began with its new constitution in 1991, followed by membership in NATO in 2004 and the European Union in 2007. Viorica Dancila of the center-left Social Democratic Party (PSD) became Romania’s first female prime minister in January 2018 after a party power struggle prompted by allegations of corruption against PSD leader Liviu Dragnea forced the resignation of fellow Social Democrat Mihai Tudose. In addition to its strategic position on the Black Sea, Romania has extensive natural resources and a productive agriculture sector. Leading economic sectors include manufacturing, auto assembly, textiles and footwear, petroleum refining, mining, and timber. Labor shortages and political instability pose the greatest risks to one of Europe’s fastest-growing economies.
The Romanian constitution guarantees the right to ownership of private property. The government has made property registration easier by digitizing ownership and land records. The courts are subject to political influence and suffer from a lack of expertise. Efforts to fight both petty and high-level corruption have become more credible as more public officials have been prosecuted, but judicial corruption remains a problem.
The personal income tax rate has been cut to a flat 10 percent, and the corporate tax rate is a flat 16 percent. Other taxes include value-added and environmental taxes. The overall tax burden equals 26.0 percent of total domestic income. Over the past three years, government spending has amounted to 32.1 percent of the country’s output (GDP), and budget deficits have averaged 2.2 percent of GDP. Public debt is equivalent to 36.9 percent of GDP.
Progress on improving the business environment has been uneven. Enforcement of commercial regulations is not always consistent, and efficient procedures for bankruptcy have not been fully implemented. Labor regulations remain rigid, although several amendments to improve the flexibility of the labor code have been adopted. The government opposes the EU’s move to reduce farm subsidies and continues to subsidize the energy sector.
The combined value of exports and imports is equal to 85.0 percent of GDP. The average applied tariff rate is 2.0 percent. Romania implements a number of EU-directed nontariff trade barriers including technical and product-specific regulations, subsidies, and quotas. The uneven regulatory system tends to discourage foreign investment. About 59 percent of adult Romanians have access to an account with a formal banking institution.