Reviving Romania's Growth and Convergence Challenges and Opportunities : A Country Economic Memorandum

Abstract

This Country Economic Memorandum (CEM)
 sets a framework for a dialogue on inclusive economic growth
 and income convergence in Romania. Generous Foreign Direct
 Investment (FDI) and other financial inflows lifted consumer
 demand, built up key industries, modernized wholesale trade
 and unleashed the movement of labor from low-productivity
 activities like agriculture towards high-productivity
 activities like manufacturing. Public and private
 investments in education lifted tertiary education
 enrollment from 12 to 23 percent. Preliminary calculations
 suggest that this growth was shared even after the crisis,
 as the income of the bottom 40 percent of the population
 grew by 5.5 percent on average during the 2000-2011 periods,
 a pace slightly above the 4.8 percent growth in the income
 of all households and the 4.1 percent average growth.
 Achievements notwithstanding, there is little room for
 complacency. The report discusses the immediate constraints
 to economic growth in areas where the short-term pay-off is
 high rather than covering all potential sources of growth
 for Romania. Although these are only the initial steps to
 reignite growth, the challenges of addressing each of these
 constraints should not be underestimated. Tackling them
 effectively demands a strong strategic vision, meticulous
 planning, and policy coordination. A significant amount of
 strategic communication of the benefits of the outlined
 reforms for the country will also be required since the
 roadblock to shaping and implementing these policies is
 likely to be vested interests, institutional inertia and
 lack of political consensus. In short, the crisis revealed
 the weakness of Romania's past growth model: it was
 based to a large extent on consumption and short-term
 capital inflows rather than on sustained productivity
 increases in tradable sectors and it concealed significant
 inefficiencies in the public sector.