ÐÓ°ÉÂÛ̳

Country Context

Romania has advanced its economic development and EU convergence but needs more inclusive and sustainable growth. Growth obstacles include: regional disparities; institutional weaknesses; skilled labor shortages; a declining working-age population; and vulnerabilities to natural hazards and climate change. Pro-cyclical fiscal measures have fueled consumption, leading to consistently high twin deficits. The main short-term challenge is balancing fiscal and trade pressures while addressing persistent social inclusion issues.

Romania¡¯s growth decelerated to 0.9% in 2024, slowing poverty reduction and reflecting weak private investment and a worsening trade deficit. Global economic uncertainty is expected to affect growth and poverty reduction in 2025 and over the medium term. Fiscal and current account deficit pressures will remain elevated.

Last Updated: May 05, 2025

Strategy

ÐÓ°ÉÂÛ̳ Group (CPF) with Romania covering Fiscal Years 2025-2029 aims to promote prosperity and address inequalities in a livable Romania. It is structured around three high level objectives: (i) improved human capital outcomes; (ii) better jobs in a more competitive economy by unlocking private capital; and (iii) increased resilience and accelerated green transition and is anchored in the cross-cutting theme of enhancing public institutions to better serve all people and businesses.

International Bank for Reconstruction and Development (IBRD)

Ongoing portfolio. The current IBRD investment portfolio includes 12 projects ($3.25 billion net commitments) in key sectors: health (the largest share of over $1.07 billion), followed by urban/resilience ($880 million), macro/fiscal management ($650 million), finance competitiveness and innovation ($403 million), governance ($176.79 million), and environment ($63.6 million).

Key Advisory Services and Analytics (ASA) Activities consist of core Bank-financed ASA and externally funded activities (Reimbursable Advisory Services- RAS, Trust Funds- TF). A Country Jobs and Growth Report (CJGR), a diagnostic instrument to analyze key constraints to growth, support policy dialogue with the government, and inform engagement with different stakeholders, will be prepared and finalized in FY26. The CJGR aims to inform policies to boost potential growth and jobs, in the context of declining age population and subdued productivity growth.

The RAS program consisting of 20 tasks under implementation ($70.71million), and the TF program (16 tasks of which 13 are EU-funded) are an integral part of the country program in Romania and help strengthen institutional capacity in the areas of governance, public administration, fiscal management, early school leaving, disaster risk management, human development (social housing regulatory framework, Roma inclusion platform, poverty mapping), business environment, energy sector regulatory framework and energy efficiency.  Since the adoption of the National Resilience and Recovery Plan, the RAS program has expanded to support the government¡¯s key reforms in pensions, public wages, social protection, and taxes.    

International Finance Corporation (IFC)

Since 1991, IFC has invested more than $7 billion in Romania. IFC contributed to landmark privatizations in banking, utilities, and real sector. In the past few years IFC successfully supported all systemic banks in rolling out climate finance, including through green, blue and sustainability linked financing. More recently, nearshoring trends as well as the green transition created momentum to further develop a solid program in manufacturing and logistics, supporting industrial decarbonization and the circular economy, in connectivity and green logistics. IFC has been heavily engaged in supporting changes in the public-private-partnership (PPP) framework, which were recently approved after long delays. FY24 was a record year with $2.2 billion, of which $1.6 billion was mobilized.

Last Updated: May 05, 2025

Recent Economic Developments

Romania¡¯s economic growth decelerated to 0.9% in 2024. Private consumption remained the main growth driver, supported by wage and pension increases. Investment declined reversing the double-digit expansion in 2023, reflecting negative dynamics in equipment and new construction works components, and reduced business confidence in construction. The trade deficit worsened as the goods deficit widened and the services surplus shrank.

Headline inflation eased to 5.6% in 2024 prompting the National Bank of Romania reduce the monetary policy rate from 7% to 6.5% through two 25-basis-point cuts in July and August 2024, as inflation fell from 7.4% in January to 4.9% in June 2024. However, the policy rate has remained unchanged since then as the disinflation process stalled driven by strong household demand, reflecting public wage and pension increases, and the impact of the severe drought affecting the food component of the consumer price index. Private sector credit growth accelerated to 8.9% YoY in 2024, from 6.4% in 2023, driven by household loan dynamics (up 9.3% YoY).

Economic Outlook

Increasing headwinds from uncertainty around global trade will likely dampen short-term growth, mainly through the current account position. Potential curtailment and delays in private investment driven by uncertainty are expected to further weaken growth prospects. However, private consumption and EU-financed investment, primarily in infrastructure, are expected to support medium-term growth. Industrial output is anticipated to benefit from a base effect after two consecutive years of decline. Full accession to the Schengen Area from January 2025 will further support land transport and, to some extent, exports.

Poverty reduction is expected to slow in 2025 and in the medium term, due to subdued short-term growth driven by global trade uncertainty, necessary fiscal consolidation and persistent labor market challenges. Recent fiscal reforms¡ªsuch as ongoing pension changes¡ªhave made the system more pro-poor and slightly more redistributive, but there is still room to strengthen more equitable fiscal policies through a balanced mix of revenue and expenditure measures.

Last Updated: May 05, 2025