Romania should accelerate its anti-corruption and judicial reform efforts, strengthen predictability for investors in the renewables sector and address the high level of non-performing loans (NPLs) in the banking sector, the European bank for Reconstruction and Development commented in its latest Transition Report.

The Bank admits that Romania has marked a certain progress since the past report but major problems have to be addressed and the challenges remain high.

Romania indeed has exited the EC excessive deficit procedure. Structural reforms progress remains, however, mixed. While the country marked a visible progress in structural reforms in the energy sector -- is also failed in the privatisation of two key companies – railway cargo company CFR Marfa and chemical plant Oltchim. Finally, important reforms have been enacted to strengthen the financial sector's stability.

But problems ahead for the government in Bucharest seem rather complex and requiring even more commitment:

1. While the anti-corruption strategy was fairly implemented, a very limited progress was made on preventing and sanctioning corruption relating to public procurement – according to the latest Cooperation and Verification Mechanism drafted by the EC. We have to add that the tax evasion combat remains rather weak – even if the government claims that recent reorganisation of the tax collection agency ANAF would spur performance.
2. The absorption of EU funds remains at a low level. Some of these programmes have been unblocked this year, following remedial action by the government – after absorption was stalled in H2/2012. The Commission has granted a one-year extension of the 2007-13 financial perspective to help Romania minimise the loss of these funds, the Bank comments. Nonetheless, we have to underline that the extension is not yet legally enforced by the European Council.
3. Privatisation and restructuring of state-owned companies has advanced haltingly, the EBRD says, outlining the failure of CFR Marfa's privatisation and the unsuccessful efforts to sell postal company Posta Romana and chemical plant Oltchim. Nonetheless, partial privatisation in the energy sector is advancing smoothly, the Bank comments.
4. The renewable energy sector needs more predictability, the bank concludes, after commenting on the adjustments operated by the government and market regulator ANRE on the support mechanism. Certain features remain unclear regarding the non-retroactive character of the provisions of the ordinance, and there is uncertainty about the transparency and predictability of the business environment.
5. The business environment remains problematic.
6. The banking sector has coped well with the effects of the economic downturn in recent years, but the level of NPLs is high, even if the associated risks are mitigated by high provisioning levels of close to 90%.