Key Challenges

Thirty years since democratic transition
In December 2019, Romania celebrated the 30th anniversary of the anti-communist revolution marking the country’s transition to democracy and a market economy. The revolution brought freedom in many forms to Romanians, as well as other rights considered inconceivable under the dictatorship of Nicolae Ceausescu. Despite these achievements, however, there have been many frustrations boiling to the surface in the year under review, and the new government of Ludovic Orban will face a number of challenges.
Corruption, judicial integrity are linked issues
The most important challenge relates to the intertwined issues of corruption and judicial integrity. Until 2017, Romania drew considerable acclaim for its judicial reforms and anti-corruption efforts. The country’s efforts were widely regarded as a model for other countries such as neighboring Bulgaria or Ukraine. The efforts by the PSD/ALDE coalition to roll back judicial reform and anti-corruption efforts have squandered these achievements. They have reduced the public trust in state actors and institutions and have damaged Romania’s international standing. Restoring the independence and integrity of the judiciary and relaunching the fight against corruption, thus, should be priorities for the new government.
Skilled-labor shortages
on horizon; reforms
would help reverse
emigration flow
Such reforms are likely to help with addressing another severe problem. The medium- and long-term economic outlook increasingly suffers from a lack of qualified labor. This derives in part from the low rate of labor market participation. Massive emigration is another key factor. Some 18.2% of the country’s population – including nearly two in five Romanians with a higher education – live abroad. While emigration has helped keep unemployment low, it has also resulted in labor shortages and brain drain. The healthcare sector, for instance, faces an unprecedented shortage of qualified personnel, as doctors and nurses have left for higher paying jobs in the EU. The PSD/ALDE government tried to encourage Romanians to return by increasing domestic wages. Structural reforms that would provide the population attractive prospects are, however, just as important as increased wages. In addition to the aforementioned judiciary reforms and efforts to strengthen democracy, there are also overdue reforms needed in the education system, the healthcare sector and R&I institutions. Such reforms would make a return back to Romania – particularly for the many qualified individuals who have emigrated – more attractive.
Fiscal crisis likely
without consolidation
Romania’s dire fiscal situation complicates any efforts to launch such reforms. The PSD/ALDE governments ran rather high fiscal deficits, and the fiscal pressures are widely expected to increase even more. Exercising fiscal discipline will not be easy, especially with parliamentary elections on the agenda in late 2020 or early 2021. Without attempts at fiscal consolidation, however, Romania is likely to run into an economic crisis.

Party Polarization

Strong polarization in recent years; election fuels tension between blocs
Since 1989, the Romanian party system has undergone many changes. Existing parties have split or merged, new parties have emerged and quite different coalitions have been formed. Since the parliamentary elections in December 2016, there has been a strong polarization between the Social Democratic Party (PSD) and the Party of the Alliance of Liberals and Democrats (ALDE), the governing coalition until October 2019, on the one hand, and the center-right opposition led by the National Liberal Party (PNL) on the other. The opposition, backed by President Klaus Iohannis, a former chairman of the PNL, took to the streets and used all available parliamentary means to derail the governing coalition’s attempts to strengthen its ability to influence the judiciary and undermine the fight against corruption. In turn, pro-government supporters criticized Iohannis and the opposition for not accepting the results of the parliamentary elections and for instrumentalizing the judiciary and the National Anti-corruption Directorate (DNA) as an illegitimate means of climbing back to power. When the PSD-ALDE government collapsed in October 2019 and was replaced by a center-right minority government led by Ludovic Orban (PNL), polarization continued and was further fueled by the presidential elections scheduled for November 2019. (Score: 4)
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