Romania Fiscal Management and Green Growth Development Policy Loan

Romania has made considerable economic progress over the past two decades, but it needs more sustainable and inclusive growth. Over the past decades, Romania has achieved impressive economic progress, transitioning to a market-based economic model, and acceding to the European Union (EU) in 2007 and reaching high income status. Real Gross Domestic Product (GDP) per capita in purchasing power parity (ppp) more than doubled from US12,177 dollars in 2000 to US32,496 dollars in 2022 and income convergence with the EU accelerated. From 2015 to 2020, the share of Romanians living below the upper-middle-income poverty line (i.e., on less than US6.85 dollars a day in 2017 ppp) declined rapidly from 27.8 to 10.7 percent. However, economic prosperity has been unevenly distributed, with widening regional disparities in income and service delivery, and poverty and inequality rates that are consistently among the highest in the EU. Going forward, inclusive growth objectives will need to be reconciled with equally ambitious climate commitments. The program supported by this DPL builds on the focus areas of the Systematic Country Diagnostic (SCD) Update, recommendations from the Country Climate and Development Report (CCDR), Country Private Sector Diagnostic (CPSD) and other analytics like the forthcoming Public Finance Review (PFR). It also links to complementary technical assistance (TA) through trust funded, Reimbursable Advisory Services (RAS) and upstream advisory engagements, including joint IBRD-IFC work on creating a more favorable policy and regulatory environment for private capital and investment, which continue to support the program’s implementation. The DPL is aligned with the CPF, with considerations for the linkages and cross-sectoral nature of issues in an advanced economy with a rapidly aging population, being at the global frontier of climate action, with corresponding potential for knowledge spillovers, particularly on partnering with the EU and private sector.