WB: Romania Poverty and Equity Brief : October 2024

According to a recent World Bank report, between 2016 and 2021, Romania's strong economic growth led to a significant reduction in poverty, with the rate ($6.85/day PPP) dropping by 14.7 percentage points to 7.1 percent. The anchored at-risk-of-poverty rate (AROP), a measure of the percentage of people in a population at risk of poverty, also saw considerable declines, driven largely by rising pension and labor incomes. Despite these gains, Romania continues to have some of the highest absolute and relative poverty rates in the EU. Furthermore, in 2023, approximately one-third of the population was at risk of poverty or social exclusion, the highest rate in the EU. Inequality remains persistently high in Romania, with the Gini index of equivalized income reaching 31 points in 2022.   Significant urban-rural disparities persist, and Romania also had the widest gender gap in labor force participation in the EU in 2022. Additionally, the prosperity gap stood at 1.9, indicating that incomes would need to nearly double on the average to meet the prosperity standard of $25 per day.   Addressing energy poverty remains a significant challenge, especially for those with low incomes. In 2023, around 13.6 percent of the population faced difficulties paying utility bills—one of the highest rates in the EU—with the rate increasing to 28.3 percent among those living in poverty. In 2023, about 13.6 percent of the population struggled to pay utility bills, rising to 28.3 percent among the poor.   Microsimulations indicate that despite energy price caps, recent increases in energy prices could moderately raise both energy and income poverty, with vulnerable groups—such as social assistance recipients, individuals on disability benefits, and single-elderly households—being disproportionately affected.   Despite recent fiscal reforms that made the system more pro-poor and slightly more redistributive, there is scope for further enhancing pro-poor fiscal policies through a balanced mix of revenue and expenditure measures. Regarding pension reform, eliminating the correction index and equalizing retirement ages between men and women are expected to enhance pension equity and gender equality, with neutral or positive effects on poverty, while modifying service pension points structure is expected to contribute to a fairer system.   Poverty reduction prospects are shaped by a mix of challenges and positive developments. The deceleration in economic growth during the first half of 2024 and rising unemployment among less educated workers pose significant obstacles. However, there are encouraging signs as well.   Despite a growing fiscal deficit, major fiscal tightening has yet to occur. Notably, real wages have risen strongly, particularly in the construction sector, and inflation is easing, offering some relief to households and potentially supporting continued poverty reduction.   Overall, the pace of monetary poverty reduction (measured at $6.85/day PPP) is expected to slow down in 2024.