               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 516 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Hungaryand delivering a Council opinion on the 2017 Convergence Programme of Hungary

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Hungary

                  and delivering a Council opinion on the 2017 Convergence Programme of Hungary

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies,
                  1
                and in particular Article 9(2) thereof,

               Having regard to the recommendation of the European Commission,
                  2

               Having regard to the resolutions of the European Parliament,
                  3

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 16 November 2016, the Commission adopted the Annual Growth Survey,
                  4
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report,
                  5
                in which it did not identify Hungary as one of the Member States for which an in-depth review would be carried out.

               (2)The 2017 country report for Hungary
                  6
                was published on 22 February 2017. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Hungary’s progress towards its national Europe 2020 targets.

               (3)On 2 May 2017, Hungary submitted its 2017 National Reform Programme and its 2017 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)The relevant country-specific recommendations have been taken into account in the Member States' programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  7
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  8

               (5)Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2017 Convergence Programme, the government plans a deterioration of the headline deficit from 1.8% in 2016 to 2.4% in both 2017 and 2018 and a gradual improvement thereafter to 1.2% of GDP by 2021. The medium-term budgetary objective — a structural deficit of 1.7% of GDP until 2016 and revised to 1.5% of GDP as of 2017 — is planned to be met by 2020. However, based on the recalculated
                  9
                structural balance, the medium-term budgetary objective would not be reached over the programme horizon. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to decline gradually to close to 61% by the end of 2021. The macroeconomic scenario underpinning these budgetary projections is favourable, which poses risks to the implementation of the deficit targets.

               (6)The 2017 Convergence Programme indicates that the budgetary impact of the exceptional inflow of refugees and security-related measures in 2016 and 2017 is significant, and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure in 2015 amounted to 0.04% of GDP for the exceptional inflow of refugees and there is no additional eligible expenditure in relation to refugee inflows in 2016. The eligible additional expenditure concerning security-related measures amounted to 0.04% of GDP in 2016. In 2017, no further increase in expenditure is expected due to the exceptional inflow of refugees, whereas the additional budgetary impact of the security-related measures is currently estimated at 0.14% of GDP. The provisions set out in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are unusual events, their impact on Hungary's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2016 has been reduced to take into account additional security-related costs. Regarding 2017, a final assessment, including on the eligible amounts, will be made in spring 2018 on the basis of observed data as provided by the Hungarian authorities.

               (7)On 12 July 2016, the Council recommended Hungary to achieve an annual fiscal adjustment of 0.6% of GDP towards the medium-term budgetary objective in 2017. Based on the Commission 2017 spring forecast, there is a risk of a significant deviation from that requirement in 2017.

               (8)In 2018, in light of its fiscal situation and notably of its debt level, Hungary is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 1.5% of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  10
                 which does not exceed 2.8% in 2018. It would correspond to a structural adjustment of 1.0% of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. At the same time, Hungary is forecast to comply with the debt rule in 2017 and 2018. Overall, the Council is of the opinion that further measures will be needed as of 2017 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Hungary’s public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in light of the cyclical situation of Hungary.

               (9)Hungary’s competitiveness and potential growth is held back by low private investment and low productivity. Factors adversely affecting the business environment and corporate investment are linked particularly to weaknesses in institutional performance and governance. Frequent changes in the regulatory and tax environment are one of the biggest barriers to doing business in Hungary, with insufficient stakeholder engagement and evidence-based policy-making. Regulatory barriers in services also tend to limit market dynamics and hamper investment. Restrictive regulations, including in retail, limit competition in the services sector and weigh on the business climate.

               (10)Hungary’s total tax-to-GDP ratio remains well above those of its regional peers and challenges in the tax system remain. The government has decreased employers' social security contributions by 5 percentage points in 2017, and a further 2 percentage points reduction is planned for 2018. This measure has significantly reduced the tax wedge for low-income earners but it remains high. This is particularly the case for low-income earners without children, where it is still among the highest in the EU. The tax system remains complex. Despite a declining trend since 2013, sector-specific taxes — some of which remain highly distortive — still tend to complicate the tax system and weaken investor confidence. The complexity and uncertainty of the tax system, associated with high compliance costs and administrative burdens, continue to weigh on investor confidence in Hungary.

               (11)Weaknesses in institutional performance are weighing on the business climate and reducing the economy’s growth potential. In particular, despite recent improvements and the amendment to the Public Procurement Act, progress on strengthening transparency and competition in public procurement is still limited and no concrete evidence is available yet. The current e-procurement strategy is a solid basis to enhance transparency, but its implementation and impact on efficiency and transparency need to be monitored. Corruption risks remain high, adversely impacting the business climate, and there are notable gaps in the measures taken to address the issue. Hungary is also experiencing delays in the implementation of its e-procurement strategy. This is slowing the timely introduction of e-procurement in Hungary and undermining the goal of strengthening transparency and increasing competition.

               (12)The situation in the services sector including retail remains particularly challenging in Hungary. Over the past year, the Hungarian government continued to intervene on markets previously open to competition and adopted new, tighter requirements for passenger transport services operated by independent dispatching centres. The Hungarian government took no substantial step to ease the regulatory environment in the services sector, in particular regarding retail, waste management public services, textbook publishing and distribution or mobile payment systems. In the retail sector, clear guidelines on the granting of authorisation to open new shops larger than 400 m2 are missing. This adds to the lack of transparency and predictability in the sector. The continuing existence of the regulatory barriers in services, including in retail, is limiting market dynamics and hampering investment, while also generating uncertainty for investors, notably international investors.

               (13)To support Hungary’s competitiveness and potential growth in the medium term, structural reforms to promote investment in human capital, particularly in education and healthcare, and to continue improving the functioning of the labour market will be key. Enhancing social fairness will be also essential to deliver more inclusive growth.

               (14)Performance in providing basic skills remains weak by international standards. The 2015 PISA survey of educational systems showed significantly worsening results and the impact of pupils’ socioeconomic background on education outcomes is one of the highest in the EU. The impact of the school type on education outcomes is very significant. The reduction in teaching hours for science subjects in vocational grammar schools since 2016 is likely to amplify Hungary’s backlog in science skills. The share of early school leavers has been stagnating for the last 5 years and remains especially high among Roma people. The distribution of disadvantaged pupils between schools is uneven, and Roma children increasingly attend Roma-majority schools and classes. Measures are in place to support teacher training, early education and school achievement and to combat early school leaving among Roma. However, comprehensive and systemic measures to address segregation are lacking. The growing demand for a highly skilled workforce is not matched by a sufficiently large pool of applicants to tertiary education and adequate completion rates. The modification of the Act on higher education adopted in 2017 may further deteriorate the situation.

               (15)The labour market has developed favourably in recent years, with unemployment returning to its pre-crisis level. Employment reached historical high levels thanks to private sector job creation and the public work scheme, which is still the largest active labour market policy in Hungary with over 200 000 participants. In recent years, a set of measures have been adopted to facilitate the transition from the scheme to the primary labour market. However, the scheme is still not sufficiently targeted and its effectiveness in reintegrating participants into the open labour market continues to be limited. At the same time, certain sectors face increasing labour shortages. Other active labour market policies are being reinforced, partly with the support of EU funds, but further efforts are needed to facilitate transitions to the primary labour market effectively. The profiling system for the unemployed is operational but not yet fully effective. The gender employment gap has increased in recent years and the impact of parenthood on women’s employment is one of the highest in the EU. Labour market participation is affected by comparatively weak health outcomes and unequal access to healthcare. The participation of social partners in policy-making is limited.

               (16)Some poverty indicators are back to pre-crisis levels but remain above the EU average. Poverty among children and Roma remains particularly high, although declining. A significant proportion of Roma in employment work in the public works scheme. Their effective integration into the open labour market remains limited so far.

               (17)The adequacy and coverage of social assistance and unemployment benefits is limited. The duration of unemployment benefits is still the lowest in the EU at 3 months, below the average time required by job seekers to find employment. The 2015 social assistance reform streamlined the benefits system but it does not seem to have guaranteed a uniform and minimally adequate living standard for those in need. With regards to the benefits administered by municipalities, there is a high degree of discretion in the eligibility criteria and the level of entitlements, which creates uncertainty for beneficiaries. The minimum income benefit remains frozen at a low level but the authorities are planning to gradually increase the level of the targeted cash benefits in the coming years. Already in 2017 three of these benefits were slightly increased. Additional targeted measures would help alleviate material deprivation of the most disadvantaged groups, in particular children and Roma.

               (18)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy and published it in the 2017 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Hungary in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary, but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions.

               (19)In the light of this assessment, the Council has examined the Convergence Programme and its opinion
                  11
                is reflected in particular in recommendation 1 below,

               HEREBY RECOMMENDS that Hungary take action in 2017 and 2018 to:

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Hungary’s public finances.

               2.Complete the reduction of the tax wedge for low-income earners and simplify the tax structure, notably by reducing the most distortive sector-specific taxes. Strengthen transparency and competition in public procurement, by implementing a comprehensive and efficient e-procurement system, and strengthen the anti-corruption framework. Strengthen regulatory predictability, transparency and competition in particular in the services sector, notably in retail.

               3.Better target the public works scheme to those furthest away from the labour market and provide effective support to jobseekers in order to facilitate transitions to the labour market, including by reinforcing active labour market policies. Take measures to improve education outcomes and to increase the participation of disadvantaged groups, in particular Roma, in inclusive mainstream education. Improve the adequacy and coverage of social assistance and the duration of unemployment benefits.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2017) 516 final.

                     (3)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  SWD(2017) 82 final/2.

                     (7)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (8)

                        COM(2014) 494 final.

                     (9)
                  The structural balance as recalculated by the Commission based on the information in the Convergence Programme, following the commonly agreed methodology.

                     (10)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (11)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 272 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Romaniaand delivering a Council opinion on the 2015 Convergence Programme of Romania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Romania

                  and delivering a Council opinion on the 2015 Convergence Programme of Romania

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 March 2010, the European Council agreed to the Commission’s proposal to launch a new strategy for growth and jobs, Europe 2020, based on enhanced coordination of economic policies. The strategy focuses on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

               (2)On 13 July 2010, the Council, on the basis of the Commission’s proposals, adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and on 21 October 2010 it adopted a decision on guidelines for the employment policies of the Member States. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a recommendation on Romania’s National Reform Programme for 2014 and delivered its opinion on Romania’s updated Convergence Programme for 2014.

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  5
               , marking the start of the 2015 European Semester of economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  6
               , in which it identified Romania as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for Romania
                  7
               . This assessed Romania’s progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that Romania is experiencing macroeconomic imbalances, which require policy action and monitoring. In the three consecutive EU-IMF programmes, external and internal imbalances have been significantly reduced. However, risks from Romania’s relatively large negative net international investment position and a weak medium-term export capacity merit attention.  External and internal vulnerabilities persist in the banking sector.

               (7)On 30 April 2015, Romania submitted its 2015 National Reform Programme and its 2015 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)On 22 October 2013, the Council adopted Decision 2013/531/EU
                  8
               , in which it committed to provide medium-term financial assistance of up to EUR 2 billion to Romania, over the period until September 2015. This assistance is conditional upon the implementation of a comprehensive economic policy. While, under present market conditions, Romania does not intend to request the disbursement of any instalment, the precautionary assistance is expected to help consolidate macroeconomic, budgetary and financial stability and, through the implementation of structural reforms, to increase the economy’s resilience and potential for growth. Once Romania has exited the programme, it will be fully re-integrated into the European Semester framework.

               (9)Romania is currently in the preventive arm of the Stability and Growth Pact. In its Convergence Programme Romania has requested a temporary deviation of 0.5% of GDP from the required adjustment path towards the medium-term objective because of planned structural reforms. As the Programme did not provide sufficiently detailed information on the planned structural reforms, the Council is not in a position to assess their plausibility. Romania also requested the application of the pension reform clause. The eligibility of the reform is subject to confirmation by Eurostat. Based on the Commission's 2015 spring forecast, the projected structural deficit of 3.4% of GDP in 2016 would not ensure an appropriate safety margin with respect to the 3% of GDP reference value of the Treaty. Therefore, the Council is of the opinion that Romania does not fulfil the requirements to benefit from the requested temporary deviation in 2016.

               (10)In its 2015 Convergence Programme, the government plans to keep the headline deficit at 1.5% of GDP in 2015 and to reduce it to 0.8% of GDP in 2018. The government plans to meet the medium-term objective – a structural deficit of 1.0% of GDP – from 2016 onwards. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 40.1% in 2015 and to gradually decline thereafter, reaching 37.1% in 2018. The macroeconomic scenario underpinning these budgetary projections is markedly favourable.Important deficit-increasing measures approved by the government on 25 March and the senate on 27 April
                  9
                which have been taken into account in the Commission's 2015 spring forecast, are not included in the Convergence Programme, while this is required by the Conduct of Conduct. Measures needed to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, in 2015 the structural balance is forecast to deviate by 0.3% of GDP from the medium-term objective. This slightly exceeds the 0.25% of GDP deviation granted under the Balance-of-Payments programme under the condition that the co-financing of EU funded projects is in line with what was foreseen in the budget. The deviation is set to become significant in 2016 at 2.4% of GDP, whereas an adjustment of 0.3% of GDP is required. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Romania will not comply with the provisions of the Stability and Growth Pact.

               (11)Romania's fiscal framework is broadly sound but not effectively applied. The medium- and long-term demographic trends and low level of development of the labour market may jeopardise the long-term sustainability of the pension system. The pension reform launched in 2010 has already brought some improvements, but the law equalising the statutory retirement age for men and women as of 2035, proposed by the government in December 2013, has not yet been adopted by the lower chamber of Parliament.

               (12)The recent cut in employers’ social security contributions has reduced the labour tax wedge, but in an untargeted way. The tax wedge for lower income earners remains high (40 %) relative to other European countries. Tax fraud and tax avoidance remain a major challenge and eat into tax revenue. The first steps have been taken in what is set to be an ongoing reorganisation of the Romanian tax administration. A pilot compliance project targeting undeclared labour, under-declared wages and tax evasion was implemented in two regions in 2014, and is to be rolled out further in 2015. The level of environmental taxation was increased in 2014, bringing it close to the EU average.

               (13)While some improvements were seen in 2014, employment and activity rates continue to be especially low among women, young people, older workers and Roma. Active labour market policies have been revised, but the overall participation in and financing for active labour market measures remain low, particularly for vocational training, schemes leading to the recognition of prior learning, mobility incentives, and measures targeting the long-term unemployed. Romania has taken steps to address youth unemployment, in particular through the Youth Guarantee, but there have been delays in implementation. No progress has been made in setting transparent guidelines for setting the minimum wage. In order to allow for personalised services and more coherent delivery across target groups, the Public Employment Service would need increased capacity, in particular  in terms of staffing, and an integrated delivery framework for measures co-financed through European Structural and Investment funds.

               (14)Romania faces several challenges in the area of education: the early school leaving rate remains well above the EU average; the availability and access of early childhood education and care services is limited, especially in rural areas and for the Roma community; participation in lifelong learning remains far below the EU average; the quality and labour market relevance of higher education is inadequate; and the tertiary attainment rate remains the second lowest in the EU. Romania has started addressing these challenges, with varying degrees of progress being made in the different areas, and, to date, little visible end-effect. There have been significant delays in adopting the national strategy for reducing early school leaving. A national programme for early childhood education and care was designed for the period 2014-2019, and will come into effect in the new school year, 2015-2016. The national lifelong learning strategy has been delayed. A strategy on tertiary education has been drafted, the aim of which is to increase the relevance of higher education by aligning it more closely with labour market needs and to improve the accessibility of higher education for disadvantaged groups. Measures have been implemented to improve vocational education and training and apprenticeships schemes.

               (15)The Romanian healthcare system is characterised by poor results of treatment, poor financial and geographical accessibility, low funding and inefficient use of resources. There is high reliance on in-patient services and the system suffers from the extensive inefficient hospital network, the weak and fragmented referral networks, and the low proportion of spending directed to primary healthcare. In addition, the widespread use of informal payments in the public healthcare system further reduces the accessibility, efficiency and quality of the system. Various measures and healthcare reforms that have been introduced have narrowed the funding gap and improved the standard and efficiency of services. The National Health Strategy 2014-2020, which sets the strategic base for health sector reforms, was approved in December 2014 and is now to be implemented. The Ministry of Health and the National Health Insurance House are considering various measures to improve the system for financing healthcare.

               (16)Reducing poverty and social exclusion remains a major challenge for Romania. Although decreasing, the rate of people at risk of poverty or social exclusion remains high at 40 % in 2013, far above the EU average. The effectiveness of social transfers (excluding pensions) in reducing poverty appears limited, and is particularly low in the case of children. Social transfers are not adequately linked to activation measures. The implementation of the 2011 social assistance reform is still behind schedule. The adoption of the strategy for social inclusion and combating poverty and the associated action plans was put back. Limited progress was made in introducing the minimum insertion income, which would simplify social assistance by combining three existing social transfers. A social economy law designed to strengthen the link between social transfers and activation measures was adopted by the government in 2013, but is still under debate in the Parliament. Few effective measures were taken to integrate the Roma population. A revised strategy for the integration of Roma was, however, adopted with some delay in January 2015, but implementation is behind schedule.

               (17)[Romania’s administrative capacity is low, fragmented, and characterised by an unclear delegation of responsibilities, as a result of which it acts as a drag on the competitiveness of the economy. The root causes of the structural weaknesses have been identified, and a strategy to tackle the challenges in public administration and in policy prioritisation and coordination was adopted in October 2014, together with an action plan for its implementation over the period 2014-2020. Implementation has, however, been considerably delayed. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes. They have a negative impact on the business environment and hold back much needed investment in infrastructure.]

               (18)Some progress has been made in increasing the independence, quality and efficiency of the judicial system, fighting corruption at all levels, and ensuring the effective implementation of court decisions. Nonetheless, the implementation of court decisions remains weak in many cases and more limited progress was made in preventing and fighting low-level corruption. These important policy areas will be covered by the Cooperation and Verification Mechanism.

               (19)State-owned companies suffer from sub-standard productivity, contribute to the illiquidity in the economy, place a burden on the general government budget — as contingent liabilities —, and account for 50 % of the tax arrears of all companies combined. Corporate governance is a critical factor determining the performance of state-owned companies. Their current governance setup does not prevent political interference in the day-to-day management of the companies, or guarantee a separation between the authorities’ ownership and policy-making functions. Specific rules for state-owned companies were not systematically introduced until the emergency government ordinance 109/2011 was passed. Various areas remain uncovered and in practice the rules are not always respected. No progress has been made regarding reform of the corporate governance of state-owned companies in the energy and transport sectors.

               (20)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

               (21)In the light of this assessment, the Council has examined Romania’s Convergence Programme, and its opinion
                  10
                is reflected in particular in recommendation 1 below.

               (22)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 4 below.

               HEREBY RECOMMENDS that Romania take action in 2015 and 2016 to:

               1.Take all the necessary measures to complete the financial assistance programme.

               2.Limit the deviation from the fiscal medium-term objective in 2015 to a maximum of 0.25% of GDP as specified under the 2013-15 balance-of-payments programme and return to the medium-term objective in 2016. Implement the comprehensive tax compliance strategy, strengthen verification control systems in order to tackle undeclared work, and push ahead with the equalisation of the pensionable age for men and women.

               3.Strengthen the provision of labour market measures, in particular for unregistered young people and the long-term unemployed. Ensure that the national employment agency is adequately staffed. Establish, in consultation with the social partners and in accordance with national practices, clear guidelines for setting the minimum wage transparently. Introduce the minimum insertion income. Increase the provision and quality of early childhood education and care, in particular for Roma. Adopt the national strategy to reduce early school leaving. Pursue the national health strategy 2014-2020 to remedy issues of poor accessibility, low funding and inefficient resources.

               4.Adopt the law on reforming corporate governance of state-owned enterprises.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2015) 272.

                     (4)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069.

                     (5)
                  COM(2014) 902.

                     (6)
                  COM(2014) 904.

                     (7)
                  SWD(2015) 42 final.

                     (8)
                  Council Decision 2013/531/EU of 22 October 2013 providing precautionary Union medium-term financial assistance to Romania (OJ L 286, 29.10.2013, p. 1).

                     (9)
                  tax cuts embodied in the new draft fiscal code

                     (10)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 338 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Maltaand delivering a Council opinion on the 2016 stability programme of Malta

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Malta

                  and delivering a Council opinion on the 2016 stability programme of Malta

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it did not identify Malta as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  6
               . This recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Malta should ensure the full and timely implementation of the recommendation.

               (2)The 2016 country report for Malta was published on 26 February 2016
                  7
               . It assessed Malta’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Malta’s progress towards its national Europe 2020 targets.

               (3)On 15 April 2016, Malta submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance.
                  8

               (5)Malta is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2016 stability programme the government plans the headline balance to improve to a surplus of 0.1% of GDP by 2019. The structural balance will gradually improve so that Malta's medium-term budgetary objective - a balanced budgetary position in structural terms – is reached by 2019. According to the stability programme, the general government debt-to-GDP ratio is expected to fall to 62.6% in 2016 and decrease further to 55.5% in 2019. The macroeconomic scenario underpinning these budgetary projections is plausible for 2016 and cautious for 2017-19. However, the measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, there is a high risk of a significant deviation from the recommended adjustment towards the medium-term objective in 2015 and 2016 taken together, essentially stemming from the slippage in 2015 which needs to be corrected for in 2016, and under unchanged policies in 2017. The slippage in 2015 is partly explained by the surge in investment largely due to the exceptionally high absorption of EU funds in the run up to the conclusion of the 2007-2013 programming period. In order to reduce the deviation over the two-years 2015-2016, the 2016 stability programme includes additional measures for 2016 that could not yet be included in the spring forecast. These measures are targeted at reducing primary expenditure (by 0.16% of GDP), especially in the areas of compensation of employees, intermediate consumption and capital transfers. In addition, the estimates of some of the revenue measures for 2016-2019 have been revised to reflect more up to date information, as well as the actual impact of the measures for 2015. Taken together, these measures have a net deficit-reducing impact of 0.2% of GDP. Compared to the Commission forecast, factoring in these measures would improve the structural effort, and the structural balance pillar would point to some deviation on average over the two years 2015-2016, whereas a risk of a significant deviation would remain in 2017. Malta is forecast to comply with the debt reduction benchmark both in 2016 and 2017. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Malta will not comply with the provisions of the Stability and Growth Pact. Therefore, further measures will be needed to ensure compliance in 2016 and 2017.

               (6)The long-term sustainability of public finances in Malta remains a challenge. This is mainly due to the budgetary impact of ageing-related costs, such as healthcare and long-term care and pensions. The pension system faces the double challenge of achieving sustainability while ensuring adequate retirement incomes. Pension expenditure was lower than the EU average in 2013, at 9.6 % of GDP, but it is projected to increase to 12.8 % by 2060, one of the highest in the EU. In March 2016, the government adopted several measures to address the sustainability and the adequacy of the pensions system, but the budgetary impact has not yet been assessed. In order to improve the adequacy of the system, the contributory national minimum pension continues to evolve in 2016, with a view to reaching 60 % of median income by 2027, and to extend its coverage. Effectiveness of the reform will depend on safeguarding the employability of older cohorts. In addition to pensions, public expenditure on healthcare and long-term care is projected to increase faster than the EU average, at 2.1% and 1.2% of GDP. The authorities have adopted a national health systems strategy and are conducting a healthcare spending review with a view to improving the efficiency of expenditure. However, the savings from these efforts have yet to materialise. Sustainability in the long run would benefit from using potential savings to address the projected expenditure growth.

               (7)Significant investments have been made, but education and training outcomes are still below target. This affects the quality of labour supply and the labour market participation rate. The educational attainment of Malta’s workforce is still among the lowest in the EU. Malta is implementing a comprehensive strategy for lifelong learning, but participation in lifelong learning programmes is still limited, particularly among those with low educational attainment. Challenges in this area include targeted outreach, improved access to training and partnerships between education and training institutions and employers. A legal notice establishing an institute for the continuous professional development of teachers (the Institute for Education) was approved in 2015. The Institute’s main objectives are to: (i) provide teachers with skills needed in their daily professional activities; (ii) act as a hub for educators to meet and share their experiences and (iii) promote educational leadership. The Institute is now becoming operational and is expected to become the main driver in addressing teachers’ professional development needs. Progress in this area will need to be monitored.

               (8)Apart from one-off large-scale projects in 2014-2015, investment in Malta has been muted, reflecting structural changes in the economy and bottlenecks. This is mainly linked to the increasing importance of less capital-intensive service sectors, which lowers the economy’s future investment needs. Nevetherless, some challenges that affect investment activity in the country persist, such as the insufficient capacity to innovate, skills bottlenecks, inefficiencies in the public administration and the justice system, the regulatory burden and significant traffic congestion.

               (9)The transport and logistical infrastructure is one of the major barriers to foreign investment. The external costs of transport borne by Malta’s economy are substantial. These stem mainly from an inefficient use of the country’s transport network and the lack of real alternatives to using private passenger cars. In addition, the high number of private vehicles, pollution and traffic congestion pose challenges to the sustainability of the national transport sector. No comprehensive transport strategy has yet been implemented, despite the fact that the development of a national transport strategy and master plan is a pre-condition for accessing EU structural and investment funds (2014-2020), which will be used to co-fund transport investments.

               (10)The government has taken several steps to improve access to finance for small and medium-sized enterprises (SMEs). These steps were geared to providing equity and venture capital, which had been identified as a bottleneck in recent years. In addition, future measures include setting up a central credit register and a development bank and the launch by the Malta Stock Exchange of a platform designed specifically to help SMEs raise funds through the capital market. Difficulties in the area of access to non-bank instruments remain, but SMEs in Malta benefit from a better financing environment than many of their EU peers.

               (11)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Malta’s economic policy and published it in the 2016 country report. It has also assessed the stability programme and the national reform programme and the follow-up given to the recommendations addressed to Malta in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) and (2) below.

               (12)In the light of this assessment, the Council has examined the stability programme and its opinion
                  9
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Malta take action in 2016 and 2017 to:

               1.In view of the high risk of a significant deviation, achieve an annual fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016 and in 2017, by taking the necessary structural measures. Step up measures to ensure the long-term sustainability of public finances.

               2.Take measures to strengthen labour supply, notably through increased participation of low-skilled persons in lifelong learning.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2016) 338 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 86 final.

                     (8)
                  COM(2014) 494 final.

                     (9)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 343 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Romaniaand delivering a Council opinion on the 2016 convergence programme of Romania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Romania

                  and delivering a Council opinion on the 2016 convergence programme of Romania

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it identified Romania as one of the Member States for which an in-depth review would be carried out.

               (2)The 2016 country report for Romania
                  6
                was published on 26 February 2016. It assessed Romania’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Romania's progress towards its national Europe 2020 targets. It also included the in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commissionpresented the results of the in-depth review.
                  7
                The Commission's analysis leads it to conclude that Romania is experiencing no macroeconomic imbalances.

               (3)On 28 April 2016, Romania submitted its 2016 national reform programme and its 2016 convergence programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance.
                  8

               (5)The third balance-of-payments financial assistance programme (2013-2015) ended in September 2015 without any completed review. The third formal review mission (16-30 June 2015) to assess implementation of the programme's conditions has not been concluded. While some progress was achieved in several areas, current and former programme achievements were undermined in key policy areas. Post-programme surveillance started on 1 October 2015 and it will continue until at least 70% of the loan granted under the first balance-of-payments programme has been repaid, i.e. at least until spring 2018.

               (6)Romania is currently in the preventive arm of the Stability and Growth Pact. In its 2016 convergence programme, the government plans a deterioration of the headline balance from -0.7% in 2015 to -2.9 % of GDP in 2016 and 2017. The structural balance is expected to deteriorate as well. The programme plans to depart from the medium-term budgetary objective - a structural deficit of 1 % of GDP - which had been achieved in 2014 and 2015 and does not plan to return to it within the programme period. According to the convergence programme, the government debt-to-GDP ratio is expected to remain below 40% over the programme horizon. The macroeconomic scenario underpinning these budgetary projections is plausible for 2016 and slightly favourable for 2017. Based on the Commission 2016 spring forecast, there is a risk of a significant deviation both in 2016 and, under unchanged policies, 2017. In addition, the Commission 2016 spring forecast projects a general government deficit of 3.4% of GDP for 2017, above the 3% of GDP reference value of the Treaty. Based on its assessment of the convergence programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Romania will not comply with the provisions of the Stability and Growth Pact. Therefore further measures will be needed to ensure compliance in 2016 and 2017.

               (7)The fiscal framework in Romania is sound in its provisions, but is not applied effectively in practice. None of the recent deficit-increasing fiscal measures was initiated and adopted as part of the standard budgetary process. In 2015, the requirement to include a Ministry of Finance-verified impact assessment for new legislative initiatives that increase public spending or reduce public revenues, to respect expenditure ceilings, and to propose compensatory measures for revenue reductions was breached. In practice, the Fiscal Council is given very little time to react to budgetary proposals and its opinions and recommendations are not sufficiently taken into account. The 2016 Budget Law targets a fiscal deficit of 2.95 % of GDP, leading to a significant  deviation from the medium-term objective. This is a departure from the national fiscal framework.

               (8)A number of measures are being implemented to improve tax collection and increase tax compliance. These include mandatory cash registers, strengthened cash-payment rules, a new VAT registration procedure, intensified auditing by the tax authority (ANAF) and the authority’s ongoing reorganisation. However, high tax evasion and a low level of tax compliance remain a challenge. Undeclared work and under-declared earnings continue to weigh on tax revenue and distort the economy. The effectiveness of measures, including those by the Labour Inspectorate, to curb undeclared work remains limited.

               (9)The law on equalisation of the pensionable ages for men and women has been pending before the parliament since 2013. Its adoption would increase the labour market participation of older women considerably, narrowing the pension gender gap and mitigating their risk of old-age poverty.

               (10)Labour market conditions improved in 2015. Unemployment is low and the employment rate has been increasing. Long-term unemployment is below the EU average. However, significant challenges remain, especially in relation to the high rate of young people not in employment, education or training and there is limited outreach to activate them effectively.

               (11)The National Employment Agency is lagging behind in offering personalised services to jobseekers and has limited services for employers, despite mandatory referral of vacancies to the National Employment Agency. A procedure has been adopted to offer tailor-made support to the various categories of unemployed people, but has not yet been implemented. Cooperation between employment and social services is very limited, making the activation of social assistance beneficiaries even harder.

               (12)The minimum wage, which is among the lowest in the EU, has increased substantially since 2013 and the lack of objective criteria for its setting creates uncertainty. A tripartite working group has been set up to work on the reform of minimum wage setting, but there continues to be no clear guidelines or criteria that would take into account its impact on job creation, social conditions and competitiveness. Overall, social dialogue remains weak.

               (13)Romania has one of the highest risks of poverty or social exclusion in the EU. The labour market activation of people on social assistance is very limited, especially in rural areas. The social reference index, on which social benefit amounts are based, is not regularly updated in line with the economic context, which may affect the adequacy of benefits over time. The Minimum Inclusion Income Law, which is expected to improve the targeting and adequacy of benefits and the labour market activation of minimum inclusion income recipients, has been sent to the parliament for adoption. However, several measures in the government's 'anti-poverty package' aim at tackling this issue, using an integrative approach (education, health, housing, social protection, transport).

               (14)Romania still faces education challenges. Several strategies cover lifelong learning, vocational education and training, tertiary education and early school leaving. However, the early school leaving rate remains well above the EU average, in part due to significant implementation delays of the strategy approved in 2015. Prevention and remedial programmes are limited. Vulnerable groups such as Roma and children from poor families continue to face obstacles in accessing and completing quality education, especially in rural areas. In early childhood education and care, Romania has taken action to support the participation of disadvantaged pupils in kindergarten (4-6 year-olds). Provision of early childhood services for 0-3 year-olds remains limited. Recent legislation to extend parental leave provisions, together with insufficient work incentives, may increase barriers for the participation of women in the labour market. Participation in upper secondary vocational education and training is above the EU average, but the dropout rates remain high. The tertiary attainment rate is increasing, but the quality and labour market relevance of higher education is limited. Participation in adult education is very low.

               (15)Health outcomes in Romania are poor. Life expectancy at birth is well below the EU average for both men and women. Access to healthcare and over-reliance on hospital care remain major concerns. Widespread informal payments reduce access to healthcare for people with low incomes. Romania has adopted measures to improve access to healthcare for low-income pensioners and people in remote and isolated communities. A network of social and health mediators is being developed and a draft law on community services has been proposed. The deinstitutionalisation of people with disabilities remains a challenge.

               (16)Romania has taken action to address the low funding of the healthcare system and its inefficient use of public resources. These reforms included clearing arrears in the health sector, increasing the sustainability of pharmaceutical spending, implementing e-health solutions, improving the funding of the health system, devising a strategy to shift resources from hospital-based care towards preventive and primary care, and centralised procurement procedures. However, the lack of administrative capacity is delaying implementation of the 2014-2020 national health strategy. In particular, the efficiency of the health system is constrained by delays in streamlining the hospital sector and switching from inpatient to more cost-effective outpatient healthcare.

               (17)Romania's key development disparities are between urban and rural areas. Employment, social, health-care and educational outcomes are lower in the latter and people face much lower access to education, medical services, basic utilities, and public services due to low and fragmented local administrative capacity. Meanwhile, the socio-economic development of rural areas is limited by under-developed transport infrastructure and limited public and private transport, coupled with high commuting costs and limited access to broadband infrastructure. Low added value in agriculture and a lack of economic diversification in rural areas constrain the development of a sustainable rural economy. A high proportion of the rural labour force works in subsistence or semi-subsistence agriculture associated with hidden unemployment or non-remunerated family work, low productivity and poverty. An anti-poverty package, to be financed mainly with EU funds, provides for an integrated approach to fighting poverty, including in rural areas. There are plans to set up integrated community teams, offering several integrated services to disadvantaged communities, but they have not been implemented yet.

               (18)The strategic framework for public administration reform has been in place since 2014, but its implementation was slow in 2015. Some key initiatives have been adopted in 2016 to increase the transparency and effectiveness of the functioning of public administration. However, the delays in adopting a general and transparent human resources management approach, in particular on recruitment/appointment, appraisal, salaries, career progression across all staff categories and training, leaves room for an arbitrary approach to key procedures and decisions. This, alongside unstable organisational structures, has a negative impact on the civil service's independence and professionalism and, therefore, on its effectiveness and efficiency. Complicated administrative procedures, an inefficient public procurement system and widespread corruption constrain the delivery of services (including e-government services), both to the public and to businesses. Strategic planning, programme budgeting, consultation practices, and evidence-based policy-making remain under-used. These challenges hamper the implementation of important policies across many areas, including the effective uptake of available EU funds and other financing support.

               (19)State-owned enterprises dominating key economic sectors tend to underperform. These are especially prevalent in key infrastructure industries, accounting for 44 % of turnover and 77 % of employment in the energy sector and 24 % and 28 % respectively in the transport sector. Government Emergency Ordinance 109/2011 on the corporate governance of state-owned enterprises has been converted into a law on 10 May 2016 with amendments that better align it with international good practices. Romania has resumed hiring professional managers to replace the interim management in several state-owned enterprises but progress has been slower than initially announced. The transparency and accountability of state-owned enterprises would benefit from accelerating the adoption of annual budgets and the approval and publication of audited annual accounts. A new privatisation law is in preparation. However, it may include provisions that conflict with corporate governance legislation. Of particular concern are likely overlaps in the responsibilities of the privatisation's special administrator and the company's management.

               (20)In spite of the efforts of the judicial institutions to address high-level corruption, corruption is still present in many economic sectors and involves appointed and elected officials at all levels of government as well as civil servants and employees of public institutions. Major judicial reforms are being implemented, but concerns remain about the high workload in courts, the predictability and proper enforcement of court decisions and external pressure on the judiciary. Under the Cooperation and Verification Mechanism, Romania receives recommendations in the areas of judicial reform and the fight against corruption. These areas are therefore not covered in the country-specific recommendations for Romania.

               (21)The soundness of the financial sector has improved. However, the sector remains vulnerable to domestic legal intiatives. The recently adopted law on debt discharge with retroactive application on the existing stock of loans may constitute a challenge for several credit institutions and lead to weaker credit activity. The law may increase risks for financial sector stability with implications for the whole economy. Other developments that may have a negative impact on banks include the proposal to convert foreign currency loans into local currency loans and some court decisions on unfair contract terms in loan contracts.

               (22)Insufficient or low-quality infrastructure is among the most problematic factors for doing business in Romania and represents a barrier to trade and economic development. In spite of a recent slight improvement, Romania still ranks last among its regional peers in the perceived quality of transport and communication infrastructure. Its roads and motorways network is small compared with that of its peers and the size of the country. Adoption of the transport master plan and the accompanying railway reform have been repeatedly delayed.

               (23)Romania has the second lowest level of public investment among peer countries and is alone among its peers in that public investment has decreased every year since 2008. It has made recent and ongoing efforts to strengthen inter-ministerial cooperation, reorganise the public procurement system and improve the planning and implementation of investment projects. Nevertheless, the preparation of public investment projects is still insufficient and remains susceptible to external influence. Project selection remains hampered by the lack of medium- to long-term planning and strategic priorities, the need to achieve an agreement between numerous decision-makers, the limited enforcement power of the Public Investment Evaluation Unit in the Ministry of Public Finance, and the lack of selection criteria in the national programme for local development.

               (24)In spite of significant improvements in cost competitiveness and trade performance, Romania's non-cost competitiveness remains a challenge. Structural barriers are hindering the transition to a higher value added economy and limiting Romania's ability to foster sustainable growth. The complexity of administrative procedures, the volatility of fiscal and tax policies and the weak business environment continue to weigh on investment decisions. High tax evasion and undeclared work reduce tax revenue and distort the economy. Access to financing for small and medium sized enterprises remains limited.

               (25)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2016 country report. It has also assessed the convergence programme and the national reform programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in Romania but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

               (26)In light of this assessment, the Council has examined the convergence programme, and its opinion
                  9
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Romania take action in 2016 and 2017 to:

               1.Limit the deviation from the medium-term budgetary objective in 2016 and achieve an annual fiscal adjustment of 0.5 % of GDP in 2017 unless the medium-term budgetary objective is respected with a lower effort. Ensure the application of the fiscal framework and strengthen further tax compliance and collection. Ensure that legislative initiatives do not undermine legal certainty and do not put at risk financial stability. If necessary, adopt measures that mitigate such risks.

               2.Strengthen the National Employment Agency's services to employers and jobseekers, in particular by tailoring services to jobseeker profiles, better linking them with social services and reaching out to unregistered young people. Establish, in consultation with social partners, objective criteria for setting the minimum wage. Take action to prevent early school leaving and increase the provision of quality education, in particular among Roma. Adopt the equalisation of the pension age for men and women.

               3.Curb informal payments in the healthcare system and increase the availability of outpatient care. Strengthen the independence and transparency of human resources management in the public administration. Simplify administrative procedures for business and the public. Strengthen corporate governance of state-owned enterprises.

               4.Improve access to integrated public services, extend basic infrastructure and foster economic diversification, in particular in rural areas. Adopt and implement the transport master plan. Strengthen public investment project prioritisation and preparation.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2016) 343 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  SWD(2016) 91final.

                     (7)
                  COM(2016) 95 final.

                     (8)
                  COM(2014) 494 final.

                     (9)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 345 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Slovakiaand delivering a Council opinion on the 2016 stability programme of Slovakia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Slovakia

                  and delivering a Council opinion on the 2016 stability programme of Slovakia

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it did not identify Slovakia as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  6
               . This recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovakia should ensure the full and timely implementation of the recommendation.

               (2)The 2016 country report for Slovakia was published on 26 February 2016
                  7
               . It assessed Slovakia’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Slovakia’s progress towards its national Europe 2020 targets

               (3)On 29 April 2016, Slovakia submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (5)Slovakia is currently in the preventive arm of the Stability and Growth Pact. In its 2016 stability programme, the government plans to improve the headline balance to -1.9% of GDP in 2016 and further gradually to -1.3% of GDP in 2017. According to the stability programme, the medium-term budgetary objective — a structural deficit of 0.5 % of GDP — would be reached in 2019.  According to the programme, the government debt-to-GDP ratio is expected to reach 52.9% in 2016 and to continue decreasing to 47.3% in 2019. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, Slovakia is at risk of some deviation from the medium-term budgetary objective in 2016, while it is expected to comply with recommended adjustment in 2017 under unchanged policies. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that Slovakia is expected to broadly comply with the provisions of the Stability and Growth Pact. Nevertheless, further measures will be needed to ensure compliance in 2016. To this end, the long-delayed adoption of binding expenditure ceilings and the implementation of the 'value for money' programme to increase efficiency of public expenditure, with planned expenditure reviews in selected areas, would be of critical importance.

               (6)The long-term sustainability of public finance in Slovakia remains a challenge. This is mainly due to the projected growth of ageing-related costs on healthcare and pensions. The increase in Slovakia's pension spending up to 2060 is expected to be one of the highest in the EU, driven by population ageing and low fertility rates. The statutory retirement age in Slovakia is comparatively low, partly due to life expectancy factors. Healthcare expenditure is the main driver of ageing-related costs. Public healthcare expenditure is projected to grow substantially in the long term, albeit from a comparatively low level. Despite some improvement, health indicators remain very low in Slovakia. To raise the cost-effectiveness of the healthcare sector, the government has been taking measures in both inpatient and outpatient care. Efforts to introduce an integrated model of care continue. The success of this reform is likely to depend on ownership by the key stakeholders, the integration of healthcare centres and hospitals, and appropriate staffing. Despite measures adopted to limit a further build-up of debt in public hospitals, several are still in a poor financial situation. Challenges remain in fully reversing the negative expenditure trends, such as restructuring hospital capacity, introducing a prospective reimbursement system and increasing competition in public procurement in the area of healthcare. Regarding outpatient care, the weak gatekeeping role of general practitioners is partly due to a suboptimal division of competences between general practitioners and specialists and favours recourse to more costly specialised care. With regard to taxation, government measures to fight tax fraud have contributed to better tax collection, in particular in the area of value added tax (VAT). However, the VAT gap remains high, indicating an ongoing compliance challenge. A strong emphasis on VAT collection in recent years has lessened attention to other important areas of taxation such as income taxation. In addition, a focus on auditing has left other roles of tax administration such as tax debt collection underdeveloped. This suggests that there is scope to improve resource allocation within the taxation system. A strategy to define compliance goals has not yet been developed.

               (7)Despite improvements in the labour market resulting from the good economic recovery and recent policy measures, long-term unemployment remains a problem. The rate of long-term unemployment continues to be one of the highest in the EU (7.6% vs. 4.3% in the EU as a whole in the third quarter of 2015). It particularly affects marginalised Roma, the low-skilled and young people. Measures to address unemployment have been taken in the area of vocational education and training, subsidised jobs and job counselling.  However, the successful implementation of most of these reforms will depend on the capacity of the public employment service. Despite reorganisation of the Central Labour Office and improved access to training, there are still difficulties in introducing individualised support to the long-term unemployed and to vulnerable groups. Roma participation in the Slovak labour market remains very low and progress in increasing their employment rate is slow. Low levels of education and skills and discrimination are factors influencing their poor labour market participation. The low employment rate of women of childbearing age reflects the long parental leave (up to three years), lack of childcare facilities, especially for children under the age of three, high childcare costs and the limited use of flexible working-time arrangements. In addition, regional disparities persist – the unemployment rate in Eastern Slovakia is still twice that in Bratislava. Regarding governance of labour market services, measures taken in recent months do not provide for a tailored approach in addressing the structural challenges of the Slovak labour market.

               (8)The education system is insufficiently geared to increasing Slovakia’s economic potential. Educational outcomes are low by international standards and have deteriorated further. This is largely linked to the inadequacy of teachers’ education and the low attractiveness of the teaching profession. Despite the 4% salary increase for teachers in 2016, low pay and insufficient practical training are among the factors making the profession unattractive to young people. Recently adopted anti-segregation legislation has yet to be implemented to bring about positive change and increase Roma participation in mainstream education, including pre-school education.

               (9)Public administration is still burdened by inefficiency. Effective coordination is wanting, due to the fragmented and rigid organisation of the public administration. The adoption of the Strategy on Human Resource Management in October 2015 is a positive step forward. However, the new Act on Civil Service, which is a necessary prerequisite for its suscessful implemenation, has not been adopted yet. The government has taken several measures to tackle corruption, but their impact so far has been limited. In particular, Slovakia has a limited track record on initiating criminal proceedings and prosecuting corruption cases, including illicit practices in public procurement. Building permit procedures for large-scale investment and infrastructure projects have been shortened. Unconsolidated governance, lack of evidence-based design of public procurement procedures, weak professionalism, conflicts of interest, tailor-made tender specifications and excessive use of lowest price award criteria result in limited quality-based competition. Public procurement weaknesses are persistently reported as affecting the efficiency of public resources allocation. Frequent changes to legislation and burdensome administrative procedures and requirements affect businesses in Slovakia. High administrative and regulatory barriers with respect to some professional services and network industries, weaknesses in some areas such as contract enforcement and insolvency resolution and long-standing concerns regarding the quality of the judicial system harm the business environment and discourage investment. Some measures to ease doing business have been taken, such as the Centre for Better Regulation, which was set up in October 2015, and the launch of the National Business Centre in early 2016. However, the adoption of the Small Business Act (SBA) under the SMEs Development Strategy has been postponed.

               (10)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovakia’s economic policy and published it in the 2016 country report. It has also assessed the stability programme and the national reform programme and the follow-up given to the recommendations addressed to Slovakia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

               (11)In the light of this assessment, the Council has examined the stability programme, and its opinion is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Slovakia take action in 2016 and 2017 to:

               1.Achieve an annual fiscal adjustment of 0.25 % of GDP towards the medium-term budgetary objective in 2016 and of 0.5% of GDP in 2017. Improve the cost-effectiveness of the healthcare system. Take measures to increase tax compliance.

               2.Improve activation measures for the long-term unemployed and other disadvantaged groups, including individualised services and targeted training. Facilitate the employment of women, in particular by extending the provision of affordable, quality childcare. Improve educational outcomes by making the teaching profession more attractive and by increasing the participation of Roma children from early childhood in mainstream education.

               3.Consolidate governance, reinforce the shift from price only to quality-based competition and improve the prosecution of illicit practices in public procurement. Improve the transparency, quality and effectiveness of human resources management in public administration, in particular by adopting a new civil service act, and the effectiveness of the justice system. Adopt a comprehensive plan to address administrative and regulatory barriers for businesses.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2016) 345 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 93 final.

                     (8)
                  COM(2014) 494 final.