Economic Analysis
Romania

Romania

Population 19.3 million
GDP per capita 12,868 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 4.1 -3.7 5.9 3.9
Inflation (yearly average, %) 3.8 2.3 4.1 11.1
Budget balance (% GDP) -4.3 -9.3 -7.1 -7.5
Current account balance (% GDP) -4.9 -5.0 -7.0 -7.3
Public debt (% GDP) 35.3 47.2 48.8 51.0

(e): Estimate (f): Forecast 

STRENGTHS

  • Large domestic market
  • Important agricultural potential: wheat, barley, colza, etc.
  • Limited energy dependence thanks to local coal, oil, gas and uranium
  • Large scale renewable electricity generation
  • Diversified and competitive industry thanks to cheap labour
  • Accessibility for non-EU foreign workers
  • Information and communication technology infrastructure is expanded and upgraded, including 5G mobile networks
  • Well integrated within the euro area through trade and investment linkages, but still not a Eurozone member

WEAKNESSES

  • Demographic downturn: low birth rate and emigration of well-educated youth
  • Strong regional disparities in terms of education, vocational training, health and transport; rural areas lag behind
  • Low participation of Hungarian and Roma minorities, youth, and women in the economy
  • Large underground economy
  • Inefficient agricultural sector
  • Volatile tax legislation
  • Slow administrative and legal processes, corruption, bureaucracy, poor management of the workforce and procurement

RISK ASSESSMENT

Inflationary pressures weigh on growth

The war in Ukraine and the related EU sanctions against Russia and Belarus, agreed upon by the Romanian authorities, will affect the economy in 2022. The direct effects of the war are limited as the country is a cereal exporter (such as corn, wheat, barley) and relatively independent for its energy supply (around 70% of energy demand is covered by domestic production). The already limited energy imports from Russia (especially crude oil) were drastically reduced thanks to imports from other countries such as Kazakhstan, Iraq, Azerbaijan, and the UAE. Moreover, following the easing of regulatory requirements to offshore tax laws, Black Sea Oil & Gas (an independent energy company) has begun to extract gas in June 2021 from Romania's offshore reserves. Gas from the Black Sea’s Neptune Deep offshore field, which will come on stream in 2026, will have the potential to make Romania a regional natural gas exporter. However, there are indirect effects via the surge in global commodities prices. Consumer price inflation reached 15.5% in June 2022, its highest level since 2003 when Romania faced its last high inflation episode. The price tensions should remain in the second half of the year from imported inflation. It has already eroded households and firms’ purchasing power as confidence indicators have shown less optimism among households and businesses.

 
The labour market is gradually recovering, but the unemployment rate is still above the pre-pandemic level. Skill shortages and brain drain remain a challenge, which could lead employees to continue asking for higher wages, while the minimum wage could rise further. This can generate further inflationary pressures. To contain them, the central bank of Romania (NBR) has increased its key interest rates in six steps between October 2021 and June 2022. Further hikes are expected this year, depending on the further development of inflation, which could reach up to 11% on average in 2022 (above the 2.5% +/-1pp target window of the NBR). In addition to inflation, this will weigh on private consumption (62% of GDP) and investment, including construction, as the financing costs rise noticeably. The support from the government remains robust, with measures implemented to soften the impact of higher prices. Net exports should again make a negative contribution to growth in 2022, as the economic slowdown in Europe (over 73% of trade is intra-EU), particularly Germany (21% of Romanian exports) will hurt exports. Contrasting with brisk services and cereals exports, exports of electrical components, telephones, machinery, and motor vehicles and parts (35% of exports) will struggle, particularly due to the supply-chain disruptions and rising uncertainty. Furthermore, relatively resilient domestic demand and rising energy prices will increase the import bill.

 

Twin deficits partly financed by European aid

In 2022, the fiscal deficit will slightly widen due to additional defence spending and temporary measures to cushion the fallout of the Russia-Ukraine war, which the public revenues (expected to reach 33% of GDP) will not suffice to compensate because of the economic slowdown. A cap on electricity and gas prices was extended from the end of April 2022 to the end of March 2023. Support measures, amounting to around 1.5% of GDP, also include food vouchers for low-income households and grants for the most affected business sectors. Meanwhile, the public finances will start to benefit from loans and grants under the EU’s Multiannual Financial Framework and Next Generation Recovery Plan over the 2022-2027 period, but delays are expected due to administrative shortcomings. The implementation of the NextGenerationEU Plan is expected to be delayed as well, with only around 20% of the total allocation absorbed by 2023 because of the low absorption rate. These European funds will also not offset the extra public spending in 2022. Public debt (56% external) will continue to increase, but should remain moderate. Political divisions could undermine future fiscal consolidation.

 
The trade in goods deficit could widen in 2022 as imports rise faster than exports (deteriorating terms of trade). The current account deficit should only slightly widen, as this should be partly offset by a higher surplus on the services account (4% of GDP in 2021). Moreover, EU agricultural subsidies and expatriates’ remittances (gradually recovering, mainly from Spain and Italy) will not fully compensate for the repatriation of income by foreign investors. European funds in the form of grants or loans, gradually recovering FDIs, and portfolio investments (in sovereign bonds) will finance the current account deficit.

 

Ongoing alliance between rival parties against a backdrop of heightened regional security problems

In November 2021, the centre-right National Liberal Party (PNL) formed a coalition government with the centre-left Social Democratic Party (PSD), historically its biggest rival, and the Democratic Alliance of Hungarians in Romania (UDMR), ending almost two months of stalemate. Together, the three parties have a large majority in both houses of parliament. Appointed by President Klaus Iohannis, Nicolae Ciuca (PNL) will serve as Prime Minister for 18 months and then be replaced by a PSD candidate for the final 18 months. This prime ministership rotation can harm the political reform continuity as both parties have particular goals. According to the latest polls, PSD has gained support since the end of 2021 and is currently polling at 35%, followed by PNL at 21%. In terms of international relations, Romania should be admitted into the Schengen area, which would happen in 2023 at the earliest. In the context of the war, among the NATO members, Romania shares the longest border with Ukraine, which has pushed NATO to bolster its military presence in the Black Sea region and deploy a multinational battlegroup to Romania. Furthermore, increased tensions in late April between neighbouring Moldova and Moldova’s pro-Russian breakaway region of Transnistria, brought Romania (which has close relations with Moldova) even closer to the war. Overall, the current coalition government, with its prime ministership rotation, is expected to maintain the political stability until the next parliamentary elections, to be held in late 2024.

 

Last updated: August 2022

PAYMENT

Bank transfers are becoming the most common payment method in Romania. The main Romanian banks are now linked to the SWIFT electronic network, which provides low-cost, flexible and rapid processing of domestic and international payments.

Professionals often choose to use cheques as a payment method for the equivalent value of purchased and received goods and services. Although cheques are considered to be a secure method of payment, the beneficiary of the cheque can only present it to the bank and cash-in the amount designated.

While promissory notes are mainly used as a means to guarantee a professional’s trade debts, in practice they are often used as a payment method. In Romanian law, promissory notes represent a credit instrument under private signature, created by the issuer as debtor, by which the issuer promises to pay a fixed amount of money on a certain date, or upon presentation to another beneficiary acting in the capacity of a creditor.

Both cheques and promissory notes become enforceable titles once signed by both parties. If they are not cleared due to the absence of cash, forced execution proceedings can be initiated against the debtor. 

Debt collection

Fast-track proceedings
Summons for payment (Art. 1013-1024 NCPC)

This procedure applies to certain liquid and eligible debts with a value exceeding RON 10,001, resulting from a civil contract. These include contracts concluded between a professional and a contracting authority, with the exception of debts registered in a statement of affairs, within an insolvency procedure. The debtor will be summoned to pay the due amount within 15 days of receipt. The ordinance is enforceable even if a request for cancellation is brought against it. Nevertheless, the debtor may raise an appeal against enforcement, under common law.

 

Summons of a lower value

This procedure was designed as an alternative to common law proceedings and to the ordinance procedure. Its aim is to enable a fast resolution to patrimony litigations, when the value does not exceed RON 10,000 and does not refer to matters excepted by the law. The procedure entails the use of standard forms, approved by Minister of Justice. These include the request form, the form for completion and/or rectification of the request form and the response form. Romanian legislation expressly states that only documents can be presented as evidence.

The decision of the court can be submitted to appeal within 30 days under common law, except for requests relating to debts with a maximum amount of RON 2,000. By way of derogation from the common law however, the exercise of appeal does not suspend the enforcement procedure.

 

Ordinary proceedings
Common Law procedure

The judge orders the communication of the request to the debtor, who must submit a statement of defence within 25 days of the petition. The creditor is obliged to submit an answer within 10 days, while the debtor must acknowledge the answer. Within three days of the date of the answer to the statement of defence, the court establishes the first trial date, where both parties will be summoned within a maximum period of 60 days. This process is somewhat lengthier, as further evidence is considered such as accounting expertise, cross-examination of the parties involved and witness testimonies. Following these deliberations, the court renders a legal decision. Appeals can be made to the upper court within 30 days of the decision being rendered. Extraordinary remedies are the appeal, the appeal for annulment and revision.

Enforcement of a Legal Decision

The enforcement procedure implies the existence of a valid and legally rendered enforceable title. It necessitates the failure of the debtor to execute its obligations, the existence of an enforcement procedure request formulated by the rightful creditor to a bailiff and finally the fulfilment of conditions within the execution procedure. The enforcement procedure commences at the request of a creditor through various means such as sequestration and sale of tangible or non-tangible assets

For judgments rendered in EU countries, special enforcement mechanisms are at the creditor’s disposal. These include EU Payment Orders and the European Enforcement Order. Awards issued by non-EU members are normally recognised and enforced, provided that the issuing country is party to a bilateral or multilateral agreement with Romania. If this is not the case, exequatur proceedings will ensue in front of domestic courts, as stated under Romanian private international law.

Insolvency Proceedings

Out-of-Court proceedings

According to the 2014 insolvency law, the concordat preventiv consists of an agreement with the creditors whereby the debtor proposes a business recovery plan, which includes a payment scheme for the creditors’receivables. By signing this agreement, the creditors confirm their support in helping the debtor to overcome its financial difficulties. The procedure is managed by a special receiver, who draws up an offer to the creditors. This must be approved by at least 75% of the creditors within 60 days from the date when they receive it. It is also subject to the approval of a syndic judge.

 

Insolvency proceedings

This is a preliminary procedure, which can be followed by a reorganisation procedure, or a bankruptcy procedure.

 

Reorganisation proceedings

The judicial reorganisation procedure requires the drafting, approval and implementation of a reorganisation plan aimed at the debtor successfully redressing its activity and performing the repayment of its debts, in accordance with an agreed payment schedule.

The plan can provide for the financial or operational restructuring of the debtor’s activity, corporate restructuring by modifying the share capital structure, or selling assets. The reorganisation plan is subject to the approval of the general meeting of creditors. During this period, the debtor is represented by a special administrator.

 

Bankruptcy proceedings

In the event that no reorganisation agreement is reached, the debtors will enter bankruptcy. The purpose of bankruptcy proceedings is to convert the debtor’s assets, for the repayment of creditors’ receivables. During this procedure, the debtor is represented by the judicial liquidator. The latter will perform the clearance of all the assets of the debtor and the sums obtained will be distributed to the creditors, based on the priority ranking as documented in the final consolidated debt table.

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