Economic studies
Romania

Romania

Population 19.6 million
GDP 10,786 US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

 

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 4.8 7.3 3.9 3.7
Inflation (yearly average, %) -1.1 1.1 4.4 3.6
Budget balance (% GDP) -2.9 -2.9 -3.4 -3.4
Current account balance (% GDP) -1.7 -3.1 -4.0 -4.1
Public debt (% GDP) 37.3 35.1 35.9 36.2

(e): Estimate. (f): Forecast.

STRENGTHS

  • Large domestic market
  • Significant agricultural potential: wheat, barley, colza, etc.
  • Limited energy dependence (23%) thanks to coal, oil, gas and uranium
  • Large-scale renewable electricity production (37%)
  • Diversified and competitive industry thanks to cheap labour

WEAKNESSES

  • Demographic decline: low birth-rate and emigration of educated youth
  • Serious regional disparities in terms of education, vocational training, healthcare and transport; rural regions lag behind
  • Low participation rate for Hungarian and Roma minorities, young people, and women in the economy
  • Large informal economy
  • Inefficient agricultural sector
  • Slow bureaucratic and legal processes; corruption

RISK ASSESSMENT

Solid but less vigorous demand

The economic boom of 2017 already began to fade out in 2018. Private consumption is not likely to accelerate again in 2019, although its solid level and substantial share in the economy (63% of GDP) will keep it as the main growth driver. The ongoing improvement in the labour market, with the unemployment rate dropping to 4.1% in September 2018, and further growth of wages (with the minimum wage increasing by almost 8% from 2019) will continue to support household spending. Wages are being driven by the increasing scarcity of labour, which is a result of emigration and an aging population, despite the financial incentives being used to encourage mobility among the unemployed and reduce long-term unemployment. At the same time, accelerated inflation has already halved the growth of real wages in 2018 compared to a year prior. Previously, household consumption was elevated by implemented fiscal stimulus measures, including tax cuts, minimum wage increases, and public sector wage hikes. However, these tax cuts have faded away and contributed to higher consumer prices, accompanied by inflation pressure caused by excess demand.

Labour shortages remain a concern for companies and trigger further compensation increases. Moreover, labour cost increases have been far ahead of productivity growth. The pressure coming from growing wages has been partially weakened by the transfer of social security contributions from employers to employees (contributions were changed from 22.75% and 16.5% to 2.25% and 35%, respectively).

A gradual pick up of projects co-financed by EU funds brings support for investments, which recovered in 2018. Nevertheless, it is likely they will be subdued due to the government’s attempt to keep the fiscal deficit under control. In any case, companies extending capacities, as well as an increase in non-residential construction, telecommunications, and computing, will keep investment growth positive. Imports are likely to remain more dynamic than exports, meaning the contribution from trade will remain negative. Cars (Dacia and Ford) and tyres, together with wood, fertilizers, metals, medicines, machines, and clothing remain an important part of Romanian exports. Production and exports of agri-food products have been negatively affected by periods of droughts and floods, as well as a swine fever epidemic.

 

Public and external accounts will remain weak

The budget deficit has widened over recent years and is projected to rise further. Significant increases of salaries in the public administration, as well as in the health and education sectors, have contributed to a higher fiscal cost. Moreover, the flat personal income tax rate was lowered from 16% to 10% in January 2018. The pension indexation is set to increase in both 2019 and 2020 (by 15% in September 2019 and 40% in September 2020). The August 2018 budget revision assumed increasing of both revenues and expenditures. If the government is less effective in conducting investments, budget deficit figures could be lower as a result. The current account deficit is expected to increase further as a result of deteriorating foreign trade balances of goods and services resulting from robust internal demand. The primary income deficit improved in the first half of 2018supported by transfers from Romanians working abroad. More than a half of the deficit was financed by rising FDI and inflows on the capital account contributed by allocations from EU funds. The external debt widened in the first half of 2018 as a result of increasing short-term external debt and the latter’s coverage by foreign exchange reserves dropped to 76.2%, against 87.2% at end-2017.

 

Political tensions

In January 2018 Mihai Tudose, who took over the position of the Prime Minister in 2017, was forced out from office by his own ruling Social Democratic Party (PSD) due to disagreements with the party leadership. Subsequently, the government of existing coalition of PSD-Alliance of Liberals and Democrats was sworn in with the Prime Minister Viorica Dancila. The real power is still assumed to be in the hands of PSD leader Liviu Dragnea, who cannot participate in the government due to criminal investigations. In November 2018, the PSD decided to reshuffle a part of ministers in the cabinet as a result of internal tensions within the party. At the same time, the justice minister remained unchanged, signalling a continuation on the path of controversial reforms to the justice laws. Indeed, the European Parliament criticised the Romanian authorities’ initiatives to change these laws and criminal code, as well as the breaching of human rights at the crashing of demonstrations in August last year. In the past, the Romanian political scene has experienced various portfolio changes – however, uncertainties related to domestic politics still pose the risk ofinstability.

 

Last update : February 2019

 

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 amountdesignated.

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 syndicjudge.

 

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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