Estudios Económicos
Romania

Romania

Population 19,8 million
GDP 9,493 US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

Main economic indicators 2015 2016 2017(f) 2018(f)
GDP growth (%) 3.9 4.8 6.0 4.5
Inflation (yearly average, %) -0.4 -1.1 1.2 3.1
Budget balance (% GDP) -0.8 -3.0 -3.1 -3.0
Current account balance (% GDP) -0.6 -2.4 -2.8 -2.9
Public debt (% GDP) 38.0 37.6 39.5 40.6

(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
  • Leu stable against euro

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 (28%)
  • Inefficient agricultural sector (11% of GDP)
  • Slow bureaucratic and legal processes, corruption
  • Weak public revenues and tax evasion

RISK ASSESSMENT

Lively domestic demand

After increasing to a buoyant level in 2016, GDP growth strengthened even further in 2017. The main driver of growth continues to be domestic demand, with household consumption (70% of GDP) as the leading element: private consumption increased by nearly 10% over the first three quarters of 2017 compared to the same period in 2016. Once again, households are set to benefit from employment increases, increases in wages and pensions – both in the private and public sectors –, and from falling tax rates.

Although set to remain the main growth driver, consumption is, however, likely to slow this year because of the declining impact of the tax cuts and the return of inflation, which is connected to the overloading of existing production capacities. 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. Labour shortages remain a concern for companies and trigger further compensation increases.

Investment (24% of GDP) has been relatively stable. However, a gradual recovery of the projects co-financed by the EU funds is taking shape, given the context of low interest rates and positive growth prospects. These will likely be supported by construction, telecommunications and IT. Investment aid (0.52% of GDP) is favourable to SMEs. Despite weak demand, due to bureaucracy and administrative failures at the local level, European funds will help maintain moderate growth in public investment, but will not be enough to fill infrastructure gaps. In addition, the large labour deficit in the construction sector could hinder the growth of capital investment and, hence, the full recovery of the sector. The government will continue to vouch for half of all new buyer loans to encourage credit and lower costs. Given the high percentage of bad loans (8.3% in the second quarter of 2017), which shows a gradual decline, and difficulties to put collateral in place, caution is still required within banks, of which 90% are subsidiaries of an Austrian, Dutch, French or Greek group. These will continue to repay their debts to parent companies while constituting a national deposit base. Exports (39% of GDP) will probably increase at a reasonable pace, but lower than that of imports in the face of strong domestic demand. Sales of cars (Dacia and Ford) and tires (a quarter of exports), as well as wood, fertilizers, metals, drugs, machinery and clothing will benefit from any increase in European demand. Exports of grains and oilseeds will depend on harvests.

 

Twin deficits

Costly fiscal measures resulted in a significant widening of budget deficit. Cutting the standard VAT rate by an additional one percentage point, abolishing the extra excise duty on fuel, and the special construction tax – led to an even higher deficit in 2017. Moreover, additional wage hikes in the public sector will contribute to this as well. Nevertheless, in late 2017, the government announced its intent to keep the general government deficit below 3% of GDP. Measures have included cutting public expenditures for investments, as well as a request for transferring state-owned companies’ profits to the treasury. The government will strive to ensure that the 3% deficit threshold is not exceeded, so as not to come within the scope of the European Excessive Deficit Procedure.

The trade and current account deficits widened further in 2017, Exports increased strongly but imports surged even higher. Wage increases, which have surpassed productivity growth, are a threat for the country’s competitiveness position – however, labour costs levels still remain significantly lower than those in Western Europe.

 

Political tensions

The December 2016 elections brought to an end the transitional technical government installed in November 2015, following the resignation of Social-Democrat Prime Minister Romania Victor Ponta, implicated in a corruption scandal. The Social-Democrats of the SDP won 46% of the votes – a victory over the Liberals – and retained their majority in Parliament. However, the conflict related to the fight against corruption, which led to street protests in early 2017, contributed to the replacement of the Sorin Grindeanu cabinet after just six months in office. In June 2017, Mihai Tudose became the prime minister of the new cabinet led by the Social Democratic Party (PSD), although the real power still lies in the hands of party leader Liviu Dragnea. The latter cannot participate in the government due to a suspended two-year sentence for ballot-rigging. In November 2017, Mr Dragnea has been indicted for alleged fraud of EU funding, which is the third file opened by the National Anti-Corruption Directorate (DNA) against him.

 

Last update : January 2018

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 (approx. EUR 2,200), 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 ten 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 hearing the witnesses). 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.

 

Reorganization proceedings

The judicial reorganization procedure requires the drafting, approval and implementation of a reorganization 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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