Economic studies
Romania

Romania

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

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 4.1 -3.9 7.0 5.0
Inflation (yearly average, %) 3.8 2.6 4.5 3.5
Budget balance (% GDP) -4.4 -9.2 -7.4 -6.0
Current account balance (% GDP) -4.7 -5.0 -6.1 -6.0
Public debt (% GDP) 35.2 47.3 51.2 55.0

(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

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
  • Slow administrative and legal processes, corruption, bureaucracy, poor management of the workforce and procurement

RISK ASSESSMENT

Recovery set to decelerate in 2022

Thanks to the recovery in household consumption, the economy rebounded strongly in 2021, with significant growth of 13% in the second quarter, allowing GDP to return to pre-crisis levels. In 2022, domestic demand will remain the main driver of growth, but the pace is set to slacken. Household consumption (63% of GDP), although brisk, will remain constrained by a persistently high unemployment rate (5%) and soaring energy prices. Domestic investment (25% of GDP) will be supported by the resumption of EU-financed projects, provided the Romanian Parliament approves them. Under the National Recovery and Resilience Plan (NRRP) approved by the European Commission in September 2021, Romania stands to receive nearly EUR 29 billion (12% of GDP) by 2027, in addition to structural funds (12% of GDP) provided in particular to upgrade the country's infrastructure. However, in a tense political environment, the effectiveness of these investments, which are concentrated in infrastructure, will depend on the absorption rate of European funds, which is still below the regional average due to administrative shortcomings. Furthermore, rising energy prices, coupled with a recovery in domestic demand, stoked inflationary pressures in 2021, with record inflation of over 5% in September. After hiking its main policy rate to 1.5% in October 2021, the National Bank of Romania is expected to continue tightening monetary policy in 2022 in order to bring inflation back to its 2.5% +/-1pp target window. Net exports should make a negative contribution to growth again in 2022, as supply chain disruptions are hurting exports, while buoyant domestic demand and rising energy prices will increase the import bill. Exports will depend on the recovery of European partners (more than 75% of trade is intra-EU), particularly Germany, which absorbs 23% of Romanian exports. Contrasting with brisk services and cereals exports, exports of electrical components, telephones, machinery, and motor vehicles and parts (42% of exports) will struggle, particularly with the persistent shortage of semiconductors. The fourth wave of COVID-19, which appeared in early October 2021 following the rapid spread of the delta variant, was the deadliest since the beginning of the epidemic. Given the low vaccination rate of the population and the fragility of the health system, which suffers from dilapidated hospital infrastructure (made worse by three fires in 2021), the health crisis, which depressed growth in the last quarter of 2021, will remain a major risk to economic stability in 2022.

 

Twin deficits financed by European aid

The fiscal consolidation that began in 2021 should continue in 2022. Supported by the economic recovery, public revenues are expected to stabilise at around 30% of GDP, while public expenditure, benefiting from the moderation of pensions and public wages, is set to decline to account for only 36% of GDP. Public finances will benefit from record aid of more than 24% of GDP over the 2021-2027 period under the EU’s Multiannual Financial Framework and Next Generation Recovery Plan. Thanks to these European funds, 14% of which were paid out in 2021, the budget deficit should shrink in 2022. Public debt (52% external) will continue to increase, but should remain moderate. However, political divisions could undermine fiscal consolidation.

 
In 2021, the recovery in domestic demand boosted import volumes, largely offsetting a strong rebound in exports and causing the trade deficit to widen (-9% of GDP in 2021). Even so, the current account deficit is expected to stabilise in 2022. The surplus in services (4.2% of GDP), which is attributable to the IT sector, outsourcing and transport, will not be enough to ensure a balanced trade balance. Moreover, agricultural subsidies and expatriate remittances will not fully compensate for the repatriation of income by foreign investors. The gradual resumption of FDI, new European funds in the form of grants or loans, and portfolio investments (sovereign bond issues) will finance the current account deficit.

 

A new alliance between rival parties

Following the December 2020 parliamentary elections, Florin Citu was appointed prime minister of a coalition government that included his National Liberal Party (PNL), the Save Romania Union (USR-PLUS) and the Democratic Alliance of Hungarians in Romania (UDMR), which together held 56% of parliamentary seats. However, strained relations between the PNL and the USR-PLUS led to a vote of no confidence in the liberal government on 5 October 2021.

After two months of political paralysis, the PNL has formed a new coalition government, this time with the centre-left Social Democratic Party (PSD), historically its biggest rival, and the UDMR. Appointed by President Klaus Iohannis, Nicolae Ciuca (PNL) will serve as Prime Minister for 18 months and then be replaced by a PSD candidate until parliamentary elections are held in 2024.

 

Last updated: February 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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