major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||7.1||4.0||3.9||-6.0|
|Inflation (yearly average, %)||1.1||4.1||3.8||3.5|
|Budget balance (% GDP)||-2.6||-3.0||-4.3||-4.0|
|Current account balance (% GDP)||-3.4||-4.4||-5.0||-5.2|
|Public debt (% GDP)||35.1||35.0||36.9||38.2|
(e): Estimate. (f): Forecast.
- Large domestic market
- Significant agricultural potential: wheat, barley, colza, etc.
- Limited energy dependence thanks to coal, oil, gas and uranium
- Large-scale renewable electricity production
- Diversified and competitive industry thanks to cheap labour
- 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
Solid but less vigorous demand
The economic activity is expected to slow slightly this year. Private consumption will ease, although its solid level and substantial share in the economy (63% of GDP) will keep it as the main growth driver. The ongoing improvement on the labour market, with the unemployment rate dropping to 3.8% in mid-2019, and further growth of wages and pensions, will continue to support household spending. Wages are being driven by the increasing scarcity of labour, which is a result of emigration and an ageing population. To tackle that, the government intends to attract an inflow of immigration. Quotas for non-EU foreign workers have been increased, while Vietnamese immigrants are likely to come to the Romanian labour market based on an agreement between the two governments. Despite the tight labour market, wage growth will be lighter compared to previous years due to the economic slowdown, while effects of previous public sector wage hikes and increases of minimum wages will fade out.
Next to household consumption, fixed asset investments are expected to bring a solid contribution to growth. Their increase will be supported by construction and infrastructural investments, partly co-financed with EU funds. Already last year residential building increased strongly.
Net exports will improve thanks to a less dynamic private consumption and slower imports consequently. On the other hand, exports’ growth will be limited due to the global trade downturn and deteriorated prospects of main export destinations. Therefore, the contribution of next exports to GDP growth is likely to remain negative but less so. The manufacturing sector benefited from cost competitiveness supporting its exports, which however, are now suffering from sluggish foreign demand. Although the automotive sector is still strongly fuelled by rising Dacia car sales both on domestic and foreign markets, other manufacturing sectors have suffered from sizeable increases in wages (expanding faster that the labour productivity growth), mostly hitting textiles, leather and furniture sectors.
Public and external accounts deficits to widen more
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. Indexed pensions increased by 15% in September 2019 and should rise again by an additional 40% in September 2020. Wages and social benefits are estimated to have absorbed above 60% of last year’s budget expenditures. Upcoming elections (local and parliamentary) in 2020 are likely to maintain the double-digit wage growth intact, at least in the public sector. Moreover, it will also support public investments that continue increasing thanks to an acceleration of spending on projects co-financed by EU funds, as we get closer to the end of the current programming period (2014/2020). The majority of the fiscal deficit remains externally financed, with yields of sovereign bonds roughly double those of Hungary, which are rated only slightly higher than Romania (10-year bonds’ yields of 2% and 4.2%, respectively in August 2019). The current account deficit is expected to increase further as a result of deteriorating trade balance in goods resulting from solid internal demand. The services balance and the secondary income balance were on the positive side. The current account deficit is expected to be financed from bond issues as well as increasing capital transfers of the EU, as well as FDI. On the other hand, the general government debt remains at relatively low levels but it is likely to exceed 40% of GDP in the course of next year.
Romania’s government lost a no-confidence vote in October last year, as the Social Democratic Party (PSD) lost its coalition partner ALDE and thus the governing majority. Previously, PSD had been shaken by weak results in the European Parliament elections in May 2019, even though it had gotten rid of its controversial leader, Liviu Dragnea, who faced criminal investigations and was imprisoned for corruption. Subsequently, the PSD-led government had been reshuffled and had given up controversial initiatives to reform the legal system, which had irked EU institutions. The leading party of the opposition, the National Liberal Party (PNL), formed a minority interim government of Prime Minister Ludovic Orban, which won a confidence vote (with the support of five parties: PNL, USR, ALDE, PMP and UDMR) in November 2019. Next parliamentary elections are scheduled for November 2020. However, a possibility of early elections cannot be ruled out.
Last update: May 2020
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.
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.
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.
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.
This is a preliminary procedure, which can be followed by a reorganisation procedure, or a bankruptcy procedure.
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.
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.