major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||4.4||4.1||-5.0||3.5|
|Inflation (yearly average, %)||4.6||3.8||3.0||2.5|
|Budget balance (% GDP)||-2.8||-4.6||-9.6||-8.0|
|Current account balance (% GDP)||-4.4||-4.6||-4.2||-4.0|
|Public debt (% GDP)*||36.4||36.8||44.9||50.0|
(e): Estimate (f): Forecast *General government gross debt
- Large domestic market
- Significant agricultural potential: wheat, barley, rapeseed, etc.
- Limited energy dependency on coal, oil, gas and uranium
- Large-scale renewable power generation
- Diversified and competitive industry thanks to an inexpensive workforce
- Demographic decline: low birth rate and emigration of well-trained youth
- Strong regional disparities in education, vocational training, health and transport; rural areas lag behind
- Low participation rate of Hungarian and Roma minorities, youth and women in the economy
- Large underground economy
- Inefficient agricultural sector
- Slow bureaucratic and legal processes; corruption
Moderate recovery in 2021
Heavily affected by the COVID-19 pandemic, Romania implemented restrictive measures in the spring of 2020 and had to reinstate some of them, albeit lighter, in the second wave in November. This, combined with the recessionary European context, dragged the economy into recession. It will rebound in 2021, supported, in particular, by the rebound in household consumption. In fact, household consumption, which accounts for 63% of GDP, fell by 7% in 2020 because of social distancing measures and declining incomes (increase in unemployment from 3.8% in 2019 to 7% at the end of 2020, loss of jobs). However, it has been encouraged by the government's support plan, with 75% of short-time working being covered by the government and the freezing of water, gas and electricity prices. In 2021, it is expected to rebound by 3%, driven by the relaxation of health measures, but will remain constrained by lower wage growth and an increase in the unemployment rate, barring favourable provisions in the 2021 budget. Moreover, after stagnating in 2020 thanks to the resilience of the construction sector, investment is expected to grow by 5% in 2021 and benefit from the Next Generation EU recovery plan, under which Romania will receive EUR 33 billion by 2023 (less the 12 billion it has paid into the fund). However, the absorption rate of EU funds is below the regional average due to administrative shortcomings. The investments will mainly concern infrastructure and residential construction. The industrial sector (28% of GDP) is estimated to grow by 7%, despite the slow recovery of the automotive sector (14% of GDP), thanks in part to the rebound in production in the energy sector. Finally, after falling in 2020, foreign trade will pick up again, but its contribution to growth will remain negative. In fact, while exports, which account for just under 40% of GDP, are expected to pick up in 2021 thanks mainly to exports of services (telecommunications and IT), machinery and vehicle exports (42% of exports) will struggle.
High government deficit; stabilisation of the current account deficit
In March 2020, the government announced a support plan equivalent to 3.2% of GDP that would allocate more funds to the health sector, cover short-time work and support companies in difficulty. These measures, combined with the automatic increase in spending and the 14% increase in pensions, have widened the deficit and increased the public debt (50% external). In 2021, the deficit could be reduced somewhat, subject to the content of the 2021 budget. The debt will continue to increase, but will remain moderate. In addition, public finances will receive EUR 79.9 billion (45% of 2019 GDP) under the EU's Multiannual Financial Framework 2021-2027, of which 14% will be distributed in 2021.
The slight reduction in the current account deficit in 2020 is largely due to the reduction in the trade deficit. Indeed, the fall in exports was more than offset by the fall in imports due to the decline in domestic demand. Furthermore, European aid has increased the transfer surplus, further reducing the current account deficit. In 2021, with the recovery in external demand expected to exceed domestic demand, the trade deficit will narrow again. Moreover, remittances (3% of GDP) are expected to pick up when activity in the countries of expatriation resumes (Spain and Italy in particular). The 2020 deficit has been partly financed by several international aid packages, including EUR 400 million from the World Bank. In 2021, given the slow recovery of FDI, the deficit will be largely financed by foreign borrowing and portfolio investment.
At last political stabilisation?
The legislative elections of 6 December 2020 could put an end to the long period of political instability (5 governments in 4 years) caused by a stormy partnership between President Klaus Iohannis, supported by the centre-right National Liberal Party (PLN), and the Chamber of Deputies dominated by the social democrats of the PSD, especially over justice and corruption. The elections placed the Social Democratic Party (PSD) in the lead with 28.9% of the vote, but with a turnout of around 30%, showing the population's disillusionment with its political class. The National Liberal Party (PNL) of Prime Minister Ludovic Orban (since 2019), long a favourite in the polls and winner of the municipal elections of September 2020, came in second, ultimately punished for its poor management of the health crisis. However, the coalition formed by the PNL and the Save Romania Union (USR Plus), which is reformist and very committed to ending corruption, allowed them to gain power, putting an end to their partnership.
In addition, since the country joined the EU in 2007, the European Commission has had a cooperation and verification mechanism in place to help the country meet European standards for efficient and transparent public authorities, an independent judiciary and the fight against corruption. However, the Commission has repeatedly singled out the country for its legislation in this area. In fact, since laws adopted in 2017 and 2019, promoting the opacity of the system, the country’s index is at 44 out of 100 and ranks 70 out of 180 in the 2019 Transparency International corruption perception ranking.
Last updated: February 2021
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.