Estudos Económicos
Romania

Romania

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

 

SECTOR RISK ASSESSMENTS

 

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

 

The cheques and the promissory notes are the payment methods most commonly used for domestic and sometimes international transactions. The legal consecration is provided at Law no. 58/1934 regarding the bill of exchange and the promissory note modified and completed by the G.O. no. 11/1993, as well as the G.O.E. no. 39/2008.

The professionals choose to use the cheque /promissory note as a payment method of the equivalent value of purchased and received goods, works and services. The owner (beneficiary) of the cheque/promissory note must only give it to the bank and cash-in the amount written on that note.

Payment instruments also can be endorsed, if debtor does not have the possibility to pay.

An additional safety measure for the creditors is the request of cheque/promissory notes guaranteed by the administrator of the debtor company. In the case of execution of the promissory note that was not cleared, the creditor shall also take action against the administrator, who shall be liable for the debt with his/her own assets. The cheque, as well as the promissory note, is enforceable title and, if it is not cleared due to the absence of cash, the proceedings of forced execution may be started against the bad payer debtor based on them.

Cheques – moreover the promissory notes - allow creditors to exert substantial pressure on debtors since an unpaid cheque not only gives access to forced execution, but also constitutes a criminal offence.

 

Finally, bank transfers are becoming the most common payment method with the main Romanian banks, now linked to the SWIFT electronic network, which provides low-cost, flexible, and rapid processing of domestic and international payments.

 

DEBT COLLECTION

 

DIFFERENT TYPES OF LEGAL PROCEDURES FOR THE DEBT RECOVERY, ACCORDING TO THE ROMANIAN LEGISLATION

 

ORDINANCE PROCEDURE

 

The legislative consecration of this special procedure is provided at art. 1013-1024 NCPC. This procedure applies to the certain liquid and exigible debts with an amount exceeding RON 10.001, resulting from a civil contract, including the ones concluded between a professional and a contracting authority, excepting the debts registered in statement of affairs, within an insolvency procedure.

The dispositions of art. 1014 of the New Civil Procedure Code instate the obligation to run a preliminary procedure, obligation that is incumbent on the creditor, through the transmission of a summoning to the debtor through the bailiff or through a registered letter, with declarative content and confirmation receipt, by which the debtor will be summoned to pay the due amount within 15 days since receipt.

According to art. 1024 of the Civil Procedure Code, the ordinance is enforceable even if a request for cancellation is brought against it, and the interested party may raise an appeal against enforcement, according to the common law.

 

REDUCED VALUE CLAIMS

 

The legal consecration of this special procedure is provided at art. 1025-1032 NCPC. This procedure was created as an alternative to the common law proceedings and to the ordinance procedure for a quick resolution of the patrimony litigations, when the value of the object thereof does not exceed RON 10.000 and does not refer to the matters excepted by the law (art. 1025, par. 2 and 3 NCPC).
The procedure implies the use of some standard forms, approved by the Order of the Minister of Justice, i.e. the request form (art. 1028 par. 2 NCPC), the form for the completion and/or rectification of the request form (art. 1028 par. 4 NCPC) and the response form (art. 1029 par. 4 NCPC). The Romanian legislator mentions expressly that only documents can be means of evidence.
According to art. 1032 par. 1 “the decision of the Court is only submitted to appeal, within 30 days as of  the communication”; the solution corresponds to the one of the common law, except for the requests related to debts whose object is the payment of an amount of maximum RON 2000 (included) and which must be treated “firstly and lastly” by the court (art. 94 point 2 NCPC). By way of derogation from the common law however (art. 468 par. 5 NCPC), the exercise of the appeal does not suspend the enforcement procedure.

 

COMMON LAW PROCEDURE

 

The common law procedure resolves the patrimony litigations. The verification and settlement of the petition in Court detailed in the aforementioned procedure will also apply to this procedure.

The judge orders the communication of the request to the defendant, and the latter must submit a statement of defense within 25 days as of the communication of the petition. The plaintiff is bound to submit in his turn an answer to the statement of defense within 10 days since the communication, while the defendant will acknowledge the answer from the affair file. Within 3 days since the date of submission of the answer to the statement of defense, the court establishes the first trial date which will be within maximum 60 days, disposing the summoning of the parties. This process is a longer one, knowing that other evidence is also administered along with the documents – accounting expertise, parties’ cross-examination, the witness hearing. Following the debates, the court renders a legal decision. The ordinary remedy at law is the appeal within 30 days since the communication of the decision, to the upper court, and the extraordinary remedies at law are the appeal, the appeal for annulment and the revision. The appeal may be promoted for pecuniary requests with a value exceeding RON 500.001. The judicial stamp fee has a variable amount depending on the debt value.

 

THE ENFORCEMENT PROCEDURE

 

According to the civil procedure Code the enforcement procedure is a legal method to recover debts that have been established by enforceable titles such as decisions / sentences of the courts of law, notary contracts for goods or money, bank loans, payment instruments, etc.The enforcement procedure starts at the request of a creditor and is fulfilled by a bailiff.

 

INSOLVENCY/BANKRUPTCY PROCEDURE

 

Law number 85/2014 sets two mandatory conditions, which need to be cumulatively fulfilled in order for the creditors to be able to start the insolvency procedure against their debtors:

(i) the creditor has a certain, liquid and outstanding debt against the debtor for more than 60 days; 

(ii) the debt must exceed the amount of RON 40.000.

 

The procedure will begin with a petition filed in court (Tribunal) by the debtor himself or by creditor.

Law number 85/2014 sets two procedures to be undertaken by debtors who are not able to pay their debts: (i) the judicial reorganization procedure, aiming to rescue the debtor; (ii) the bankruptcy procedure aimed at liquidating debtor’s assets and paying all outstanding debts.

 

When the procedure is opened against a debtor, the creditors have to lodge their claims in due time. After lodging the claims, the judicial administrator/liquidator will conclude the panel of creditors – secured and unsecured. Unsecured creditors in the insolvency/bankruptcy procedure are those who do not have collateral security against the debtor's assets and who are not accompanied by liens privileges. The unsecured creditors generally did not recover their receivables, only in reorganization procedure they can recover their debts. The secured creditors have the legal possibility to recover their debts through the enforcement of those guarantees.

From the date of the procedure’s opening, all the judicial actions, extrajudicial actions or measures of enforcement procedure for the claims’ recovery on the debtor or his goods, will be suspended de jure.
Liability of the debtor’s management may be engaged in case the debtor’s administrators or auditors or other persons fraudulently determined the debtor’s insolvency.

 

Beginning with the date when court pronounces the bankruptcy of the debtor and the procedure is closed, according to Fiscal Code, the creditor has the possibility to reduce his loss by deducting income tax and VAT.

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