Romania

major macro economic indicators

(e): Estimate (f): Forecast 

RISK ASSESSMENT

Storm clouds loom over the Romanian economy in 2023

Despite robust economic growth in 2022 that was driven by private consumption and investments, the Romanian economy is set to soften in 2023 due to high inflation, tighter financial conditions and Russian-Ukraine war fallout. The direct effects of the Russian-Ukraine war are limited as the country is a cereal exporter (e.g., corn, wheat, barley) and relatively independent for its energy supply (around 70% of energy demand is covered by domestic production). The already limited energy imports from Russia (especially crude oil) were drastically reduced thanks to imports from other countries such as Kazakhstan, Iraq, Azerbaijan, and the UAE. Moreover, following the easing of regulatory requirements for extracting natural gas from the Black Sea, Black Sea Oil & Gas (an independent energy company) began to extract gas in June 2021 from Romania's offshore reserves. However, the indirect impact of the war is being felt via the surge in global commodities prices.  The latter pushed up Romania’s average annual inflation rate to over 13.5% in 2022, its highest level since 2003 when Romania last faced spiking inflation. Despite robust state support aiming at softening its impact, inflation has eroded private household purchasing power that is expected to slow consumption over the 2022-23 winter and spring months. Although the labour market is gradually recovering, the unemployment rate is still above its pre-pandemic level. Paradoxically, skill shortages and brain drain remain a challenge, which could lead employees to continue asking for higher wages, while the minimum wage should rise further. Consumer prices are likely to increase further over 2023, but at a slower pace. To fight inflationary pressures, the central bank of Romania (NBR) increased its key interest rates to 7% in several stages between October 2021 and early 2023, pushing up borrowing costs to their highest level since February 2010. Further hikes are expected in 2023 and will depend on inflation trends. Rising interest rates will weigh on investment, including construction. Net exports should again make a negative contribution to growth in 2023, as the economic slowdown in Europe (over 73% of trade is intra-EU), particularly in Germany (21% of Romanian exports) will hurt exports. Contrasting with brisk services and cereals exports, the exports of electrical components, telephones, machinery, and motor vehicles and parts (35% of exports) will struggle, particularly in light of supply-chain disruptions and rising uncertainty. Furthermore, relatively resilient domestic demand and elevated energy prices will keep the import bill high.

European aid will partly finance the twin deficits

In 2023, the fiscal deficit is likely to narrow marginally due to reduced spending on some of the economic and social measures implemented in 2022 to combat the fallout of the Russia-Ukraine war, while other public spending will remain robust. In this sense, public revenues will not be sufficient to compensate government expenditures owing to the economic slowdown. Meanwhile, the public finances will benefit from loans and grants under the EU’s Multiannual Financial Framework and Next Generation Recovery Plan over the 2022-2027 period, but disbursement delays are expected due to administrative shortcomings. Local implementation of the NextGenerationEU Plan is expected to be delayed as well, with only around 20% of the total allocation absorbed by 2023 because of the low absorption rate. These European funds will also fail to offset public spending in 2023. Public debt (57% external in 2021) will decrease slightly and remain moderate. Rotation of the prime ministership in 2023, elections in 2024 and uncertainty surrounding economic development will undermine future fiscal consolidation. The trade in goods deficit is expected to widen in 2023 as imports rise faster than exports (amid deteriorating terms of trade). This should be partly offset by a higher surplus in the services account (4% of GDP in 2021). Moreover, EU agricultural subsidies and expatriates’ remittances (mainly from Spain and Italy) will still not fully mitigate the repatriation of income by foreign investors. European funds in the form of grants and loans, recovering FDIs and portfolio investments (in sovereign bonds) will finance the current account deficit.

Alliance between rival parties against a backdrop of heightened regional security problems

In November 2021, the centre-right National Liberal Party (PNL) formed a coalition government with the centre-left Social Democratic Party (PSD), historically its biggest rival, and the Democratic Alliance of Hungarians in Romania (UDMR), ending almost two months of stalemate. Together, the three parties have a large majority in both houses of Parliament. Appointed by President Klaus Iohannis, Nicolae Ciuca (PNL) will serve as Prime Minister for 18 months and later be replaced by a PSD candidate for the final 18 months. This rotation is likely to take place in May 2023 and the PNL is unlikely to block the PSD's access to the prime ministerial seat. However, the rotation agreement could harm ongoing political reform as both parties have their own specific goals. According to the latest polls, the PSD has gained support since the end of 2021 and is currently polling at 35%, followed by the PNL at 23% (slightly up from 18% in the middle of 2022). In terms of international relations, Romania is still waiting to be admitted into the Schengen area, which could happen in 2023 at the earliest. In the context of the war, Romania shares the longest border with Ukraine among NATO members, which pushed NATO to bolster its military presence in the Black Sea region and deploy a multinational battlegroup to Romania.

Furthermore, increased tensions in late April 2022 between neighbouring Moldova and Moldova’s pro-Russian breakaway region of Transnistria, brought Romania (which has close relations with Moldova) even closer to the war. Overall, the current coalition government, with its rotating prime ministership, is expected to maintain political stability until the next parliamentary elections, scheduled to be held in late 2024.

Last updated: April 2023

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.