Radio România Internațional

Tag: Romanian economy

  • Statistics Regarding Romanian Economy

    Statistics Regarding Romanian Economy

    According to data made public by the Statistical Office of the European Union, Eurostat, Romania is one of the EU countries with the lowest public debts and pretty small budget deficits in 2014, against rising averages across Europe, in particular in the Eurozone. Although in the past four years Romania’s state debt has increased by some 16 billion Euros, it still remains low as compared to other EU countries.



    Eurostat data show that in 2014 Romania’s public debt stood below the rate of 40% of the GDP, being the fourth lowest after Estonia, Luxembourg and Bulgaria. At the opposite pole there stood Greece, with a debt accounting for 175% of the country’s GDP, followed by Italy and Portugal, both with debts exceeding 130% of their GDPs. As regards Romania’s budget deficit, it significantly shrunk in four years, from 5.5% of the GDP in 2011, to 1.5% in 2014. Last year, the lowest budget deficits, calculated as a percentage from the gross domestic product, were registered in Lithuania, Latvia and Romania.



    Also in 2014, Denmark, Germany, Estonia and Luxembourg exceeded the 3% of the GDP limit set under the Maastricht Treaty. Ranking first were Cyprus, Spain, Croatia and Great Britain. Eurostat figures also show that in 2014 Romania’s revenues to the state budget accounted for some 33% of the GDP, with expenditure standing at around 35%. The data was made public in the run-up to the country recommendations to be made by the European Commission in May, on the basis of the information provided by the EU countries for the 2011-2014 period.




    Just a few days ago, the Chief-Economist of the National Bank of Romania, Valentin Lazea, stated that for Romania to join the Eurozone agreement, its GDP per capita based on purchasing power parity should exceed 63% of the EU average. In 2014, the GDP per capita in Romania was 55% of the EU average. Lazea explained that the poorest countries in the EU allowed to join the Eurozone were Estonia, with a GDP per capita accounting for 63.4% of the EU average, and Latvia, with 63.8%. It is therefore very unlikely that the EU will accept another candidate with a GDP per capita lower than those rates, because that would mean trouble for both the country concerned and the EU in general, Valentin Lazea also said. In his opinion, in order to reach a rate of 63%, Romania’s economy should grow by 2% for seven years in a row.



  • With or without the IMF?

    With or without the IMF?

    To a large extent, Romanian economy has managed to correct some of its internal and external imbalances, through a mix of solid macro-economic policies, but it is still vulnerable to external shocks. This is the conclusion of the international assessment mission to Bucharest, which ended on February 10th. The IMF, EC and WB experts came to Romania’s capital to assess the implementation of the 2 billion Euro precautionary stand-by agreement, valid until this autumn. So far, the Romanian authorities have not resorted to any of the funds provided for in the agreement, and that is why there are many voices saying that an extension of the accord would be pointless. The issue could be settled in April, when the lenders’ delegation plans to come back to Bucharest and when, according to the Romanian Prime Minister Victor Ponta, the parties will resume talks on the two issues that they have not managed to reach an agreement on: the increase in the price of natural gas and the restructuring of coal-based energy sectors. Victor Ponta:



    “Our international partners have appreciated the many accomplishments on Romania’s part. In 2014, the GDP went back to the level it had before the crisis, and growth is now steady. Private consumption and exports have supported this economic re-launch. It is very important for the measures that are to be taken from now on to be in the same direction, both with regard to the fiscal code, absorbing European funds, and removing red tape barriers. We have an international agreement and I want to see it carried through successfully. Yesterday we did not sign the letter of intent for two things that we first had to think through and negotiate properly, bearing in mind the interests of those who elected us to represent them. On the one hand, with regard to the price of gas for domestic consumers, we want to make sure that the increase is really necessary, given that at world level energy prices have dropped, and secondly that such an increase is bearable enough, because otherwise we will be faced with the situation in which people and companies would no longer be able to pay their bills in the winter months. Secondly, I believe that Romania needs coal-based energy. This thing about closing down coalmines and plants is an old story. We’ve been talking about closing them down since 1996. However, I don’t believe this would be a good thing. I see we need all types of energy, be it hydro, nuclear, coal or renewable, but we also need restructuring, investment in the environment and measures aimed at rendering these companies more effective.”



    Among the economic entities on the lender blacklist is Oltenia Energy Compound, which digs up low quality coal and runs thermal plants able to supply 40% of the national energy consumption. An adviser to the PM and a former minister in Social Democratic governments, Ionel Blanculescu insists on the obligation of the Social Democratic government to protect its citizens:



    “There are very clear arguments. The IMF must understand that the 26,000 employees on the horizontal of the economy, which ensure 40 to 50,000 more in the state sector, cannot just be sent home overnight, you cannot shut down these entities overnight. You have to provide what the premier suggested, a rational program of restructuring and efficiency boosting, with a better management of those institutions, which may be a solution in time. At the same time, the second element in this dissent is the price of natural gas, especially for home users and gas heating plants. In this area I think that rushing things will do more harm than good, and I don’t think it should be that way, especially as world prices have fallen severely. Romania should not rush and totally change its trends in terms of the rise in these prices. After all, Romania’s population should enjoy for a time, as long as it lasts, this trend of drop in prices for gas, crude and oil products.”



    Economic analyst Radu Soviani believes that we should expect two months of insecurity before the parties sort out the dilemma of prolonging or not the IMF accord for Romania.



    “From my point of view, the fact that there is no IMF letter stating that Romania has lived by the obligations it took upon itself is a form of uncertainty for the upcoming period. What does that uncertainty mean? It means that at this point the IMF does not have the certainty of negative facts, which is why the de facto agreement is not declared failed, even though it has failed, and at the same time, for the Government of Romania, it means that it does not have the certainty of positive facts. Hence, we will have to wait until April, and in April we will see where the unknowns lie.”



    The head of the Tax Council, Ionut Dumitru, says that the opinions expressed by the IMF experts on energy compounds reveal a wider problem, which has been affecting for a long time the economic development of the country: the inefficiency of state capital companies. In the name of the Liberal opposition, former finance minister Gheorghe Ialomitianu said he was convinced that the lack of a letter of intent is proof that ‘the present government did none of the things it committed to doing.”


  • International Finances and Personal Insolvency

    International Finances and Personal Insolvency

    A joint mission of the International Monetary Fund, the European Commission and the World Bank has come to Romania for their third assessment of the 4-billion euro precautionary loan agreement, signed with Bucharest in 2013. Until February 10th the international experts will discuss with representatives of the Government, the Central Bank, business people and trade unions about the recent economic developments and the reform priorities.



    According to economic analysts, issues like a revised calendar for the listing of state-owned companies, the stage of the privatization process and a fiscal code that should stay unchanged for the following five years are also to be discussed.



    High on the meeting’s agenda is the impact of the soaring Swiss franc on the financial sector and the Romanian National Bank’s policy, as well as the recent decision of the European Central Bank to initiate an extensive quantitative easing scheme. The international lenders’ visit to Bucharest takes place against the background of efforts by the Romanian Government, Parliament, National Bank, commercial banks and people with Swiss franc loans to find solutions to the crisis generated by the Swiss currency’s historic appreciation against the Romanian leu. The over 75 thousand Romanians who have contracted loans in this currency, have found out their rates are now about 20% higher.



    Before coming to Bucharest, the IMF, European Commission and World Bank experts have voiced concern, in a letter sent to the Romanian authorities and the National Bank of Romania, at the possible conversion of hard currency loans into national currency loans, against the currency exchange rate at the time when the loans were contracted. This measure might affect the financial system’s stability, the international lenders have warned. They have also pointed out that the personal insolvency law, discussed these days in Parliament, needs to be preceded by impact studies, consultations with all parties involved and the assistance of other EU states where similar laws are in force.



    Romanian lawmakers want this bill adopted as soon as possible, for fear that people’s defaulting on their loans might turn into a social problem. Economic analysts however, say this is not the first time when IMF representatives are coming to support the banks and postpone the adoption of this bill. The first draft law on personal insolvency was tabled in 2010.

  • Romania is out of recession

    Romania is out of recession

    Romania is out of recession, with a 1% growth of the GDP in the third quarter of the year compared to the previous quarter, after dropping for two quarters in a row, reads the European Commission’s autumn forecast made public on Tuesday. According to this forecast, Romania will register a 2% economic growth in 2014, lower than the previous 2.5% estimate.



    Private consumption and exports were the main growth engines in the third quarter, but investments continued to drop. Brussels’ report also shows that in the first half of 2014, Romania registered a 12.8% growth in exports, exceeding expectations, while imports went up by 10.6%. On the other hand, in the second half of the year, the Commission expects this development to slow down and to even take a downward trend in the 2015-2016 period.



    At the same time, because of the domestic demand, the increase in imports will exceed that of exports, the European Commission has warned, which has also revised the economic growth forecast for 2015, down from 2.6% to 2.4%. The European Commission also estimates that Romania’s budget deficit will drop to 2.1% of the GDP this year, but in 2015 the fiscal consolidation process will reverse, with a deficit rate growing to 2.8%, unless the Government takes the necessary fiscal policy measures.



    The Commission believes the Executive will have to increase taxes or reduce expenditure in order to make up for the drop in revenues forecast for 2015, a drop triggered by the reduction of social security contributions, the tax on special construction works and excises. The European Commission has warned that by the time the winter forecast was drawn up, the authorities in Bucharest failed to supply the Commission with a draft budget for 2015.



    The Commission recalls that the budget deficit target agreed by Romania with the International Monetary Fund and the European Commission for next year is 1.4% of the GDP. In response, the Governor of the National Bank of Romania, Mugur Isarescu, has stated that, given the budget surplus registered in Romania in the first 10 months of the year, it is possible that next year no tax increase or reduction in spending will be necessary. He has also said that a decrease in public investment could be a benefit in the long run, provided this happens by reinforcing financial discipline, eliminating unrealistic projects and corruption, even if this may affect economic growth in the short run.



    On the other hand, the Central Bank has again reduced the monetary policy interest rate by 0.25%, down to 2.75% per year. The Central Bank has also decided to reduce the rates on minimum statutory reserves for liabilities in foreign currencies from 16 to 14%. The Central Bank has also maintained to 10% the statutory reserves for liabilities in the national currency.

  • The Week in Review, 20-27 July

    The Week in Review, 20-27 July

    Candidacies for the presidential elections


    Prime Minister Victor Ponta, the leader of the main ruling party, the left-wing Social-Democratic Party, announced on Thursday he will be running for president in the upcoming elections of November. Victor Ponta announced that in next week’s meeting of the National Council he would officially seek his party’s support. Ponta added that the Conservative Party and the National Union for the Progress of Romania, the Social Democrats’ allies in the ruling coalition, have also rallied to support his candidacy. Also this week Sibiu Mayor Klaus Iohannis, the leader of the National Liberal Party in opposition, has been designated as the party’s candidate in the presidential elections. The National Liberal Party has decided to merge with the Liberal-Democratic Party, also in the center-right opposition, and to designate a joint candidate in the elections. Klaus Iohannis will have to compete for the nomination with the Liberal-Democrat candidate, Catalin Predoiu. Kelemen Hunor will be running for the Democratic Union of Ethnic Hungarians in Romania, while Cristian Diaconescu will be the candidate of the People’s Movement Party.



    Economic measures


    A delegation of the International Monetary Fund was in Bucharest this week to discuss the first budget adjustment in 2014. The Romanian authorities and the International Monetary Fund agreed on a budget deficit level of 2.2% of the GDP. According to official data, although budget returns increased in the first five months of the year, they are lower than expected when the budget was first drafted. Moreover, the government must also address the drop in budget returns as a result of a 5% cut in the amount of social security contribution paid by employers, planned for October. President Traian Basescu sent the bill in question back to Parliament for reexamination saying he did not have a problem with the bill as such, but that his objections had to do with how the resulting pension fund deficit would be financed. According to the prime minister, the measure, which costs the state 4.8 billion lei per year, may be covered by the additional returns resulting from the social contributions paid for the newly created jobs, additional VAT returns following new potential investments, the recovery of debts from insolvent companies and lower tax evasion.



    The situation in Ukraine


    Romania wants the NATO military resources not to be reduced on the Alliance’s eastern flank. The statement has been made by Romanian President Traian Basescu, who has described the situation in northern Ukraine as a hybrid war. According to President Basescu, responsibility for the latest developments in Ukraine lies with the separatists, but also with Moscow, which has been supporting them. Traian Basescu has taken part this week in Warsaw in a meeting of heads of NATO states in central and eastern Europe, which focused on the regional situation, with an emphasis on the crisis in Ukraine and preparations for the NATO summit in the UK in September. The crisis in Ukraine topped the meeting’s agenda. The EU has added 15 Russian and Ukrainian individuals and 18 entities to its sanctions list, for their role in the Ukrainian crisis. In another development, the Netherlands has started the process of identifying the bodies retrieved after the plane crash in Ukraine. All 298 people on board, including 193 Dutch citizens, lost their lives. Pro-Russian separatists are considered to be guilty of downing the plane, by using a missile supplied by Russia, while Moscow accuses the Ukrainian army for the crash.



    Romanians repatriated from Gaza


    As many as 19 Romanian citizens and their families have been repatriated this week from Gaza, following an escalation of violence in the region. Last week, another 84 Romanian citizens were repatriated together with their families. The conflict in Gaza, which started on July 8th, has already caused the death of hundreds of Palestinians, most of them civilians, and tens of Israelis. Major European and American airlines cancelled their flights to Tel Aviv for security reasons. Other air companies, including the Romanian Tarom, have resumed flights after a temporary halt.



    Russia imposes embargo on Moldovan products


    Romanian Prime Minister Victor Ponta and Agriculture Minister Daniel Constantin reiterated their commitment to supporting the Republic of Moldova – a former Romanian province with a mostly Romanian-speaking population – in order to help it face the economic sanctions imposed by the Russian Federation. Russia has banned fruit and vegetable imports from Moldova, after previously doing so with meat and wine. The Russian embargo follows Moldova’s ratification, in June, of the association and free trade agreements with the European Union. The decision, although anticipated by analysts, is nevertheless inexplicable according to Moldova’s PM Iurie Leanca. Russia motivated its decision by saying the Moldovan products are infested. The exports banned by Russia will most likely reach the EU market, and also Arab and Belarusian markets.