8/7/2019 Romania Economic Status (December 2010)

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Nominal GDP (2009)

162 bn USD

Population (2009)

21 millions

Total Trade/GDP (2009)

68 %Currency

Romanian leu (RON)

Exchange regime

Crawling band

Merchandise imports

from Canada (2009)

CAD 84 millions

Main sources of foreign

exchange (excl. FDI)

M&E/automotive exports,

foreign borrowing

Largest merchandise

export destination (2009)

Euro Zone (57 %)

Main imports

Machinery & equipment,

mineral fuels

R Sovereign RatingsMLT external debt

# Fitch BB+

# S&P BB+

# Mood 's Baa3

Economy

ROMANIA9/1/2010

December 2010 EDC ECONOMICS

-8-7-6-5-4-3-2-10123456789

1999 2001 2003 2005 2007 2009

-15

-12

-9

-6

-3

0

3

6

9

12

Industrial Production, y/y % chg. (R)

Real GDP, y/y % chg. (L)

4

5

6

7

8

9

10

10

20

30

40

50

60

70

Total Credit Growth, y/y % chg. (L)

Consumer Price Index, SA, y/y % chg (R)

-7

-6

-5

-4

-3

-2

-1

0

1

5

10

15

20

25

30

35

40 Pu blic deb t as % G DP (L ) Bu dg et bala nc e as % G DP (R)

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

Nov-02 Feb-04 May-05 Aug-06 Nov-07 Feb-09 May-10

USD/RON (L)

Financial Sector Performance

Monetary Indicators Fiscal Performance

Economic Activity

While access to multilateral financing has been critical in establishing a degree of investor confidence and stabilityduring 2010, uncertainty regarding IMF program continuity has persisted as the authorities have failed toimplement some of the required reforms and have consistently missed program targets. Accordingly, the leu hasbeen under downward pressure since the spring.

Government revenues have significantly underperformed this year, as the economy is set to contract by a further2% (after a 7% reduction in 2009), and will result in a larger than expected deficit. Financing requirements thisyear are being met by support from the IMF, EU and World Bank as well as a new Eurobond issue and fundingfrom domestic banks. Next year, however, prospects look less certain as rising inflation and heightened global riskaversion will likely leave the government facing much higher external borrowing costs just as the IMF programexpires.

The government is meeting the main structural reform requirements of the IMF program and as a result, publicsector downsizing, the rising VAT’s impact on disposable income, and significant fiscal tightening, will all weigh

heavily on domestic demand next year. Credit conditions will remain tight as deposit funding has plateaued andwholesale funding remains challenging in the current financial climate. Monetary authorities may be tempted toprovide further liquidity support to the market next year to ease f inancing costs for the government, which would ofcourse put downward pressure on the leu , while reinforcing inflation.

Risks to the outlook

04-08 avg. 2009 2010 2011

6.7 -7.2 -2.0 0.1

8.0 5.6 6.1 5.2

-2.6 -7.5 -7.0 -4.6

22.9 -18.0 13.4 7.2

30.3 -34.6 10.5 8.1

-10.0 -4.5 -5.6 -6.6

5.0 8.8 9.0 8.1

43.8 69.3 72.6 70.2

15.6 29.8 25.2 23.0

2.8 2.9 3.3 3.1Sources: EIU, IIF, EDC Economics Sources: Haver Analytics, Statistics Canada, EIU, Bloomberg

Inflation (%chg, pa avg.)

Reserves (months of curr. debits)

External Debt (% of GDP)

Exchange Rate (to USD; eoy)

Debt Service Ratio (due)

Current Account (% of GDP)

Fiscal Balance (% of GDP)

Imports (%, comp. annual growth)

Exports (%, comp. annual growth)

GDP (% growth, real)

Aimee Raearea@edc.ca

-100

-50

0

50

100

150

200

250

300

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Exports (L) Exports (y/y % ch)

0

5

10

15

20

25

30

35

40

4550

20

25

30

35

40

45

50

55

60

65

70

7580

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total External Debt as % GDP (L)

FX Reserves, USD bn (R)

-16

-12

-8

-4

0

4

8

12

16

1999 2001 2003 2005 2007 2009

0

2

4

6

8

10

12

14

16Net Direct Investment Flows (L)

Current Account, % GDP, SA (L)

-8-7-6-5-4-3-2-10123456789

1999 2001 2003 2005 2007 2009

-15

-12

-9

-6

-3

0

3

6

9

12

Industrial Production, y/y % chg. (R)

Real GDP, y/y % chg. (L)

Stronger-than-expectedeurozone recoveryFiscal discipline ismaintained and reformsdeepen

Flow of IMF-EU funds issuspended againRisk appetite relapsesFiscal reforms lose steam

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

      D     e     c   -      0      6

      J     u     n   -      0      7

      D     e     c   -      0      7

      J     u     n   -      0      8

      D     e     c   -      0      8

      J     u     n   -      0      9

      D     e     c   -      0      9

      J     u     n   -      1      0

Total Credit Growth, y/y % chg. (L)

Consumer Price Index, SA, y/y % chg (R)

-8

-7

-6

-5

-4

-3

-2

-1

0

1

0

5

10

15

20

25

30

35

40

      1      9      9      5

      1      9      9      6

      1      9      9      7

      1      9      9      8

      1      9      9      9

      2      0      0      0

      2      0      0      1

      2      0      0      2

      2      0      0      3

      2      0      0      4

      2      0      0      5

      2      0      0      6

      2      0      0      7

      2      0      0      8

      2      0      0      9

Pu blic deb t as % G DP (L ) Bu dg et bala nc e as % G DP (R)

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

Nov-02 Feb-04 May-05 Aug-06 Nov-07 Feb-09 May-10

USD/RON (L)

Financial Sector Performance

Monetary Indicators Fiscal Performance

External Sector Performance External Profile

Economic Indicators Canadian Exports

Economic Activity

While access to multilateral financing has been critical in establishing a degree of investor confidence and stabilityduring 2010, uncertainty regarding IMF program continuity has persisted as the authorities have failed toimplement some of the required reforms and have consistently missed program targets. Accordingly, the leu hasbeen under downward pressure since the spring.

Government revenues have significantly underperformed this year, as the economy is set to contract by a further2% (after a 7% reduction in 2009), and will result in a larger than expected deficit. Financing requirements thisyear are being met by support from the IMF, EU and World Bank as well as a new Eurobond issue and fundingfrom domestic banks. Next year, however, prospects look less certain as rising inflation and heightened global riskaversion will likely leave the government facing much higher external borrowing costs just as the IMF programexpires.

The government is meeting the main structural reform requirements of the IMF program and as a result, publicsector downsizing, the rising VAT’s impact on disposable income, and significant fiscal tightening, will all weigh

heavily on domestic demand next year. Credit conditions will remain tight as deposit funding has plateaued andwholesale funding remains challenging in the current financial climate. Monetary authorities may be tempted toprovide further liquidity support to the market next year to ease f inancing costs for the government, which would ofcourse put downward pressure on the leu , while reinforcing inflation.

8/7/2019 Romania Economic Status (December 2010)

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ROMANIA

PoliticalPolitical Structure

Parliamentary Republic

PresidentTraian Basescu

Prime MinisterEmil Boc

Legislative Bodies

Chamber of Deputies:(330 seats)

Senate: (137 seats)

Parties (Ch. of Dep.)Governing coalition 

Democratic Liberal Party(PDL)

Democratic Union ofHungarians (UDMR)

National Union for theProgress of Romania

(UNPR), Independents

Opposition parties 

National Liberal Party(PNL)

Social Democratic Party

Last Elections

Parliament: Nov. 2008

Presidential: Nov. 2009

Next Legislative Elections

Parliament: November2012

Presidential: 2014

Press Freedom Survey: 2009 Score: 44 Partly Free

(0: Free; 100: Not Free)freedomhouse.org 

Control of Corruption Index:

2008 Score: -0.06(-2.5: Worst; +2.5: Best)worldbank.org 

Political Outlook

A key issue for the Romanian government remains its responsibility to meet the requirements imposed by the

EU as part of the accession process and address the twin issues of corruption and judicial reform; this will

remain an ongoing challenge.

September 2010 ECONOMICS

General Political Environment: Romania acceded to membership in the European Union in January 2007. In general

Romanian politics are characterized by factionalism resulting in shaky coalition governments. As a consequence

governments expend energy trying to ensure their own survival and manage party infighting.

Romania is a liberal democracy and parliamentary republic. It was governed until November 2008 by the centre-right Justice

and Truth Alliance which was a coalition between the National Liberal Party (PNL) of former PM Calin Popescu Tariceanu

the Democratic Party Liberal Party (PDL) of President Traian Basescu and two smaller parties: the Conservative Party (CP)

and the Hungarian Democratic Union in Romania (UDMR). From its inception, the coalition was riven by in-fighting and by

the personal rivalry between PM Tariceanu and President Popescu.

In November 2008, parliamentary elections were held in which PM Tariceanu’s PNL suffered a significant defeat at the

hands of the PDL. As is typical with Romanian coalition politics, it took a number of weeks to bring together a coalition. In

the end a grand coalition was formed between the two largest, yet rival parties: the PDL and the union of the Social

Democratic and Conservative parties (PSD+PC). The grand coalition under PM Emil Boc (PDL) proved to be less stable

than initially hoped for and the PSD left the coalition in September 2009. A parliamentary non-confidence vote sponsored by

the opposition National Liberal Party (PNL) brought down the coalition on October 13, 2009. This was the worst political

impasse the country experienced since the fall of communism in 1989.

Despite exit polls forecasting a narrow victory by Social Democrat Mircea Geoana in November 2009 presidential elections

incumbent President Traian Basescu won the elections by 50.37%. The Basescu victory triggered fraud allegations by the

opposition but the results were upheld by Romania’s top court.

Despite initial concerns, Basescu was able to form a coalition in parliament – albeit a narrow one – with the help of ethnic-

Hungarian party Hungarian Democratic Federation of Romania (UDMR) and a number of other independents. However, the

unity of this narrow parliamentary majority is under pressure as result of growing public opposition to fiscal austerity

measures. Investment Environment: The government has taken steps towards improving the investment environment. As an EU

member, Romania is well placed to welcome greater FDI. 

The state bureaucracy is slow and cumbersome with the result being that some foreign investors may encounter substantia

delays and problems in sorting through red tape. While the government has made efforts to tackle graft, the depth of the

problem poses an ongoing challenge for investors.

Privatisation of larger state enterprises has been slow and fraught with difficulties due to the cumbersome nature of these

entities which were created during the Communist era.

Laws are in place to protect property and contractual rights, including guarantees preventing expropriation, but the rule of

law is weak in comparison to its Balkan EU neighbours.

Political Violence: There are no major political violence issues in Romania.

Petty criminal activity is a frequent occurrence; however, this does not generally have an impact on foreign businesses.