Summary
Romania’s government has been successful in reducing the budget deficit, thereby meeting the IMF conditions attached to the standby agreement. Nonetheless, Romania’s economic crisis remains a cause for concern. In 2012 as a whole, the economy grew by 0.2% and although we expect a somewhat higher growth rate in 2013, depressed domestic demand and unfavourable external conditions will obstruct a strong recovery. In the meantime, the IMF standby agreement will expire in April 2013, forcing the government and the IMF to broker a new deal. In all likelihood, the IMF will demand structural reforms, including the privatization of some large state-owned enterprises.
The government, in turn, needs to find a way to implement further austerity measures without choking any signs of recovery.
Author:
Contact details:
Anouk Ruhaak
Country Risk Research
Economic Research Department
Rabobank Nederland
P.O.Box 17100, 3500 HG Utrecht, The Netherlands
+31-(0)30-21-64860
A.N.Ruhaak@rn.rabobank.nl
January 2013 Rabobank Economic Research Department Page: 1/4

Country report ROMANIA
National facts
Type of government
C apital
Surface area (thousand sq km)
Population (millions)
Main languages
Main religions
Head of State (president)
Republic
Bucharest
238
21.4
Romanian (91%)
Hungarian (6.7%)
Eastern Orthodox (86.8%)
Potestant (7.5%)
Roman C atholic (4.7%)
Traian Basescu
Head of Government (prime-minister) Victor Ponta
Monetary unit Leu (RON)
Economy
Economic size bn USD
2012
% world total
Social and governance indicators
Human Development Index (rank)
Ease of doing business (rank)
Economic freedom index (rank)
C orruption perceptions index (rank)
Press freedom index (rank)
Gini index (income distribution)
Population below $1.25 per day (PPP)
Foreign trade
Main export partners (%)
Germany
Italy
France
Turkey
18
14
8
7
Main export products (%) rank / total
50 / 187
72 / 185
59 / 179
Main import partners (%)
Germany
Italy
Hungary
France
66 / 176
42 / 179
30
41%
2011
17
12
9
6
Nominal GDP
Nominal GDP at PPP
Export value of goods and services
IMF quotum (in mln SDR)
Economic structure
Real GDP growth
Agriculture (% of GDP)
167
272
68 n.a.
2012
0.5
13
0.24
0.33
0.31
n.a.
5-year av.
1.6
12
Machinery & equipment
Basic metals & products
Textiles & products
Minerals & fuels
Main import products (%)
Machinery & equipment
Minerals & fuels
27
12
8
6
29
11
10
9
Industry (% of GDP)
Services (% of GDP)
Standards of living
Nominal GDP per head
Nominal GDP per head at PPP
Real GDP per head
39
50
USD
7779
12697
5385
37
54
% world av.
71
98
65
C hemical products
Textiles & products
Openness of the economy
Export value of G&S (% of GDP)
Import value of G&S (% of GDP)
Inward FDI (% of GDP)
41
47
1.7
Source: EIU, CIA World Factbook, UN, Heritage Foundation, Transparency International, Reporters Without
Borders, World Bank.
Introduction an update
Romania’s recovery from the crisis in 2009-2010, when GDP fell by 6.5%, has yet to gain pace. We expect the economy to have grown by a meagre 0.2% in 2012. The slow growth is largely caused by the ongoing crisis in the eurozone and slow demand at home. In addition, a poor harvest caused the agricultural sector to contract by 20% in the first three quarters of 2012. For 2013, we expect
GDP growth to accelerate somewhat to about 1%, as external conditions are expected to improve.
Nonetheless, with a non-performing loan ratio of 26%, credit conditions will remain tight. In addition, households will continue to deleverage and the government is expected to implement a new round of austerity measures. Clearly, this will depress domestic demand for some time to come. Finally, although the risk of a worsening of the eurozone crisis decreased, adverse external conditions could still lower our growth expectation for 2013. Meanwhile, inflation remains above the 3% target, although the past three months saw inflation drop below 4%. Still, the central bank has very little room to manoeuvre.
The only good news is that, as domestic demand remained subdued, the current account deficit shrunk further in 2012, reaching 3.6% of GDP, from 4.3% of GDP in 2011. In addition, between
October 2012 and January 2013, FDI inflows increased by over 20%. It is the first time since 2008 that FDI inflows increased. However, they are still far below their pre-crisis levels.
Election results
In the parliamentary elections of December 2012, the governing UCL, led by Prime Minister Victor
Ponta, won over 60% of the seats, securing a second term in government. In contrast, the Alliance of Romania’s right, an alliance formed by a number of right-wing parties, only won 13.6% of the
January 2013 Rabobank Economic Research Department Page: 2/4

Country report ROMANIA seats and was disbanded shortly after the elections. The victory of the UCL helped boost investor confidence, causing a fall in government bond yields. Nonetheless, the road ahead will be bumpy.
For one, the UCL’s victory could be viewed as a resounding vote against austerity. Victor Ponta’s success is mainly based on the fact that the austerity measures implemented by his predecessor
(who was forced to step down in April 2012) were exorbitant, even overshooting IMF targets. In comparison, Victor Ponta’s policy direction has been mild. Nonetheless, Victor Ponta and his coalition will have to commit to further austerity measures and reforms if they are to secure a second IMF deal. Given the anti-austerity sentiment among the public, this could prove difficult.
Figure 1: Growth performance
% change p.a.
% change p.a.
20 20
Figure 2: Current account balance
% of GDP
6
% of GDP
6
10 10
0 0
0 0
-6 -6
-10 -10
-12 -12
-20 -20
-30 -30 -18 -18
08 09 10 11 12 13e 14f 08 09 10 11 12 13e 14f
External demand Government consumption Gross fixed investment
Trade Services Income Transfers Current account
Private consumption Inventory changes Overall economic growth
Source: EIU Source: EIU
IMF
In April 2013, Romania’s standby agreement with the IMF will expire. New negotiations over a second standby agreement are ongoing, although it is not yet certain Romania will accept a second deal. Early statements by the IMF show that the organization has been impressed by Romania’s monetary and fiscal policies over the last three years. Indeed, during this time the central bank has taken measure to curtail inflation, while the government successfully reduced the budget deficit from 7.3% of GDP in 2009, to 2.2% of GDP in 2012. Nonetheless, the IMF is expected to demand further structural reforms, an area in which Romania has performed less well. Specifically, the IMF is expected to demand the sell-off of some major state enterprises, including the airline Tarom and rail freight company CFR Marfa. Whether Romania accepts these conditions will largely depend on the economic necessity of another standby agreement.
Figure 3: Fiscal indicators
% of GDP
40
% of GDP
16
Figure 4: External debt
200 bn USD bn USD
200
30 12
160 160
20
10
0
8
4
0
120
80
120
80
40 -10
-20
08 09
Public debt (l)
10 11 12 13e
Budget balance (r )
14f
40 -4
-8
0
08 09
Short-term debt
Source: EIU
0
Source: EIU
10
IMF debt
11 12
Private MLT
13e 14f
Public MLT
January 2013 Rabobank Economic Research Department Page: 3/4

Country report ROMANIA
Selection of economic indicators
Key country risk indicators
GDP (% real change pa)
C onsumer prices (average % change pa)
C urrent account balance (% of GDP)
Total foreign exchange reserves (mln USD)
Economic growth
GDP (% real change pa)
Gross fixed investment (real % change pa)
Private consumption (real % change pa)
Government consumption (real % change pa)
Exports of G&S (real % change pa)
Imports of G&S (real % change pa)
2008
7.4
7.8
-11.6
36868
7.4
15.6
9.0
6.3
7.3
7.1
2009
-6.6
5.6
-4.2
40757
-6.6
-28.1
-9.8
9.5
-6.2
-21.4
Economic policy
Budget balance (% of GDP)
Public debt (% of GDP)
Money market interest rate (%)
M2 growth (% change pa)
C onsumer prices (average % change pa)
Exchange rate LC U to USD (average)
Recorded unemployment (%)
Balance of payments (mln USD)
C urrent account balance
Trade balance
Export value of goods
-4.8
21
10.4
17
7.8
2.5
4.4
-7.3
26
10.9
8
5.6
3.0
7.8
Import value of goods
Services balance
Income balance
Transfer balance
Net direct investment flows
Net portfolio investment flows
Net debt flows
Other capital flows (negative is flight)
C hange in international reserves
External position (mln USD)
Total foreign debt
Short-term debt
-23719
-28182
49760
77942
951
-5372
8884
13606
-943
17420
-6852
-488
102487
28660
118008
22210
Total debt service due, incl. short-term debt
Total foreign exchange reserves
International investment position
Total assets
47711
36868
-97148
55870
45194
40757
-107747
64049
171796 Total liabilities 153018
Key ratios for balance of payments, external solvency and external liquidity
Trade balance (% of GDP)
C urrent account balance (% of GDP)
-13.8
-11.6
-5.8
-4.2
Inward FDI (% of GDP)
Foreign debt (% of GDP)
Foreign debt (% of XGSIT)
International investment position (% of GDP)
Debt service ratio (% of XGSIT)
6.8
50
130
-47.5
60
2.9
72
192
-65.6
74
Interest service ratio incl. arrears (% of XGSIT)
FX-reserves import cover (months)
FX-reserves debt service cover (%)
Liquidity ratio
5
4.9
77
81
5
8.1
90
97
-6955
-9606
40672
50278
-422
-2635
5708
4934
763
13037
-7140
4639
Source: EIU
2010
-1.7
6.1
-4.4
43361
-1.7
-2.1
-0.3
-10.0
15.1
12.7
-6.1
-4.4
1.8
74
180
-64.2
60
4
7.7
106
102
-6.4
29
7.2
6
6.1
3.2
7.0
-7284
-10051
49508
59559
536
-2526
4757
2963
2196
10186
-4093
3968
121505
25029
40757
43361
-105547
68914
174461
2011
2.5
5.8
-4.3
42939
-5.5
-4.3
1.4
67
154
-58.8
53
4
6.2
97
98
-4.1
31
7.3
6
5.8
3.0
5.1
2.5
6.3
1.0
-3.4
10.5
11.5
-8107
-10444
62678
73122
531
-3376
5182
2748
4106
3260
-1786
221
127866
29443
44089
42939
-111628
70456
182084
2012
0.5
3.3
-3.5
42144
-6.4
-3.5
1.7
75
156 n.a.
57
4
6.5
93
98
-2.2
34
7.0
8
3.3
3.5
4.3
0.5
2.0
0.1
-2.0
-3.4
0.7
-5839
-10750
58252
69001
738
-1712
5884
2790
1279
1652
-133
-252
124337
28016
45152
42144 n.a.
n.a.
n.a.
2013e
1.3
4.6
-4.6
43100
-7.5
-4.6
2.7
72
150 n.a.
54
3
6.1
95
97
-2.4
36
6.0
8
4.6
3.5
3.9
1.3
7.0
1.8
2.0
4.5
3.7
-8120
-13360
62220
75570
1150
-2550
6640
4850
-320
3380
1450
1250
127350
29170
45360
43100 n.a.
n.a.
n.a.
2014f
4.0
3.2
-5.6
46880
-8.6
-5.6
3.3
67
135 n.a.
49
3
5.6
99
96
-2.3
35
5.0
12
3.2
3.4
3.7
4.0
10.0
3.9
2.0
12.7
10.2
-10950
-16860
71660
88520
1310
-2750
7340
6300
-570
5620
3480
3880
131640
31230
47330
46880 n.a.
n.a.
n.a.
Disclaimer
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January 2013 Rabobank Economic Research Department Page: 4/4