Romania Country Report - May, 2015

USD $149.00
Romania Country Report - May, 2015

The report covers info as of June 24.

Romania’s president, Klaus Iohannis, has appointed Gabriel Oprea – currently minister of interior and deputy prime minister – for the position of interim prime minister while Prime Minister Victor Ponta is on medical leave. Ponta extended its medical leave from June 16-19 to three to four weeks but he later decided to return as soon as possible after internal tensions occurred within the ruling coalition.
The political volatility might result in the country abandoning de facto de SBA with the IMF and the BoP assistance programme with the EC – due for completion in September.

Romania’s parliament endorsed on June 24 the revised Fiscal Code – including the controversial lowering of the VAT rate from 24% to 19% and other tax rate cuts. As an effect, the fiscal deficit will widen next year to 2.9% of GDP, said Finance Minister Eugen Teodorovici. But he stressed that the gap would remain below the 3%-of-GDP benchmark and the country would thus avoid the excessive deficit procedures.

Key Points
• Parliament endorses Fiscal Code, including 19% VAT rate [VAT rate for foodstuff was cut to 9% as of June 1, 2014]
• European Commission, IMF concerned about 5pp cut of VAT rate
• IMF mission expected in Romania in mid-Jul
• General government surplus stands at 0.85% of GDP in Jan-Apr
• Strong private consumption and investments contributed to robust 4.3% y/y Q1 GDP growth
• State forecasting body revises 2015 GDP growth up 0.5pp to 3.3%; World Bank revises projection on Romania’s 2015 GDP growth to 3%
• Electricity consumption 3.9% down y/y in Jan-Apr
• Retail sales growth accelerates to 7.1% y/y in April
• Net wages 6.3% up y/y in April
• Treasury relies on short-term financing as cost of longer-term bonds rise
• Romania is ready to launch €1-1.5bn Eurobond, considers two issues this year
• Romania’s public debt up 4.5% y/y, debt-to-GDP ratio stays at 38.4% at end-March
• Romania's banking system reports robust €187mn profits in Q1
• Banks' NPL ratio drops 0.3pp m/m and 7pp y/y, to 13.5% at end-April
• New bank loans issued in Romania up 5.7% y/y, to €3.45bn in Jan-Apr
• Romania’s C/A deficit narrows by 92% y/y to a mere €27mn in Jan-Apr


Table of Contents

EXECUTIVE SUMMARY 5
Robust growth despite political volatility 6
POLITICS 6
President Iohannis appoints interim prime minister 6
POLITICAL OUTLOOK 7
Prime Minister under investigation 8
RELATIONSHIP WITH IFIs 9
European Commission, IMF concerned about 5pp cut of VAT rate in Romania 9
IMF mission expected in Romania in mid-Jul 9
REAL SECTOR 10
1. Corporate, structural reforms 10
2. GDP, forecasts 11
Strong private consumption and investments contributed to robust 4.3% y/y Q1 GDP growth in Romania 11
Romania’s net investments up 8.5% y/y in Q1 13
Romania state forecasting body revises 2015 GDP growth up 0.5pp to 3.3% 14
World Bank revises projection on Romania’s 2015 GDP growth to 3% 15
Drought expected to hurt Romania’s agriculture sector 16
3. Industry, Constructions, Retail 16
Industrial growth eases to 1.8% y/y in April 16
Electricity consumption 3.9% down y/y in Jan-Apr 17
Construction works 10.3% up y/y in April 17
Retail sales growth accelerates to 7.1% y/y in April 18
4. Prices, Inflation 19
Romania’s headline inflation accelerates to 1.16% y/y in May 19
Romania’s industrial prices drop by 2.75% y/y in April 19
5. Labour Market 21
Net wages 6.3% up y/y in April 21
FISCAL SECTOR 22
1. Budget Execution 22
General government surplus stands at 0.85% of GDP in Jan-Apr 22
2. Fiscal Policy 23
Parliament endorses Fiscal Code, including 19% VAT rate 23
3. EU Funds 24
Treasury relies on short-term financing as cost of longer-term bonds rise 24
3. Public Debt 24
Romania is ready to launch €1-1.5bn Eurobond, considers two issues this year 24
Romania’s public debt up 4.5% y/y, debt-to-GDP ratio stays at 38.4% at end-March 25
FINANCIAL SECTOR 26
Romania's banking system reports robust €187mn profits in Q1 26
1. Bank Loan Quality. 27
Banks' NPL ratio drops 0.3pp m/m and 7pp y/y, to 13.5% at end-April 27
Overdue bank loans decrease by 17%, or €1bn ytd at end-April 28
2. LOANS, DEPOSITS 28
New bank loans issued in Romania up 5.7% y/y, to €3.45bn in Jan-Apr 28
Bank loans 3.8% down y/y at end-April, currency substitution loses ground 29
Bank deposit base keeps expanding, by 6.3% y/y at end-April 30
3. CORPORATE 31
Price paid by UniCredit for 45% stake in Romanian subsidiary might exceed €1bn 31
Romanian bank BCR to sell €2bn NPL bundle within weeks – sources 31
Insurance market up 7.4% y/y 32
EXTERNAL SECTOR 32
1. Balance of Payments 32
Romania’s C/A deficit narrows by 92% y/y in Jan-Apr 32
2. Foreign Trade 33
Romania’s exports up 5.5% y/y in April 33
2. External Debt 34
4. Forex Reserves 35
Central bank foreign exchange reserves up €126mn in May, to €30.1bn 35

Number of pages: 35
Release Date: Thu, 25 Jun 2015