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Economic and Policy Response to Coronavirus

COVID-19 – Romanian Economic Impact Monitor

by the Babeș-Bolyai University Economics Club 

https://econ.ubbcluj.ro/coronavirus/

Romanian Covid Image.png

IMF Update on Policy Actions in Romania

The following information is copied straight from the IMF for your convenience. Also, find it here: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#R

 

Background. The first case of COVID-19 was reported on February 26, 2020. The government has implemented a range of measures to delay the spread of coronavirus and to support people, jobs, and businesses. This includes declaring national emergency, increased testing, social distancing measures, including the closure of schools and entertainment as well as travel and domestic movement restrictions, and capping prices of fuel and utilities. The estimate of GDP in Q4 2020, rebounded more strongly than expected by 5.3 percent (quarter-on-quarter) compared to Q3 . This resulted in an overall economic contraction rate of only 3.9% for 2020. This reflected the easing of lockdown restrictions, including the rebound in EU trading partners, and growth also continued to be supported by COVID-19 support measures and the lagging effects of construction sector stimulus in 2019.

Reopening of the economy. The gradual reopening started on May 15, 2020. In a first stage, hairdressers, libraries, dentist practices, small shops and museums were reopened, and people can leave their homes without a sworn statement regarding the purposes of traveling. The second round of relaxation measures was implemented on June 1, by lifting restrictions for travel outside cities, resuming international vehicle and train transportation, allowing outdoor sports competition (without public) and outdoor concerts under special conditions, opening terraces and beaches. Starting June 15, international travel to certain countries has been resumed without mandatory quarantine/self-isolation upon return, shopping malls (except food areas and cinemas), gyms and kindergartens have been opened. After May 15, it is compulsory to wear masks in enclosed spaces in public, such as shops and in public transport. Schools remained closed for the remainder of the school year, except eight- and twelve-grade students who are facing graduation exams. Schools reopened on September 14, subject to certain conditions. Following the increase in the number of new cases, new prevention measures became effective August 1, including mandatory wearing of masks in certain open spaces and limited hours for outdoor restaurants and clubs. Further restrictions were introduced locally in early October: closing again the restaurants, bars, theaters and movie theaters in capital city Bucharest, and mandatory wearing of masks within 50 meters from schools. With the number of infections on the rise, new restrictions have been imposed in areas exceeding 1.5 cases per 1000 population, including closing schools and mandatory masks in all public places (indoors and outdoors). Starting November 9, circulation during night hours is limited only for emergencies and with a sworn statement on the purposes of travelling. With the declining infection rate since the November 2020 peak, schools reopened on February 8, 2021. Indoors restaurants, bars, theaters and movie theaters have been mostly reopened within limited hours and only 30 percent capacity.
The vaccination program was launched on December 27, with the healthcare workers as the first priority. The second stage of the program – the vulnerable groups – began mid-January 2021. It is expected that the vaccine will be made available to the general population early April 2021.
The national alert period which started May 15, 2020 has been extended to April14, 2021. With the recent surge in infections, new restrictions were introduced in late March for areas exceeding certain infection rates: limited circulation and opening hours for shops, closing restaurants and gyms.

 

Key Policy Responses as of April 1, 2021
FISCAL
  • Key tax and spending measures introduced so far amount to more than 3 percent of GDP include (i) additional funds for the healthcare system, (ii) covering partially the wages of parents staying home for the period the schools are closed, and (iii) measures to support businesses including covering in part the wages of self-employed and workers in danger of being laid off, partially subsidizing the wages of those returning to work, deferral of utilities payments for SMEs, (iv) bonus for corporate income tax payments (v) grants for the businesses. In addition, the government has rescheduled the payment of certain taxes for companies in difficulty. The government in 2020 has provided an envelope of around 3 percent of GDP for loan guarantees and subsidized interest for working capital and investment for SMEs and large companies. Other measures include faster reimbursement of VAT, suspending foreclosures on overdue debtors, suspending tax authorities’ control, discounts for paying corporate income taxes, postponement of property tax by three months, exempting the hospitality industry from the specific tax for 90 days, changes in the insolvency legislation. See also: https://www.mfinante.gov.ro/pagina.html?categoriebunuri=covid19&pagina=acasa(Romanian only).While not directly COVID-19 related, a portion of the new pension law increase was implemented in September, raising pension spending on average by 14percent.The government included in the 2021 budget some support measures to be extended in 2021. The possibility to reschedule tax payments have been also extended in 2021. It also further raised the cumulative envelope of government guarantees for loans to total around 4 percent of GDP.

MONETARY AND MACRO-FINANCIAL
  • Key measures include: (i) reducing the monetary policy rate by 1.25 percentage point to 1.25 percent; (ii) narrowing the corridor defined by interest rates on standing facilities around the monetary policy rate to ±0.5 percentage points from ±1.0 percentage points; (iii) providing liquidity to credit institutions via repo transactions (repurchase transactions in government securities); (iv) purchasing government securities on the secondary market; and (v) operational measures to ensure the smooth functioning of payment and settlement systems. The repo transactions stand at around RON 42 billion in 2020, while the total volume of government securities purchased on the secondary market amounted RON 5.3 billion. See also: https://bnro.ro/Regular-publications-2504.aspx In addition, the Government has issued legislation that banks will defer loan repayments for households and businesses affected by COVID-19 for up to nine months – applicable also in 2021. The European Central Bank has set up a euro repo line with Romania’s central bank worth a maximum of €4.5 billion ($5.1 billion). It was initially agreed that the repo line would remain in place until end 2020, but was extended until March 2022. See also: https://www.bnr.ro/NBR-measures-in-the-context-of-the-COVID-19-epidemic--21313.aspx .

EXCHANGE RATE AND BALANCE OF PAYMENTS
  • Foreign exchange intervention has been undertaken to smooth excessive volatility and stabilize the exchange rate in order to protect financial stability (see IMF Annual Report on Exchange Arrangements and Exchange Restrictions, June 2021.