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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/

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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. GDP contracted by 10.5 percent in Q2 of 2020, compared to a year earlier.

Reopening of the economy. The gradual reopening started on May 15th. 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 1st, 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 15th, 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 14th, subject to certain conditions. The national alert period which started May 15th has been extended to December 16th. Following the increase in the number of new cases, new prevention measures became effective August 1st:, 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 3 cases per 1000 population, including closing schools and mandatory masks in all public places (indoors and outdoors). Starting November 9th, circulation during night hours is limited only for emergencies and with a sworn statement on the purposes of travelling.

 

Key Policy Responses as of November 19, 2020
FISCAL
  • Key tax and spending measures announced so far about 2 percent of 2019 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. In addition, the government has provided RON15 billions of guarantees—equivalent to 1.5 percent of GDP—for loan guarantees and subsidized interest for working capital and investment of SMEs. A new guarantee scheme of about RON 1.5 billion  (0.15 percent of GDP ) was adopted to support the procurement of work equipment by SMEs. 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.  See also: https://www.mfinante.gov.ro/pagina.html?categoriebunuri=covid19&pagina=acasa (Romanian only). On July 1st , the government announced the continuation  of the previously adopted measures by three more months, as well as a new stimulus package. See also:  https://gov.ro/ro/obiective/strategii-politici-programe/planul-national-de-investitii-i-relansare-economica&page=1 (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 14 percent.

MONETARY AND MACRO-FINANCIAL
  • Key measures include: (i) reducing the monetary policy rate by 1 percentage point to 1.5 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 39.5 billion in the period from March to October, while the total volume of government securities purchased on the secondary market amounted lei 5.3 billion as of October 2020. 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. 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 it was recently extended until end-June 2021. 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 2020.

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