Country Risk Rating

A4 A somewhat shaky political and economic outlook and a relatively volatile business environment can affect corporate payment behavior. Corporate default probability is still acceptable on average.

Business Climate Rating

A4 The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.


  • Large home market
  • Significant agricultural potential
  • Limited energy dependence (23%) thanks to oil and gas, coal and uranium
  • Large-scale renewable electricity production (37%)
  • Diversified industry with inexpensive labor
  • Leu stable against euro


  • Population in decline
  • Shortcomings in social development, difficult integration of Hungarian and Roma minorities
  • Sizeable informal economy (28%)
  • Poor agricultural productivity
  • Shortcomings in administration and justice, corruption
  • Poor transport infrastructures

Current Trends

Domestic demand driven by relaxed fiscal policy

Growth, under the impetus of internal demand, should increase again in 2016 to reach a high level, above its potential. Household consumption (70% of GDP), which has already benefited from doubled family allowances in mid-2015, will be boosted by rising wages induced by the strong employment and falling unemployment, increased public sector pay and the reduction in standard VAT from 24 to 20% as of January. Housing, as well as company investments, will benefit from increased confidence and, in terms of the latter, tax exemptions on reinvested profits and a guaranteed loan scheme for the SME sector. Public investment however, already suffering because of the inconsistent utilization of European funds (67%), because of bureaucracy and failures at local level, could decline during the transition between two European funding programs. The continued reduction in foreign currency debt by the economic players (over half of credit outstandings are in euros) should be offset by an increase in debts held in leus. But this increase will be moderate because local banks, 90% of which are subsidiaries of Austrian, French, Greek and Dutch banks, will continue to repay their debts owed to their parent companies, whilst building their domestic deposit bases. In addition, caution remains the order of the day due to the considerable volume of non-performing loans (14%) and the difficulty to call on collaterals. Exports (wood, cereals, oilseed, fertilizers, metals, medicines, machines and clothing) should not be impacted by the weaknesses in developing economies because most of these are shipped to European markets where demand is expected to slowly expand. Sales to Russia consist mainly of machines, together with vehicles and automotive parts, but only account for around 1% of GDP. Car sales (DACIA and Ford) and tires (a quarter of exports) are not likely to feel the repercussions of the Volkswagen saga, even if sales of spare parts shipped to Germany accounted for 1% of GDP in 2014. The leu will continue to evolve in the wake of the euro, which will maintain competitiveness in Europe and benefit sales outside the Eurozone. However, as imports will be increasing at the same time at a very rapid rate thanks to internal demand, the contribution of the trade in goods will be negative. Services will again be the main beneficiaries of the vitality of activity, followed by industry. Agriculture (11% of GDP) should see a return to moderate growth following the dip in 2015 because of the drought. The insolvency rate among companies is likely to remain the highest in the region, particularly in construction, clothing, agri-business and hotel and catering. The drive against corruption and the informal economy is disrupting some businesses.

Deterioration of public and external accounts

With the relaxing of fiscal policy, the public deficit is expected to increase, which will go together with a slight increase in debt. In addition to the cut in VAT, all public sector pay will increase by 10% (15% in education and 25% in hospitals) and the tax on dividends will be cut from 16 to 5%. Defense spending is going to increase significantly. The additional revenues arising from growth, the clampdown on tax evasion, linked with the informal economy, and the restructuring of public companies, often loss-making, will not make up for this. The current account deficit will also increase, in line with that for the trade in goods (4% of GDP in 2014), despite the increase in the surplus for services linked with tourism and road transport (4%). Remittances from workers abroad, as well as the deficit in revenues arising from the repatriation of dividends and the interest payments on external debt (64% of GDP, with one-third for the State) will continue at a low level. The current account deficit will easily be covered by FDI (just over 2% of GDP) and European funds (3%).

A technical transitional government

Weakened by his indictment for money laundering, misrepresentation and tax fraud by the National Anticorruption Directorate and faced with demonstrations following a tragic fire at a nightclub in Bucharest resulting in 57 deaths, Victor Ponta, head of the Social-Democrat government, with a big majority in parliament following the 2012 elections, resigned in November 2015. Klaus Iohannis, from the small German-speaking community, leader of the center right National-Liberal Party and elected President in 2014, replaced him with Dacian Ciolos, a former European agriculture Commissioner. His government, consisting of people with backgrounds in European administration and civil society, won the support of all major political parties, which have committed to supporting him until the next elections in December 2016. His aim is to limit the deterioration of the public accounts, without undermining the budget course to which all the parties are committed.


Coface (09/2016)