This Selected Issues paper for Romania reports that the practice of nonpayment and arrears accumulation has been widespread in Romania. Managers of enterprises that remain in the pipeline for privatization for long periods of time have little incentive to reduce arrears. The state contributed to growth of arrears by accepting nonmonetary tax and utility payments, using tax offsets in procurement, and tolerating payment arrears. These practices have been prevalent at all levels of state and local government, as well as state utility companies.

Abstract

This Selected Issues paper for Romania reports that the practice of nonpayment and arrears accumulation has been widespread in Romania. Managers of enterprises that remain in the pipeline for privatization for long periods of time have little incentive to reduce arrears. The state contributed to growth of arrears by accepting nonmonetary tax and utility payments, using tax offsets in procurement, and tolerating payment arrears. These practices have been prevalent at all levels of state and local government, as well as state utility companies.

I. Addressing the Non-Payment Culture and Arrears in Romania1

Widespread arrears reflect the slow pace of restructuring in Romania, and have delayed the transition to a market economy. State-owned enterprises (SOEs), after losing access to directed credit and most budget subsidies in the 1990s have resorted to payments offsets and arrears to keep afloat. The authorities sanctioned this outcome by tolerating late payment of tax and utility bills. The associated lack of transparency has hampered structural reform efforts and contributed to the growth of the informal economy, weak governance and tax evasion. Under the previous Stand-by arrangement from 2001 to 2003, efforts to reduce the growth of arrears and associated implicit quasi-fiscal subsidies concentrated on tougher enforcement of tax and utility payments, and measures to promote industrial restructuring and impose hard budget constraints.

A. Background to the Emergence of Arrears

1. The practice of non-payment and arrears accumulation has been widespread in Romania. Strengthening financial discipline in the enterprise sector is seen as fundamental not only for establishing a market economy, but also for consolidating macroeconomic stability. Despite considerable progress over the last three years, much of the state-owned enterprise sector remains unprofitable and unrestructured, and depends on quasi-fiscal subsidies in the form of non payment of utilities and taxes to continue operating. When SOEs lost access to directed credits in the 1990s, arrears became an important source of finance. Moreover, SOEs resorted to payments offset schemes through state clearing institutions.2 Financial indiscipline also extends to budgetary spending, notably in the health sector and at the local government level, with the latter incurring large arrears to utilities. The problem of arrears is not confined to the state sector, however, with a large number of private debtors to the budget. The state’s reluctance to move against private firms reflects social considerations (especially in one-company towns) as well as political influence of managers/owners of key enterprises.

2. Romania is not alone in failing to impose hard budget constraints. Payment arrears present a serious problem in the Russian Federation and other countries of the former Soviet Union. Accounts payable of state enterprises in Russia peaked at nearly 50 of GDP in the late 1990s, about half of which was delinquent, and in Ukraine state enterprise payable exceeded GDP, with about 70 percent delinquent. As summarized by Cheryl Gray, even in the leading reformers, such as Hungary and Poland, arrears were a significant problem as a result of demand and liquidity shocks in the early years of transition.3 Arrears to the tax, social security and customs offices accounted for a substantial proportion of the debt of distressed firms in Hungary and Poland in the early 1990s. In these countries, the arrears’ problem eased as the expanding private sector imposed its own hard budget constraints, preventing the emergence of new overdue payables. Moreover, tight budgets forced the authorities to increase pressures on delinquent tax payers. Experience in these countries suggests that attempts to impose hard budget constraints have been of critical importance for the transition process. Crucial measures included the strengthening of the implementation of legal rights under contract, collateral, workout and bankruptcy laws. Above all, creditors should be given effective means to collect debts, which can only be ensured with competitive markets, predominantly private ownership, and a true risk of failure for unrestructured enterprises.

3. The build-up of state enterprise arrears has been attributed to a number of factors:

  • Liquidity squeeze in absence of payments discipline. Public enterprises experienced a sharp drop in liquidity as demand contracted following transition and directed credits were cut. In an environment of weak contract enforcement and poor corporate governance, most enterprises responded by resorting to barter and arrears rather than restructuring.4

  • Protracted privatization. Managers of enterprises that remain in the pipeline for privatization for long periods of time have little incentive to reduce arrears. In Romania, firms under the privatization authorities’ portfolio have enjoyed protected status from creditors.

  • Implicit subsidies by the state. The state contributed to growth of arrears by accepting non-monetary tax and utility payments, using tax offsets in procurement, and tolerating payment arrears. These practices have been prevalent at all levels of state and local government, as well as state utility companies.

  • Rent seeking. Arrears are a source for corruption and fraud. An example is the overvaluation of goods in tax offset operations. Lack of transparency also helps managers who seek to enrich themselves at the expense of outside shareholders or creditors.

  • Chain effects. The industrial structure inherited from the Ceausescu era had strong vertical links as a result of isolationist policies. Even for profitable enterprises in the chain there were few opportunities to transact in cash if principle trading partners resorted to non-monetary payment settlements. This is especially the case where energy sector companies are involved; for example, mining companies offset their utility bills with coal deliveries.

B. Recent Developments of Arrears in the Romanian Economy

4. Over the last three years, total arrears in Romania remained stubbornly high, at just under 40 percent of GDP, despite some success in addressing SOE arrears (Table 1).5 Interenterprise arrears account for about a half of total arrears, of which about 40 percent are owed to energy suppliers (Figure 1). Arrears to the central budget and social security funds, account for about a third of the total. Arrears to banks are low, at about 4 percent of total arrears in 2003, reflecting successful reform of the banking sector. Arrears to other creditors, mainly wage arrears, account for about 12 percent of the total, and remain relatively low compared with other transition economies.6 Information on local authority arrears is difficult to obtain, and is not included in the above total. A recent USAID funded study suggests local authority arrears could amount to as much as 1–2 percent of GDP.

Table 1.

Romania: Enterprise Payment Arrears, 2000–2003

(In percent GDP)

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Source: Ministry of Finance.
Figure 1.
Figure 1.

Share of Total Arrears, June 2003

Percent of total

Citation: IMF Staff Country Reports 2004, 220; 10.5089/9781451832792.002.A001

5. The recent evolution of arrears is shown in Figure 2. Interenterprise arrears have risen steadily, partly as a result of the accumulation of interest and penalties.7 Public sector arrears increased sharply in 2002, and remained roughly unchanged in 2003. Arrears to banks have continued to decline. Wage arrears also appear to have become less of a problem, partly as a result of the restructuring of state-owned enterprises. At first glance (Figure 3), it would appear that the share of arrears accounted for by the private sector has risen sharply, those of the mixed state sector have fallen, and the wholly owned state sector remained fairly constant.

Figure 2.
Figure 2.

Total Arrears by Debtor, 2000-June 2003

Citation: IMF Staff Country Reports 2004, 220; 10.5089/9781451832792.002.A001

Figure 3.
Figure 3.

Arrears by Sector, 2000-2003 June

Citation: IMF Staff Country Reports 2004, 220; 10.5089/9781451832792.002.A001

6. Attempts to analyze the trends in arrears by sector, however, are complicated by serious data problems. First, a number of state-owned and partially state-owned enterprises were privatized, so that the arrears, to the extent that they were not cancelled at the time of privatization, were shifted to the private sector. This was common under earlier privatizations when indebted companies were sold for a low price, which in itself often led to continuing corporate governance problems and asset striping.8 Second, part of the increase in private sector arrears is attributed by the Ministry of Finance to tax rescheduling obligations that require previously unreported arrears to be registered in the company books. The liberal use of tax rescheduling facilities may in itself have contributed to a lack of payment discipline in the private sector. Even so, the increase in total arrears from 2001 to 2003 may reflect in part more transparent accounting practices.

7. The official data on arrears suffer from a number of other shortcomings. First, data on overdue amounts may be overstated to the extent that non-monetary payments are not fully captured (such payments may be underreported by the receivers for tax evasion purposes). Second, state and local budget arrears are not recorded in the official statistics.9 Third, many enterprises have not yet adopted transparent accounting practices (under international accounting standards), so that bad debts are not adequately singled out. Fourth, the accumulation of penalties and interest on debts, which should be written off under normal accounting conventions, have more than doubled the stock of arrears in many cases. Finally, arrears often appear in circular links, with public enterprises incurring arrears to utility companies, utility company arrears to power companies, and power company arrears to suppliers (for example, to mines) so that the overall level of bad debts may be overstated. The complexity of these arrangements is clear from Table 2, which illustrates the chain of hidden and direct subsidies in Romania.10

C. Arrears Continue to Be an Important Source of Funding

8. As shown in Table 3, arrears represent a far more important source of financing for enterprises than bank credit. Bank credit represented only 8 percent of total financing in 2001 compared to 35 percent for arrears, over half of which was delayed tax and social security payments. More recent data is not available, but despite the fact that the enterprise sector has shown some improvement in profitability, bank lending to enterprises remains low relative to GDP due to perceived risk. About one third of enterprises remain unprofitable, and weak enforcement of collateral and bankruptcy legislation has made banks reluctant to inject fresh liquidity into state-owned enterprises to undertake restructuring.

Table 3.

Sources of Funds for Romanian Firms

(Percent of total financing)

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Sources: Ministry of Finance. World Bank and Fund staff estimates, Financial Sector Assessment Program, 2003

D. State-Owned Enterprises Are the Worst Offenders

9. Despite some progress in restructuring, unprofitable state owned enterprises continue to run up large arrears to the budget and state-owned energy suppliers. In 2003, companies with state participation had total payment arrears of 55 percent of turnover, compared with 17 percent for those of private companies (Table 4). The difference is even more marked for arrears to the central budget and social security funds, with arrears of state companies’ equivalent to 45 percent of turnover, and arrears of private companies’ equivalent to 3 percent of turnover. The worst offenders were those enterprises with majority state ownership (92 percent of turnover), but even a minority shareholding by the state appeared to result in weak financial discipline and lenient treatment of budgetary obligations.

Table 4.

Arrears as a Share of Turnover, June 2003

(Percent)

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Source: Ministry of Finance.

E. Mining and Railways Are Among the More Problematic Sectors

10. Along with companies in the privatization authorities (APAPS) portfolio, the mining and railway sectors now account for the major source of public sector arrears to the budget. Total outstanding arrears at the end of 2003 of the mining and railway sectors amounted to 2.7 and 1.0 percent of GDP respectively. In the mining sector, non payment of taxes and utilities in 2003 amounted to lei 3 trillion,11 roughly equivalent to the overall losses of the sector after subsidies and transfers, and double the amount of formal subsidies and transfers of lei 1.4 trillion. In the railway sector, non payment of taxes and utilities amounted to about lei 2 trillion, compared with subsidies and transfers of lei 5.2 trillion. Both sectors benefited from substantial arrears cancellations in 2003.

F. Energy Sector Has Large Arrears But Is Also a Source of Hidden Subsidies

11. The arrears problem is concentrated in the energy sector. Payment discipline of consumers has been weak, particularly in the heating sector, where the suppliers have been prevented by law from cutting off consumers in the heating season. This has contributed to the weak financial condition of the sector, where in the past prices had been set administratively below production costs. In addition, while households have been relatively reliable in payment of electricity and gas, enterprises and local governments have been less disciplined. Large loss making public enterprises are among the worst payers. Attempts by the distributors to cut off suppliers have often been hampered by political or social considerations, and in some cases, the need to maintain a minimum technological level of supply (for example, to prevent the permanent shutdown of large furnaces).

12. While arrears to the energy sector are large at about 6–7 percent of GDP, the problem is concentrated.12 In the gas distribution sector, state enterprises account for over 45 percent of total overdue accounts payable, followed by Termoelectrica, the largest thermo-producer, and the externalized heating plants, the two accounting for about 25 percent (Figure 4). The 50 largest enterprises in debt to the gas distribution companies account for about 30 percent of total arrears (excluding heating companies). In the electricity sector, the 30 largest debtors of Electrica account for about 20 percent of the total debt. At the same time, the 4 largest debtors amongst the heat distribution companies had accumulated arrears of lei 9.5 trillion to Termoelectrica, or 170 percent of Termoelectrica’s turnover in 2003. This has led to a complex chain of arrears in the energy sector with the heating companies in arrears to Termoelectrica, Termoelectrica in arrears to the gas and electricity companies, and the energy companies in arrears to the budget. The need to resolve the arrears of the utility companies in advance of privatization has been a major challenge for privatization efforts in the sector.

Figure 4.
Figure 4.

DistriGas Arrears by Debtor, 2003 Percent

Citation: IMF Staff Country Reports 2004, 220; 10.5089/9781451832792.002.A001

Source: Ministry of Economy and Commerce

G. Public Expenditure Arrears Are Concentrated in Local Government and the Health Sector

13. Local authorities account for a substantial share of outstanding arrears to the utility companies. The problem is particularly acute for local heating, where failure of the local authorities to meet payments has resulted in large arrears of local heating plants to the gas companies. Information on the arrears situation of local authorities (judets) is scarce, but a recent study of three judets commissioned by DFID suggests the problem is serious (with arrears possibly as much as 1–2 percent of GDP). In the case of one of the larger judets, Giurgiu, total outstanding arrears were equivalent to the annual total budget for the municipality. Recent legislation (ordinance 81/2003) states that local authorities must give priority to paying heating, electricity and gas suppliers. While this may reduce the current levels of arrears to these suppliers, it will certainly lead to cutbacks in already low levels of recurrent and capital expenditure. Evidence from the study suggests that the ordinance is already having an impact on education, as outstanding utility bills have to be paid before any other non-salary items.

14. The DFID study points to serious weakness in local financial management. Many utilities, which are wholly owned by the local authorities, do not operate at arms length. In particular, the local heating companies (CETs), were devolved from the main heat producer, Termoelectrica, to local government control. For example, in Giurgiu the company responsible for provision of heating (wholly owned by the Judet) has not taken the same debt recovery measures against the local authority as it has against private sector clients. This suggests the CET is being used to cross subsidize the local authority resulting in confusion over management control and decision making.13 The accumulated loss of the Giurgiu CET since decentralization is euro 2.5 million.

15. The problems of public procurement are particularly acute in the health sector. In 2002, public health institutions incurred lei 3.6 trillion of the arrears to suppliers accumulated. Under the new Stand-by arrangement, these arrears, identified in protocols agreed with the supplier organizations, will be repaid by end-September 2004. To avoid the recurrence of arrears, legislation was approved in February 2004 strengthening the procurement procedures for medical supplies. Based on World Bank recommendations to improve the efficiency of the hospital system, the authorities are working to complete a strategy for the short-, medium-, and long-term rationalization of the entire health sector, which should lead to better expenditure management

H. Private Sector Arrears to the Budget Are an Emerging Concern

16. Private sector arrears to the budget, including social funds, account 57 percent of the total arrears of the top 549 debtors to the budget, or 4.2 percent of GDP.14 15 Total arrears of the top private debtors to the state budget, excluding social funds, but including interest and penalties (Table 5), increased by 0.9 percent of GDP in 2003 (of which 0.3 percent in interest and penalties). One of the top private debtors alone accounted for arrears of $310 million.

Table 5.

Tax Arrears of the Top 549 Debtors to the Budget, 2002–2003

(Including interest and penalties)

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Source: Ministry of Finance.

State-owned enterprises and mixed ownership with 50 percent or more in state ownership.

Private plus mixed ownership with less than 50 percent state capital.

I. Addressing Arrears and Payments Offsets a Complex Issue

17. The widespread and complex nature of the arrears and non-payments problem, requires implementation of comprehensive reforms covering a number of areas. Under the Fund supported program, efforts have concentrated on tougher enforcement of tax and utility payments, aggressive restructuring of the public enterprise sector, measures to strengthen expenditure management, and enforcement of contract and bankruptcy legislation. Despite aggressive measures in some areas, progress has been mixed with frequent reversals, particular in the energy sector. The authorities have often been reluctant to cut off energy supplies to socially sensitive enterprises with large numbers of employees, and efforts to tackle problem sectors, such as mining and railways have intensified only in the last year and a half. The need to take stronger measures to enforce tax payments by private companies has only recently been recognized, and is a focus of the new Fund supported arrangement.

18. In the state-owned enterprise sector, initial efforts focused on the large lossmaking enterprises in the privatization authorities (APAPS) portfolio. Many of the larger loss makers had been in the pipeline for privatization for some time, and temporary special administrators had little incentive to observe hard budget constraints, despite repeated efforts to ensure payments of taxes and utilities under the program. The pace of privatization only picked up following large scale restructuring of these companies, resulting in some 34,000 layoffs, or about half of their employment. Since the beginning of 2003, 23 large lossmaking SOEs were sold to strategic investors, with over 70,000 employees. The 23 companies accounted for about 40 percent of the total arrears to public utilities of the companies in APAPS portfolio. Of the 513 large companies in the APAPS portfolio in 1993, about 74 percent had been sold by the end of 2003. Important privatizations in 2003 included Siderurgica, Tractorul, Roman Brasov and Aro. The new Stand-by arrangement seeks to accelerate the pace of privatization and restructuring of the remaining large enterprises, with prior actions and structural benchmarks on the number of enterprises to be privatized or liquidated. Aggressive restructuring of the lossmaking companies in early 2004 has already taken place. To monitor progress, an indicative benchmark has been placed on the reduction of arrears of the state-owned enterprises monitored under the program.

19. The only permanent solution for the arrears problem in the mining and railway sectors is further substantial restructuring. Both sectors have built up substantial arrears since previous restructuring efforts in the late 1990s. At the time of the reorganization of the railway sector in 1998, for example, all the newly created railway companies were exempted from accumulated arrears of lei 5.4 trillion. As of end-2003, new arrears of lei 13.9 trillion had re-emerged. Further restructuring will involve a comprehensive strategy to reduce the labor force, downsize the network, privatize non-core activities, and increase passenger tariffs. The new arrangement builds on the government’s decision in 2003 to reduce the workforce by about 18 percent and to close some 3,000–3,500 kilometers of railway line, which should substantially improve financial performance and help prevent the emergence of new arrears in 2004. In the mining sector, the government has approved a mining strategy in May 2004 that covers all aspects of sector reform, including reduction in operations, closure of nonviable mines, financial restructuring and social protection. The strategy targets a reduction in state support of 14 percent a year in the hard coal sector until 2010, and a reduction of 25 percent a year in the minerals sector until 2007. Total personnel in the sector is to be reduced from 66,000 at end-2003 to 38,500 by end 2007.

20. Under the new SBA, more attention is being paid to budget transparency. Implicit subsidies to the two sectors, in the form of nonpayment of taxes and utilities, have been converted into explicit subsidies in the 2004 company budgets. The main advantage is increased transparency, and improvement in the finances of the utilities sector.16 In principle, such formalization of subsidies should not affect the overall fiscal stance, as higher explicit subsidies would automatically be offset by higher tax and utility payments. The formalization of the implicit subsidies has also had the advantage of increasing pressures on the sectors to restructure, as the government is committed to the EC to reduce the level of subsidies in the run up to EU accession.

J. Efforts to Tackle Energy Arrears Are Shifting From Collections to Privatization and Restructuring

21. Under the previous program, the main policy instrument to address energy sector arrears was an aggressive disconnection of non-payers of gas and electricity. The credible threat of disconnection has been relatively successful in inducing the majority of large debtor companies to pay at least their current bills. The collection rate of the two gas distributors has increased from 87 percent in 2000 to 99 percent in 2003, with the bulk of the payments in cash. The collection rate for Electrica has increased from 82 percent to 98 percent over the same period, and a new payments clearing system has been put in place. Under the new arrangement, the policy of aggressive disconnection will continue, but in tandem with an acceleration of the privatization of the sector. The two gas distribution companies are scheduled to be privatized, as well as 5 of the 8 regional branches of Electrica. In the preparation of the companies for privatization discussions with potential investors has already led to a strengthening of regulations to enforce collections, and the ability of the companies to disconnect for nonpayment.

22. In the heating sector, performance has been less convincing. Collections have weakened, reflecting shifting government policies and the inability of heating distributors to cut off consumers. The collection rate for Termoelectrica heating was only 83 percent in 2003. Several attempts have been made to improve the financial situation of the heating sector, including raising the heating price for producers toward cost recovery (from 58 percent in 2000 to over 90 percent in 2003). Subsidies for households and heat generators have been better targeted and made more realistic. In some cases, the subsidy that was meant to be paid by local authorities to heat producers exceeded their revenue and could not be implemented. Despite these efforts, the heating system remains highly inefficient, with heating plants operating at low levels of efficiency, and distribution networks with high losses through leakages (up to 40 percent). Under the new SBA, the government approved a strategy for the heating sector in May 2004 in consultation with the World Bank. This strategy envisages a switch to heating contracts or conventions with individual households, the installation of thermostatic valves and heat meters, and the introduction of a split-tariff structure. In addition, subsidies and delivery of fuel by state-owned companies are being phased out for inefficient heating plants, together with measures to assist the few remaining connected households to switch to individual heating systems.

K. Private Sector Arrears Require Improved Budget Management

23. As a first step, under the new arrangement, the Ministry of Finance is to move aggressively against the top non payers, initiating bankruptcy proceedings against the worst offenders. In addition, an FAD technical assistance mission on tax administration has pointed to the urgent need to modernize arrears collection. Management information systems are extremely weak and the tax authorities lack processes to manage arrears effectively. For example, many of the top debtors into the budget in 1999 continued to be among the worst.

Approaches to Manage Budget Arrears Collection

Targets

Total tax arrears should not exceed a prescribed percentage of annual revenue collection

The level of tax arrears should be reduced by a prescribed percentage each year

The average age of tax arrears should be reduced by a prescribed amount each year

The annual administrative cost of the arrears collection program should be related to the percentage of arrears

Systems and Processes

Systems should automatically send notices within prescribed short intervals after missed payments

Workload management systems should automatically route arrears cases to officers for action within prescribed times, and record the actions and plans

Systems should track and report, both nationally and for each office, the performance against targets for the amount of time to first collections action, the time required to carry out each type of collection enforcement action, the number of cases closed each year, and the average age of debt.

Debt should be tracked and reported by tax type, age, industry, and office, and reported regularly to field office and headquarters.

24. The reduction in arrears of the largest private debtors to the state budget and the social security funds will be a performance criterion. Moreover, the government will continue posting a list of the top 549 debtors to the state budget on the internet and update this list every quarter, including arrears to the four social security funds. It is hoped that the enforcement of bankruptcy legislation by the public sector will gradually lead to a strengthening of payments discipline, and respect for contractual obligations.

25. Efforts are also been stepped up to better monitor the overall public sector. Initiatives are underway to monitor the overall balance of the public sector through financing data and monitoring of changes in net public sector arrears. This should lead to greater transparency, and reduce the types of payments offsets between different public sector entities that have contributed to the pervasive arrears culture. Public sector expenditure management will also be strengthened though the introduction of medium-term expenditure budgeting, the development of public expenditure plans for critical sectors such as health with the assistance of the World Bank and other donors, and the strengthening of public sector procurement practices.

L. Concluding Remarks

26. The economic benefit from of reducing arrears is considerable, as it goes to the heart of the lagging restructuring process, which is one of the main challenges facing Romania in the transition to a market economy. The complex nature of the non-payment problem and resistance to restructuring requires a comprehensive strategy to avoid policy reversal and address the underlying pressures and institutional constraints that support soft budget constraints. The authorities will have to continue to aggressively restructure the remaining problem sectors, accelerate privatization of the energy sector, enforce tougher measures to ensure tax and utility payments, and make bankruptcy legislation work better. Ultimately, payment discipline will only improve with the development of well-functioning competitive markets, predominantly private ownership, and real risk of failure for enterprises that fail to pay debts.

1

Prepared by Graeme Justice.

2

There are two state clearing houses for registration and clearance of claims by public enterprises. The Bucharest stock exchange is currently developing a scheme to trade private claims.

3

Cheryl W. Gray, Creditors’ Crucial Role in Corporate Governance, Finance and Development, June 1997.

4

For an interesting explanation of use of arrears in terms of rational behavior of enterprise managers: Christian Mumssen, Barter and Arrears in Russia: Principles of a Solution Strategy, Conference on Post-Election Strategy, Moscow, April 2000.

5

The Ministry of Finance defines arrears as all payments overdue by 30 days, according to contracts or legal obligations. A rough breakdown for 30, 60 and 90 days exists with about a third of debts in each category, suggesting the amount of truly delinquent loans is considerably lower. Tax arrears are overdue obligations as declared by tax authorities.

6

Other arrears are defined as those arrears for which there is no contractual obligation based on a sales purchase agreement.

7

Unfortunately, the company register does not record interest and penalties separately.

8

Under the previous SBA, the focus of the privatization agency shifted towards privatization to strategic investors, with arrears to public sector creditors largely written off. Normally, the privatized company retains arrears to commercial creditors.

9

Under the new SBA, there will be an attempt to measure the stance of the overall public sector including changes in net arrears.

10

OECD, Economic Assessment-Romania, 2002.

11

Excluding penalties and late interest of lei 3.9 trillion.

12

There is probably an element of double counting in the official statistics as the state-owned energy companies are not separated out in the data for the enterprise sector.

13

A government ordinance in 2001 transferred the ownership of 17 CETs (heat providers) from Termoelectrica to the Local Councils.

14

Including social funds, and interest and penalties. Excluding interest and penalties, private sector arrears accounted for 2.3 percent of GDP.

15

The Ministry of Finance reports arrears for the top 549 debtors to the budget.

16

The risk that the companies divert payments has been addressed by direct payment of utilities from the budget.

Romania: Selected Issues and Statistical Appendix
Author: International Monetary Fund