Current account deficit hits 1.4bn in four months

After just four months into the year the current account deficit has widened to almost 1.4bn euros. This represents a 77% deterioration of the foreign trade balance.

By comparison with March the deficit continued to expand rapidly at a rate of 54%, with all attempts at control failing due to pressures from the trade deficit.

As a result, the trade balance registered a minus of 1.8bn euros, almost 70% higher compared with the corresponding period last year, dragged down by the service sector, which saw a minus of 210 million euros.

The sectors in the trade balance that reported positive trends at the end of April were tourism and current transfers. However, the positive effects from tourism were limited to only 20 million euros.

Current transfers also grew, but, unlike in other years, the pace of growth was no longer in line with that of the trade deficit.

According to NBR data, Romanians living abroad sent home 897 million euros in the first four months of the year, which is only 33% higher than the value seen in the same period for 2004.

The unprecedented level of growth in imports, which had exceeded 9.7 billion euros by the end of April, is no longer being offset by the traditional money inflows from Romanians working abroad.

Over the same period, medium and long-term foreign debt rose to 20.7 billion euros, 14.2% higher compared with December 31 2004. Public and publicly guaranteed foreign debt now stands at 10.65 billion euros and accounts for 51.5% of the medium and long-term foreign debt, compared with 55.4% on December 31 2004.

The continuing rapid growth in the current account deficit is even casting a shadow over the official forecasts that were recently adjusted together with the IMF and which point to a maximum level of 7.75% of GDP by the end of the year, compared with an initially projected 6.9%.

The National Bank of Romania insists that the higher deficit will not imply any special risks so long as foreign financing is secured. The current account deficit is an indicator to which ratings agencies and foreign market investors are very sensitive, especially when it reaches levels of up to 10% of GDP.

Following the liberalisation of capital circulation, the foreign exchange market is becoming exposed to the possibility of sudden withdrawals depending on the changing mood of investors.