Drop in transfers causes 120% surge in current account deficit

Romania”s current account deficit widened to EUR 627 million in February 2006, causing it to reach EUR 1.018 billion in the first two months of 2006, up 80% from EUR 564 million in the first two months of 2005, the central bank said Friday.

The current account deficit was largely the result of a wider foreign trade deficit, as well as a drop in current transfers, a figure that approximates the foreign remmitances made by Romanians working abroad.

In the first two months of 2006, the trade deficit widened to EUR 997 million from EUR 587 million in the corresponding period of 2005. The deficit was over 98% financed through foreign direct investments, accounting for almost EUR 1 billion, compared with EUR 0.5 billion in the first two months of 2005.

Trade in services registered a deficit of EUR 51 million, compared with a EUR 58 million deficit in the first two months of 2005.

Income from investments registered a deficit of EUR 439 million, more than the EUR 407 million reported in the first two months of last year.

The surplus from current-account transfers was EUR 469 million, compared with EUR488 million in the corresponding period of 2005. This drop in reported remittances was a first-time event in the last five years.

In 2005, Romania”s current account deficit rose 35.1% to EUR 6.9 billion (that is 8.7% of GDP), compared with EUR 5.099 billion in 2004, the central bank said in February, while experts form the IMF say a deficit wider than 6% of GDP can be dangerous for the economy. Out of the whole last year”s deficit, only a ratio of 75% was financed through foreign direct investments (EUR 5.2 billion).

In the first two months of 2006, Romania”s foreign debt climbed by only EUR 82 million, reaching EUR 24.55 billion at the end of February. At the same time, international reserves (curency plus gold) hit EUR 19.2 billion, covering 6.7 months of import, as compared to 6.4 months of import at the end of 2005.