Romania bracing for unprecedented external deficit: 6.5% of GDP

Romania is about to end the year with a significant external deficit, triggered by the wave of imports that spun out of control in the last quarter.

“According to the latest information, the external deficit is likely to reach 6.5% of GDP,” National Bank of Romania (NBR) Governor Mugur Isarescu said yesterday, as the commercial deficit exploded in October, when imports outpaced exports by almost $1 billion.

Together with the International Monetary Fund (IMF), the Government and the NBR had scheduled a current account deficit accounting for 4.8% of GDP. The most pessimistic forecasts issued in the second half and validated by the foreign analysts pointed to a deficit growth to 5.2%, but none of them ever considered a level in excess of 6%.

After the first nine months of the year, the current account deficit amounted to 1.64 billion euros, up 61% from the year-ago period. This means that the last three months of 2003 could bring an even bigger imbalance than the first three quarters did.

The data on the record-high trade deficit logged in October, which have not been released by the National Statistics Institute yet, corroborate the warnings issued by the central bank lately.

It remains to be seen whether imports keep soaring in November and December, but the current account deficit is very likely to account for 6% of the Gross Domestic Product. In the past two years, deficits peaked in October and December, with a slight break in November.

“The estimated figures sound surprisingly high and can only be grounded on the preliminary data on the external deficit in the last quarter. These data are unprecedented in Romania’s recent history and will make many analysts and rating agencies start asking questions,” says Radu Craciun, senior analyst with ABN Amro Bank Romania.

Signs pointing to the external deficit explosion explain why the IMF has repeatedly urged the Romanian authorities to enforce measures set to contain consumer demand, lending included.

Finance minister Mihai Tanasescu and NBR Governor Mugur Isarescu met again yesterday to discuss the set of measures aimed to push the current account deficit down to 5% of GDP in 2004, since there isn’t much that can be done for 2003.

“I can guarantee that the Government will soon announce measures to correct the external deficit, as statistics seem to be confirming our worst fears,” Mugur Isarescu said before the meeting.

According to the NBR Governor, should the measures discussed with the Government be introduced and thoroughly enforced, chiefly in the energy system restructuring and arrears cuts, the current account deficit will go down to 5.5% of GDP next year. “I believe no one can do better than that during an electoral year,” Isarescu maintained.

The current account deficit points to an imbalance between currency inflows and outflows, which becomes reason for concern if it exceeds a certain percentage of the Gross Domestic Product, especially if it is not covered by foreign direct investment.
razvan.voican@zf.ro ; oana.nuta@zf.ro