The current account can no longer rely on financing from current transfers, primarily fed by the money sent back home by those working abroad, as it used to in the previous years. Even though Romanians keep going to work in Europe, the positive balance of transfers at the end of April was lower than in the same time in 2002 for the third time in four months.
Current transfers had contributed 437 million euros to financing the current account deficit by late April, compared to 467 million euros in the corresponding period of 2002.
The cash outflows in form of current transfers (the main financing source for the current account over the last two years) went up 55% throughout January-April, compared with the same time in 2002, reaching 104 million euros.
Four-month inflows, on the other hand, rose only 1.3% from 2002.
The worst thing is that the real inflows of cash sent back home by those working abroad – at least those recorded by the banking system, have dropped in the first four months of this year, amounting to only 475 million euros as compared to over 488 million in 2002.
The data are surprising, as more than 10,000 people went to work in Europe in the first quarter alone and made 26.2 million euros in total average income according to the Office for Workforce Migration (OMFM). It is estimated that more than 30,000 Romanians have used OMFM’s services to go and work abroad this year. The hypothesis of significant foreign currency inflows dodging banks therefore stands.
The worsening of the balance is somewhat alleviated by transfers made in the public administration sector, which saw a positive balance of 51 million euros, 12 million higher than last year.
Cash outflows visibly were higher than expected both in the administration and the other sectors registered. That is, after all, why Romania’s current account deficit had come to total 564 million euros four months through the year, up 3.8% from the same time last year. This was before the trade balance deficit in FOB/FOB prices went up to 407 million euros (546 million euros in FOB/CIF prices) in May, that is twice the deficit in May 2002.
The FOB/FOB trade deficit accumulated throughout January-May was worth 1.2bn euros and is expected to have put heavy pressure on the current account. The National Bank of Romania (NBR), however, releases statistical data with an at least two-month delay.
The current account also has to bear the 185 million-euro deficit registered by revenues (including revenues derived from labour, direct investments, portfolio investments and interests), 20 million euros higher than in the same time in 2002. The deficit rise for this category was fuelled by the 25 million-euro wider gap between outflows and inflows of direct investment and interest-related cash. Under the circumstances, the fast-paced progress of the trade deficit may make the upward trend of the current account deficit pick up a risky speed, as well. razvan.voican@zf.ro