C/A deficit soars

BUCHAREST – Romania’s current account deficit in the first eight months of 2006 was 51 percent higher than a year earlier, as the trade shortfall continued to expand on the back of hefty imports. The deficit jumped to 5.92 billion euros ($7.43 billion) in January-August from 3.92 billion euros in the same period in 2005, National Bank of Romania (BNR) data showed yesterday, accelerating its expansion from January-July. Strong domestic consumption ahead of European Union entry next year is driving up imports and fanning worries over long-term economic stability. In the first seven months of this year the deficit was 4.9 billion euros, up 43 percent from a year earlier. «I had expected a much slower expansion rate,» Finansbank analyst Melania Hancila said. «This level of widening reflects non-competitive exports and a great need for imports to restructure the economy ahead of (EU) accession.» Statistics Office data showed the eight-month foreign trade deficit jumped 52 percent year-on-year to 6.5 billion euros ($8.2 billion) as export growth slowed, while imports remained strong. A senior government official said the trade deficit was likely to continue to rise after the country’s accession to the EU but should stabilize after about two years. «All studies show the trade deficit in the first two years after EU accession on a rising trend,» Iuliu Winkler, the minister who oversees the foreign trade department in the cabinet, told a news conference. «After, it will begin to stabilize,» he said without elaborating. Winkler also said exports of medium- and high-value-added products should benefit after accession, particularly in the auto and shipping industries, IT products, textiles and furniture. Romania’s big current account deficit has had little impact on the currency so far because it is well funded by foreign direct investment inflows, which are expected to hit record highs this year. The BNR said the external shortfall was covered 73.1 percent by foreign direct investments, which stood at 4.3 billion euros in January-August against 2.7 billion in January-August 2005. However, the IMF has said Romania runs the risk that its current account gap could rise as high as 13 percent of gross domestic product next year from some 10 percent this year if the government fulfills plans to loosen fiscal policy in 2007.