Shocking deterioration of the current account deficit for 2004. Sources close to the talks with the IMF quoted by Reuters and then Mediafax stated the deficit had widened to no less than 8.2% of GDP, according to the estimates based on a new computational method and to about 7% based on the old system. The main culprit here can be none other than the trade balance deficit, which skyrocketed to more than one billion euros in December. Romania registered a record trade deficit of 7.34bn euros in 2004, and this is the largest component in the current account deficit. The current account deficit at the end of November was of 3.27bn euros, which made NBR officials offer estimates of about 6% of GDP for the yearend.
The new method imposed by the IMF takes into account the worst-case scenario, which sees the foreign companies repatriating their Romanian profits in full. Yet, even if judging by the old system, a 7% of GDP deficit compared with 5.7% in 2003 is an extreme deterioration of the foreign position.
Under the circumstances, it makes even more sense for the IMF mission currently in Bucharest to request the reduction of this year's budget deficit to zero, in order to compensate the foreign deficit widening as much as possible.
The authorities would not comment on the figures discussed on the market for the time being. The Government is waiting for the NBR to release the official figures, first.
"The trade balance deficit for December came out three days ago and the National Bank will issue a release about the current account deficit of the balance of payments around February 25-27. Until then I believe it is too soon to talk about the current account deficit," Adrian Vasilescu, NBR Governor's advisor told Ziarul Financiar.
Until the official figures come out, the news of the 8.2% and 7% figures broken by an international agency has created enough anxiety on the market. Looking at the record December trade deficit data, a simple math shows the current account deficit substantially exceeded the 6% of GDP considered relatively harmless for a country with an expanding economy and with large foreign investment inflows, such as Romania.
The comparison with the neighbouring countries is not necessarily a reason for special concern. There are notable differences, however, Bulgaria, for instance, posted a 9% of GDP current account deficit last year, yet the state budget ended with an excess. Hungary and Poland saw over 6-7% deficits in the past years, without having trouble financing them, and Poland even managed to adjust them later.
What are the prospects for an adjustment of the substantially increased current account deficit that Romania posted in 2004 and what is the possibility for it to get out of hand, moving further towards a 9-10% of GDP, running the risk of a deterioration of the foreign perception?
"Even in the absence of a change in methodology, considering the figures of the December trade balance, we can estimate a current account deficit for 2004 of approximately 7% of GDP. The current deficit level is not a problem; its growth pace is. Since the budget deficit is already quite small, the most effective leverage to use for a future adjustment is the ROL depreciation," commented Mihail Ion, head of the research department with Raiffeisen Bank's Treasury.
razvan.voican@zf.ro
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