Foreign Deficit Correction Has Started

The payment balance deficit for January - October 2008 deepened by 10.9% compared to the corresponding period of 2007, but at a slower pace than in September (14.8%), according to data released by the National Bank of Romania (BNR). In real terms, the deficit reached 14.4 billion EUR, mainly driven by the trade deficit, which amounted to 15.4 billion EUR, up by 10.2% from January - October 2007.

"The correction of the current account deficit has started already. The rating agencies were wrong about it: it will be below 14%, as we estimated," said Lucian Anghel, Chief Economist of BCR, who stressed that, in the previous few months, exports had continued to exceed imports by 3 percentage points.

Kenneth Orchard, an analyst with Moody"s, commented that the adjustment of the current account deficit had started along with the start of the consumption and investment slowdown, which had in turn led to a significant decrease in imports. "We expect this trend to continue in 2009, when the current account deficit should reach 8.2% of the GDP," Orchard said.

Foreign direct investments exceed the average of the first nine months, reaching almost 1 billion EUR in October, a month when FDI was expected to decrease as a consequence of the international situation, Lucian Anghel added. The current account deficit in January - October 2008 was 56.5% covered by foreign direct investments, which amounted to 8.15 billion EUR, BNR data indicate.

Services logged a 443 million EUR surplus in the first ten months of the year, down by 26.8% year-on-year, the National Bank announced. Tourism went into the red in October compared to the first ten months of 2007, when a surplus of 66 million EUR was achieved. A year later, the indicator showed a 324 million EUR deficit. On the other hand, the ten-month status is 47 million EUR on the plus side, up from a deficit of 363 million EUR in the corresponding period of 2007.

The revenue balance deficit gained 25.5% from 3.62 billion EUR in the first ten months of 2007 to 4.55 billion EUR in the first ten months of 2008, the National Bank announced. Current transfers gained 27.2% from 4.05 billion EUR in the first nine months to 5.15 billion EUR in the first ten months. Lucian Anghel believes it would be quite remarkable if this rate remained similar in 2009.

At the end of October, Romania"s medium- and long-term debt reached 49.1 billion EUR, up by 27.7% from end-2007, following the increase in the non-guaranteed foreign debt, according to the data released by BNR on Friday. Most of the non-guaranteed foreign debt originates in the private sector. This indicator reached 32.4 billion EUR at the end of October, up by 29.5% year-on-year.

The National Bank"s data indicate that the public and public-guaranteed foreign debt reached 10.75 billion EUR at the end of October, but its weight within the medium- and long-term foreign debt decreased to 21.9% from 26.5% at the end of 2007. In the same interval, the direct public debt increased by 8.8%, from nearly 8.18 billion EUR to 8.9 billion EUR.

However, the publicly guaranteed debt decreased by 169 million EUR at the end of October from the end of 2007 to 1.85 billion EUR. The ratio between publicly guaranteed debt taken by public institutions and that taken by the private sector is 1.81 billion EUR to 34 million EUR. The foreign debt service for the first ten months of the year reached 8.48 billion EUR, of which 6.3 billion EUR was the non-guaranteed debt.

The medium- and long-term foreign debt service rate - calculated as the ratio between the debt service and exports - was 26% in the first ten months of 2008, compared to 23.2% in 2007. The ratio between Romania"s international reserves (forex plus gold) and the value of imports per month decreased from 6.1 months at the end of 2007 to 5.7 months at the end of October 2008.