Romanian central bank's concerns: CA gap, post-Covid viability of firms, absorption rate and fourth wave

The minute of the October 15 monetary board of the National Bank of Romania (BNR) reveals several major concerns expressed by board members: the widening current account (CA) deficit and a significant drop in its coverage by autonomous capital flows, the ability of some businesses to remain viable after the cessation of government support and the outlook for the absorption of EU funds allocated to Romania.

The current account deficit continued to expand quickly, adding more than 85% in 2021 H1 overall versus the same year-earlier period.

The developments were viewed as particularly worrisome by Board members, inter alia, amid a significant drop in the coverage of the current account deficit by autonomous capital flows in Q2, yet from a considerably higher level in the first month of the year.

Uncertainties increased over the ability of some businesses to remain viable after the cessation of government support programmes and measures, especially in the context of a particularly large pick-up in energy and other commodity and intermediate goods prices, and protracted supply chain issues, possibly leading to restructuring or winding-up of some firms.

Board members were of the opinion that a high degree of uncertainty was associated with the outlook for the absorption of EU funds allocated to Romania via the Recovery and Resilience Facility and those under the new Multiannual Financial Framework 2021-2027.

Furthermore, board members repeatedly underlined that the new pandemic wave posed increased uncertainties and risks, highlighting the quick worsening of the health situation and the very low level of vaccination on the domestic front, but also the less severe restrictions probably reinstated, as well as the enhanced capacity of firms and households to adapt to social distancing requirements.

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