Romania’s CA deficit widens by 85% in Jan-May, and it wasn’t only the net imports

Romania’s current account (CA) deficit in the first five months of the year (January-May) widened by 85%, or EUR 2.74 bln, to EUR 5.95 bln, the national bank of Romania (BNR) announced.

As in the case of the FDI figures, the CA balance was seriously contaminated by accounting operations during the Covid period, and the figures look more dramatic than they should.

The trade with goods is indeed a chronic problem, and it contributed to the 85% YoY deterioration of the entire CA balance. More precisely, the deficit of the trade with goods (a massive EUR 8.70 bln in January-May) increased by EUR 1.13 bln (+15% YoY).

However, there is another CA element that made an even bigger impact, and this is the primary income account - the section of the CA that includes transfers related to the labour (wage remittances declared as such, only a small part), interest, and dividends obtained by financial and direct investors.

And in January-May 2021, the FDI companies in Romania declared their profits for the past four to five quarters as the Government allowed this starting the end of March 2020. Therefore, the outflows under primary income accounts increased by EUR 1.34 bln from January-May last year to the same period of 2021.

It is a fair assumption that most of this was, in fact, deferred profits accumulated by the FDI companies over the past quarters - and declared in 2021 when the facility expired. So once these profits were counted as outflows (under the direct income account) going out of the country, and then again, they were counted as foreign direct investments (FDI) entering the country. In fact, the money never left Romania.

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