Romania’s CA gap up 56 YoY to 6.8% of GDP in 12 months to November

Romania’s current account (CA) deficit reached EUR 16.5 bln or 6.8% of the GDP estimated for 2021, in the 12 months to November, according to calculations based on data released by the National Bank of Romania (BNR).

The 12-month trade gap thus increased by 56% in nominal terms compared to November 2020. The gap-to-GDP ratio advanced some 2pp from 4.8%-4.9% in 2019-2020.

In a country update on October 24, rating agency Fitch said it expected relatively large current account deficits in 2021-2023, averaging 6% of GDP as a recovery in exports is offset by solid import demand. Under its November Autumn Forecast, the European Commission projected the country’s GDP within the 6%-6.5% range for 2021 and the coming years.

On the upside, the rating agency forecasts non-debt-creating inflows to cover an increasingly large share of the current account deficit (close to 80% by 2023) as EU transfers accelerate.

As of November 2021, the debt-creating inflows are still predominantly covering the current account deficit.Specifically, the EUR 37.2 bln cumulated CA gap in 2019-2020 and the first eleven months in 2021 was 76% financed by the rise in the long-term debt (EUR 28.2 bln). The EUR 23.1 bln rise in the public debt accounted for 62% of the CA gap over the period. The balance is hopefully expected to shift toward more non-debt-generating flows in the coming years, though.

The European Commission already disbursed some EUR 3.8 bln in December-January as advance payments under the Resilience Facility, likely to bring EUR 14 bln of grants and EUR 15 bln of soft loans by 2026. Furthermore, under the multiannual financial framework (EU budget), Romania is expected to receive EUR 28 bln cohesion funds and EUR 19 bln for agricultural and fisheries policy. All in all, nearly EUR 80 bln would be disbursed in 2022-2027, most of which are non-debt-generating.

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