Romania posts massive negative trade deficit in Q4

Romania features the biggest deficit in the EU in Q4

editor: REMIX NEWS
author: Dénes Albert

According to the latest data from the EU’s statistical office, Eurostat, Romania featured the largest international balance of payments deficit in the last quarter of 2020, with €3.5 billion more outflows than inflows, Romanian news agency Mediafax reports.

Of the 27 EU member states, only 10 have deficits in the international balance of payments, and Malta, Luxembourg, Portugal and Belgium have small deficits of between €0.1 billion and €0.3 billion. At the other end of the spectrum was Germany, whose international balance of payments, despite the economic crisis, showed a whopping surplus of €70 billion in the last three months of 2020. Italy (€22.2 billion), the Netherlands (€13.9 billion), Ireland (€7.1 billion), Denmark (€6.5 billion), Sweden (€5.6 billion) and Poland (€4.8 billion) also posted significant surpluses. Hungary’s balance was barely positive at €0.1 billion.

The most important component of the international balance of payments is the foreign trade balance, which is severely in deficit for Romania. In the first two months of this year, the foreign trade deficit was €3.1 billion, 15 percent higher than in the same period in 2020. It follows that the current account deficit also widened in the first quarter of 2021, which is one of the reasons for the depreciation of the national currency, the leu against the euro.

“The current account deficit is a significant problem not only for us, but anywhere in the world if it exceeds 5 percent of GDP. But we are in a strange situation, the interest rates are down, the government has been able to borrow at good interest rates, so we seem to be fine. However, if you exceed 5 percent with an international balance of payments deficit, you may start to worry,” says Laurian Lungu, an independent macroeconomic analyst.

The main source of trouble is the country’s catastrophic foreign trade balance. Its deficit was close to €19 billion last year, but fortunately this was partly offset by a surplus of €9.6 billion in services.

“Our deficit in agricultural products is huge,” said Adrian Vasilescu, vice-president of the National Bank of Romania. This is partly because domestic production does not cover consumption and partly because part of the imports are re-exported after minimal processing. According to Adrian Vasilescu, 80 percent of imported goods are re-exported, meaning that in such cases, the added value is often very low, an issue made worse by expensive imports and cheap exports.

Title image: Building of the Romanian National Bank. (source: bnr.ro)

 


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