Current Account Deficits and Implications on Country Risk of Romania

Georgescu, George
Published in Romanian Journal of Economic Forecasting,
4, 2007.

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This study focuses on the implications of current account deficit upon the external debt increase in Romania, revealing higher risks for the sustainability of its international financial position. Considering the trade deficit as a main cause of current account balance deterioration, several exports weaknesses are pointed out, mostly resulted from neglecting both slowing IPT flows and growing FDI stock adverse effects. Under the circumstances of diminishing contribution of compensatory flows to the current account deficit coverage, an increasing share of autonomous flows is expected. But an excessive rise in the long-term external debt, including its service level, could have negative effects on Romania’s country rating, i.e. on the external financing costs and borrowing ceiling of the international capital markets. For preventing a possible financial turmoil turning into a “hard landing” of the economy the Romanian, firstly by admitting the risks occurring from current account deficits and accelerated debt accumulation, by sound monetary and fiscal policies, promoting structural reform and exports.

Keywords: Foreign Trade, Foreign Direct Investments, Current Account, Balance of Payments, External debt, Economic Growth, Country Risk
JEL Classification: E20, E22, F14, F21, F36, F43, G38