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Romanian eight-month current-account gap widens 51%

Romania's current-account deficit widened 51% in the first eight months of the year from the year-earlier period, triggered by an increase in imports

The deficit widened to €5.92 billion ($7.43 billion) in the first eight months from €3.92 billion in the same period last year, the central bank said in a statement e-mailed yesterday from Bucharest, based on preliminary data. „It's clear that we'll be seeing the gap widening to more than €10 billion at the end of the year,” ING Bank Romania chief economist Florin Citu said yesterday in a telephone interview. „The problem is that at this pace the deficit may even exceed the International Monetary Fund's forecasts for next year.” The IMF, with which Romania called off its monitoring agreement in July, said October 10 that the country must keep its widening deficits under control or risk a pickup in inflation as the country prepares to join the European Union on January 1. A stronger lei made imports cheaper, while lower taxes and falling interest rate helped increase imports. Commercial lending grew 57% in seven months of this year from the year-ago period, the central bank said on September 29. The current account gap could reach 10.5% of GDP this year and as much as 13% of gross domestic product in 2007 if the government keeps to its budget-deficit target of 2.5% of GDP this year and next, the IMF has said.
Emanuel van der Mensbrugghe, the IMF's head of mission for Romania, said at a news conference on October 10 that the annual inflation rate could increase to as much as 7% at the end of 2007 on the back of higher spending. „It's a problem because, as of next year, we'll see public spending adding on top of rising private demand,” ING Bank's Citu said. Romania's government on October 13 drafted a state budget based on a current-account deficit of 2.8% of GDP, to allow for more spending. The central bank said foreign direct investment in the first eight months rose 59% to €4.3 billion from €2.7 billion a year earlier, covering 73% of the current-account deficit. Romania expects to attract more than €8 billion in foreign direct investments this year, up from €5.2 billion in 2005, according to government forecasts. The eight-month gap, including the cost of freight and insurance for imports, widened 45% from the same period in 2005 to €8.43 billion, the National Statistics Institute said October 3. The August implied trade deficit, calculated by subtracting the seven-month gap from the eight-month deficit, widened to €1.39 billion from €1.23 billion in July. When the costs of freight and insurance are excluded for imports, the eight-month trade deficit widened to €6.48 billion from €4.27 billion in the same period of last year, the central bank said yesterday. (Bloomberg)