Structural Challenges And Policy Implications Of Romania’S Current Account Deficit

Over the past two decades, Romania has consistently struggled with twin deficits, regardless of whether it was experiencing a recession or an economic boom. Despite a significant adjustment following the global financial crisis, since 2015, the current account balance has steadily worsened, and Romania has started to exceed the lower reference threshold established by the European Commission as a performance indicator within the Macroeconomic Imbalance Procedure (-4% of GDP, three-year average). In 2022, Romania registered the highest current account deficit among Central and Eastern European countries (-9.3% of GDP) and the second-highest in the EU, following Greece (-9.7% of GDP). A more in-depth analysis of the current account components underlines that, in Romania, the balance of goods and the primary income balance are in deficit, while the balance of services and the secondary income balance are in surplus. This article aims to offer insights into Romania's current account deficit, pinpoint the factors contributing to its persistence, underline the link with the fiscal deficit, and suggest several recommendations for policymakers to address these imbalances over the medium and long term.