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Current Account Deficits and Implications on Country Risk of Romania

  • Georgescu, George


    (Senior Researcher, Institute of National Economy, Romanian Academy)

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.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal of Economic Forecasting.

Volume (Year): 4 (2007)
Issue (Month): 4 (December)
Pages: 88-96

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Handle: RePEc:rjr:romjef:v:4:y:2007:i:4:p:88-96
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  1. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals, and Sudden Stops," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 1-49, June.
  3. Georgescu, George, 2006. "Inward Processing Trade and Implications for the Balance of Payments Current Account (The Case of Romania)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 3(1), pages 24-31, March.
  4. Kaminsky, Graciela & Schmukler, Sergio, 2001. "Emerging markets instability: do sovereign ratings affect country risk and stock returns?," Policy Research Working Paper Series 2678, The World Bank.
  5. Georgescu, George, 2007. "Deficitul de cont curent: Maladie cronică a economiei româneşti ?
    [Current Account Deficits: A Chronic Disease of the Romanian Economy?]
    ," MPRA Paper 24851, University Library of Munich, Germany.
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