Romania: High FDI coverage of current account deficit
Overview:
The current account deficit in Romania is closing rapidly, as is the case in most countries in the region, because of a sharp import contraction. A reduction in the current account deficit which has regularly exceeded 10% of GDP is long overdue. However, meaningful fiscal adjustment and a stronger export base will be needed to ensure this favourable development is not swept away as financing of imports becomes more readily available in coming years. One factor that distinguishes Romania from many of its peers is that net FDI flows have not only financed a large proportion of its external imbalances in the past but continue to do so even during the downturn. Although net FDI inflows have obviously weakened in absolute terms as a result of the global financial crisis they exceeded the current account deficit in H1.