Overseas Construction Leads Service Account Surplus

Hanwha Engineering and Construction won an order to build a new town near the Iraqi capital of Baghdad on May 25. The W8 trillion (US$1=W1,084) project is the largest overseas housing construction contract a Korean builder has ever won.

Earlier on, STX Heavy Industries won a W3 trillion order to build a diesel power plant in Iraq.

As Middle Eastern countries are awash in petrodollars thanks to soaring oil prices, Korean builders are winning huge engineering projects there. Altogether they won international contracts worth US$12.4 billion in the first quarter this year, up 94 percent on-year not counting last year’s deal to build a nuclear power plant in the UAE.

This year they aim to win $65 billion worth of orders and $72 billion next year.

Thanks to that performance, Korea's service account recorded a surplus of $15.5 million in May for the first time in a year, compared to a deficit of $180 million the previous month. The overall current account surplus continued for a 15th months. The current account posted a surplus of $2.26 billion in May, a 7-month high, the Bank of Korea said Tuesday.

But imports also reached a record last month, reducing the goods account surplus from $3.33 billion in April to $1.71 billion.

The construction industry surplus including overseas contracts jumped from $910 million in April to $1.06 billion in May. The tourism account deficit shrank a little from $760 million to $680 million over the same period.

"The service account will continue to perform well because payments for overseas contracts are made in installments," the BOK said. "Although the commodities account contracted a little compared to the previous month, the average daily export volume was $2.16 billion in May, an all-time high."

The January-May current account surplus exceeded the BOK's estimate in April by more than $1 billion. The central bank predicted it will easily reach another $6 billion in the second half of the year.