Balance of payments of the Republic of Lithuania for Q3 and January-September 2007

In Q3 2007, the deficit in the current account of the country’s balance of payments (CAD) amounted to LTL 3.2 billion accounting for 12.3 per cent of the GDP. Compared to Q2 2007, CAD decreased by LTL 607.4 million or 15.9 percent. In January-September 2007, CAD was LTL 9.7 billion or 13.9 per cent of GDP. Year on year, CAD increased by 59.5 per cent.

An increase in foreign trade deficit and income balance deficit contributed to the growth of CAD in Q3 and in nine months of 2007.

Foreign trade. In Q3 2007, the country?s exports of goods grew by 5.8 per cent compared to Q2, while imports of goods grew by 1 percent. In January-September this year versus the corresponding period in 2006, the exports and imports of goods went up by 10.1 and 15 per cent, respectively. The growth rate of the Lithuanian exports and imports of goods was mostly driven as before by trade in mineral products. In January-September of 2006, these products accounted for 27.3 per cent of the country's total export and 26.3 per cent of total import, while in the corresponding period of 2007, they accounted for 15.5 and 18.2 percent, respectively. In the first nine month of 2007, the country?s export of goods increased by 27.9 per cent while exports of goods went up by 27.5 per cent, excluding mineral products.

The growth rate of exports of goods was mostly driven by an increase in export of plastics and plastic articles, ground vehicles, live animals and animal products, as well as wood and wooden articles. An increase in imports of goods was mostly accounted for by increases in the imports of ground vehicles, machinery and mechanical equipment, as well as non-precious metals and their articles.

There were actually no big changes within the structure of goods exports and imports, except for a decrease in the imports of intermediate goods as a result of contracted imports of crude oil. In January-September 2007, consumer goods accounted for 19 per cent and investment goods for 17.2 per cent of total imports (in the corresponding period of 2006, they respectively accounted for 17.1% and 16 %).

Year on year, the January-September 2007 exports of goods from Lithuania to EU27 countries increased less compared to exports to CIS countries (respectively by 14.5% and 28.5%). In the meantime, imports of goods from EU27 climbed by 28.4 per cent, while imports of goods from CIS countries fell by 14.1 per cent. In Q3 this year compared to Q2, the exports growth rate changed as follows: exports of goods to EU27 increased by 7 per cent, while exports to CIS countries grew by 5.5 per cent. In the meantime, imports of goods from EU27 climbed by 1.4 per cent, while imports from CIS countries fell by 3.5 per cent.

Such dynamics of the exports and imports of goods in January-September this year determined changes within the geographical structure of Lithuania’s foreign trade. Exports to EU27 compared to total exports went up from 63 to 65.5 per cent, while exports to CIS countries increased from 20.1 to 23.4 per cent. The EU27 share in the import structure grew from 60.2 to 67.3 per cent, while the CIS share decreased from 30.6 to 22.9 per cent.

In the first nine months of 2007 versus the corresponding period of 2006, total foreign trade deficit grew by 29.6 per cent. The deficit in the balance of trade with EU27 increased 1.8 times to LTL 9.2 billion, while the deficit in trade balance with CIS countries narrowed by 2.2 times to LTL 2.8 billion. The largest foreign trade deficit was recorded with Russia, Germany, Poland, China and Finland, while the largest trade surplus was recorded with Latvia, Norway and Estonia.

Services. In Q3 2007 versus Q2, services exports increased by 9.7 per cent, while services imports grew by 0.9 per cent. Faster growth of services exports in Q3 as compared to services imports was determined by seasonal changes related with more rapid growth of services exports in the field of air transport, travel and construction services. Year on year the January-September 2007 exports of services increased by 6.1 per cent, while services imports grew by 16.9 per cent. This big difference in the growth rate of services exports and services imports led to a significant narrowing of the total positive services balance surplus (decreased by LTL 408.6 million ) and to an increase of CAD for the period.

The overall changes in services exports and services imports were determined by the development of transport and travel services. Year on year the January-September 2007 services exports increased by 11.8 per cent, while services imports grew by 20.6 per cent. During the period under review, exports and imports of travel services respectively climbed by 9.8 and 19 per cent. Transport services exports, compared to total services exports, accounted for 54.5 per cent, while transport services imports versus total services imports accounted for 44.2 per cent. Travel services exports and imports respectively made up 31.5 and 38.6 per cent.

Exports and imports of railway and road transport services were characterized by the fastest growth among all types of transport services.

In January-September 2007, services exports to EU27 accounted for 58 per cent of total services exports, while services imports from EU27 made up 62.7 per cent. Exports to CIS countries, compared to total services exports, made up 33.5 per cent, while imports to CIS countries versus total services imports accounted for 27.6 per cent.

Income. In Q3 2007 the deficit on income balance made up 1.4 billion, an increase of LTL 246.1 million compared to Q2. In January-September 2007, the income balance deficit reached as high as LTL 3.4 billion, an increase of 70.5 per cent year on year. In the first nine month of the year, the largest contribution to the widening of the income balance deficit came from higher income of direct non-residential investments: these were reinvestments (which have been recorded in the Current Account as payments to non-residents and as part of direct investment in the Financial Account), which increased by 56.3 per cent compared to January-September 2006. In Q3 of this year, reinvestments equalled to LTL 1.3 billion accounting for 53.6 per cent of the total reinvestments in nine months of this year. In January-September 2007, dividend payments grew by 34.3 per cent. The above data show a substantial increase in the profitability of the direct investments by enterprises.

In January-September 2007, the surplus on the balance of compensation employees made up LTL 373 million, an increase of 11 per cent year on year.

Current transfers. In Q3 2007, positive surplus on the balance of non-repayable transfers made up LTL 747.5 million, while in January-September it amounted to LTL 2.1 billion (in January-September of 2006 non-repayable current transfers made up LTL 1.6 billion ). Private transfers and transfers from the EU support funds have determined the size of the flow of current transfers to Lithuania. In nine months, these transfers made up respectively LTL 2 billion and LTL 1.4 billion accounting for 2.9 and 2 per cent of GDP.

In January-September 2007 transfers from the EU support funds increased by 19.9 per cent, while private remittances grew by 37.3 per cent compared to January-September 2006.

Capital and financial accounts. In Q3 2007, total investment flow in the capital and financial accounts of the country’s Balance of Payments (excluding official reserve assets) showed net inflows of LTL 3.9 billion, while in January-September 2007 the sum was LTL 11.6 billion. Total volume of net inflows was a result of net inflows from other investments which were the main source of financing of CAD. Direct investment was used to finance 32.3 per cent of CAD in Q3 and 34.2 per cent in January-September 2007.

The net flow of non-repayable capital transfers (the major source of which is the EU structural support funds) made up LTL 1.1 billion in the January-September this year, a year-on-year increase by 89 per cent. In the first nine months of 2007, direct investment and non-repayable capital transfers were used to finance 46 per cent of CAD.

* Including errors and omissions.

Investment abroad. In Q3 this year the foreign investment by domestic entities flow made up LTL 2.3 billion, while in January-September it reached LTL 3.8 billion (in January-September 2006 these investments made up LTL 2.7 billion ). Investments into non-resident equities and debt securities by our country’s economic entities accounted for largest share of the investment flow to other countries.

Foreign investment in Lithuania. In Q3 2007, total foreign investment flow in Lithuania equalled to LTL 5.6 billion, while in January-September, it reached LTL 14.3 billion (in January-September 2006 it amounted to LTL 9.6 billion).

Direct investment. The flow of foreign direct investment (FDI) in Lithuania made up LTL 1.4 million in Q3 2007 and LTL 4.2 billion in nine months. When compared to the first nine months of 2006, FDI flow to Lithuania grew by 90.2 per cent. Taking into account direct investment abroad by domestic economic entities the net inflows of foreign direct investment made up LTL 3.3 billion or 4.7 per cent of GDP in January-September this year.

According to the data as of 30 September 2007, the FDI accrued in Lithuania made up LTL 34.2 billion (EUR 9.9 billion) or LTL 10,160 (EUR 2,943) per capita.

In January-September 2007, biggest share of direct investment went to manufacturing industry (LTL 1.5 billion ), financial intermediation (LTL 1.1 billion ), real estate, leasing and other business activities (LTL 450.9 million).

According to the data as of 30 September 2007, investments in the manufacturing industry accounted for 38.2 per cent of the total FDI in Lithuania, financial intermediation for 17 per cent, transport, storage and telecommunications for 12.8 per cent, retail and wholesale trade for 10.5 per cent, and electricity, gas and water supply for 9.2 per cent.

Biggest investors in Lithuania are Poland (19.5 %), Denmark (13.1 %), Sweden (10.9 %), Russia (10 %), Germany (8.7 %), and Estonia (5.7 %).

Investment by EU27 accounted for 80.7 per cent of total investments, of which investments of the EU15 old timers made up 48.3 per cent, and investments by CIS countries accounted for 10.2 per cent.

Portfolio investment. In Q3 2007, net flow of these investment was negative at LTL 986.7 million, while in January-September negative flow reached LTL 2.6 billion. Domestic pension funds and monetary financial institutions were the largest investors abroad. The decline of investments by non-residents into equity securities and government debt securities led to a negative portfolio investment flow in Lithuania either.

In Q3 2007, net flow of other investment was LTL 3.2 billion, while in January-September it reached LTL 9.7 billion. Compared to January-September 2006, the net flow of other investment increased by 53 per cent. Loans from non-residents to MFIs constituted the biggest share of the investment flow.

Official reserve assets. In Q3 2007, the country?s official reserve assets grew and their flow in the Balance of Payments made up LTL 433.6 million. In January-September, this flow reached LTL 994.5 million. At the end of September their amounted to LTL 16.2 billion (EUR 4.7 billion).

In January-September 2007, official reserve assets were driven mainly by an increase in external liabilities of the Bank of Lithuania and currency in circulation respectively by LTL 1.056 billion and LTL 860.7 million, as well as an increase of LTL 209.4 million in other factors.

International investment position of the Republic of Lithuania. According to the data on 30 September 2007, the country’s total foreign financial assets made up LTL 40.2 billion while total international financial liabilities stood at LTL 92.2 billion. Lithuania’s negative international investment position equalled to LTL 51.9 billion, i.e. Lithuania was a debtor vis-ą-vis the rest of the world. In Q3 2007, total financial foreign assets of the country climbed by LTL 2.6 billion and its international financial liabilities increased by LTL 6 billion (up by 6.9 %). In the first nine months this year, the country’s total foreign assets increased by LTL 4.8 billion (13.6 %), while international financial liabilities went up by LTL 16.1 billion (21.1 %).

An increase in Lithuania’s international financial liabilities was accompanied by an increase in the country’s gross foreign debt. In Q3 2007, this debt rose by LTL 4.8 billion to LTL 62.9 billion at the end of September accounting for 68.1 per cent of GDP (at the end of 2006, it was LTL 49.9 billion or 60.9 % of GDP).