Balance of Payments of the Republic of Lithuania of March 2007 key indicators) In March, current account deficit hit the twelve-month low

(key indicators)

Current Account Balance.

In March 2007, the country's current account deficit (CAD) amounted to LTL 516.5 million and was almost two-fold lower compared to the deficit in February 2007 and 38.2 per cent lower than in March 2006 when it made up LTL 835.3 million. In March 2007, the driving force behind the CAD decrease was a substantial drop in trade deficit and a hike in positive surplus of the balance of current transfers.

According to the monthly data of Q1 2007, CAD for January-March this year equalled to LTL 2.18 billion exceeding the same indicator for the corresponding period in 2006 by 23.2 per cent. According to preliminary estimate, in Q1 2007 CAD accounted for 11.1 per cent of the GDP. The foreign trade deficit contributed to the widening of CAD in Q1 2007. However, the two-fold increase of the positive surplus of the current transfers’ balance broadly offset the widened trade deficit and its contribution to the change in the current account balance.

According to the data of Statistics Lithuania, in March 2007 the month-on-month growth of the export and import of goods made up 22.1 and 5.3 per cent, respectively. In March, the foreign trade deficit, compared to February, went down by 27.1 percent and was the lowest for Q1 this year. Year-on-year, the deficit narrowed by 15.8 per cent. A significant (37.1 %) decrease of the import of mineral products was the major driving force behind a slight year-on year rise of the import of goods and the narrowing of the trade deficit in March. In March, the imports of goods from Russia also decreased by 36.3 per cent.

In January-March 2007, the year-on-year export and import of goods rose by 6.2 per cent and 13.4 per cent, respectively, while foreign trade deficit widened by 37.1 per cent to make up LTL 3.8 billion. In Q1 2007, export to the EU states accounted for 67.5 per cent, slightly more than two thirds of the Lithuanian export of goods, while import made up 68.3 per cent. Export to the CIS countries made up 22.1 per cent, while import from them comprised 21.1 per cent.

In Q1 2007, the list of Lithuania's key export partners included Russia (14 %), Latvia (12.4 %), and Germany (11.8 %), while key import partners were Russia (17.2 %), Germany (15 %) and Poland (10.7 %).

In the first three months of 2007, the top positions on the goods export list were occupied by mineral products (12.3 %), machinery, mechanical and electrical equipment (12.2 %), vehicles and associated transport equipment (11.3 %). The said groups of goods also accounted for the largest share in imports (16.3%, 16.9% and 16.3%, respectively).

In March 2007, exports of services increased by 13 per cent and imports of services grew by 29.1 per cent month on month. Eventually, the total positive balance surplus of services went down by LTL 49.6 million to reach LTL 170.8 million. In January-March, the year-on-year exports of services expanded by 3 per cent and imports of services grew by 11 per cent. The positive service balance surplus went down by LTL 104 million or 17.5 per cent in Q1 2007.

In March 2007, payments to non-residents on their investments in Lithuania made up LTL 332.1 million against LTL 229 million in February 2007, while the income of domestic economic entities on investment abroad made up LTL 92.4 million against LTL 87.9 million in February. In March, the deficit of the investment income balance widened LTL 98.6 million. As the balance of compensation of employees was negative in March, total income balance deficit for March 2007 increased month on month by LTL 163.7 million to form 270.8 million. In January-March 2007, the income balance deficit narrowed by 6.5 per cent year on year.

In March 2007, the surplus in the balance of current transfers made up LTL 397.7 million versus LTL 84.4 million in February of the same year. Such a substantial increase was determined by a rise of LTL 232.7 million in the transfers from the EU support funds and LTL 146.1 million drop in contributions to the EU budget. In March, the transfers of private persons made up LTL 51.5 million, decrease of LTL 66.3 million compared to February.

In January-March 2007 the year-on-year growth of the transfers from the EU support funds made up LTL 247 million (53%) while the transfers by private persons rose by LTL 112.4 million (96%). This was the major driving force behind the two-fold growth of the positive balance of current transfers to LTL 754.9 million.

Capital and Financial Account Balance.

In March 2007, the flow of investments by national economy agents in other countries, excluding official reserve assets, amounted to LTL 278.3 million, a month-on-month decrease of LTL 819.8 million.

In March, foreign investment flow in Lithuania made up LTL 453.7 billion, a drop of LTL 995.1 million month on month. Total net investment flow (both outward and inward investment) amounted to LTL 175.3 million in March.

In January-March 2007, the outward investment flow equalled to LTL 649.9 million while the inward investment flow amounted to LTL 2.37 billion. Year on year, the outward investment flow decreased by 39 per cent and inward investment flow went down by 21 per cent. Capital transfers from EU support funds made up LTL 11.9 million in March and LTL 214.1 million in the period from January to March against LTL 241.4 million in January-March 2006.

In March 2007, foreign direct investment flow in Lithuania reached LTL 478.7 million. Taking into account direct investment abroad by domestic economic entities, net foreign direct investment flow in Lithuania made up LTL 356.9 million in March and foreign direct investment flow in Lithuania rose to LTL 1.52 billion in January-March from LTL 612.9 million in the corresponding period in 2006. The increase of investments was driven by the buying up of shares of some companies from small investors; however, it led to the contraction of portfolio investment liabilities to non-residents.

Net portfolio investment flow was negative at LTL -473.7 million in March 2007 and made up LTL - 1.38 billion in January-March. This led to the growth of the country?s collective investment and investments by pension funds in other countries, as well as the mentioned buy-ups of shares from small investors.

In March, the net flow of other investment and financial derivatives was positive amounting to LTL 292.1 and in January-March it made up LTL 1.78 billion. The increase of short-term liabilities of domestic MFIs had the biggest impact on the total positive flow of this type of investment flow.

In March 2007, the flow of official reserve assets in the balance of payments was negative at LTL 717.3 million. The major driving force behind the decrease of official reserve assets was the contraction of LTL 994.4 million of the central government deposits with the Bank of Lithuania, a drop of LTL 235.7 million in external liabilities of the Bank of Lithuania, and a drop of LTL 6.5 million due to other forces.

The official reserve assets were pushed up by an increase in currency in circulation and in deposits of other monetary financial institutions with the Bank of Lithuania by LTL 272.6 million and LTL 223.9 million, respectively.