Balance of Payments of the Republic of Lithuania Q1 2008

Current account. In Q1 2008, the deficit in the current account of the country’s balance of payments (CAD) amounted to LTL 4.28 billion accounting for 17.7 % of the GDP. The CAD increased by LTL 30.9% quarter on quarter and 54.9 % year on year. Four-quarter (Q2 2007 to Q1 2008) moving sum for CAD was LTL 14.77 billion or 14.6% of GDP.

CAD increase in Q1 2008 was the result of an increase in foreign trade deficit.

Foreign trade. According to the data of the Department of Statistics under the Government of the Republic of Lithuania, in Q1 2008, the year-on-year export of goods increased by 30.7% and import of goods went up by 30.2%, while the quarter-on-quarter increase made up 14 and 12.6%, respectively. The growth rate of the Lithuanian exports and imports of goods as before was mostly driven by trade in mineral products. In Q1 2008, export of this group of goods grew by 148.5% and imports went up by 121.3%. This strong growth of export and import of goods was driven mainly by oil and natural gas prices. Gross export of goods grew by 14.3% and imports went up by 12.7%, excluding mineral products.

In Q1 2008, according to the classification of macroeconomic categories, the highest growth rate was observed in export and import of intermediate goods, which is largely related to an increase in oil, natural gas and metal prices, while export and import of consumer goods went down significantly. The share of intermediate goods in total export of goods structure increased 30.3 to 53.3%, while the share of consumer goods went down from 50.2 to 24.6%. Meanwhile, the share of investment goods remained actually unchanged. Passenger cars accounted for 3.1% of total export (4.8%). The share of intermediate goods in total import of goods structure increased 20.5 to 59.2%. Consumer goods went down from 54.1 to 18.9%, investment goods contracted from 18.1 to 14.6%, while passenger cars fell from 7.1 to 6.3%.

In Q1 2008, the year-on-year export of goods from Lithuania to EU-27 countries increased by 21.3%, while export to CIS countries grew by 33.9%. At the same time, import of goods from EU-27 climbed by 11.8%, while import from CIS countries went up by 105.2%.

Such dynamics of the export and import of goods led to changes within the geographical structure of Lithuania’s foreign trade. In Q1 2008, export of goods to EU member states compared to total export of domestic goods went down from 67.6 (in Q1 2007) to 62.7 % (in Q1 2008). The share of export to CIS countries went up from 22 to 22.5%. The EU-27 share in the import of goods structure decreased from 68.7 to 59%, while the CIS share increased from 20.8 to 32.8%.

In Q1 2008, gross foreign trade deficit grew by 28.8% year on year. The deficit on the balance of trade with EU-27 went down by 10.2% to form LTL 2.55 billion, while deficit on balance of trade with CIS countries went up by 4.2% to LTL 2.97 billion.

Services

. In Q1 2008, export of services increased by 11.1% year on year, while import of services grew by 19.6%. This big difference in the growth rate of export and import of services led to a significant narrowing of the total positive services balance surplus (a decrease of LTL 89.8 million) in Q1 2008, and an accompanying increase of CAD for the reviewed period.

Faster growth of import of services was due to an increase in import of travel services, i.e. the growth of expenditure by the country residents during their foreign travel and business trips. During the period under review, export of travel services increased by 12.4%, and import of these services grew by 33.1%. Export and import of transport services grew respectively by 14.3 and 13.3%. Export of railway and road transport services and import of sea and pipeline transport services were growing fastest than any other type of transport services.

No major changes have been registered in the structure of export and import of services. Export of transport services accounted for 66% (was 64.1%) of total export of services, and imports of transport services accounted for 49.1% (was 51.8%) of total imports of services. Export of travel services accounted for 19.6% (was 19.4%), while import of travel services made up 29.4% (was 26.5%).

In Q1 2008, export of services to EU27 countries made up 58% of the total export of services, while import of services from EU27 countries accounted for 59.3%. Exports to CIS countries, compared to total services exports, made up 32.1%, while imports to CIS countries versus total services imports accounted for 31.6%.

Income. In Q1 2008, income balance deficit was LTL 962.9 million, an increase of LTL 177.6 million (22.6%) year on year. The deficit growth was mostly influenced by growth of other investments of which interest payments for loans and deposits to non-residents by financial institutions made up the major share. Reinvestments (which have been recorded in the Current Account as payments to non-residents and as part of direct investment in the Financial Account) made up LTL 475.5 million, a decrease of 8.7% compared to Q1 2007. Payment of dividends on direct investments to non-residents decreased by 24.6%.

Current transfers. In Q1 2008, positive (+) surplus of non-repayable current transfers made up LTL 757.2 million (LTL 762.8 million in corresponding period of 2007). The size of inflow of current transfers in Lithuania was determined mainly by current remittances from individuals and transfers from the EU support funds.

In Q1 2008, the year-on year increase in transfers from the EU support funds was LTL 70.5 million (9.9%), and remittances by individuals went up by LTL 122.8 million (25.7%); the country’s contributions to the EU budget however increased by LTL 118.4 million (41.8%), remittances of individuals to other countries grew by LTL 58.9 million (24%), while other remittances to Lithuania went down by LTL 22.3 million (21.5%). The said reasons led to a decrease in gross positive (+) surplus on the current transfers balance sheet.

Capital and financial accounts. In Q1 2008, gross investment flow within the capital and financial accounts of the country?s balance of payments, excluding official reserve assets, showed net inflow of LTL 1.6 billion) (in Q1 2007, net inflow made up LTL 2 billion). Gross net inflow size was determined by net inflow of other investment and non-repayable capital transfer.

The net flow of non-repayable capital transfers (the major source of which are the EU structural support funds and which are used to finance investment projects) made up LTL 891.5 billion in Q1 2008, a year-on-year increase of four times.

In Q1 2008, foreign direct investment was used to finance only 7.9% of CAD, while the share of CAD financing made of foreign direct investment together with non-repayable capital transfers made up 28.7% (respectively 34.5 and 42.7% in Q1 2007).

* Including errors and omissions.

In Q1 2008, total investment outflow grew year on year by 32.2% or LTL 297.3 million, while total investment inflow (excluding non-repayable capital transfers) went down by LTL 28.7% or LTL 775.5 million.

Investment abroad. In QI 2008, the outflow of foreign investment by Lithuanian economic entities made up LTL 1.22 billion (LTL 922.1 million in corresponding quarter of 2007). In Q1 2008, MFI deposits in foreign banks and investment into non-resident equities and debt securities by domestic economic entities accounted for the largest share of the investment outflow.

Foreign investment in Lithuania. In Q1 2008, total foreign investment flow in Lithuania amounted to LTL 1.92 billion (LTL 2.7 billion in Q1 2007), with foreign direct investment accounting for one third and loans received by MFIs from non-residents and non-resident deposits made up 58.7%. Portfolio investment inflow in Lithuania was negative (-) at LTL 412.1 million.

Direct investment. The inflow of foreign direct investment (FDI) in Lithuania made up LTL 640.5 million in Q1 2008 ( LTL 1.25 billion in Q1 2007). In Q1 2008, taking into account the outflow of direct investment by domestic entities, net inflow of foreign direct investment made up LTL 337.3 million, accounting for 1.4% of the GDP.

Four-quarter (Q2 2007 to Q1 2008) moving sum for foreign direct investment was LTL 4.27 billion, a year-on-year decrease of 12.4%.

As of 31 March 2008, accumulated amount of FDI in Lithuania stood at LTL 33.6 billion (EUR 9.74 billion) or LTL 10,006 (EUR 2,898) per capita.

In Q1 2008, the largest share of foreign direct investment went to finance financial intermediation (LTL 179.7 million) activity, wholesale and retail operations (LTL 142.9 million), transportation, storage and telecommunications (LTL 110.3 million).

According to the data as of 31 March 2008, investments into manufacturing industry accounted for 34.8% of the total foreign direct investments in Lithuania, financial intermediation for 17%, transport, storage and telecommunications for 13.5%, retail and wholesale for 11.7%.

Biggest investors in Lithuania were Poland (15.9%), Denmark (12.6%), Sweden (12.6%), Russia (9.5%), Germany (9.1%), and Estonia (6.2%).

Investment by EU-27 accounted for 80.4% of total investments, of which investments of the EU-15 old timers made up 50.2%, and investments by CIS countries accounted for 9.8%.

Portfolio investment. In QI 2008, net investment flow was negative (-) at LTL 564.6 million. This led to a decrease in the government liabilities and other sector investments into non-resident debt securities.

In Q1 2008, the net flow of other investments was positive (+) at LTL 929.3 million (LTL 2.3 billion in Q1 2007). The decrease in net positive flow was determined by a decrease in the flow of loans received by MFIs from non-residents and increase in deposits with foreign banks

Official reserve assets. In Q1 2008, the country?s official reserve assets went down by 13.9% to form LTL 15.67 billion (EUR 4.54 billion) at the end of March. At the end of March 2008, accumulated official reserve assets , in terms of good and service import months, was 2.4 months (3.3 months in 2007).

The decrease of reserve assets was driven by the decrease in external liabilities of the Bank of Lithuania and deposits of other MFIs with the Bank of Lithuania respectively by LTL 925.2 million and LTL 774.6 million, as well as a decrease in central government deposits with the Bank of Lithuania and currency in circulation by LTL 494.4 million and LTL 468.6 million, respectively.

The decrease in official reserve assets was partially offset by LTL 127.6 million an increase of other factors.

International investment position of the Republic of Lithuania. On 31 March 2008, the country’s total foreign financial assets made up LTL 43.57 billion and total international financial liabilities amounted to LTL 99.86 billion. The negative international investment position made up LTL 56.29 billion, i.e. Lithuania was a debtor vis-ą-vis the rest of the world.

In Q1 2008, the country’s foreign assets went down by LTL 1.8 billion (4%), while foreign financial liabilities grew by LTL 161.5 million (0.2%).

In Q1 2008, Lithuania’s gross foreign debt rose by LTL 2.2% to LTL 72.5 billion at the end of March, accounting for 71.8% of the GDP (at the end of 2007, it was LTL 70.9 billion or 73.3% of the GDP). The country’s net foreign debt increased by 12.2% in Q1 this year to LTL 32.9 billion (32.6% of the GDP) at the end of the quarter.