Balance of Payments the Republic of Lithuania in the First Quarter of 2002

Current Account. During the first quarter of 2002, the current account deficit of the Balance of Payments (CAD) made up LTL 406.7 million. Compared to the first quarter of 2001, the CAD contracted by LTL 139.6 million (25.5 %).

Table 1. The CAD and its GDP ratio by quarter in 2002 and 2001.

	2002 Q1	2001				2001
		Q1	Q2	Q3	Q4
Current account deficit, LTL million	-406.7	-546.3	-485.7	-7.27	-1255.74	-2294.96
Ratio to GDP, %	-3.6	-5.1	-4.0	-0.06	-10.1	-4.8

The development of the CAD during Q1 2002 was mostly determined by the contraction of foreign trade deficit. The impact of other factors (e.g. improved services and income balance) was significantly lower, while the balance of current transfers exerted influence in the opposite direction by widening the CAD, albeit only slightly.

Table 2. CAD and development of composite balances, factors influencing development of CAD (Q1 2002 compared to Q1 2001, %).

	Change	Impact of factors
CAD	-25.5
Trade balance	-13.8	-23.5
Balance of services	0.8	-0.6
Income balance	-20.2	-9.0
Balance of current transfers	-19.9	7.6

During the first quarter of 2002, compared to the same period in 2001, the balance of the capital and financial account declined by 48 per cent. This was mostly determined by a contraction of portfolio investment flows.

Foreign Trade. Increased re-export of cars and exports of food products and consumer durables determined the general improvement of the export of goods, while higher imports of investment goods and cars had a major impact on increased imports of goods during the first quarter. Meanwhile, export of mineral products (mostly refined oil products), which account for the largest share of exports, declined.

Table 3. Development of export and import of main groups of goods (Q1 2002 compared to Q1 2001, %).

	EXPORT	IMPORT
Investment goods	23.4	33.9
Consumer goods	8.5	13.8
Food products for households	11.3	9.5
Consumer durables	43.2	32.7
Cars	86.1	76.1
Petrol	-37.7	3.8

While export of mineral products to the EU continued to grow, significantly lower exports of these goods to other countries determined an overall decline of exports of mineral products by 23.5 per cent. Compared to total exports of Lithuania, exports of mineral products contracted from 24.9 to 18.9 per cent; export of vehicles went up from 7.2 to 10.8 per cent, and food products from 3.8 to 4.6 per cent.

The import of mineral products during Q1 2002, as compared to Q1 2001, declined by 25.3 per cent, while import of machines and equipment, and vehicles increased by 14.3 per cent and 72.7 per cent, respectively. Export of cars exceeded import, yet the value of imported cars was LTL 162 million higher than that of export of these goods. The above developments pointed to increased demand for new cars in the domestic market.

Relatively low economic growth in the EU resulted in a modest growth of exports of these goods to these countries of 5.9 per cent in Q1 2002 (25.3 % in Q1 2001). Nonetheless, the share of EU increased from 49.2 per cent to 51.5 per cent of total exports. Export to the CIS increased by 24.2 per cent, including Russia (65.9 per cent), over the review period. Compared to total exports, export to the CIS increased from 16.8 per cent to 20.6 per cent.

Import of goods (imported goods were classified by the country of origin) from the EU increased by 20.2 per cent, and imports from the CIS contracted by 17 per cent. Compared to total imports, the share of imports from the EU made up 50.1 per cent, and imports from the CIS countries accounted for 25.4 per cent.

Figure 1 and 2. Main foreign trade partners of Lithuania.

Services. During the first quarter of 2002, compared to the same period in 2001, exports of services increased by 6.8 per cent. The largest increase (46.6 %) was recorded in the export of other business services, including advertising, management and consulting, and trade intermediation services.

Export of transport services increased by 7.9 per cent, and export of travel services declined by 0.4 per cent. Transport and travel services accounted for 52.3 and 25.3 per cent of the total export of services, respectively.

The income received for transit cargo transportation increased by 8.1 per cent and made up 42.8 per cent of the total export of transport services.

During the first quarter of 2002, compared to the same period in 2001, import of services increased by 11.4 per cent. Therefore, the total positive balance of services in Q1 increased by as little as LTL 3.3 million.

Income. The negative income balance in Q1 2002 made up LTL 194.4 million and was LTL 49.1 million lower than in Q1 2001. The largest proportion of payments to non-residents consisted of interest on Government Eurobonds (LTL 96 million). On the other hand, dividends to non-residents for foreign direct investment declined by LTL 56.9 million, reinvestment (which is recorded in the current account of the balance of payments as payments to non-residents, and is reflected in the financial account as part of foreign direct investment) went down by LTL 24.4 million, interest on foreign loans received in the name of the state and loans with state guarantees contracted by LTL 33.8 million.

Capital and Financial Account. Investment Abroad. Investment abroad by Lithuanian economic entities declined in Q1 by LTL 489.1 million. This was primarily determined by the contraction of investment abroad by the banking sector by 515.82 million, while investment abroad by other economic entities went up by LTL 26.7 million.

Table 4. Development the capital and financial account and composite balances, including factors influencing development of the account (Q1 2002 compared to Q1 2001, %).

	Change	Impact of factors
Capital and financial account (with errors and omissions)	-25.5
Capital account balance	889.3	4.1
Net direct foreign investment	-24.7	-19.4
Net portfolio investment	-100.8	-165.5
Net financial derivatives	142.0	0.9
Net other investment	131.2	196.8
International reserves	-196.4	-81.9
Errors and omissions	111.3	39.4

Foreign Investment in Lithuania. Total foreign investment flows in Q1 2002 were LTL 90.4 million. Compared to Q1 2001, foreign investment flows declined by LTL 1.39 billion. The significant decline of total foreign investment flows was determined by the contraction of portfolio investment (Government Eurobonds were distributed in the second quarter) and higher amount of loans repaid to foreign entities by commercial banks. The financing of the current account with foreign capital investment that does not increase foreign debt (equity investment and reinvestment) made up 76.7 per cent of the current account deficit (64 per cent in Q1 2001).

Foreign direct investment flows in Q1 2002 made up LTL 318.5 million. Compared to the first quarter of 2001, these investment flows decreased by LTL 112.2 million (26.1 %). Q1 2002 inflows classified as foreign direct investment inflows from privatisation made up LTL 71 million and reinvestment stood at LTL 82.1 million (LTL 106.5 million in Q1 2001).

On March 31, 2002, foreign direct investment in Lithuania stood at LTL 10.89 billion (EUR 3.15 billion, USD 2.75 billion), or LTL 3,137 (EUR 908, USD 792) per capita.

Portfolio Investment. Portfolio investment inflows made up LTL 126.9 million. The major part of these inflows was received from the distribution of debt securities among non-residents. Government inflows from this source amounted to 136.5 million, while the liabilities of other sectors (non-banks) declined by LTL 22.5 million.

Other Foreign Investment.

Debt to non-residents for goods and services increased by LTL 44.6 million during Q1 2002. Non-resident deposits in domestic commercial banks declined by LTL 38.7 million. The negative foreign loan flows (i.e. more foreign loans were repaid) made up LTL 450.5 million (commercial bank negative loan flows were LTL 390.7 million).

International Reserves. International reserve flows in Q1 2002 were positive (LTL 219.5 million). Net purchase of the US dollar by the Bank of Lithuania from commercial banks was USD 111.7 million over the review period. In addition, the increase of international reserves was influenced by the operations of the central government in foreign exchange. On 31 March 2002, import coverage by net international reserves (excluding gold) was 3.2 months (2.9 months at the start of the year).

Errors and omissions in the balance of payments in Q1 2002 made up LTL 21.9 million.

Balance of International Investment Position of the Republic of Lithuania. On 31 March 2002, total foreign assets of the country made up LTL 12.2 billion, and total international liabilities amounted to LTL 29.1 billion. The negative international investment balance made up LTL 16.9 billion. In the course of Q1 2002, total foreign assets decreased by LTL 264.3 million, international financial liabilities went down by LTL 226 million, and the negative international investment balance went up by LTL 38.3 million. The major part of international liabilities at the end of Q1 2002 consisted of foreign direct investment (37.4 %), foreign loans (27.6 %), portfolio investment (18.1 %) and other investment (16.9 %).