Balance of Payments the Republic of Lithuania in the Third Quarterand January-September 2002 Current Account.

The expansion of the CAD in January-September was mostly determined by the widening of the foreign trade deficit. The higher positive services balance acted in the opposite direction (reducing the CAD).

The decline of demand in foreign markets limited domestic exports. Nonetheless, the development of Lithuanian economy in 2002 was faster compared to the EU and neighbouring countries. The decline of exports was offset by a significant growth of domestic demand, notably the fast growth of domestic investment. The growth of investment (with the level of savings lagging behind) pushed up the CAD. As reflected by the data, the CAD to GDP ratio went up by 0.8 percentage points as compared to the same period last year. It should be noted, however, that the financing of the current account deficit with foreign capital investment that does not increase foreign debt (mostly foreign direct equity investment and reinvestment) made up 97.3 per cent in January-September 2002. Other CAD sustainability indicators improved as well. At the end of September 2002, import coverage by international reserves (excluding gold) was 3.1 months (2.9 months at the start of the year). GDP growth significantly outpaced the CAD to GDP ratio, which shows that the GDP grew faster than the country’s international liabilities. Gross external debt made up 41 per cent of GDP and 104 per cent of the total value of exports of goods and services. The level of these relative debt indicators that poses a risk is regarded to be around 80 per cent and 200-250 per cent, respectively (“Debt and reserve related indicators of external vulnerability”, IMF, March 23, 2000). Judging from the available data, the current level of the CAD does not pose a threat to the macroeconomic stability of the country.

Foreign trade. According to the data of the Department of Statistics, in January-September 2002, compared to the same period last year, exports of goods increased by 8.8 per cent (11.6% in Q3), while import of goods grew by 12.3 per cent (14% in Q3). Such developments were determined by the increased exports and imports of investment goods and cars. Excluding mineral products, exports of goods grew by 16.4 per cent, and import of goods went up by 19.1 per cent.

Development factors of exports of goods by country unions

(by exports flows of goods)

January-September 2002 compared to January-September 2001, %

Development factors of import of goods by country unions

(by import flows of goods)

January-September 2002 compared to January-September 2001, %

Services. In January-September 2002, compared to January-September 2001, exports of services grew by 12.8 per cent (9.1% in Q3). The largest increase (25.6%) was recorded in the exports of other business services, including advertising, management and consulting, trade intermediation and other services.

During nine months of 2002, compared to the same period in 2001, exports of transport services increased by 10.5 per cent (5.5% in Q3), exports of travel services by 16.2 per cent and 12.4 per cent, respectively, and exports of construction services by 79.1 per cent and 56.8 per cent, respectively. Transport and travel services accounted for 45.4 and 34.9 per cent of the total exports of services, respectively. During nine months, income received for transit cargo transportation increased by 10.1 per cent and made up 40.8 per cent of the total exports of transport services (40.9% during the same period of 2001).

In January-September 2002, compared to the same period in 2001, the number of foreigners visiting Lithuania decreased by 1.3 per cent, while the number of Lithuanian residents temporarily leaving the country went up by 5.3 per cent. The positive travel balance made up LTL 588.6 million (LTL 274.9 million in Q3).

In January-September 2002, compared to the same period of 2001, import of services grew by 13.8 per cent (13.8% in Q3). The total positive balance of services during nine months amounted to LTL 1.6 billion (LTL 1.45 billion in January-September 2001).

Income. The nine-month negative income balance made up LTL 619.7 million and was LTL 15.1 million higher than during the same period of 2001. Dividends to non-residents for foreign direct investment went down by LTL 41.1 million as compared to nine months last year; 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 43.8 million. State debt servicing expenditure went down as well. Interest on loans received on behalf of the state and with Government guarantees decreased by LTL 89.9 million. On the other hand, the positive balance of compensation of employees declined.

Current transfers. The balance of current transfers was positive in January-September 2002 and stood at LTL 604.1 million (LTL 720.7 million in January-September 2001).

Capital and financial account. The positive capital and financial account balance made up LTL 1.14 billion. Compared to the nine-month period of 2001, it went up by LTL 328.9 million. This development was mostly influenced by the declined negative flows of other investment and increased foreign direct investment in Lithuania. The positive balance of non-repayable capital transfers made up LTL 169 million over the review period, as there was a sizeable increase of contributions to various investment projects in Lithuania (e.g. from EU funds (SAPARD and ISPA)).

Investment abroad. Investment abroad by Lithuanian economic entities went up by LTL 143.7 million (LTL 272.5 million in Q3). Domestic commercial banks increased their investment in non-resident debt securities by LTL 479.2 million, while their deposits and correspondent account balances with foreign banks went up by LTL 319.8 million. Bank loans to non-residents declined by LTL 927.2 million. Foreign direct investment by domestic economic entities increased by LTL 87.3 million, deposits of other sectors with foreign banks went up by LTL 44.5 million and trade credit from non-residents went up by LTL 127.3 million.

Foreign investment in Lithuania. Total foreign investment flows in January-September 2002 were LTL 2.3 billion (negative in Q3 at LTL 549.3 billion). Compared to the same period in 2001, foreign investment flows declined by LTL 629.5 million. The total decline of foreign investment flows in Lithuania July was determined by the contraction of portfolio investment flows and the expansion of negative foreign loan flows.

Foreign direct investment flows stood at LTL 2.15 billion (of which LTL 552.5 million in Q3). Compared to the same period of 2001, these flows increased by LTL 765.5 million, i.e. 55.4 per cent. The increase was determined by the privatisation of the Agricultural Bank and the Lithuanian Gas Company and the investment of the Russian Jukos Oil Corporation in Mažeikių Nafta.

Inflows classified as foreign direct investment from privatisation made up LTL 187.5 over nine months of 2002, and reinvestment made up LTL 196.8 million.

On September 30, 2002, accumulated foreign direct investment in Lithuania stood at LTL 12.6 billion (EUR 3.64 billion), or LTL 3,630 (EUR 1,051) per capita.

Most of the foreign direct investment was directed into the production of petroleum products (LTL 785.3 million), financial intermediation (LTL 410.1 million), food, beverages and tobacco production (LTL 195.6 million), transport, storage and long distance communication (LTL 154.8 million).

On 30 September 2002 the processing industry accounted for 29.8 per cent of total foreign direct investment in Lithuania, financial intermediation for 19.7 per cent, retail and wholesale trade for 17.3 per cent, transport, storage and long distance communication for 17.4 per cent.

The largest investors by country were Sweden with 16.6 per cent of total investment, Denmark (16%), Estonia (10%), Germany (9.8%) and USA (8.8%). EU investors accounted for 59.6 per cent of total investment, EU candidate countries for 15.4 per cent.

Portfolio investment. Over nine months of 2002 net portfolio investment inflows made up LTL 597.7 million. These investment flows were determined by the distribution of the Government Eurobond issue among non-residents, which resulted in LTL 1.25 billion of receipts. Portfolio investment flows were negative in Q3 (LLT 797.8 million) as the Government redeemed an earlier Eurobond issue.

Other foreign investment. Trade credit from non-residents increased by LTL 67.2 million over the period of nine months. In Q3 it declined by LTL 267.2 million. Non-resident deposits in domestic commercial banks increased by LTL 177.6 million and LTL 166.7 million, respectively. Same as last year, total foreign loan flows were negative (more foreign loans were repaid) and stood at LTL 651.9 million.

International reserves. International reserve flows over nine months of 2002 were positive (LTL 1.15 billion). The redemption of a Government Eurobond issue in Q3 2002 resulted in negative flows of LTL 639.5 million. Net purchase of the anchor currency by the Bank of Lithuania from commercial banks was LTL 686.9 million, and operations with the central government institutions increased the international reserves by LTL 200.7 million.

Errors and omissions in the balance of payments of nine months of 2002 made up LTL 252.3 million.

International investment position of the Republic of Lithuania. On 30 September 2002, total financial foreign assets of the country made up LTL 14 billion, and total international financial liabilities amounted to LTL 30.5 billion. The negative international investment balance made up LTL 16.5 billion. Over nine months of 2002, total foreign assets increased by LTL 1.5 billion, international financial liabilities went up by LTL 1.2 billion, and the negative international investment balance went down by LTL 255.2 million. In Q3 2002 total financial foreign assets of the country declined by LTL 200.3 billion, and international financial liabilities went down by LTL 555.9 million. The major part of international liabilities at the end of September 2002 consisted of foreign direct investment (41.2%), foreign loans (24.4 %), portfolio investment (18.4%) and other investment (16%).