Bank of Lithuania
2003-03-31

According to preliminary data, in 2002 the balance of payments current account deficit (CAD) made up LTL 2.4 billion. Compared to 2001, the CAD widened by LTL 118.4 million. Like in 2001, the CAD made up 4.8 per cent of GDP.

Table 1

CAD and CAD to GDP ratio, %

 

CAD, LTL million

CAD to GDP ratio, %

2001

Q1

-546.29

-5.2

Q2

-485.66

-4.1

Q3

-7.27

-0.06

Q4

-1255.74

-10.0

2002

Q1

-461.56

-4.1

Q2

-738.75

-5.8

Q3

-132.46

-1.0

Q4

-1080.57

-8.1

This development was mostly influenced by the contracted positive balance of current transfers and the increased negative foreign trade balance. A higher positive balance of services and a lower negative income balance were factors pushing CAD down.

Table 2

     
 

Change

Impact of factors

CAD

5.2

5.2

Trade balance

2.9

5.7

Balance of services

8.9

-7.1

Income balance

-8.7

-2.7

Balance of current transfers

?21.0

9.4

Acceptability of the current account

Economic development in the EU and neighbouring countries was slower compared to Lithuania in 2002. Therefore, the growth of Lithuanian exports by over 10 per cent is seen as especially positive. It shows that Lithuanian goods are competitive and the country’s export is sufficiently diversified. The increase in the import of goods (regardless of the depreciation of the US dollar) was only 0.4 percentage points above export growth. The development of import and, with it, the CAD was highly influenced by the decline of the fiscal deficit. The balance of payments current account balance depends directly on the development of savings and investment in the domestic economy. The narrowing of the fiscal deficit reduced Government spending, yet the higher growth of investment over savings determined a widening of the CAD in 2002. The main factor defining the acceptability of the CAD is the ability to finance this deficit by attracting foreign capital inflows. This is confirmed by the successful distribution of long-term Government securities in 2002 (with lower interest rates than over the previous years), nearly a two-fold increase of foreign direct investment flows and the improved international ratings of the country. The structure of foreign capital inflows is also of great importance as this is related to the development of accumulated foreign debt and its servicing, and the size of the CAD in the future. The financing of the CAD with foreign capital investment that does not increase foreign debt (mostly foreign direct equity investment and reinvestment) made up 84.7 per cent in 2002. Gross external debt went down from 41.5 per cent of GDP and 40.5 per cent of GDP over the review period. Other CAD acceptability indicators improved as well. At the end of 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.

Foreign trade. According to the preliminary data of the Department of Statistics, in 2002, compared to 2001, export of goods increased by 10.6 per cent (16% in Q4), while import of goods grew by 11 per cent (7.94% in Q4). Such developments were mostly determined by the increased exports of investment goods and cars and imports of investment goods and intermediate goods. Excluding mineral products (whose export and import contracted in 2002), export of goods grew by 16.9 per cent, and import of goods went up by 15.9 per cent.

Table 3

Development of export and import of main groups of goods and determining factors


2002 compared to 2001, %
 

Change

Impact of factors

Change

Impact of factors

 

Export

Import

Total

10.6

10.6

11.0

11.05

Investment goods

116.8

6.39

45.9

6.49

Intermediate goods

3.4

1.78

5.7

3.34

Consumer goods

8.0

2.24

1.5

0.30

Petrol

-19.6

-1.63

-90.0

-0.08

Cars

31.8

1.69

30.8

1.88

Other goods

55.8

0.16

-48.6

-0.88

Table 4

Development factors of import of goods by country unions
(by import flows of goods)
2002 compared to 2001, %

 

Total

EU

CEFTA

EFTA

CIS

Other

Russia

Germany

Latvia

Estonia

USA

Impact on import by country

11.0

6.9

1.0

1.1

-0.2

2.2

-2.1

1.9

-0.1

0.9

-0.4

Total import by country

11.0

14.3

11.1

49.9

-0.7

18.1

-8.4

9.7

-1.8

38.0

-19.9

Live animals and animal products

-0.6

0.0

-0.1

-2.8

-1.3

-1.0

-0.5

0.1

-0.9

-1.0

-3.9

Vegetable products

0.1

-0.1

0.8

0.0

0.1

0.2

-0.2

-0.1

0.0

0.0

-0.1

Prepared foodstuffs

0.0

0.2

-1.7

-3.6

0.3

0.9

0.1

0.2

1.6

5.0

-2.1

Mineral products

-1.5

0.0

-0.1

-0.6

-4.4

-1.6

-5.8

0.0

-4.0

0.4

-0.7

Products of chemical industries

0.4

0.3

2.5

0.4

0.1

0.1

0.2

0.1

0.3

0.0

-2.8

Plastics, rubber

0.5

1.1

2.6

-1.0

-0.6

-0.3

-0.7

1.0

-0.3

0.1

-8.7

Wood

0.3

0.2

0.4

0.6

0.2

0.6

0.1

0.3

1.3

-0.5

0.1

Textiles

0.1

0.1

1.1

2.0

-0.2

-0.6

-0.2

0.0

-2.5

0.2

0.3

Machinery

2.7

3.8

1.8

-0.7

0.6

4.1

1.1

1.9

-0.1

8.7

-10.1

Vehicles

6.7

6.3

0.9

53.3

-0.7

20.9

-0.9

4.1

1.3

24.1

9.3

Other goods

2.3

2.4

3.0

2.2

5.2

-5.3

-1.6

2.1

1.4

1.0

-1.2

Table 5

Development factors of export of goods by country unions
(by export flows of goods)


2002 compared to 2001, %

 

Total

EU

CEFTA

EFTA

CIS

Other

Russia

Germany

Latvia

Estonia

USA

Impact on export by country

10.6

5.7

-2.0

2.6

1.5

2.7

2.4

-1.1

-2.0

1.0

0.2

Total export by country

10.6

12.0

-27.6

137.1

7.7

11.8

22.0

-9.1

-15.6

29.6

5.3

Live animals and animal products

-0.3

-0.7

-1.6

0.2

0.5

0.4

0.7

-1.2

1.1

1.3

6.1

Vegetable products

-0.5

0.8

0.3

-8.6

-3.2

-0.3

-1.2

2.0

-0.3

0.2

0.1

Prepared foodstuffs

0.2

0.5

-0.9

1.9

-1.0

0.6

0.6

-0.1

0.6

0.7

1.4

Mineral products

-2.4

0.8

-28.5

59.6

2.4

-9.7

3.7

0.0

-20.9

10.8

-0.1

Products of chemical industries

0.7

0.2

2.2

1.1

0.0

2.0

0.8

-10.2

0.7

1.4

1.6

Plastics, rubber

0.2

0.3

2.6

0.2

0.9

-1.5

3.4

1.0

0.7

2.3

-13.8

Wood

0.7

1.1

-3.1

8.1

0.1

1.0

0.3

0.5

0.6

0.6

0.9

Textiles

0.3

1.0

-0.3

0.9

0.0

-0.7

0.5

-3.1

-0.1

-0.1

-3.9

Machinery

0.3

0.4

0.0

2.0

-1.7

1.8

-1.6

0.5

-0.7

2.6

-0.5

Vehicles

8.3

4.7

0.1

60.7

10.2

12.4

14.2

0.7

0.3

9.9

5.9

Other goods

3.0

3.1

1.5

11.0

-0.5

5.6

0.7

1.0

2.5

0.0

7.5

Services. In 2002, compared to 2001, exports of services increased by 16.5 per cent (12.6% in Q4). Export of construction services was characterised by the fastest growth in 2002 (42.6%). But export growth in travel and transport services accounted for more that three quarters of total growth in the export of services. Transport and travel services accounted for 44.4 and 34.5 per cent of the total export of services, respectively.

In 2002, compared to 2001, export of transport services went up by 12.6 per cent, while income received for transit cargo transportation increased by 18.3 per cent and made up 42.6 per cent of the total export of transport services (40.6% in 2001).

The number of foreigners visiting Lithuania decreased by 4.6 per cent, while the number of Lithuanian residents temporarily leaving the country went up by 5.7 per cent. Export of travel services went up by 21.4 per cent over the review period, and import of travel services (expenses of Lithuanian travellers abroad) increased by 42.5 per cent. The positive travel balance made up LTL 614.8 million (the largest positive travel balance was recorded in Q3 at LTL 274.9 million, while the lowest, LTL 110 million, was in Q1).

Compared to 2001, the overall import of services increased by 21.3 per cent in 2002. The total positive balance of services amounted to LTL 1.99 billion in 2002 (LTL 1.83 billion in 2001).

Income. The negative income balance in 2002 made up LTL 657.1 million and was LTL 61.7 million lower than in 2001. Dividends to non-residents for foreign direct investment went down by LTL 74.9 million as compared to 2001; 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 86.8 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 104.5 million. On the other hand, investment income and the positive balance of compensation of employees declined.

Current transfers. The balance of current transfers was positive in 2002 and stood at LTL 813.9 million (LTL 1.03 billion in 2001). The decline of positive current transfers was related to the structural changes in all received non-repayable transfers. In 2002 there was a sizeable increase in non-repayable transfers for the implementation of various investment projects in Lithuania (e.g. payments from EU support funds (SAPARD and ISPA)), which resulted in increased flows of such capital transfers and a reduction of current transfers.

Capital and financial account.

The capital and financial account balance made up LTL 2.11 billion in 2002, of which the capital account balance made up LTL 203.8 million, and the financial account balance was LTL 1.87 billion. Compared to 2001, the capital and financial account balance increased by LTL 427.8 million. This development was mostly influenced by the increased inflows of foreign direct investment and other investment in Lithuania.

Table 6

Development of the capital and financial account and composite balances, including factors influencing development of the account


2002 compared to 2001, %
 

Change

Impact of factors

Capital and financial account (with errors and omissions)

5.2

5.2

Capital account balance

3585.2

8.6

Net foreign direct investment

48.4

37.0

Net portfolio investment

-96.2

-44.3

Net financial derivatives

88.72

-0.2

Net other investment

424.6

31.0

International reserves

23.9

-13.5

Errors and omissions

-50.3

-13.5

Investment abroad. Investment abroad by Lithuanian economic entities went down by LTL 120.1 million (LTL 260.9 million in Q3) in 2002. Domestic commercial banks increased their investment in non-resident debt securities by LTL 372.6 million; their deposits and correspondent account balances with foreign banks went up by LTL 29 million, while bank loans to non-residents declined by LTL 862.9 million. Foreign direct investment by domestic economic entities increased by LTL 61.2 million, deposits of other sectors with foreign banks went up by LTL 22.4 million and trade credit from non-residents went up by LTL 131 million.

Foreign investment in Lithuania. Total foreign investment flows in 2002 made up LTL 3.36 billion (LTL 1.45 billion in Q4). Compared to 2001, foreign investment flows declined by LTL 366.1 million. The total decline of foreign investment flows in Lithuania was determined by the contraction of portfolio investment flows and the expansion of negative foreign loan flows.

Foreign direct investment flows stood at LTL 2.67 billion in 2002 (of which LTL 648 million in Q4). Compared to 2001, these flows increased by LTL 882.4 million, i.e. by nearly 50 per cent. Inflows classified as foreign direct investment from privatisation made up LTL 188.3 million in 2002, and reinvestment made up LTL 256.1 million.

On 31 December 2002, accumulated foreign direct investment in Lithuania stood at LTL 13.2 billion (EUR 3.82 billion), or LTL 3,807 (EUR 1,103) per head of population.

Most foreign direct investment was directed into the production of petroleum products (LTL 742.2 million), financial intermediation (LTL 600.6 million), food, drinks and tobacco production (LTL 341.9 million), electricity, gas and water supply (LTL 226.5 million).

On 31 December 2002 the processing industry accounted for 29.3 per cent of total foreign direct investment in Lithuania, financial intermediation for 20.1 per cent, retail and wholesale trade for 17.3 per cent, transport, storage and long distance communication for 17.1 per cent.

The largest investors by country were Denmark with 17.2 per cent of total investment, Sweden (15.3%), Estonia (11.7%), Germany (9.6%) and USA (8.7%). EU investors accounted for 59.5 per cent of total investment, EU candidate countries for 16.8 per cent.

Portfolio investment. Net portfolio investment inflows in 2002 made up LTL 517 million (LTL 952.1 million in 2001). 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 2002 (LLT 681.8 million) as the Government redeemed an earlier Eurobond issue.

Other foreign investment.

Trade credit from non-residents increased by LTL 495.7 million in 2002. In Q4 it went up by LTL 611.6 million (due to increased imports of goods). Non-resident deposit flows in domestic commercial banks made up LTL 36.2 million. Same as last year, total foreign loan flows were negative (more foreign loans were repaid) and stood at LTL 288.8 million.

International Reserves. International reserve flows in 2002 were positive (LTL 1.61 billion). Net purchase of the anchor currency by the Bank of Lithuania from commercial banks was LTL 1.36 billion, and operations with the central government institutions increased the international reserves by LTL 534.3 million.

Errors and omissions in the balance of payments in 2002 made up LTL 305.8 million (LTL 615.2 million in 2001).

Balance of the international investment position of the Republic of Lithuania. On 31 December 2002, total foreign financial assets of the country made up LTL 14 billion, and total international financial liabilities amounted to LTL 31 billion. The negative international investment balance made up LTL 17 billion. In 2002, total foreign assets increased by LTL 1.5 billion, international financial liabilities went up by LTL 1.7 billion, and the negative international investment balance increased by LTL 225.3 million. At the end of December 2002 the major part of international liabilities consisted of foreign direct investment (42.5%), foreign loans (24.3 %), portfolio investment (16.1%) and other investment (17.1%).