Review of the Balance of Payments the Republic of Lithuania in the First Quarter of 2003

According to preliminary data, in Q1 2003 the Balance of Payments current account deficit (CAD) made up LTL 448.9 million. Compared to the same period in 2002, the CAD declined by LTL 63.7 million and amounted to 3.7 per cent of GDP.

The contraction of the CAD in Q1 2003 was mostly influenced by the narrowing of the negative foreign trade balance. A lower positive balance of services, balance of current transfers and a higher negative income balance were factors increasing the CAD.

Foreign Trade. According to preliminary data of the Department of Statistics, in Q1 2003, compared Q1 2002, export of Lithuanian goods increased by 25.9 per cent, while import went up by 9.5 per cent. Such developments were mostly determined by the increased exports of intermediate and capital goods and imports of consumption goods.

Services. During the first quarter of 2003, compared to the same period in 2002, exports of services decreased by 11 per cent, while import of services increased by 11.3 per cent. The total positive balance of services amounted to LTL 250.7 million (LTL 457.1 million in Q1 2002).

During the first quarter of 2003 the largest decline was recorded in the export of travel services (20.2%). Compared to Q1 2002, the number of foreigners visiting Lithuania declined by 12.3 per cent, while the number of Lithuanian residents leaving the country by 0.7 per cent. The positive balance of services amounted close to LTL 38 million (LTL 112.4 million in Q1 2002).

Compared to Q1 2002, export of transport services decreased by 6.3 per cent, and import of these services increased by 34.8 per cent. Transport and travel services accounted for 49.3 and 28.5 per cent of the total export of services, respectively.

Income. The negative income balance in Q1 2003 made up LTL 528.8 million and was LTL 384.3 million higher than in Q1 2002. Dividends to non-residents on foreign direct investment went up by LTL 240.6 million as compared to Q1 2002, reinvested earnings (which is recorded in the CAB as payments to non-residents, and is reflected in the financial account as part of foreign direct investment) rose by LTL 95.6 million. Payments on securities of the portfolio investment increased as well. Interest payments on Government Eurobonds increased by LTL 38.6 million.

Current transfers. The balance of current transfers was positive during Q1 2003 and stood at LTL 118.5 million (LTL 184.1 million in Q1 2002).

Capital and financial account.

The capital and financial account balance in Q1 2003 made up LTL 472.2 million, of which the capital account balance made up LTL 16.1 million, and the financial account balance was LTL 456.1 million.

Investment abroad. Investment abroad by Lithuanian economic entities declined in Q1 2003 by LTL 26.4 million. Domestic commercial banks decreased their investment in non-resident debt securities by LTL 112.3 million, while their loans to non-residents and time deposits with foreign banks went down by LTL 266.9 million. On the other hand, their currency and deposits with foreign banks increased by LTL 106.7 million. Direct investment abroad by domestic economic entities increased by LTL 20.2 million, currency and deposits with foreign banks of other sectors with foreign banks went up by LTL 17.8 million and trade credit of non-residents rose by LTL 216.9 million.

Foreign investment in Lithuania. Total foreign investment flows in Q1 2003 were LTL 1.8 billion. Compared to Q1 2002, foreign investment flows increased by over LTL 2 billion. The sharp rise in foreign investment was determined by increased portfolio investment and foreign direct investment in Lithuania.

Foreign direct investment flows stood at LTL 527.1 million in Q1 2003. Compared to the first quarter of 2002, these investment flows saw more than a four-fold increase of nearly LTL 400 million. The rise of foreign direct investment during the Q1 2003 was determined by other capital inflows (loans from direct investors and increase of other financial liabilities) and increased reinvested earnings. Inflows classified as foreign direct investment from privatisation made up as little as LTL 0.3 million in Q1 2003.

On 31 March 2003 accumulated foreign direct investment in Lithuania stood at LTL 13.7 billion (EUR 3.97 billion), or LTL 3,966 (EUR 1,148) per capita.

Most foreign direct investment flows in Q1 2003 was channelled into communications (LTL 238.3 million), production of petroleum products (LTL 75.5 million), real estate operations (LTL 67.4 million) and financial intermediation (LTL 38.6 million).

On 31 March 2003 the manufacturing accounted for 28.6 per cent of total foreign direct investment in Lithuania, financial intermediation for 26.8 per cent, transport and communication for 18 per cent, trade and repairde for 17.1 per cent.

The largest investors by country were Denmark (17.2% per cent of total investment), Sweden (15.5%), Estonia (11.4%), Germany (9.6%) and the USA (8.5%). EU investors accounted for 59.4 per cent of total investment, EU candidate countries for 16.2 per cent.

Portfolio investment. Portfolio investment inflows in Q1 2003 made up LTL 1.4 billion (LTL 46.6 million in Q1 2002). These inflows were determined by the distributions of Government Eurobond issue among non-residents.

Other foreign investment.

Trade credit from non-residents increased by LTL 92.6 million during Q1 2003. Non-resident currency and deposits with domestic commercial banks flows made up LTL 56.4 million. However, total foreign loans flows were negative (more foreign loans were repaid) and stood at LTL 174.8 million.

Reserve assets.

Reserve assets flows in the first quarter of 2003 were positive (LTL 1.3 billion). Operations with central government institutions (mostly inflows from the distribution of the Government Eurobond issue) increased reserve assets by LTL 1.2 billion. In addition, net purchase of anchor currency by the Bank of Lithuania from commercial banks was LTL 221.2 million.

Errors and omissions

in the balance of payments in Q1 2003 made up LTL -23.4 million (LTL 371.3 million in Q1 2002).

Balance of the International investment position of the Republic of Lithuania. On 31 March 2003, total financial foreign assets of the country made up LTL 15.2 billion, and total international financial liabilities amounted to LTL 32.6 billion. The negative international investment balance made up LTL 17.4 billion. In Q1 2003, total foreign assets increased by LTL 1.23 billion, international financial liabilities went up by LTL 1.57 billion, and the negative international investment balance increased by LTL 340 million. A the end of March 2003 the international financial liabilities of the country were distributed as follows: foreign direct investment (42.1%), other investment (38.1%), portfolio investment (19.7%).