Bank of Lithuania
2005-12-28

In Q3 2005, the Balance of Payments current account deficit (CAD) amounted to LTL 1.44 billion (7.6 per cent of the GDP). Compared to Q2 2005, the CAD increased by LTL 154.2 million or 11.9 per cent. The CAD amounted to LTL 3.56 billion (6.9 per cent of the GDP) over the period from January to September 2005, compared to LTL 3.79 billion (8.4 per cent of the GDP) witnessed over the same period in 2004.

CAD and CAD to GDP ratio

 

CAD, LTL million

CAD to GDP ratio, %

2004

-4 811,73

-7,7

Q1

-1 025,51

-7,7

Q2

-1 578,29

-10,3

Q3

-1 188,35

-7,1

January-September

-3 792,15

-8,4

Q4

-1 019,58

-6,0

2005

   

Q1

-828,88

-5,6

Q2

-1 290,58

-7,3

Q3

-1 444,73

-7,6

January-September

-3 564,19

-6,9

Development of the current account balance, composite balances, and contributions

 

January - September 2005, LTL million

January - September 2004, LTL million

Change, %

Contributions, %

Current account balance

-3 564,19

-3 792,15

-6,0

-6,0

Trade balance

-5 395,65

-4 969,67

8,6

11,2

Balance of services

2 013,22

1 760,59

14,3

-6,6

Income balance

-1 502,19

-1 426,99

5,3

2,0

Balance of current transfers

1 320,43

843,92

56,5

-12,6

As a result of an increase in foreign trade balance deficit and income balance deficit, the current account deficit increased over a period of nine months in 2005. However, such an increase was offset by an increase in positive balances of services and current transfers that also contributed to the total contraction of the CAD.

Foreign trade. Compared to Q2, the growth of export and import slowed down in the third quarter of 2005. However, the growth rate of export of goods was almost two-fold higher compared to import of goods. This fact also had an impact on analogous nine-month results. According to the data of the Department of Statistics under the Government of the Republic of Lithuania, export and import of goods went up respectively by 26.3 per cent and 22.3 per cent in January-September 2005, as compared to the same period in 2004. The increase in export and import of goods was due to a rise in both the quantity and prices of goods (especially of petroleum and petroleum products).

In Q3 and January-September 2005, export and import of goods to and from the EU countries grew more slowly compared to the CIS countries. These developments were partly determined by the depreciation of the euro against the USD in Q2 and Q3. Despite the fact, exports to the EU accounted for 67 per cent of the country’s total exports in January-September 2005, compared to 65.3 per cent witnessed during the same period in 2004. Export of goods to the CIS countries increased from 16.1 per cent to 17.7 per cent. The increase in the import of goods in January-September 2005 mainly stemmed from an increase in the import of goods from the CIS countries. Therefore, the share of imports from the EU Member States slightly decreased to 58.8% of total imports, while imports from the CIS countries went slightly up to 31.7% of total imports.

The total deficit of foreign trade with the EU Member States decreased by almost LTL 1.6 billion and stood at LTL 2.28 billion in January-September of 2005 (as compared to the same period in 2004), while the deficit of foreign trade with the CIS countries widened by LTL 2 billion and amounted to LTL 5.5 billion. The largest deficit of foreign trade was recorded in respect to Russia, Germany and Poland, while the largest trade surplus was recorded in respect to Latvia, France and Estonia.

The increase in export and import of goods was mostly affected by the trade in mineral products. In January-September 2005, as compared to the same period in 2004, the export of mineral products increased by 38.4 per cent and accounted for 36 per cent of the total growth of the export of goods, whereas the import of mineral products increased even by 63.1 per cent and accounted for 54.4 per cent of the total growth of the import of goods.

Changes of export and import of main groups of goods and contributions

January-September 2005, year-on-year, %

 

Export

Import

 

change

contributions

change

contributions

Total goods

26,3

26,3

22,3

22,3

Capital goods

22,6

1,9

1,8

0,3

Intermediate goods

29,6

15,5

30,9

17,9

Consumption goods

20,3

5,5

17,1

3,0

Motor spirit

30,8

2,7

4,3 k.

0,0

Passenger motor cars

20,1

0,7

25,2

1,3

Other goods

34,6

0,0

-35,3

-0,2

Services. Compared to Q2 2005, the export of services increased by 12.7 per cent and the import of services went up by 9.3 per cent in Q3. In January-September 2005, as compared to the same period in 2004, the export of services increased by 21.3 per cent, while the import of services grew by 25.1 per cent. The positive surplus in the balance of services improved by LTL 252.6 million over the period under review.

Travel and transport services accounted for more than three quarters of the total export and import of services. As the export of transport services went up by 5.8 per cent from January to September 2005, the development of these services only slightly contributed to the total increase in the export of services. Over the period under review the import of transport services grew much faster (increased by 29.8 per cent) and had a significant impact on the total change in the import of services.

Among individual types of transport, export and import of air transport services grew most rapidly, while the surplus of the balance of road transport services accounted for nearly one third of the balance of total services and nearly 3.4 per cent of the surplus of the balance of all types of transport.

The number of foreigners visiting Lithuania increased by 18 per cent in Q3 2005 and by 26.2 per cent in January-September 2005, compared to respective periods in 2004. The number of Lithuanian residents leaving the country went up by 18.5 per cent and by 19.8 per cent, respectively. The number of visitors arriving from the CIS countries grew most rapidly (by 46.1 per cent over nine months). In January-September 2005 travel-related income increased by 33.7 per cent and travel-related expenditure went up by 20.2 per cent. As a result of that, the total surplus of the travel balance increased by LTL 292.1 million. The growth of travel-related income had a major impact on the total increase in the export of services.

Income. The income balance deficit made up LTL 616.5 million in Q3 2005, and LTL 1.5 billion in January-September 2005. The income balance deficit increased by LTL 234.1 million or 61.2 per cent (quarter-on-quarter) in the third quarter of 2005. In January-September 2005, as compared to the same period in 2004, it went up by LTL 75.2 million (5.3 per cent). The increase in the non-resident reinvestment (which is recorded in the current account of the Balance of Payment as payments to non-residents, and is reflected in the financial account as part of direct foreign investment) had a major impact on the increase in the income balance deficit in the third quarter of 2005. In January-September 2005, the increase in the income balance deficit was mainly due to dividends to non-residents on foreign direct investment (they amounted to LTL 1.06 billion and exceeded total dividends paid in 2004 by LTL 413 million).

The total income balance deficit slightly widened in January-September 2005, as compared to the same period in 2004. That was due to the increase in the surplus in the compensation of employees in the income balance by LTL 24.1 million and the decrease in non-resident reinvestment by LTL 321.4 million.

Current transfers. The surplus in the balance of current transfers went down by LTL 209.3 million to LTL 387.5 million (quarter-on-quarter) in the third quarter of 2005, but increased by LTL 476.5 million to LTL 1.32 billion (year-on-year) in January-September 2005. The increase in this surplus witnessed in January-September 2005 was mainly due to transfers from EU support funds that went up by LTL 618.7 million and transfers by natural persons that increased by LTL 285.9 million.

Capital and financial accounts.

Excluding official reserve assets, the total investment flow in the country’s Balance of Payments capital and financial accounts reflected net inflows of LTL 2.25 billion in the third quarter of 2005 and LTL 4.45 billion in January-September 2005. The size of the total flow of net inflows resulted from the net inflows of other investment, i.e. debt for goods and services, loans received from non-residents, increase in deposits and correspondent account balances of non-residents with domestic commercial banks. The largest flow of net inflows was recorded in respect to MFIs.

Investment abroad. Compared to the same period in 2004, investment abroad by Lithuanian economic entities went up by LTL 721.8 million to LTL 2.72 billion in January-September 2005. In Q3 2005, this investment amounted to LTL 978.7 million. Most of the investment abroad consisted of investment by Lithuanian commercial banks (an increase in deposit and correspondent account balances with foreign banks and investment in non-resident debt securities). Direct investment by domestic economic entities accounted for more than one fourth of the total flow of investment abroad.

Foreign investment in Lithuania. In January-September 2005, total foreign direct investment flow stood at LTL 6.6 billion, compared to LTL 5.3 billion witnessed during the same period in 2004.

Development of the Capital and Financial Accounts, Composite Balances, and Contributions

 

January - September 2005, LTL million

January - September 2004, LTL million

Change, %

Contributions, %

Capital and financial account balance*

3 564,19

3 792,15

-6,0

-6,0

Capital account balance

551,74

369,72

49,2

4,8

Direct investment

513,44

1 121,99

-54,2

-16,0

Portfolio investment

-30,56

929,49

-103,3

-25,3

Financial derivatives

10,60

-10,52

-200,8

0,6

Other investment

3 406,41

1 224,72

178,1

57,5

Reserve assets

-1 466,36

60,48

-2 524,5

-40,3

Errors and omissions

578,92

96,27

501,4

12,7

* including errors and omissions

Foreign direct investment in Lithuania. The foreign direct investment flow in Lithuania made up LTL 610.1 million in the third quarter of 2005. In January-September 2005, the flow of this investment amounted to LTL 1.23 billion, decreasing by LTL 479.6 million (28.1 per cent) year on year. The overall contraction of foreign direct investment flow over the period under review was determined by a decline in reinvestment and other capital flows. Taking into account foreign direct investment by domestic economic entities, net foreign direct investment inflows made up LTL 513.4 million (i.e. only 1 per cent of the GDP) in January-September 2005. Foreign direct investment covered 14.4 per cent of the current account deficit. Together with the capital account balance, foreign direct investment covered 29.9 per cent of the CAD.

In Q3 2005, of foreign direct investment, equity investment amounted to LTL 134.8 million, reinvestment made up LTL 491.2 million, whereas the flow of other capital was negative (LTL - 15.8 million).

On 30 September 2005, accumulated foreign direct investment in Lithuania stood at LTL 18.22 billion (EUR 5.28 billion). Foreign direct investment per capita made up on average LTL 5,347 (EUR 1,548).

The largest foreign direct investment flow in January-September 2005 was recorded in the manufacturing industry (LTL 532.5 million), electricity, gas and water supply activities (LTL 115.9 million), and financial intermediation (LTL 407.1 million).

On 30 September 2005, investment in the manufacturing industry accounted for 33.2 per cent of total foreign direct investment in Lithuania, retail and wholesale trade for 14.9 per cent, financial intermediation for 14.8 per cent, and transport, storage and telecommunications for 12.4 per cent.

The largest investors by country were Sweden (13.9 %), Denmark (13.7%), Germany (13.2 %), Russia (12.8 %), Finland (8.1 %), and Estonia (7.3 %).

Investment from the EU (25 Member States) accounted for 74.7 per cent of total investment, of which investment of old EU Member States (15 countries) accounted for 62.9 per cent, while investment of the CIS countries made up 13.1 per cent.

Portfolio investment. The net investment portfolio flow in Lithuania was negative in the third quarter of 2005 (LTL - 297.9 million) and in January-September 2005 (LTL - 30.6 million), i.e. the portfolio investment foreign assets increased more than liabilities to non-residents. The growth of the portfolio investment foreign assets was mainly due to the investment by monetary financial institutions (MFIs), whereas the emission of general government debt securities resulted in the increase in liabilities to non-residents.

Net other investment flow was positive. It amounted to LTL 2.12 billion in the third quarter of 2005, and LTL 3.41 billion over nine months of 2005. The flow of other investment in Lithuania over the reporting period made up respectively LTL 2.49 billion and LTL 4.46 billion, and determined the total positive flow of this investment. Compared to January-September 2004, the flow of other investment increased by LTL 2.12 billion. Such a large increase in this investment flow resulted from the flow of loans received from non-residents by MFIs and from the increased debt of domestic economic entities for goods and services due to larger imports of goods.

Official reserve assets. The positive official reserve assets flow made up LTL 1.47 billion in January-September 2005. Therefore, official reserve assets went up by LTL 1.53 billion due to exchange rate fluctuations and revaluation of gold. Official reserve assets continued to increase over three quarters and made up LTL 10.64 billion (EUR 3.08 billion) at the end of September.

The growth of official reserve assets was affected by the increase of the volume of currency issued by the Bank of Lithuania (LTL 618.8 million), higher balances of credit institutions with the Bank of Lithuania (LTL 416 million), the increase in deposits of central government with the Bank of Lithuania (LTL 382.3 million), the net increase in other liabilities of the Bank of Lithuania (LTL 102.3 million), and the increase in foreign liabilities of the Bank of Lithuania (LTL 12.7 million).

International investment position of the Republic of Lithuania. As of 30 September 2005, the country’s total foreign financial assets made up LTL 23.71 billion and total international financial liabilities - LTL 48.3 billion. The negative international investment position made up LTL 24.58 billion, i.e. Lithuania was a debtor vis-ą-vis the rest of the world. In Q3 2005, total foreign assets grew by LTL 2.1 billion and international financial liabilities - by LTL 3 billion. At the end of Q3 2005, the distribution of the country’s international financial liabilities was as follows: other investment 45.4 per cent, foreign direct investment 37.7 per cent and portfolio investment 16.8 per cent.