No 5(228) 23 September 2002

Comments on Estonian Preliminary Balance of Payments for the Second Quarter of 2002

In the second quarter of 2002 the deficit of the current account amounted to 3 billion kroons or approximately 10.6% of the expected gross domestic product (GDP) of the period. Quarter-on-quarter, the deficit shrank by 0.4 billion kroons in the terms of absolute volume. The current account deficit GDP ratio of the past 12 months has climbed to nearly 10.3% (see Figure 1). As the 2.3 billion kroon surplus of the capital and financial account was insufficient to cover the current account deficit, the overall balance of payments was negative and the gold and foreign currency reserves of the central bank decreased by 0.2 billion kroons (see Table 1).

The deficit of the goods and services balance decreased quarter-on-quarter and stood at 2.2 billion kroons. The growth of domestic demand and the unfavourable economic situation of Estonia's major trade partners were responsible for the record 5 billion kroon foreign trade deficit of the second quarter. Quarter-on-quarter, the foreign trade deficit increased by nearly one billion kroons, yea-on-year the deficit was up by two billion kroons.

The export and import of goods increased thanks to the growth of normal export and import, while subcontracting was unchanged against the first quarter. The export of goods increased mainly due to the goods of intermediate consumption and consumer goods, which were dominated by timber and products made of timber. The import of investment goods as well as consumer goods increased in the import goods, with transport vehicles, machinery and equipment, food and chemical products having the biggest impact on the balance.

The surplus of the services balance doubled seasonally compared to the first quarter, but despite the rapid annual increase of the export and import of services, the surplus of the services balance remained unchanged against the 2001 level. The export and import of the most important category of services - transport - increased considerably year-on-year (47% and 70%, respectively), but the surplus increased only slightly. The surplus of the next most important category of services - travel services - fell year-on-year, due to the faster growth of the import of services. Here discounts of transport companies and tightening competition on the travel services market played a major role.

The income balance and the transfers balance have changed little as compared to the first quarter. The net outflow of income amounted to 1.4 billion kroons, the bulk of which was made up of dividends paid to foreign direct investors as is customary in the second quarter. The surplus of the transfers balance stood at 0.6 billion kroons just like in the first quarter.
The 2.3 billion kroon surplus of the capital and financial account consisted mostly of the inflow of portfolio investments.

The balance of direct investments had a surplus of 0.3 billion kroons in the second quarter. Non-residents invested 1.2 billion kroons into Estonia, while the investments of Estonian businesses abroad increased by 0.9 billion kroons.

Investments into equity capital accounted for more than half of the direct investments made into Estonia. Due to dividend payments, the increase of undistributed profits was smaller than in the previous periods. Investments from Finland increased considerably in the second quarter. The most preferred sectors for foreign investors were trade, real estate and other business services and industry.

Nearly two-thirds of the direct investments by Estonian businesses abroad were in the form of loan capital and the rest consisted of investments into the shares of affiliated/associated companies abroad. The bulk of investments was made into Latvia and Lithuania and the biggest investments went into transport, storage and communication and finance.

The net inflow of portfolio investments amounted to 2.1 billion kroons in the second quarter. This was mostly related to the increase of equity and debt security liabilities, with the government sector issuing 1.5 billion kroons worth of debt securities. Investments into equity papers of credit institutions and the other sector businesses increased by 0.5 billion kroons.

The outflow of other investments exceeded their inflow by approximately 0.2 billion kroons. Other investment claims increased by nearly 0.6 billion kroons in the second quarter and liabilities were up 0.5 billion kroons. The main reason of the increase of claims was the growth of the foreign assets of credit institutions. Liabilities increased mostly thanks to the 0.7 billion kroons growth of the non-residents' deposits in Estonian credit institutions and the 0.8 billion kroons trade credit debt of the other sector. Residents decreased their loan liabilities to non-residents by nearly 1.8 billion kroons in the second quarter.

The adjusted balance of payments for the second quarter of 2002 and the preliminary balance of payments for the third quarter will be published at the Web site of Eesti Pank (http://www.eestipank.info) at noon on 23 December 2002.

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International and External Relations Department of Eesti Pank
PS Please acknowledge the source when publishing or citing.

Table 1. Estonia's balance of payments (EEK mn)(1)

(1) After additional information is received, data of the earlier periods have been updated accordingly.

Figure 1. Current account balance to the GDP (%)