OREANDA-NEWS. October 01, 2008. Current account. In Q2 2008, the deficit in the current account (CAD) of the country’s balance of payments amounted to LTL 4.8 billion accounting for 17% of GDP. Year on year, CAD increased by LTL 527.7 million or 12.4%. In H1 2008, CAD amounted to LTL 9.4 billion (17.9% of GDP), a year-on-year increase of LTL 2.2 billion or 30.1%. Four-quarter (Q3 2007 to Q2 2008) moving sum for CAD was LTL 16.5 billion or 15.6% of GDP, reported the press-centre of Bank of Lithuania.

CAD increase in Q2 2008 was largely driven by an increase in of the deficit on income balance, while in H1 the same year it was driven by growing deficits on foreign trade balance and income balance.

Foreign trade. According to the data of the Department of Statistics under the Government of the Republic of Lithuania, in Q2 2008 compared to a corresponding period in 2007, export of domestic goods increased by 36% and import went up by 21.1%.

In January-June 2008, a year-on-year increase of export and import of goods made up 33.5% and 25%, respectively. As before, the growth rate of the Lithuanian export and import of goods was mostly driven by trade in mineral products.

In January-June 2008, export and import of this group of goods increased respectively 2.4 and 2.1 times year on year. The growth rate of trade in mineral products was high both in Q1 and Q2 of the year. Fast growth of the export and import of these goods was mainly driven by higher oil and natural gas prices. Excluding mineral products, gross export of goods went up by 16%, and import of goods went up by 7.5%.

In H1 2008, according to the classifier of macroeconomic categories, the highest growth rate was observed in export and import of intermediate goods, which is largely related to an increase in oil, natural gas and metal prices, as well as investment goods, and motor spirits export. Meanwhile, export of passenger cars went down nearly by one fifth.

In Q2 2008, the growth rates of foreign trade with CIS countries were higher than with the EU members, although they remained similar to the growth rates seen in Q1. In Q2 2008, year-on-year export of goods from Lithuania to EU-27 countries went up by 28.4% while export to CIS countries increased by 36.9%.

At the same time, import of goods from EU-27 climbed by 2.7%, while imports from CIS countries went up by 76.7%. In January-June 2008, a year-on-year increase in export of goods to EU-27 countries made up 25%, while import growth made up 6.5%. During the reviewed period, export to CIS countries went up by 35.5% and import from them jumped by 88.9%. Export to Russia accounted for nearly two thirds of export to CIS countries and import from Russia made up 88.1% of total import from CIS countries.

Such dynamics of goods export and import led to changes within the geographical structure of Lithuania’s foreign trade. The share of export of goods to EU-27 compared to total export of goods went down from 65.8% in H1 2007 to 61.6% in H1 2008. The CIS share grew from 23.1 to 23.5 percent, while the other countries’ share went up from 7.8% to 11.8%. The EU-27 share in the Lithuanian import structure went down from 67.9% to 57.9%, while the CIS share increased from 22.4% to 33.9%.

Services. During Q2 2008, a year-on-year growth of export of services was 7.9%, while import of services grew by 15.4 per cent. This big difference in the growth rates of export and import of services led to a significant narrowing of the total positive surplus on services balance in Q2 and in H1 2008 and an increase of CAD for the reviewed periods.

Faster growth of import of services was the result of an increase in import of transport and travel services. In Q2 2008, import of transport services increased by 23.5% year on year, while import of travel services grew by 19.7%.
In Q2 2008, export of services to EU-27 countries made up 63.8% of the total export of services, while import of services from EU-27 countries accounted for 58.2%. Export to CIS countries made up 28.8% of total export of services, while import accounted for 33.9%.

Income. In Q2 2008, the country’s deficit on income balance was LTL 1.65 billion, up by LTL 532.8 million (47,6 %) year on year. The deficit growth was mainly driven by dividends paid to non-residents for direct investment, which went up by LTL 1.12 billion, while reinvestment (which is recorded in Current Account as payments to non-residents and as direct investment in Financial Account) went down by LTL 810.3 million. Other investment expenses increased by LTL 303.3 million.

In January-June 2008, the deficit of income balance was LTL 2.62 billion (LTL 1.9 billion in January-June 2007).

Current transfers. In Q2, positive surplus on balance of non-repayable current transfers made up LTL 529.9 million (in a corresponding period of 2007 it was LTL 618.2 million). The inflow of current transfers in Lithuania was determined mainly by current remittances from individuals and transfers from EU support funds.

In January-June 2008, the surplus on the balance of current transfers made up LTL 1.29 billion, a slump of LTL 96.3 million compared to a corresponding period of 2007. Transfers from EU support funds grew by LTL 97.8 million or 9.5%, while remittances by private individuals went down by LTL 13.7 million or 1.1%.

Meanwhile, contributions to the EU budget during the reviewed period grew by LTL 183.7 million or 42%, and transfers by private individuals to other countries increased by LTL 63.1 million or 11.7%. The two above factors led to a decline of total surplus on the balance of current transfers.

Capital and Financial Account. In Q2 2008, total investment flow in the capital and financial accounts of the country’s Balance of Payments (excluding official reserve assets) showed net inflows of LTL 5.32 billion (in Q2 2007, net inflows made up LTL 5.1 billion). The total size of net investment inflow resulted from the net inflow of other investment. In January-June 2008, net total inflow reached as high as LTL 6.22 billion (LTL 6.99 billion in January-June 2007).

Net inflow of non-repayable capital transfers (the major source of which is EU structural support funds used to finance investment projects) made up LTL 471.7 million in Q2 2008, a year-on-year increase of LTL 67.8 million. In the first half of the current year the flow of these transfers made up LTL 1.36 billion (LTL 629.6 million in H1 2007).

Direct investment. In Q2 2008 compared to Q2 2007, foreign direct investment flow to Lithuania increased by LTL 347.21 million or 37.4%, while in January-June, compared to a corresponding period of 2007, it went down by LTL 386 million or 17.3 percent. Taking into account of the outflow of direct investments by domestic entities in Q2 2008, net inflow of foreign direct investments made up LTL 955.9 million or 3.5% of GDP, while in H1 they made up LTL 1.27 billion or 2.4% of GDP.

Four-quarter (Q3 2007 to Q2 2008) moving sum of FDI flow to Lithuania made up LTL 4.7 billion or 4.4% of GDP.

In Q2 2008, foreign direct investment was used to finance 19.9% of CAD, while foreign direct investment along with non-repayable capital transfers accounted for 29.8% of the CAD financing (respectively 19.7% and 29.2% percent in a corresponding period of 2007).

On 30 June 2008, accumulated amount of FDI in Lithuania stood up at LTL 34.63 billion (EUR 10.03 billion), or LTL 10,314 (EUR 2,987) per capita.

On 30 June 2008, investments in the manufacturing industry accounted for 33 per cent, financial intermediation for 16.6%, and transport, storage and telecommunications for 13.4%, and retail and wholesale trade for 11.9% of total FDI in Lithuania.

Biggest investors in Lithuania were Sweden (14.1%), Poland (12.9%), Denmark (11.1%), Russia (10.3%), Germany (8.7%), and Estonia (6.7%).
Note. Outstanding amounts of FDI in Lithuania in 2007 and Q1-Q2 2008 were revised based on the latest data on real estate purchased by non-residents in Lithuania.

Portfolio investment. Net flow of portfolio investment was negative both in Q2 2008 and H1 2008 and respectively made up LTL 332.6 million and 859.8 million which means that investment outflows outweighed investment inflows. Biggest share of investments went to non-residents-issued long-term debt securities.

In Q2 2008, net flow of other investment showed net inflow and in Q2 2008 made up LTL 4.69 billion and in January-June it reached LTL 5.81 billion (in 2007, it amounted respectively to LTL 4.34 billion and LTL 6.71 billion) .

Official reserve assets. In Q2 2008, official reserve assets rose by 3.9% to amount to LTL 16.28 billion (EUR 4.71 billion) at the end of June. At the end of June 2008, accumulated official reserve assets, in terms of goods and services import months, was 2.5 months (3.2 months at the end of 2007).

Official reserve assets grew as a result of an increase of LTL 718.1 million in external liabilities of the Bank of Lithuania and an increase of LTL 525.1 million in deposits of other MFIs with the Bank of Lithuania, as well as a hike of LTL 223.6 million in external liabilities of currency in circulation.

Official reserve assets were pushed down by a decline of central government deposits with the Bank of Lithuania and other factors by LTL 586 million and LTL 269.2 million, respectively.

International Investment Position of the Republic of Lithuania
On 30 June 2007, the country’s total foreign financial assets made up LTL 44.3 billion and total accrued international financial liabilities amounted to LTL 104.85 billion. Negative international investment position made up LTL 60.54 billion, which means that Lithuania was a debtor vis-a-vis the rest of the world.

In Q2 2008, the country’s foreign assets climbed by LTL 803.3 million (1.8%) and its international financial liabilities increased by LTL 4.07 billion (4%).

In Q2 2008, Lithuania’s gross foreign debt increased by 6.8% and at the end of June made up LTL 77.54 billion, or 73.2% of the four-quarter (Q3 2007 to Q2 2008) moving sum of GDP (at the end of 2007 it was LTL 70.95 billion or 72.3% of GDP). In Q2 of the current year, the country’s net external debt rose by 14.5% to LTL 37.7 billion at the end of the quarter accounting for 35.6% of four-quarter moving sum of GDP.