OREANDA-NEWS. March 31, 2009. Current acoount. In Q4 2008, the deficit in the current account of the country’s balance of payments (CAD) amounted to LTL 1.1 billion or 3.8 per cent of GDP, reported the press-centre of Bank of Lithuania.

The CAD in Q4 2008 declined by LTL 1.8 billion or 62 per cent quarter on quarter and by LTL 2.6 billion or 70.2 per cent year on year. The CAD made up LTL 12.9 billion or 11.6 per cent of GDP in 2008, i.e. it went down by LTL 1.4 billion or 9.9 per cent, compared to 2007.

The decline of the CAD for Q4 2008 and the whole year was determined mainly by the decrease of foreign trade balance and income balance deficits.

Foreign trade. According to the data of the Statistics Department under the Government of the Republic of Lithuania, in Q4 2008 the country’s export of goods went up by 13.1 per cent and the import of goods declined by 1.7 per cent year on year. In 2008, compared to 2007, the export and import of goods went up by 28.4 and 18 per cent, respectively. Since Q2 2008, the foreign trade deficit of Lithuania started to decline. It went down by LTL 1.7 billion year on year in Q4 2008, whereas the trade deficit for the whole year declined by LTL 1.2 billion.

Trade in mineral products remained the largest contributor to export and import growth rates of Lithuania. In 2008, compared to 2007, the export of these products went up 2.3 times and their import grew 2 times. It has to be noted that rising oil and gas prices in H1 2008 had a significant impact on the rapid growth of export and import of these goods. Excluding mineral products, the total export of goods increased by 11.6 per cent and the total import went up by 0.2 per cent in 2008.

According to the Classification of Macroeconomic Categories, in 2008 the largest increases were observed in the export and import of intermediate goods and in the export of capital goods and petrol, whereas the import of capital goods went down by 11.5 per cent and that of passenger cars by 12.6 per cent.

In Q4 2008, the export of goods from Lithuania to the EU states went up by 4.4 per cent and the export to the CIS countries increased by 23.8 per cent year on year. The import of goods from the EU countries fell by 18.2 per cent, whereas the import from the CIS countries went up by 58.8 per cent. In 2008, compared to 2007, the export of goods to the EU states increased by 19.6 per cent, while the import from these countries declined by 1 per cent.

During the period under review, the export to the CIS countries went up by 35.5 per cent and the import from them increased by 83.8%. Export to Russia accounted for nearly two thirds of the export to the CIS countries, whereas the import from Russia made up 88.4 per cent of the total import from the CIS countries.

Such developments of the export and import of goods also contributed to the changes in the geographical structure of Lithuania’s foreign trade. The share of the export of goods to EU states in the total export of the country went down from 64.8 per cent in 2007 to 60.3 per cent in 2008. The share of the export of goods to the CIS countries went up from 24.5 per cent to 25.8 per cent. The share of the EU states in the total import of goods declined from 68.3 per cent to 57.3 per cent, whereas the share of the CIS countries increased from 21.9 per cent to 34.1 per cent.

Services. In Q4 2008, the export of services grew by 14.3 per cent and the import of services went up by 2.2 per cent year on year, therefore the positive surplus of the balance of services went up by LTL 318.3 million. In 2008, compared to 2007, the export of services grew by 12.7 per cent, while the import of services went up by 19.7 per cent. The positive surplus of the balance of services declined by LTL 402.8 million in 2008, compared to 2007.

The growth of the export of services in Q4 2008 was mainly determined by the increase in the export of transport services. Faster growth of the import of services in 2008 was determined by the increase in the import of sea transport and travel services by LTL 704.7 million and LTL 590.4 million, respectively. The surplus of the balance of transport services declined in 2008, but remained positive, whereas the balance of travel services became negative (LTL -355.4 million). Transport and travel services continued to prevail in the composition of export and import of services and made up, respectively, 59.4 per cent and 27.3 per cent of the total export of services and 48.5 per cent and 34 per cent of the total import of services.

In Q4 2008, the export of services to the EU states made up 56.8 per cent of the total export of services, while the import of services from EU states accounted for 58.7 per cent of the total import of services. The export to the CIS countries made up 31.7 per cent of the total export of services, whereas the import from the CIS countries comprised 29.3 per cent of the total import of services.

Income. The income balance in Q4 2008 was positive and made up LTL 99.3 million (it was negative in Q4 2007 and made up LTL -806.9 million). The non-deficit income balance was determined by negative reinvestment by non-residents (which is included in the current account of the balance of payments as payments to non-residents and recorded in the financial account as direct investment). Payments of other investment income to non-residents went up by LTL 176.9 million.

The total income balance deficit was LTL 3.7 billion in 2008 (LTL 4.1 billion in 2007). Over the period under review, reinvestment by non-residents declined by LTL 2.5 billion, however, dividend payments to direct investors increased by LTL 1.2 billion and payments of other investment income went up by LTL 1.2 billion. The income of domestic economic entities increased by LTL 412.7 million over the period under review.

Current transfers. The positive surplus of the balance of non-repayable current transfers made up LTL 443.2 million (LTL 788.4 million in Q4 2007). The positive flow of the surplus of current transfers to Lithuania was determined by the current transfers of individuals, since the balance of current transfers of the general government was negative.

The positive surplus of the balance of current transfers made up LTL 2.5 billion in 2008, i.e. it declined by LTL 408.8 million, compared to 2007. Transfers from the EU support funds fell by LTL 375.8 million (19%), whereas workers’ remittances from abroad increased by LTL 46.6 million (1.6%). In 2008, transfers from the EU support funds made up LTL 1.6 billion or 1.4 per cent of the GDP, whereas workers’ remittances to Lithuania comprised LTL 3 billion or 2.7 per cent of the GDP.

The contributions to the EU budget increased by LTL 238.8 million (24.3%) in 2008, whereas transfers of domestic individuals abroad went up by LTL 64.4 million (5.3%). These changes also reduced the total positive surplus of the balance of current transfers.

Capital and financial accounts. The net flow of non-repayable capital transfers (the major source of which is the EU structural support funds used to finance investment projects) made up LTL 268.5 million in Q4 2008. It decreased by LTL 229.3 million year on year. The flow of these transfers made up LTL 2 billion in 2008 (LTL 1.7 billion in 2007).

In Q4 2008, the total investment flow in the financial accounts of the country’s balance of payments (excluding official reserve assets) showed net inflows of LTL 1.6 billion (in Q4 2007, net inflows made up LTL 5.6 billion). The total size of net capital inflows was determined by net inflows of foreign direct investment and portfolio investment. The total net capital inflows made up LTL 8.8 billion in 2008 (LTL 15.6 billion in 2007).

Direct investments. Net foreign direct investment (FDI) inflows made up LTL 838.6 million or 2.9 per cent of GDP in Q4 2008 and LTL 3.4 billion or 3.1 per cent of GDP in 2008. In Q4 2008, the FDI flow to Lithuania declined by LTL 415.7 million or 36.2 per cent year on year, while in 2008 a year-on-year decline was LTL 861.4 million or 16.9 per cent. Although foreign direct investment into equity capital increased by LTL 740.6 million and other FDI capital by LTL 852.3 million in 2008, compared to 2007, however, the decline of reinvestment by LTL 2.5 billion reduced the total FDI flow to Lithuania.

The flow of direct investment abroad by domestic economic entities declined by LTL 792.3 million (-115.4%) in Q4 2008 and by LTL 715.2 million (-47.4%) in 2008.

In Q4 2008, foreign direct investment was used to finance 76.4 per cent of the CAD, while foreign direct investment along with non-repayable capital transfers accounted for 100.9 per cent of the CAD financing (respectively 26.6% and 42.4% in 2008).

As at 31 December 2008, accumulated FDI in Lithuania stood at LTL 31.5 billion (EUR 9.1 billion), or LTL 9,398 (EUR 2,722) per capita.

As at 31 December 2008, investment in the manufacturing industry accounted for 23.3 per cent, financial intermediation for 15.6 per cent, transport, storage and telecommunications for 14.4 per cent, and retail and wholesale trade for 14.1 per cent of total FDI in Lithuania.

The largest investors were Sweden (16.8%), Germany (10.1%), Denmark (8.7%), Estonia (7.6%), the Netherlands (6.7%) and Latvia (6.2%).

Portfolio investment. In Q4 2008, net portfolio investment flow was positive (it showed net inflows of these investments in Lithuania) and made up LTL 1.4 billion. It was determined by a decrease of investment abroad by monetary financial institutions. In 2008, the net portfolio investment flow was negative (-262.3 million), i.e. it showed an outflow of these investments from Lithuania. It was mainly determined by decline of liabilities of the general government and monetary financial institutions.

The net flow of other investment was negative in Q4 2008 (it showed an outflow of investment from Lithuania) and made up -697.2 million, whereas in 2008 the flow of other investment was positive (it showed inflows of these investments to Lithuania) and made up LTL 5.6 billion (LTL 3.4 billion and LTL 12.8 billion, respectively, in 2007). The decline in inflows was determined by the decrease of liabilities of other sectors and monetary financial institutions.

Official reserve assets. In Q4 2008, official reserve assets rose by 1.2 per cent to amount to LTL 15.8 billion (EUR 4.6 billion) at the end of December. The increase in official reserve assets was determined by the increase of cash in circulation by LTL 584.6 million, the increase of external liabilities of the Bank of Lithuania by LTL 62.6 million and the increase in other factors by LTL 253.6 million. The growth of official reserve assets was reduced by the decline of central government deposits and deposits of other monetary financial institutions with the Bank of Lithuania by LTL 580.2 million and LTL 130.9 million, respectively.

At the end of 2008, accumulated official reserve assets, in terms of goods and services import months coverage, was 2.3 months (3.2 months in 2007).

International investment position of the Republic of Lithuania. On 31 December 2008, the country’s total foreign financial assets made up LTL 44.5 billion and total international financial liabilities amounted to LTL 102.2 billion. Negative international investment position made up LTL 57.7 billion, which means that Lithuania was a debtor vis-a-vis the rest of the world.

The country’s foreign assets declined by LTL 983.6 million (2.2%) in Q4 2008 and by LTL 773.9 million (1.7%) in 2008. The country’s international financial liabilities declined by LTL 4.1 million (3.8%) in Q4 2008 and increased by LTL 1.6 billion (1.6%) in 2008. The decline in foreign assets in Q4 was determined by the decline in the stocks of debt securities and their value, whereas the decrease of liabilities was a result of the decline in the value of the share capital of foreign direct investment, reinvestment and the value of debt securities.

n Q4 2008, the gross external debt of Lithuania declined by LTL 723.5 million or 0.9 per cent to amount to LTL 79.6 billion (71.4 per cent of GDP) at the end of the year (LTL 70.9 billion or 72.3% of GDP at the end of 2007).