No 7 (214) 18 December 2000

Comments on the Estonian Preliminary Balance of Payments for the Third Quarter of 2000

The third quarter of 2000 was characterised by favourable external economic environment, which found expression in the balance of goods and services export and import as well as in a decrease of the current account deficit. The export of goods and services exceeded their import by 167 million kroons. Due to high deficit of the income balance, the CURRENT ACCOUNT deficit stood at 882 million kroons, which made 4% of the expected GDP of the third quarter. The ratio of the current account deficit of the last four quarters to the GDP of the same period was ca 5.4% (see Figure 1 and Table 1).

The import of goods exceeded their export by 2.6 billion kroons in the third quarter. Compared to the second quarter, the foreign trade deficit decreased by one billion kroons. The rapid growth of exports, which began in the first quarter, continued also in the third quarter mainly due to a considerable growth of re-export of machinery and equipment imported to Estonia for processing. Compared to the third quarter of 1999, flourishing growth has also occurred in direct export. As a result, the exports stood at historically high level - nearly 14 billion kroons, ie ca 54% higher than a year earlier.

Compared to the third quarter of 1999, the imports increased by nearly 38%, and that equally at the expense of goods imported for processing and for domestic consumption. More than one third of imports was made up of machinery and equipment. The most significant articles of import were also products of chemical industry, articles of wardrobe and metal products.

The import of capital goods formed one fifth of total imports and one fourth of exports. The share of the EU countries in the Estonian trade formed nearly three fourths.

In the third quarter, the surplus of the services balance was 2.8 billion kroons, being comparable with the second quarter, but due to the rapid growth of the services import remained smaller than a year before. Compared to the third quarter of 1999, the services export was by 6% bigger and formed nearly 7 billion kroons. At the same time the services import increased by 20%; in the third quarter services were imported for 4.2 billion kroons. The most important services were transport and travel services, whereas both export and import increased mostly due to transport services. Compared to the same period of 1999 the import of travel services slightly increased, while their export decreased by one sixth due to unfavourable summer. Business services had an impact on the growth of services import too.

The negative balance of the income balance was record high in the third quarter - 1.4 billion kroons. The main reason for that was the increasing growth of owner's earnings of foreign partners from direct investments made in Estonia. 600 million kroons of that were dividends and 800 million kroons reinvested income. The latter can be also considered as direct investment made in Estonia.

The surplus of the CAPITAL AND FINANCIAL ACCOUNT stood at 1.8 billion kroons in the third quarter. Capital inflow in the form of direct investments and deposits in the banking sector had the biggest impact on the balance of the financial account.

The balance of direct investments was positive by 1.8 billion kroons. Estonian direct investments abroad increased by 0.4 billion kroons. These were mostly related to loans given to affiliated and associated companies of industrial and financial sector in Latvia and Lithuania.

Direct foreign investments made into Estonia formed a total 2.2 billion kroons of which 56% were investments into share capital of businesses. The growth of reinvested income (undivided profit) formed more than one third of direct investments and was the biggest of recent years. Of countries Sweden, Finland and Norway dominated and of sectors finance, industry, real estate and business services prevailed.

The balance of portfolio investment flows was in the third quarter negative by 0.6 billion kroons. On one hand, banks invested domestic savings into foreign securities and on the other hand residents' liabilities to non-residents decreased. Capital flows related to equity securities were balanced.

As regards other investments, capital worth by 0.5 billion kroons more came into Estonia than moved out. Here too the banking sector had the biggest impact.

Claims increased by more than 0.9 billion kroons, mostly as short-term loans granted to non-residents by credit institutions. Liabilities to non-residents increased by 1.4 billion kroons. This was due to the considerable growth of deposits of non-residents in credit institutions. The debt of other sector for goods and services (trade credit) increased too.

In the third quarter, capital inflow through the financial account surpassed the current account deficit. Thus, the overall balance of payments was with a surplus. The central bank gold and foreign exchange reserves increased by 0.3 billion kroons.

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The specified current account deficit in the second quarter was somewhat bigger than published earlier - 1.3 billion kroons and formed 6% of the estimated GDP of the second quarter. The ratio of the negative balance of the current account of the last four quarters to the GDP of the same period was nearly 5.8%.

The adjusted balance of payments for the third quarter and the preliminary balance of payments for the year 2000 will be published at the Eesti Pank web site on 18 March 2001 at noon.

Public Relations Department of Eesti Pank

PS Please acknowledge the source when publishing or quoting.
Ants Kaasik
Executive Editor

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. Estonia's direct investment position abroad by countries as of 30 June 2000