The deficit of the current account of Estonian preliminary balance of payments for the first quarter of 2002 amounted to 3.5 billion kroons. The surplus of the capital and financial account was almost similar - 3.6 billion kroons. Half of this came from the inflow of direct investments. The reserves of the balance of payments increased by nearly 0.8 billion kroons. The ratio of the current account deficit (average of last four quarters) to the GDP was 8.1% (see Figure 1).

As usual, the foreign trade balance influenced the growth of the current account deficit the most (see Table 1). The foreign trade deficit was nearly 4 billion kroons, which remained unchanged against last quarter but up one billion kroons year-on-year. In absolute terms, both export and import of goods were below the respective volumes of the first quarter of 2001, mostly due to the sharp fall in the volume of processed goods (first of all, mobile equipment). The normal export of goods was nearly 6% and import for internal circulation grew by 11%. Faster increase of the goods import was partly related to the higher demand for investment goods. Estonia's main foreign trade partners are still the EU countries, although, year-on-year, their share decreased somewhat due to the fall in the volume of processed goods.

Due to seasonal factors, the surplus of the services' balance was smaller than usual in the first quarter of 2002, amounting to 1.4 billion kroons. This was also caused by the faster growth of the import of services (44%) as compared to their export (18%). The surplus of the most important category of services - transport - was more or less on the level of the fist quarter of 2001, but the volume of their export and import was considerably larger (mostly due to the higher turnover of rail transport). The share of transport services in the total turnover of services rose to nearly 60%. With the increase of living standards of Estonian residents their interest in traveling abroad is constantly increasing, therefore, the surplus of the travel services balance was somewhat smaller than last year. However, the biggest role in the shrinking of the surplus of the services' balance was played by construction services as their large surplus of the first quarter of 2001 turned into a deficit in the first quarter of 2002.

The deficit of the income balance grew by nearly 400 million kroons year-on-year and amounted to 1.5 billion kroons. As before, the deficit of the income balance resulted from the growing profitability of foreign investments in Estonia - over 70% of the foreign investors' income came from direct investments, of which two thirds was undistributed profit (reflected in books under inflow of direct investments) and nearly 30% was made up of dividends.

The surplus of the transfers balance was 0.6 billion kroons.

The surplus of the CAPITAL AND FINANCIAL ACCOUNT amounted to 3.6 billion kroons (in the first quarter of 2001 the balance was negative due to changes in the reserve requirements of credit institutions). The inflow of capital mostly occurred in the form of direct and other investments, while the outflow of portfolio investments exceeded their inflow.

Foreign direct investments into Estonia stood at 2.1 billion kroons in the first quarter, of which 25% were investments into share capital and 54% reinvested income. Investments mostly came from Sweden, Finland and the USA and were made mainly into the financial sector, transport, storage, communications and industry.

Direct investments of Estonian investors were practically unchanged year-on-year and made up nearly 300 million kroons. About half of direct investments abroad were in the form of loan capital, a third was share capital and the rest was reinvested income. Estonian direct investments were aimed at the Baltic countries and mostly into transport, storage, communications, real estate, banking, wholesale and retail trade.

The net outflow of portfolio investments made up nearly one billion kroons. Most of it was claims of the other sector debt securities and money market instruments of credit institutions. The balance of portfolio investment liabilities changed little as the growth of equity security liabilities was leveled off by the decrease of debt security liabilities. The other sector and credit institutions were the most active agents here.

The inflow of other investments exceeded their outflow by 2.7 billion kroons, with claims increasing 1.1 billion kroons and liabilities 3.8 billion kroons. The increase of claims was almost entirely related to short-term loans issued by credit institutions. 2.4 billion kroons of the liabilities increase resulted from the loans received and 1.3 billion kroons from cash and deposits.

The RESERVES of the balance of payments grew by nearly 0.8 billion kroons.

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

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 period has been updated accordingly.

COMMENTS ON THE ESTONIAN PRELIMINARY BALANCE OF PAYMENTS FOR THE FIRST QUARTER OF 2002