The overall balance of the Estonian balance of payments was in surplus in 1995, too. Current account expenditure exceeded current account income, while the deficit remained at the same level as in 1994, amounting to 2.1 billion kroons (see Table 18. Balance of payments of Estonia).

Table 18. Balance of payments of Estonia (EEK mn)*

 

1995

1994

1993

Current account

-2,123.7

-2,127.6

279.0

Trade balance

-7,915.2

-4,597.9

-1,925.0

   Merchandise: export f.o.b.

21,315.1

17,142.0

10,762.7

   Merchandise: import f.o.b.

-29,230.3

-21,739.9

-12,687.7

Services: net

4,320.2

1,362.7

997.1

   Services: credit

10,011.8

6,657.0

4,434.3

   Services: debit

-5,691.6

-5,294.3

-3,437.2

Income: net

25.2

-378.0

-185.4

   Income: credit

723.2

482.5

355.5

   Income: debit

-698.0

-860.5

-540.9

Transfers: net

1,446.1

1,485.6

1,392.3

   Official transfers

1,153.4

1,410.5

1,397.8

   Private transfers

292.7

75.1

-5.5

Capital and financial account

2,992.8

2,221.4

2,908.5

Capital account

-9.1

-8.1

0.0

Financial account

3,001.9

2,229.5

2,908.5

   Direct investments

2,321.0

2,789.4

2,070.8

   Portfolio investments

-189.2

-183.4

-3.0

   Other investments

870.1

-376.5

840.7

  Monetary authorities

-1.0

145.1

665.0

       General government

632.5

241.3

792.8

       Banks

481.8

-858.0

-493.0

       Other sectors

-243.2

95.1

-124.1

Errors and omissions

331.3

301.8

-611.8

Overall balance

1,200.4

395.6

2,575.7

Reserve assets

-1,200.4

-395.6

-2,575.7

* After receiving additional information, data of the earlier periods in the balance of payments has been updated accordingly

The main reason for the deficit of the current account was the foreign trade deficit which had increased remarkably. Even the threefold increase in the surplus on the services balance was not sufficient to cover the trade balance deficit. The difference between goods and services purchased from abroad and those sold abroad was 3.6 billion kroons in favour of purchases. This was 0.4 billion more than in 1994. The current account deficit was entirely covered by the financial account surplus which increased by nearly 0.8 billion kroons compared to 1994. The reserves increased by 1.2 billion kroons in 1995.

CURRENT ACCOUNT

Foreign Trade

The foreign trade turnover (at current prices) also increased in 1995, although the growth rate has slowed down each year (see Table 19. Estonia's foreign trade between 1992 and 1995). Meanwhile, imports continued to increase more rapidly than exports, causing the increase in the foreign trade deficit. While in 1993 the foreign trade deficit accounted for 5.4% of turnover (imports at c.i.f. prices) and in 1994 for 11.9%, in 1995 the respective figure was 16.4%.

Table 19. Estonia's foreign trade between 1992 and 1995 (EEK mn)

 

Export

Compared to
the previous
year (%)

Import

Compared to
the previous
year (%)

Balance

Total
turnover

Compared to
the previous
year (%)

1992  

5,548.6

0.0

5,127.6

0.0

421.0

10,672.2

0.0

1993

10,638.5

91.7

11,831.0

130.7

-1,192.5

22,469.5

110.0

1994

16,937.7

59.2

21,535.3

82.0

-4,597.6

38,473.5

71.0

1995

21,097.9

24.6

29,384.7

36.4

-8,286.8

50,482.6

31.1

Regarding the structure of Estonian exports, the major changes concerned the steep decline in the share of foodstuffs and a more modest decrease in that of metals and transport vehicles (see Table 20. Estonia's export by groups of goods). The share of machinery and equipment, timber and chemical products increased. The most important groups of goods were foodstuffs, clothing, footwear and headgear, timber, machinery and equipment.

Table 20. Estonia's export by groups of goods (%)

 

1993

1994

1995

Change compared to
the previous year

1994/1993

1995/1994

Foodstuffs

23.5

22.2

16.4

-1.3

-5.8

Mineral products

7.6

8.2

8.1

0.6

-0.1

Products of chemical industry

6.3

8.6

10.2

2.3

1.7

Clothing, footwear, headgear

15.2

16.4

16.1

1.2

-0.3

Timber, paper and products thereof

8.1

11.0

13.4

2.9

2.4

Non-precious metals and metal products

10.5

8.0

6.8

-2.5

-1.2

Machinery and equipment

7.7

9.3

13.1

1.6

3.8

Transport vehicles

10.7

7.6

6.9

-3.1

-0.7

Furniture, sports requisites, etc.

5.1

5.4

5.7

0.3

0.3

Other manufactured goods

5.3

3.3

3.2

-2.0

-0.1

The structure of imports changed less (see Table 21. Estonia's import by groups of goods). The most important change was the remarkable decrease in the share of mineral products. The share of foodstuffs and transport vehicles also decreased to some extent, while the share of machinery and equipment continued to increase. The major group of goods to be imported was machinery and equipment, with an important part being played by foodstuffs, clothing, as well as chemical and mineral products.

Table 21. Estonia's import by groups of goods (%)

 

1993

1994

1995

Change compared to
the previous year

1994/1993

1995/1994

Foodstuffs

14.8

16.0

14.1

1.2

-2.0

Mineral products

15.6

14.1

11.4

-1.5

-2.7

Products of chemical industry

9.6

11.5

12.4

1.9

0.9

Clothing, footwear, headgear

12.3

12.8

12.8

0.5

0.1

Timber, paper and products thereof

2.9

4.0

4.8

1.1

0.8

Non-precious metals and metal products

5.0

5.9

7.0

0.9

1.1

Machinery and equipment

17.7

19.7

21.4

2.0

1.7

Transport vehicles

14.2

8.6

7.9

-5.6

-0.7

Furniture, sports requisites, etc.

2.9

2.8

2.9

-0.1

0.1

Other manufactured goods

5.0

4.6

5.3

-0.4

0.7

The balance of imports and exports was in deficit for the majority of groups and the deficit for 1995 increased. The deficit was the highest for machinery and equipment, mineral products and chemical products. As in 1994 five out of ten groups of goods were in surplus (foodstuffs, timber, furniture and sports equipment, clothing and metals), then in 1995 two more (metals and foodstuffs) became deficit items. In the case of foodstuffs the main reason for the deficit was the high customs tariffs imposed by Russia.

The share of goods sent to Estonia to be processed has grown rapidly. While in 1994 they accounted for 14% of overall turnover, in 1995 the respective figure was 17.6%. Clothing, machinery and equipment were the main goods processed in Estonia (both groups accounting for approximately 40% of the overall turnover of processed goods). More than half of these goods were sent to Estonia from Finland and nearly 20% from Sweden. In 1995 there was a noticeable increase in the quality of machinery and equipment being processed in Estonia, resulting in the remarkable increase of this respective group of merchandise's share in both imports and exports. Processing accounted for nearly half of the overall turnover of clothing and nearly 40% of machinery and equipment.

According to customs statistics, the exports of goods can be broken down as follows: exports - 66.8%, exports of foreign goods after processing - 20.7%, re-exports - 9.5% and other procedures - 3.0%. Compared to 1994, the share of processing increased considerably and also to some extent customs warehousing.

The major trading partners of Estonia according to turnover were the same as in 1994 (see Table 22. Estonia's major trade partners according to foreign trade turnover). The five most important partners accounted for 70.5% in 1994 and in 1995. In 1995 the most important change was the strengthening of the leading role of Finland and the decrease in the share of Russia. The foreign trade balance with Russia which was in surplus earlier, turned into a large deficit in 1995.

Table 22. Estonia's major trade partners according to foreign trade turnover

 

Share in turnover (%)

Balance (EEK mn)

1993

1994

1995

1993

1994

1995

Finland

29.2

28.6

31.2

-2,139.9

-4,967.2

-6,744.5

Russia

19.3

19.2

16.4

504.3

429.5

-797.6

Sweden

9.3

10.1

9.7

-60.3

-200.2

-372.1

Germany

8.5

7.9

8.1

-201.8

-733.5

-1,070.3

Latvia

5.4

4.7

5.1

627.9

959.3

637.8

Total

71.7

70.5

70.5

-1,269.8

-4,512.1

-8,346.7

Services

In 1995 the surplus on services balance increased three times compared to 1994. This was due to the rapid increase in the export of services, with imports remaining at the same level. In 1993 the services balance surplus had covered the foreign trade deficit and the current account was in surplus as a result. In 1994 and 1995 the services balance surplus was not sufficient to compensate for the growing foreign trade deficit.

In 1993 and 1994 the structure of the services balance did not change much. In 1995 this was not so anymore. Although nearly 75% of services turnover so far comprised transport and travel services, the share of travel services increased from 15 to 33% (on the account of transport services). The current account was also supported by surpluses in transport, travel and construction services. There was also a surplus in communications services. The imports of other services exceeded their exports (see Table 23. Services' balance by major categories).

Table 23. Services' balance by major categories (EEK mn)
  1993 1994 1995
Export Import Balance Export Import Balance Export Import Balance
Services: net 4,434.3 -3,437.2 997.1 6,657.0 -5,294.3 1,362.7 10,011.8 -5,691.6 4,320.2
incl. Transport 2,956.8 -1,648.7 1,308.1 4,374.9 -2,382.8 1,992.1 4,275.8 -2,541.9 1,733.9
   Travel 659.6 -336.0 323.6 1,168.2 -616.5 551.7 4,073.1 -1,032.7 3,040.4
   Insurance 3.5 -62.1 -58.6 7.3 -152.0 -144.7 14.8 -166.8 -152.0
   Construction 236.5 -80.6 155.9 402.7 -391.3 11.4 723.6 -324.0 399.6
   Communication 113.1 -109.5 3.6 152.6 -160.3 -7.7 190.6 -63.0 127.6
Other services* 464.8 -1,200.3 -735.5 551.3 -1,591.4 -1,040.1 733.9 -1,563.2 -829.3

* Other services: financial services; computer and information services; royalties; cultural and leisure services; other business services

Although the share of transport services decreased with every quarter in 1995, transport was still the service with the highest turnover. An essential change took place in 1994 when exports and imports of transport services increased by 45% on average compared to the previous year. In 1995 both indicators remained at the 1994 level.

Freight accounted for 46% of transport services exports and 55% of imports in 1995. The relative decrease in freight services compared to 1994 was mostly caused by the decrease in the number of ships. The volume of purchased freight services has also decreased, indicating resident suppliers have taken a higher proportion of that service.

Although the number of foreign tourists has increased remarkably, it has not increased the volume of passenger services exports. This is due to the opening of several non-resident shipping lines and prices dropping due to competition. Passenger services accounted for one fourth of transport services exports throughout the period. The import of passenger services did not increase either, accounting for 13% of imported transport services.

No essential changes took place in the export and import of other transport services and the volume of foreign transport remained stable in 1995. The services in question accounted for approximately 30% of the transport service balance in both cases.

In 1995 the turnover of travel services grew rapidly. The surplus of these services exceeded the respective figure for 1994 by more than five times and was caused by the explosive growth in the number of foreign tourists visiting Estonia. The majority of these tourists were Finns. Although the number of foreign tourists from other countries decreased, this was manifold compensated for by the growing share of Finnish shopping tourists and the money spent by them in Estonia.

Income

In 1993 and 1994 the import of income exceeded export, and in 1995 Estonia received 25 million more kroons than was paid out. Such a movement was mostly influenced by the increase in income from portfolio investments and banks' income from other investments. At the same time the outflow of income earned by non-resident direct investors decreased. Interests paid on state loans did not increase considerably.

Transfers

Transfers brought more money into Estonia than was sent out. The level of foreign assistance in the form of goods and services was less than a year before. Private transfers increased considerably, due (mainly in the third quarter) to the compensations paid out to the survivors and relatives of the victims of the M/S Estonia disaster.

CAPITAL ANDI FINANCIAL ACCOUNT

Direct Investments

As over previous years direct investment capital increased mostly in the form of share capital and re-invested income, then in 1995 the share of loan capital increased. A certain decrease in the volume of direct foreign investments was caused mainly by the decrease in re-invested income and capital investments made into new businesses. The influx of share capital into already operating businesses also decreased somewhat. The overall volume of direct investments decreased also as a result of Estonian residents repurchasing shares. Investments from Estonia abroad were as small as earlier (see Table 24. Direct investments).

Table 24. Direct investments (EEK mn)

 

1993

1994

1995

Direct investments total

2,070.8

2,789.4

2,321.0

   Investments from Estonia abroad

-82.1

-29.8

-27.4

   Investments into Estonia

2,152.9

2,819.2

2,348.4

   o/w capital stock

1,234.5

1,877.7

1,181.4

       reinvested income

365.4

550.4

178.2

       claims on direct investors

-81.8

-64.9

-73.1

       liabilities to direct investors

634.8

442.6

1,048.1

       other investments made into Estonia

0.0

13.4

13.8

Compared to previous years, the structure of direct investment capital broken down by countries has changed somewhat. In 1995 the interest of countries located further from Estonia in investing here increased. If in 1993 and 1994 our main partners were Finland, Sweden and Russia, then in 1995 the majority of direct investments came from Sweden (43%), Singapore (14%), Finland (9%) and Great Britain (8%). From economic sectors, preference was still given to industry, the retail and wholesale trade and communications and transport.

Portfolio Investments

The deficit of portfolio investments remained at nearly the same level as in 1994, i.e., less than 190 million kroons. Claims on foreign investors and liabilities to them increased considerably. In 1995 there were three main factors influencing this area of investments.

First, Estonian commercial banks had become more active. More money was being placed in foreign securities, preference going to those of the Nordic countries and Baltic states. Meanwhile, more shares of these banks were being sold to nonresident investors.

Second, more money placed abroad through investment funds has been retrieved than added to these funds since the beginning of 1995.

Third, an exceptional factor was the compensation money paid to Estonian residents in connection with the M/S Estonia disaster being placed into foreign investment funds.

Other Investments

In 1995 other investments made into Estonia exceeded the outflow to the amount of 870 million kroons. The biggest influx occurred in the government sector as long-term loans and short-term bank capital. State loans were used for financing several energy saving programmes, for purchasing machinery and equipment, reconstruction of flight control systems and for lending to businesses and private persons through banks.