The increase in the current account surplus was partly was supported by one-off factors

Andres Saarniit
Andres Saarniit
Economist at Eesti Pank

The surplus on the current account of the balance of payments increased in the second quarter of this year to equal 6% of GDP. Corporate income tax was the cause of the large change, as it is calculated separately for large dividends. External sector statistics treat exceptionally large dividends as a reduction in a company’s equity, and so it is not the size of the dividend that affects the calculation of the current account, but rather the income tax applied to it. In technical terms this meant a reduction in the outflow of direct investment, and this in turn increased the current account surplus.

On top of corporate income tax receipts, the current account surplus increased due to a reduction in the outflow of investment income that stemmed from lower profitability for foreign owned companies and an increase in the surplus on the goods and services account. Unfortunately this increase came not from increased growth in the exporting sector, but from a reduction in imports of goods. This reflects the low level of investment activity and may prove an obstacle to GDP growth in the near term.

Given a current account surplus, it is to be expected that external assets grew faster than liabilities. This growth continued in the second quarter of this year, and by the end of June the Estonian net international investment position, which shows the gap between assets and liabilities, had dropped to -38% of GDP. Estonia’s external liabilities have not been so small in net terms in the past 15 years.


Background Information

Eesti Pank compiles external sector statistics that includes data on the balance of payments, foreign debt, the international investment position and foreign exchange reserves. Eesti Pank releases an economic policy comment and two statistical reviews on them:

  1. a balance of payments comment that focuses on explaining the changes in the current and capital accounts of the balance of payments
  2. a press release covering statistics on the financial account of the balance of payments, the international investment position and the external debt or foreign financing

Eesti Pank will release the statistics for the balance of payments and the external debt for the third quarter together with a comment on 9 December.

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