Explanatory notes to the changes in the compilation of the Estonian balance of payments and the ajustments in the balance of payments of 1996 and the first six months of 1997

 

The availability of adequate information about the general economic situation to all the market participants is an important prerequisite for the efficiency of the financial markets and a balanced and feasible deleopment of the economy. Balance of payments which summarises transactions between residents and nonresidents constitutes an important systematic statistical statement based on which the economy and its probable developments are evaluated.

The main principles followed by Eesti Pank in compiling the Estonian balance of payments are impartiality and as adequate a reflection of the actual situation as possible. Eesti Pank strictly follows the internationally aknowledged balance of payments compilation standards.

Eesti Pank has made some adjustments in the balance of payments of 1996 and the first two quarters of 1997. The analysis of the customs statistics used in compilation of the balance of payments showed a significant rise in the share of transit trade between the non-residents. Since the aim of the balance of payments is to reflect transactions between the residents and non-residents, from now on Eesti Pank will leave the data on transit trade between the non-residents out of the calculations of the Estonian balance of payments (see Table 1). The change is in conformity with international standards and has been previously approved by the International Monetary Fund and other foreign experts.

Table 1. Balance of payments: transactions during period. 1996 - Q2 1997 (EEK million)

  1996 1997
Q1 Q2 Q3 Q4 Total Q1 Q2
Current account -1,172.2 -708.6 -846.7 -2,312.8 -5,040.3 -1,738.0 -1,167.9
Trade balance -2,460.1 -2,875.7 -3,157.4 -4,028.4 -12,521.6 -2,997.7 -3,819.5
    Merchandise: export fob 4,806.2 5,168.2 5,408.8 6,148.6 21,531.8 6,029.4 7,037.8
    Merchandise: import fob -7,266.3 -8,043.9 -8,566.2 -10,177.0 -34,053.4 -9,027.1 -10,857.3
Services: net 1,152.6 1,741.3 1,929.5 1,421.6 6,245.0 1,817.3 2,484.7
    Services: credit 2,685.6 3,412.1 3,688.4 3,566.7 13,352.8 3,397.0 4,630.5
    Services: debit -1,533.0 -1,670.8 -1,758.9 -2,145.1 -7,107.8 -1,579.7 -2,145.8
Income: net -137.8 134.7 73.6 -44.3 26.2 -857.4 -177.5
    Income: credit 276.8 364.9 327.6 383.2 1,352.5 432.4 322.0
    Income: debit -414.6 -230.2 -254.0 -427.5 -1,326.3 -1,289.8 -499.5
Transfers: net 273.1 291.1 307.6 338.3 1,210.1 299.8 344.4
    Official transfers 237.4 240.7 259.0 268.2 1,005.3 248.4 256.6
    Private transfers 35.7 50.4 48.6 70.1 204.8 51.4 87.8
Capital and financial account 1,241.6 1,026.2 1,121.0 3,207.6 6,596.4 1,621.2 1,369.3
   Capital account -2.5 -1.4 -2.3 -1.6 -7.8 -6.1 -1.5
   Financial account 1,244.1 1,027.6 1,123.3 3,209.2 6,604.2 1,627.3 1,370.8
      Direct investments 301.7 -155.1 382.7 800.6 1,329.9 954.0 105.9
      Portfolio investments -174.1 850.9 -78.1 1,185.7 1,784.4 -17.3 778.0
      Other investments 1,116.5 331.8 818.7 1,222.9 3,489.9 690.6 486.9
        Monetary authorities 124.4 -162.8 -58.7 -123.7 -220.8 -68.4 -94.4
        General government 153.2 124.9 72.2 -16.4 333.9 23.0 42.9
        Banks 850.6 -5.3 460.1 1,031.0 2,336.4 276.0 339.7
        Other sectors -11.7 375.0 345.1 332.0 1,040.4 460.0 198.7
Errors and omissions 53.9 153.3 -288.9 -246.0 -327.7 304.1 179.5
Overall balance 123.3 470.9 -14.6 648.8 1,228.4 187.3 380.9
Reserve assets -123.3 -470.9 14.6 -648.8 -1,228.4 -187.3 -380.9

*After additional information is received. data of the earlier periods have been updated accordingly.

The changes were made by Eesti Pank in October 1997 and as a result of these the trade deficit decreased, the import of freight services in the services balance decreased and trade credit debts of the residents in the financial account were reduced. That meant respective changes in the international investment position of Estonia (see Table 2).

Table 2. Estonia's international investment position (EEK mn)*

  31.03.1997 30.06.1997
EXTERNAL ASSETS 20,402.1 22,908.0
Direct investments abroad 1,560.5 1,927.1
     share capital and reinvested earnings 374.9 622.2
     other capital 1,185.6 1,304.9
Portfolio investments abroad 2,070.9 2,155.7
     financial institutions    
     government sector 6.6 9.2
     banks 1,342.7 1,352.3
     other sectors 721.6 794.2
Other investments abroad 7,715.8 9,259.4
     trade credit 2,327.7 2,577.5
     loans 1,148.2 1,756.5
          long-term 891.8 1,277.6
          short-term 256.4 478.9
     deposits 4,070.7 4,544.3
     other assets 169.2 381.1
     other assets 169.2 381.1
          long-term    
          short-term 169.2 381.1
Reserves 9,054.9 9,565.8
EXTERNAL LIABILITIES 35,575.4 39,209.9
Direct investments into Estonia 14,319.2 14,776.2
     share capital and reinvested earnings 8,358.8 8,672.1
     other capital 5,960.4 6,104.1
Portfolio investments into Estonia 6,403.0 7,122.0
     government sector 130.5 114.2
     banks 4,610.0 4,944.8
     other sectors 1,662.5 2,063.0
Other investments into Estonia 14,853.2 17,311.7
     trade credit 2,389.6 2,994.5
     loans 8,581.0 9,321.9
          long-term 8,184.1 8,943.3
          short-term 396.9 378.6
     deposits 3,046.8 3,944.0
     other liabilities 835.8 1,051.3
          long-term    
          short-term 835.8 1,051.3
Net international investment position -15,173.3 -16,301.9
      short-term 4,877.7 4,212.9
      long-term -20,051.0 -20,514.8
Net foreign debt of Estonian residents -3,169.7 -4,233.6
      o/w government sector -2,823.8 -2,943.7

*After additional information is received, data of the earlier periods have been updated accordingly.

Due to the above changes, the balance of payment figures for the four quarters of 1996 and the first and the second quarter of 1997 published eariler were have been amended. The current account deficit of the 1996 balance of payments decreased by nearly 7%, i.e. up to 9.6% of the GDP. The current account deficit of the first six months of 1997 was 9.8% of the GDP (13.2% in the first and 7.2 % in the second quarter) which is almost 33% smaller than the figures published earlier.

The recent adjustments made in the balance of payments will not give the least grounds to change the conservative economic policy so far pursued by Eesti Pank and the Government, aimed at lowering the risks inherent in the large current account deficit.

The trade data have changed

When collecting customs statistics, two methods - general and special trade - are used internationally. In case of the first method, import into customs warehouses and exports from them are both included, in case of the second method they are not included.

The Estonian Government amended the rules for the declaration of goods placed in customs warehouses from 1 October 1996, and since then the goods for transit trade, which stayed in customs warehouses for more than 30 days and which were earlier disregarded, were also included in the customs statistics. The analysis of Eesti Pank showed that transactions taking place in the customs warehouses were, generally, transactions between non-residents (with the exception of imports from customs warehouses for domestic use) and they were connected with the Estonian economy only through warehouse and other transport services.

The balance of payments generally reflects only transactions between residents and non-residents. In order to reflect the actual economic situation in Estonia by means of the balance of payments, it is wise to proceed from the principle of special trade. This approach is supported by the increasing share of transit trade in the Estonian foreign trade and a project of free ports introduced on 1 November, according to which the abovementioned transit goods are no longer included in the customs statistics.

In recent months, Eesti Pank in co-operation with the Customs Board and the Statistical Office of Estonia has examined the movement of goods through customs warehouses and found out the volumes of international trade which in reality have not crossed the Estonian customs border. Eesti Pank has excluded them from the balance of payments statistics of 1996 and the first six months of 1997 (see Table 3).

Table 3. Estonia's exports and imports* with the breakdown of customs procedures

  EEK mn
Q1 1996 Q2 1996 Q3 1996 Q4 1996 Q1 1997 Q2 1997
Exports 3,456.5 3,871.4 4,041.8 4,375.5 4,064.4 4,886.6
Re-export of processed merchandise 1,132.0 1,094.0 1,175.2 1,472.2 1,614.1 1,714.9
Re-export from customs warehouses 647.5 797.9 745.0 1,370.7 2,163.6 2,147.4
Other 90.5 158.1 190.2 369.6 388.8 495.1
Exports total 5,326.5 5,921.5 6,152.2 7,588.1 8,231.0 9,244.0
Merchandise imported for free circulation 5,821.3 6,570.3 6,687.0 8,086.6 7,006.2 8,547.0
Import of merchandise for processing 1,049.6 1,089.7 1,184.1 1,321.0 1,437.1 1,661.1
Import of merchandise into customs warehouses 956.0 1,077.2 1,446.6 3,082.0 3,539.2 4,261.6
Other 47.5 59.0 38.7 36.0 60.5 67.2
Imports total 7,874.5 8,796.1 9,356.4 12,525.6 12,043.0 14,537.0

* imports in cif prices

The decrease in imports decreased the import of freight services

Since the import and export of goods are connected with transport services, the data reflecting the latter have also been changed in the balances of payments of the last six quarters. According to the adjusted data, the import of transport services has decreased by 5%.

The deficit of the current account is smaller

Due to the changes in the trade and services balances, also the deficit of the current account has decreased considerably: to EEK 2.9 billion (EEK 4.3 billion before) in the first six months of 1997. The deficit of 1997 was EEK 5.0 billion (EEK 5.1 billion before). According to the adjusted data, the ratio of the current account deficit to the GDP was 9.6% in 1996 and 9.8% in the first six months of 1997.

The changes in the financial account

Including payments for the goods placed in customs warehouses in the balance of payments unjustifiably increased the trade credit debts by distorting the financial account and creating an illusion of an extensive inflow of short-term capital. After the above changes were made in the trade data, the trade credit debts of the residents decreased. The international investment position has also been changed by the respective sums.

Data on the income, transfers, direct and portfolio investments and reserves have not changed.

Making the above changes has been approved by the International Monetary Fund and the World Bank. Of these institutions the IMF governs the international harmonisation of the balance of payments compilation methods.