In Estonia's balance of payments the second quarter surplus of the capital and financial account was bigger than the deficit of the current account, the surplus of the total balance was the biggest since 1993 and the reserves grew (see Table 1).
The deficit of the CURRENT ACCOUNT decreased 7.6% against the first quarter. The state of the current account improved despite the record deficit of the trade balance, caused by the 11.2% increase in imports against the 6.4% increase of exports in the second quarter.(*) The reduction of the deficit of the current account first and foremost resulted from the increased surplus of the services balance (see Figure 1) and the income balance developing a surplus.
(*)Amendments made by the Eesti Pank Balance of Payments Department in the customs statistics have been taken into account when calculating the growth of export and import. Both export and import are in f.o.b. prices.
The turnover of the services balance increased by one-third compared to the first quarter, and the surplus grew 70%. Thus, the surplus of the services balance increased at a more rapid rate than the deficit caused by trade. The increase of the surplus of the services balance can mostly be attributed to the rapid increase in the sale of passenger and travel services. The turnover of freight services that has usually brought high income to the state decreased in the second quarter and the surplus of this transport service diminished.
The income balance had surplus in the second quarter, for the first time since Estonia has been drawing up its balance of payments. The change was caused by the decline in reinvested income compared to the first quarter because in most companies decisions on the use of profits and reinvestments are made in the first months of the year. The lowering of interests paid for state loans also contributed to the surplus of the income balance, because interests for several big loans are paid twice a year.
The surplus of the transfers balance was approximately the same as it was in the first quarter and mostly resulted from foreign assistance.
The record surplus of the CAPITAL AND FINANCIAL ACCOUNT of the first quarter decreased 46% in the second quarter. This was caused by the diminished surplus of other investments. There were also fewer direct investments into Estonian economy than in the first quarter. For the first time since 1993, the balance of portfolio investments developed a surplus as several banks repatriated to Estonia money earlier invested in foreign securities.
The increase of RESERVES that began last autumn continued in the second quarter, when gold and foreign currency reserves increased more than they did in the course of the whole last year.
The deficit of the current account was 61.5 million kroons less in the second quarter than in the first quarter. The state of the current account improved regardless of the record high deficit of the trade balance, which in the second quarter equalled to the deficit for the entire 1993.
(**)A survey of the Estonian foreign trade in the first half of 1995 was published in the Eesti Bank Bulletin No 7, 1995, pp. 32-44. (Editor's note).
Since the increase of imports outstripped exports, the trade deficit amounted to over 1.9 billion kroons in the second quarter.
(***)The analysis of foreign trade does not include amendments made in the foreign trade section of the balance of payments by the Eesti Pank Balance of Payments Department. Export is given in f.o.b., import in c.i.f. prices.
Foreign trade turnover increased 8.6% in the second quarter as compared to the first quarter (see Table 2). Such growth, although it has been slowing down with every year, is generally characteristic of a second quarter after a modest increase or even decline in the first quarter (see Figure 2).
Out of the ten groups of goods analysed, the turnover of the majority of them increased 8-12% (see Table 3). The biggest increase was recorded in the group of machinery and equipment, while the smallest increase occurred in the turnover of foodstuffs which remained close to that of the first quarter.
There were no big changes in the structure of foreign trade turnover. The only significant change concerned the increase in the share of machinery and equipment and the fall in the share of foodstuffs.
The major causes for the deficit of the foreign trade balance were the same as before: machinery and equipment, mineral products, and chemical products. Among the ten groups of goods analysed only timber and furniture had a positive trade balance. The balance of clothing, footwear and headgear turned negative and the negative balance of several other groups of goods increased. However, the balance of foodstuffs turned negative for the first time in the first quarter of 1995.
A significant part of Estonia's foreign trade is made up by goods sent here for processing. In the second quarter the turnover of such goods increased and their share in the total turnover of foreign trade also went up (see Table 4).
The majority of goods processed in Estonia were machinery and equipment, and clothing, footwear and headgear. Compared to the first quarter, the turnover of processing of transport vehicles increased the most rapidly. In case of the three above-mentioned groups of goods, as well as in case of furniture and metal products, processing made up a considerable part of the total turnover of the respective group of goods.
In the second quarter over half of the turnover of processed goods was with Finland, amounting to nearly a third of the total turnover of goods between Estonia and Finland (see Table 5).
The most important changes in the structure of export were the increase in the share of mineral products, and machinery and equipment, and the decrease in the share of foodstuffs, clothing, footwear and headgear, transport vehicles and other industrial goods (see Table 6).
In the second quarter 4.6 times more mineral products were exported to the Netherlands; exports to Denmark, Belgium and Belarus increased two times. Considerably more machinery and equipment were exported to the countries that had sent them to Estonia for processing, i.e. Finland, Sweden and Germany, but also Latvia and Belarus.
The export of timber and timber products increased by 10%, as well as export of furniture, mostly to the Nordic countries, Germany and the Netherlands.
The export of foodstuffs decreased mostly due to less being exported to the Netherlands, Denmark and Russia. However, export (mostly animal products) increased to Great Britain (twice), Belarus, Latvia and Lithuania. Less clothing, footwear and headgear was exported to Sweden and Norway, and the export of transport vehicles went down in case of Great Britain, Lithuania and Russia. The export of transport vehicles to Germany increased more than eight times due to the volume of processing in Estonia increasing.
Major changes in the structure of import concerned the decrease of the share of foodstuffs, mineral products and machinery and equipment in overall imports, and the increase in the share of clothing, footwear and headgear, transport vehicles and chemical products (see Table 6).
The increase was most rapid in the import of transport vehicles and clothing, footwear and headgear. Nearly twice as many transport vehicles was imported from Russia and Belgium, and import from Germany, the Netherlands and Sweden was up as well. Import of clothing, footwear anad headgear increased from Germany, Belgium, Finland and Sweden.
On the positive side we can note that the increase of the import of foodstuffs and mineral products was below the average. The import of animal products even decreased (mostly from Germany, Denmark and the Netherlands), although the import of food industry products increased (mostly from Finland and Germany). More animal products and processed food products was imported from Russia.
In the second quarter Estonia's foreign trade turnover increased with the majority of its 15 most important trade partners, with the exception of Russia, Latvia, the Ukraine and Norway (see Table 7). Trade turnover with the former three remained close to the level of the first quarter while trade turnover with Norway dropped 20%. The share of these countries in the total trade turnover reduced correspondingly. The most rapid increase of turnover was recorded with the Netherlands, the USA, Italy and Belarus.
Trade balances with the majority of partners became less favourable for Estonia - the deficit increased in trade with Russia, Italy, Belgium and Finland, and the surplus decreased in trade with Latvia, Lithuania, Great Britain and Norway. The earlier surplus in trade with the USA and Sweden became a deficit. A positive shift was that the earlier trade deficit with the Netherlands and Denmark turned into a surplus, and that trade surplus with the Ukraine and Belarus increased.
Among Estonia's 15 major export partners in the second quarter export increased into ten countries and decreased into five (see Table 8).
The increase was the biggest - more than twice - in exports to the Netherlands. This resulted mostly from the increase in the export of animal products, to a lesser extent also mineral products, timber and metals. The export of goods to Denmark (mineral products, furniture) and Belarus (foodstuffs, mineral products, transport vehicles) increased over 40%. Export to Germany increased by a third. Increase occurred mainly in groups of goods that included a big share of goods processed for Germany (textile products, machinery and equipment, transport vehicles).
Export to Finland increased more rapidly than total export, increasing the share of Finland as Estonia's export partner. The increase concerned the export of several groups of goods to Finland.
Among major trade partners, export decreased to Russia, Sweden and Latvia, and among the other partners, to Norway and Belgium. Export to Russia mainly decreased due to the decline of foodstuffs exports by one-third. Less metals, textile products and machinery and equipment was exported to Sweden. Latvia received less mineral products (electricity), Norway got less timber and textile products, and Belgium received less products of chemical industry.
In the second quarter imports increased from 14 important partner countries and decreased only from the Netherlands (see Table 9). The increase of imports was slower from major partner countries, which reduced their (Finland, Russia, Sweden, Germany and Denmark) share in Estonia's total imports.
Import from the rest of the partners increased considerably, nearly doubling in case of the USA (textile products, machinery and equipment, medical appliances). Imports from Italy increased by nearly 50% (products of chemical industry, and plastics), imports were up over 30% from Lithuania (mineral products), Austria (several groups of goods), Great Britain (foodstuffs and products of chemical industry), France (products of chemical industry, and plastics, footwear, precious metals) and Belgium (textile products and transport vehicles).
The balance of services was greatly influenced by the increase of the surplus of transport and travel services in the second quarter. As a result, the services balance had a record high surplus (see Figure 3).
The rapid increase in the export of services led to a one-third increase in the total turnover of the services balance as compared to the first quarter. Forty-six per cent of the turnover came from transport and 29% from travel services. The turnover of other services was small compared to the above-mentioned ones, but surpluses were also recorded in such areas as construction, communication and other business services (see Table 10).
Transport services were exported in the second quarter for 1.1 billion kroons worth and imported for 0.6 billion kroons. The surplus of the transport balance increased due to the export of passenger transport doubling as compared to the first quarter. There were also some changes in the structure of the turnovers of services. While so far freight services had accounted for more than half of the export turnover of transport services then in the second quarter its share decreased over 10% in favour of passenger services (see Table 11).
The decrease of the surplus of freight services was mostly caused by the smaller volume of the export of sea transport due to the reduction in the number of vessels, and by the slight increase in the import of land transport. At the same time also the export of land transport also increased. Sea transport accounted for 60% of the freight turnover and land transport for nearly 40%. The share of air transport in freight services was minimal.
The beginning of the tourist season had a significant impact on the balance of passenger transport in the second quarter - the export of this service more than doubled as compared to the first quarter, reaching a record level compared to earlier periods. Regardless of the increase in the import of passenger transport the sale of this service outstripped purchases by more than four times. Nearly three-thirds (74%) of the turnover of this service came from sea transport. Air and land transport accounted from 21% and 5%, respectively.
The turnover of other transport services amounted to one-third of the total turnover in the second quarter, just as it had before. Due to the increase in the turnover of freight and passenger transport the turnover of other transport services increased as well. A surplus was recorded for all kinds of transport.
A weighty part of the services balance in the second quarter belonged to travel services that accounted for nearly one-third of the total turnover.
As compared to the second quarter of 1994, the export of travel services has more than tripled. A seasonal growth was also recorded in the import of this category of services. In the second quarter 800 million kroons worth of travel services was sold to non-residents, while 300 million kroons worth of travel services was bought from them. The surplus of the travel services was equal to the surplus of the entire last year (see Figure 4). The continuing increase of the export of travel services was still based on the rapidly increasing number of foreigners visiting Estonia. The overwhelming majority of the tourists visiting Estonia were Finns. Although the number of tourists from other countries declined somewhat as compared to the second quarter of 1994, the gap was made up several times by the ever-increasing number of Finnish shopping tourists and their increasing spendings in Estonia.
In general, the services balance in the second quarter was significantly influenced by the decline in the export of freight services and the extensive increase in the net income earned from tourism. The latter was achieved mostly thanks to the increased export of travel services and passenger transport that resulted from the increase in the number of tourists visiting Estonia.
In the second quarter the income balance for the first time in recent years had a surplus (see Table 12).
There were three main reasons for this. Firstly, the reinvested income of foreign direct investors decreased since in the majority of companies the distribution of the profits and reinvestments are decided in the first months of the year. The second reason can be attributed to the reduction in the cost of state loans since interests on several major loans have to be paid only twice a year. And thirdly, income from portfolio investments abroad increased.
In the second quarter the positive balance of transfers remained approximately on the same level as in the first quarter.
As before, the majority of incoming transfers was foreign assistance in the form of services. The rest was current transfers of the government and private sectors.
Outgoing transfers were relatively small and mostly concerned the movement of money in the private sector.
The first quarter record surplus of the capital and financial account declined by nearly half in the second quarter, but was still larger than the deficit of the current account.
Through the capital account money moved out of Estonia mostly in connection with subsidies paid to people who emigrated from Estonia. No capital transfers into Estonia were made in the second quarter.
The surplus of the financial account resulted first and foremost from the direct investments into Estonia, long-term state loans and short-time capital inflow to banking and other sectors.
In the second quarter no big direct investments were made into Estonia, most of what arrived was loan capital. Non-residents invested a total of 383.5 million kroons into daughter companies in Estonia. The total investment was reduced by the increase of claims that amounted to 53.1 million kroons (see Table 13). Direct investments from Estonia abroad amounted to 6 million kroons. The surplus of the flow of direct investment capital accounted for almost half of the surplus of the financial account.
The influx of investments into capital stock dropped to its lowest level ever in the second quarter (see Figure 5). This was mostly caused by the fact that few new companies with foreign capital involvement were set up. The influx of investments to capital stock of existing companies also diminished, due to the return of shares worth 102 million kroons.
As the decisions on the use of the profits earned in 1994 were made in most companies in the first quarter already, the volume of reinvested income also decreased in the second quarter.
The share of loan capital in direct investments increased to over 50%. Liabilities to direct investors increased record high as compared to earlier periods. Thirty-three per cent of the increase in liabilities arrived in Estonia in the form of long-term loans and 15% in the form of short-term loans. The increase of consumer credits and other liabilities to direct investors amounted to 26% and 27%, respectively, of the total increase of liabilities.
Claims on direct investors have increased gradually. Most of these are consumer credits. In the case of long-term loans, repayments outstripped borrowings by a few million kroons, while in case of short-term loans the situation was reversed, and in general this had no significant impact on the increase of liabilities.
The structure of direct investments into Estonia by countries and spheres of activity is given in Table 14. The countries do not include the banking sector since information provided by banks does not allow to distinguish concrete states. As compared to earlier periods, the structure of direct investors changed slightly in the second quarter. The major investments into capital stock came from Austria, Singapore and Great Britain. However, 45% of all investments came from Finland.
Among the branches of the economy, industry was clearly preferred. But significant investments were also made into wholesale and retail trade and banking.
The volume of Estonian direct investments abroad amounted to 6.2 million kroons in the second quarter. The bulk of it was the increased consumer credits on daughter companies abroad.
The balance of portfolio investments had a surplus for the first time since the first quarter of 1993. This was mostly due to banks repatriating money earlier invested in securities abroad. In other sectors continued the tendency that had begun at the end of 1994, i.e. more money invested earlier abroad through investment funds was repatriated than new investments made abroad.
The surplus of other investments decreased more than 2.5 times in the second quarter as compared to the first quarter, but still remained bigger than in earlier periods. The surplus was mostly due to long-term state loans and the influx of short-term capital to the banking and other sectors.
Eesti Pank, the Government and the Estonian Investment Bank used 203.6 million kroons worth of foreign loans in the second quarter, on financing the energy saving programme, buying various machinery and equipment, as well as on-lending to companies and individuals. A few of the loans were also repaid in the second quarter, with the total sum of repayments amounting to 21 million kroons.
The increase of reserves that had begun in the autumn of 1994 continued in the second quarter of 1995. Gold and foreign currency reserves increased more than over the entire last year.Eesti Pank Balance of Payments Department