The surplus of the capital and financial account of the 1995 balance of payments exceeded the deficit of the current account, and the overall balance was in surplus and the reserves increased (see Table 1).(1)

(1) Since the 1995 balance of payments the Estonian Investment Bank has been included in the sector of banks among the entries of the financial account. The line marked as "Financial institutions" only carries the data on Eesti Pank. For the sake of comparability respective corrections have also been made in the data for 1993 and 1994.

The deficit of the CURRENT ACCOUNT remained at the same level as in 1994. An exception here was the third quarter when the current account was in surplus. This was caused by the sharp increase in the export of travel services as well as the arrival of compensations paid to the survivors and relatives of the Estonian victims of the M/S Estonia ferry disaster.

The deficit of the current account was caused by the trade deficit which even the more than threefold increase in the surplus on the services balance since 1994 was not sufficient to cover. The latter increased in 1995 due to the rapid increase in the export of services, and travel services in particular. The overall situation of the current account was also improved by the surplus on the income and transfers balance.

The surplus of the CAPITAL AND FINANCIAL ACCOUNT was larger by one third in 1995 than it had been in 1994. This was due to the 870 million kroon surplus of other investments last year. The bulk of the money here has been received as long-term loan capital of government sector.

ESTONIA'S GOLD AND FOREIGN EXCHANGE RESERVES increased by 1.2 billion kroons.


The current expenditures of Estonia's balance of payments outstripped the current revenue in 1995 by the same amount as in 1994 - by 2.1 billion kroons.

Merchandize (2)

The exports of goods increased 24.3 and import 34.5% as compared to 1994. The more rapid increase of imports led to the 3.3 billion kroon increase in the trade deficit in 1995 (see Figure 1).(3)

(2) A more detailed survey of Estonia's foreign trade in 1995 is available in the Eesti Pank bulletin No 2 (21) /1996, pp. 23-36. (Editor's note.)

(3) Here we have taken into account the corrections made in the trade balance by the Eesti Pank Balance of Payments Department, which are not reflected in the foreign trade analysis below. In Table 1 and Figure 1 both export and import are in the f.o.b. prices, while in the foreign trade analysis import has been given in c.i.f. prices. (Editor's note.)

Structure of Foreign Trade Turnover

The foreign trade turnover increased 31.2% in 1995.

The biggest change in the structure of the turnover was the 3.6% decline in the share of foodstuffs (see Table 2). This was caused by the discriminatory import tariffs applied on Estonian goods by Russia. The decline in the share of foodstuffs was compensated for by the increase in the share of machinery and equipment, chemical products, timber and paper in the overall trade turnover.

As in earlier years, the biggest deficit derived from machinery and equipment and mineral products, followed by chemical products (see Table 3). All ten groups of merchandise contributed to the increase in the trade deficit, but the biggest impact came from foodstuffs which turned from a surplus into a big deficit last year. While in 1994 five groups of merchandise were in surplus and five were in deficit, in 1995 only two groups of merchandise (timber and paper, furniture) were in surplus.

Structure of Export and Import by Groups of Merchandise

Due to reasons mentioned above, foodstuffs were the only group of merchandise the export of which declined in 1995. Therefore, the share of foodstuffs decreased 5.8 percentage points in the overall structure of exports (see Table 4).

Export increased the most in case of machinery and equipment, resulting in a corresponding increase in the share of this group of merchandise in the total volume of exports. The increase was caused by the steep increase in the turnover of machinery and equipment sent to Estonia to be processed: leaving aside the share of processed merchandise and customs warehousing in the export of machinery and equipment, their increase was only 13.7%. The majority of machinery and equipment processed in Estonia were various electronic components for computers.

The structure of imports was relatively stable as compared to exports (see Table 5). Worth mentioning would be the increase in the share of paper and paper products and metal products in the overall imports, and as a positive development the decline in the share of foodstuffs and mineral products.

Structure of Exports by Customs Procedures

Re-exports accounted for one third of the total volume of export. As compared to 1994, their share increased somewhat, mostly thanks to the considerable increase in the turnover of goods sent to Estonia for processing (see Table 6). To some extent also the share of customs warehousing increased.

Estonia mainly processes clothing, footwear and headgear for foreign companies, as well as machinery and equipment - the share of the latter increased particularly rapidly in 1995. Nearly half of the goods were sent to Estonia from Finland and one fifth from Sweden. Processing of merchandise accounted for one third of the trade turnover between these two countries and Estonia.

Through customs warehouses mostly transport vehicles, mineral products and foodstuffs were exported.

Foreign Trade Partners

Estonia's five major trade partners last year were the same as in 1994 and their share accounted for 70.5% of total foreign trade turnover in both years (see Table 7). The most significant change in major trade partners concerned the considerable increase in the share of Finland and the decline in the share of Russia.

Trade deficit increased with all five major partners and this was also decisive for the increase in the overall trade deficit (see Table 8). Trade deficit with Finland was the largest, with the size of the deficit exceeding the volume of export 1.5 times. Another remarkable change concerned Russia: the earlier trade surplus turned into a large deficit in 1995.

Among major export partners Russia was the only one to where Estonia's exports decreased. At the same time exports to Finland almost doubled, dominated by processed merchandise. Thanks to this, Finland replaced Russia as Estonia's most important export partner (see Table 9).

The first five countries in Table 10 accounted for three fourths of Estonia's total import volume in both 1994 and 1995. The structure of import by countries was relatively stable as compared to export: the share of Finland and Germany increased slightly and the share of Russia diminished.


In 1995 the surplus on the services balance was three times bigger than in 1994 (see Table 11). This was achieved mostly thanks to the 1.5-fold increase in the export of services, with imports remaining at the level of the previous year. The increase in the export of services was considerably quicker than the increase in the export of merchandise. While in 1994 the export of services was 38% of the export of merchandise, in 1995 it had increased to 47%. In case of the import of services the situation was the opposite: against the increasing import of merchandise the share of services imports was relatively modest.

In 1993, the surplus on the services balance fully covered the trade deficit and the balance of the current account was in surplus as a result. Although the surplus of the services balance has increased with every year it has not been sufficient to compensate for the increasing trade deficit in 1994 and 1995.

The quarterly changes in the services balance are given in Figure 2.

In 1995 the total turnover of the services balance increased 1.3 times as compared to 1994. In the structure of the turnover the biggest change concerned the proportions of the transport and travel services: the share of travel services increased from 15 to 33% in the total turnover of the services balance while the share of transport services fell from 57 to 43%. Similar to earlier years the share of other categories of services taken separately remained below 10%.

The deficit of the current account was reduced by the surpluses of the transport, travel and construction services with the increase in the surplus of travel services being particularly remarkable. In 1995 communication services were also in surplus. The import of other services exceeded their export.

Despite the decline of transport services in the total balance of services in every quarter of 1995 it still had the biggest turnover of all services. The surplus of transport services also diminished (see Table 12).

Approximately half of the export and import of transport services was made up of freight services. Although the volume of road and rail transport increased in 1995, the export of freight services decreased as compared to 1994. This was mainly caused by the decrease in the number of ships that made the share of freight services by sea drop by 20% in total freight services.

Although the import of goods increased throughout last year the import of freight services remained at the level of 1994. This points to the increased share of local transport companies in the importing of merchandise.

Due to the decline in the export of transport services the overall surplus on the transport balance also decreased as compared to earlier years.

In 1995 approximately 60% of all transport was by sea and 40% by road; the use of air transport was minimal.

One fifth of the transport services turnover came from passenger services. Although the number of foreign tourists visiting Estonia has increased considerably, it did not contribute noticeably to the exports of passenger services. This was due to several foreign shipping companies coming to the market and the reduction in ferry fares because of tighter competition. The exports of passenger services accounted for 25% of the total exports of transport services.

The coming of foreign shipping lines and widening of travel opportunities of Estonians led to a slight increase in the imports of passenger services. Its share in the total imports of transport services amounted to 13%. The surplus of passenger services balance remained at the level of 1994. Sea transport continued to play the leading role in passenger services with 70%, while air transport accounted for 20%.

As the volume of transport services remained relatively stable last year, there were no major changes in the exports and imports of other transport services that accounted for nearly one third of the total balance of transport services like in 1994. The surplus of the balance on other transport services also remained almost unchanged. Sixty per cent of the turnover of this category of services came from sea transport, with road and air transport accounting for 26 and 12%, respectively.

The turnover of travel services increased rapidly in 1995. The surplus of travel services was more than five times bigger than the respective figure for 1994 (see Figure 3). This was caused by the explosive increase in the number of foreign tourists visiting Estonia that increased the exports of travel services. Approximately 10% of this was services provided by travel agencies, the rest came from the money tourists spent in Estonia.

The majority of tourists visiting Estonia came from Finland. Although the number of visitors from other countries decreased as compared to 1994, the decline was manyfold compensated for by the ever increasing share of Finnish shopping tourists and the constant increase in their spending in Estonia. More than a third of tourists visiting Estonia used the package tours offered by travel agencies, the rest came on their own. Eighty per cent of the tourists came for one day. The bulk of the travel services exports was private trips, with the share of business trips below 20%.

The imports of travel services, too, increased rapidly last year, with the volume of imports amounting to 25% of the volume of exports. A quarter of Estonians travelling abroad used the package tours; the share of business trips was almost identical.

Among other categories of services the most important for Estonia last year were construction services. As compared to 1994 their exports increased 80%, accounting for 7% of the total exports of services. Like in 1994, most of the income came from building projects in Russia and other CIS countries. This lead to the increase in the surplus of construction services balance.


In 1993 and 1994 the import of income exceeded export, in 1995 Estonia received 25 million kroons more than was paid out (see Table 13). The surplus of income was considerably affected by the nearly two-fold increase of income from portfolio investments as compared to 1994. The banks' income from other investments also increased.

The biggest outflow of income was in the form of income earned by non-resident direct investors. Although this was smaller than in 1994 it still amounted to 300 million kroons. Interests paid on state and private sector loans also contributed to the outflow of income.


Transfers continued to bring in more money into Estonia in 1995 than was sent out. The level of foreign assistance in the form of goods and services was less last year than in previous years. Private transfers increased considerably (mainly in the third quarter) due to the insurance compensations paid out to the survivors and relatives of the victims of the M/S Estonia ferry disaster.


The nearly 3 billion kroon surplus of the capital and financial account fully covered the deficit of the current account.

The money on the CAPITAL ACCOUNT was mostly linked with subsidies paid to people who left Estonia for good and foreign assistance sent to Estonia for that purpose. This way, a total of 9.1 million kroons more money was sent out of Estonia than came in.

The more than 3 billion kroon surplus of the FINANCIAL ACCOUNT was the biggest in recent years. This was based on the 2.3 billion kroon surplus of direct investments and the 870 million kroon surplus of other investments. Like in previous years, portfolio investments were in deficit.

Direct Investments

The influx of direct investments into Estonia slowed down somewhat in 1995. At the same time Estonian investments abroad remained small (see Table 14). Direct investments accounted for more than three fourths of the surplus of the capital and financial account.

A certain decrease in the volume of foreign direct investments as compared to 1994 was caused by the decrease in capital stock investments and re-invested income. While in earlier years direct investments had mainly increased in the two above-mentioned forms, in 1995 the share of loan capital increased.

A total of 1,520.9 million kroons worth of direct investments was made into voting capital stock. The increased repurchasing of shares by Estonian residents (mostly from Finland) decreased the inflow of capital stock investments by 340 million kroons. The decrease in capital stock investments was mainly due to the decline in investments into new businesses. To a certain extent also the inflow of direct investments into already operating businesses decreased.

In 1995, 40% of direct investments were in the form of loans by foreign partners. In 1994 the share of loan capital had been only 14%. Half of the loan capital were long-term loans while short-term loans and consumer credit accounted for 20 and 30%, respectively.

The structure of direct investments broken down by countries was somewhat different from that of previous years. The interest of countries located further from Estonia in investing here increased. While in 1993 and 1994 Estonia's main partners were Finland, Sweden and Russia, in 1995 the majority of capital stock investments came from Sweden, Singapore and Great Britain. If we proceed from the total sum of direct investments, we can add Finland and the USA to the above countries (see Table 15).

The bulk of the investments were made into industry, as far as both capital stock investments and total direct investments were concerned. A significant part of capital stock investments were also made into the finance sector as well as the wholesale and retail trade. Considering total direct investments industry was followed by wholesale and retail trade and transport (see Table 16).

Portfolio Investments

The deficit of portfolio investments remained at nearly the same level as in 1994, being less than 190 million kroons. At the same time claims and liabilities increased considerably. In 1995 there were three main factors influencing this area of investments.

Firstly, Estonian commercial banks have become more active. More and more money is being invested into foreign securities, with preferences going to the securities of the Nordic countries (including the bonds of the Nordic Investment Bank issued in the third quarter) and the Baltic states. At the same time the banks are also successfully selling their own shares to non-resident investors. In 1995 Estonia's first international bond issue was carried out.

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

Thirdly, an exceptional factor in 1995 was the insurance money paid to Estonian residents in connection with the M/S Estonia ferry disaster being placed into investment funds in Germany and Great Britain.

Other Investments

In 1995 other investments into Estonia exceeded the outflow of investments by 870 million kroons. The biggest influx occurred in the form of long-time loans of the government sector and short-term capital of banks.

Eesti Pank, the Government (including loans guaranteed by the Government) and the Estonian Investment Bank disbursed 817.6 million kroons worth of foreign loans in 1995, or 1.6 times more than in 1994. The state loans were used for financing several energy saving programmes, for purchasing machinery and equipment, modernizing the flight control system, and for lending to businesses and private persons through banks. Repayments on state loans amounted to 46.9 million kroons.


The increase in Estonia's gold and foreign exchange reserves in 1995 was threefold as compared to the increase in 1994.

Eesti Pank Balance of Payments Department