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Press Release of December 30, 2003

In the third quarter of 2003, the current account deficit of the balance of payments was 152.7 million lats or 10.3% of GDP (8.3% of GDP in the corresponding period of the previous year). The share of the goods deficit and the surplus of services and current transfers in GDP increased. The surplus of services and current transfers covered 57.2% of the goods deficit.

Foreign trade turnover of Latvia continued to grow in the third quarter. Exports of goods increased by 13.6% and imports of goods by 22.7% year-on-year. Despite the sluggish economic growth in Europe, the increase in exports of goods to the EU countries (16.5%) was particularly significant.

The largest year-on-year rise (31.1 million lats) was achieved in exports of wood and articles of wood. The increase in exports of textiles and textile articles, miscellaneous manufactured articles, output of the chemical and allied industries, transport vehicles, machinery and mechanical appliances, electrical equipment, and base metals and articles of base metals was moderate. Exports of prepared foodstuffs (including alcoholic and non-alcoholic beverages and tobacco products) declined.

The year-on-year rise in imports of goods was determined by growing imports of capital goods and intermediate goods such as machinery and mechanical appliances, electrical equipment (31.1 million lats), transport vehicles (23.9 million lats), mineral products (18.5 million lats), and base metals and articles of base metals (16.8 million lats).

With a more notable rise (20.2%) in services rendered to non-residents, the services surplus grew by 15.5 million lats year-on-year.

The transport services surplus increased by 6.3 million lats year-on-year, such a growth being mainly caused by expansion of transport services rendered to non-residents by rail and road. The travel services deficit did not change notably year-on-year. Of all, other services surplus reported the largest year-on-year growth (10.0 million lats) and was mainly determined by a rise in services rendered to non-residents, with the volume of financial, communications and construction services growing.

The rise in non-residents' income from direct investment contributed to a year-on-year increase of 4.7 million lats in the income deficit in the third quarter. Non-residents' income from direct investment reached  43.1 million lats of which the largest part (72.8%) was reinvested in the development of domestic enterprises.

The growth of the current transfers surplus (44.9 million lats) was mainly determined by a swift rise in the volume of transfers received by other sectors (including private persons).

The surplus of the capital and financial account was 132.0 million lats. Loans and deposits under other investment were the key sources of foreign financing.

The low level of direct investment surplus  (4.0 million lats) was mainly determined by the repayment to investors of loans received in the form of other capital.  Direct investment in equity capital of Latvian enterprises was 13.7 million lats, and 31.4 million lats were reinvested earnings. Repayment of the loans received resulted in a negative balance of other capital item of direct investment attracted to Latvia (31.6 million lats).

Portfolio investment balance was negative. Residents (mainly banks) increased by 100.6 million lats their investment in foreign debt securities.

Inflow of other investment reached 287.4 million lats. On the liabilities side, other investment of residents increased by 400.3 million lats, with banks receiving loans (time deposits) and demand deposits, and enterprises receiving long-term loans. Inflow of the banking sector's other investment was 258.8 million lats, while that of other sectors was 29.4 million lats.

With the demand for lats growing and the Bank of Latvia mainly engaging in currency swap transactions in September, reserve assets grew by 67.4 million lats in the third quarter.

In the first nine months of 2003, the current account deficit constituted 8.9% of GDP (6.7% in the corresponding period of the previous year). The goods deficit increased year-on-year under the impact of a 13.2% rise in exports of goods and a 20.3% rise in imports of goods. The rising imports of goods were dominated by capital and intermediate goods, such as machinery and mechanical appliances, electrical equipment, mineral products, base metals and articles of base metals, and transport vehicles. The surplus of services did not change notably, whereas the surplus of current transfers grew significantly. Income surplus increased. The surplus of services and current transfers covered 59.5% of the goods deficit.

Inflow of direct investment in the first nine months of 2003 reached 128.8 million lats, covering 34.5% of the current account deficit. Direct investment in Latvia was mainly made in equity capital of enterprises and as reinvested earnings (71.7 million lats and 75.1 million lats, respectively).

Other investment (reaching 375.9 million lats) was another source of financing the current account deficit. The banking sector attracted most of capital in the form of other investment (376.3 million lats). In the first nine months of 2003, liabilities (mainly long-term loans) of Latvian banks to affiliated and related credit institutions increased by 104.2 million lats.

Portfolio investment balance was negative (156.4 million lats), mainly due to banks' investment in foreign debt securities.

In the first nine months of 2003, with the Bank of Latvia mainly engaging in currency swap transactions, reserve assets grew by 51.4 million lats.

LATVIA'S BALANCE OF PAYMENTS
(in thousands of lats)

 

2003

  I II 1 III
CURRENT ACCOUNT

-71256

-149667

-152661

  GOODS

-224866

-268411

-318609

    Credit (exports)

403988

465480

455171

    Debit (imports)

-628854

-733891

-773779

  Services

95443

86404

86680

    Credit (exports)

203411

221594

237546

    Debit (imports)

-107968

-135191

-150866

  Income

4141

-32931

-16254

    Credit

48971

49801

54865

    Debit

-44830

-82732

-71119

  Current transfers

54027

65271

95522

    Credit

96211

117399

146166

    Debit

-42184

-52128

-50644

 

 

 

 

CAPITAL ACCOUNT

1270

5619

4943

    Credit

1951

6305

5983

    Debit

-681

-686

-1040

 

 

 

 

FINANCIAL ACCOUNT

57306

113041

127075

  Direct investment

62435

62358

4002

     Abroad

-4072

-1676

-9401

     In Latvia

66508

64034

13402

  Portfolio investment

-38409

-19866

-98154

    Assets (investment in foreign securities)

-41799

-33172

-100639

    Equity securities

375

-678

1796

     Debt securities

-42174

-32494

-102435

     Bonds and notes

-41647

-26266

-105924

     Money market instruments

-527

-6228

3488

    Liabilities (foreign investment in Latvian securities)

3390

13305

2486

      Equity securities

641

6150

310

      Debt securities

2749

7156

2176

        Bonds and bills

2739

7251

2176

        Money market instruments

10

-95

0

  Financial derivatives

-5090

4429

1236

    Assets

-1946

-2153

1545

      Monetary authorities

-1908

135

-138

      General government

0

0

0

      Banks

-463

-2348

1685

      Other sectors

425

61

-1

    Liabilities

-3144

6581

-309

      Monetary authorities

-2973

4227

305

      General government

0

0

0

      Banks

-157

2354

-614

      Other sectors

-14

0

0

  Other investment

-50929

139421

287399

    Assets (Latvia's loans to foreign countries etc.)

-28349

-95459

-112877

      Monetary authorities

61

88

-17

      General government

-724

-155

147

      Banks

-2777

-83987

-118971

      Other sectors

-24909

-11405

5963

    Liabilities (foreign loans to Latvia etc.)

-22580

234880

400276

      Monetary authorities

-1663

-1341

-1231

      General government

-10348

-2356

294

      Banks

-5408

209696

377734

      Other sectors

-5161

28882

23479

 

 

 

 

RESERVE ASSETS

89298

-73300

-67408

 

 

 

 

NET ERRORS AND OMISSIONS

12680

31007

20642

1 Data have been revised.