Eesti Pank ESTONIA S BALANCE OF PAYMENTS FOR 2015

Transcription

1 Eesti Pank ESTONIA S BALANCE OF PAYMENTS FOR

2 Eesti Pank, 215 Address Estonia pst Tallinn Estonia Telephone Website ISSN

3 CONTENTS I. ESTONIA S BALANCE OF PAYMENTS FOR INTRODUCTION... 4 OVERVIEW... 7 CURRENT ACCOUNT Goods Services Primary income (excluding investment income), secondary income and the capital account... 2 FINANCIAL ACCOUNT Direct investment Portfolio investment Financial derivatives (other than reserves) and employee stock options Other investment Reserve assets II. ESTONIA S INTERNATIONAL INVESTMENT POSITION AND GROSS EXTERNAL DEBT AS AT 31 DECEMBER III. ESTONIA S BALANCE OF PAYMENTS IN INTERNATIONAL COMPARISON IV. THEORETICAL CONCEPTS, METHODOLOGY AND COMPILATION PRACTICES The balance of payments The international investment position... 5 External debt External sector statistics definitions Methodology and sources for compilation of the accounts of the Balance of Payments Principles for the dissemination and revision of data Legal basis for balance of payments statistics... 53

4 I. ESTONIA S BALANCE OF PAYMENTS FOR 215 INTRODUCTION The euro area economy as a whole grew faster in 215 than in the preceding years, and by the end of the year total output had reached about the same level as before the crisis. Economic growth in Estonia unfortunately slowed and was the slowest of the past six years, remaining below the long-term potential of the country. The slowdown was mainly due to the weak economic climate in several neighbouring countries and the restricted ability to export that followed from that. This left growth largely based on increased domestic consumption while both exports and corporate investment declined. Data from the balance of payments put Estonian exports of goods down 2% in 215, leading to a loss of market share for Estonian exports in several key target markets. External demand was generally weak, and on top of this, Estonian exports were affected by unexpected declines in exports from the production of electronics and from oil shale production, while for the first time companies were exposed for the whole year to the impact on exports of the cheaper rouble and of the sanctions imposed by Russia. In services the reduction in exports to the CIS countries was offset by increased sales to other target markets and for the year as a whole there was growth in most areas of services exports with the exception of transport services. The surplus on the current account in 215 was the largest since independence was regained, but unfortunately it was not a reflection of the strength of Estonian exports and the Estonian economy so much as it was of the general decline in trade in goods and of the passive investment environment. As imports of goods and services declined a little more in 215 than exports did, the surplus on the goods and services account was larger than in 214 and this was reflected in the surplus on the current account. The outflow of investment income was slowed by the extraordinary dividends paid out in the banking sector in the middle of the year but it increased in the second half of the year back to its usual level and restrained even faster growth in the current account surplus. Towards the end of the year several indirect indicators also showed growth in investment activity, which is very important for revitalising the economy, though there was no direct indication of growth in investment in 215. ESTONIA S BALANCE OF PAYMENTS FOR The year was not the most successful for the corporate sector as total profit was around 8% down on the previous year and fixed capital formation was 4% down. At the same time, wages continued to rise, leading real household incomes to grow. This aided companies focusing on the domestic market as private consumption grew by around 5% and was clearly the factor that made the most positive contribution to the structure of economic growth last year. The amount granted in loans to households and to companies increased in 215, with the growth coming from loans issued by credit institutions. The amount issued in loans from abroad to the business sector decreased, and the amount of direct investment in Estonia declined for the third year in a row. The net volume of inflowing direct investment in manufacturing companies was once again positive after several years when it wasn t, but the financial sector made a large negative contribution, with the extraordinary dividends paid out in the banking sector in the middle of the year playing an important part in that. The gross external debt (the external debt of all the economic sectors in the country) as a ratio to GDP fell from a year earlier by two percentage points, mainly because the general government and credit institutions reduced their indebtedness. The net external debt, which is the difference between debt liabilities and debt assets, was negative for Estonia for the fourth consecutive year, meaning that debt assets abroad were larger than debt liabilities to foreign countries. As debt assets increased by more during the year than debt liabilities did, the country s net debt assets were larger than a year before.

5 Taking external assets and liabilities as a whole, more was invested abroad than was taken from there, making the Estonian economy as a whole a net lender for the third year in a row. The net international investment position, which is the difference between external assets and external liabilities, improved to reach -41% of GDP by the end of the year. The negative sign in the net international investment position is mainly a reflection of how investment in Estonia is larger than investment going out from Estonia. Tables 1.1 and 1.2 show Estonia s balance of payments and its key indicators. Table 1.1. Estonia s balance of payments (EUR * Current account Goods and services Goods , , credit (f.o.b.) 5, , ,384. 1, , ,88.6 1,852.9 debit (f.o.b.) 6,2.7 7, , , , , ,714.2 Services 1, , ,36. 1, , , ,71.5 credit 3,36.2 3, ,4. 4, , , ,23.8 debit 1, , ,734. 3, ,534. 3, ,52.3 Primary income credit ,1.7 1,5. 1,176. 1, debit 1, , ,86.8 1, , ,649. 1,49. Secondary income credit debit Capital account credit debit Financial account , ,5.9 Direct investment ,12.8-1, assets liabilities 1, , , , Portfolio investment 1, , assets , equity securities and investment fund shares debt securities liabilities equity securities and investment fund shares debt securities Financial derivatives assets liabilities Other investment , , assets , , , cash and deposits , loans other assets liabilities ,47. -1, cash and deposits , , loans , other liabilities Reserve assets Statistical discrepancy * Data from earlier periods have been corrected to reflect additional information received later ESTONIA S BALANCE OF PAYMENTS FOR 215 5

6 Table 1.2. Key indicators for the Estonian balance of payments Current account balance (EUR Current account balance (% of GDP) Goods and services balance (% of GDP) External trade turnover (% of GDP) Goods exports as a ratio to imports (%) Reinvested earnings (net, % of GDP) Current account balance without reinvested earnings (% of GDP) Real effective exchange rate (index, Dec 22 = 1) Gross external debt (% of GDP) Net external debt* (% of GDP) General government external debt (% of GDP) General government net external debt (% of GDP) Direct investment liabilities position (% of GDP) Share of debt in the external liabilities position (%) GDP (EUR 14, , , , , , ,251.7 Real GDP growth (%) * Net debt = debt liabilities minus debt assets ESTONIA S BALANCE OF PAYMENTS FOR 215 6

7 OVERVIEW Current account turnover and balance Current account The Estonian balance of payments current 2 current account balance credit turnover debit turnover account was in surplus by around 45 million euros in 215, which was 265 million euros more than a year earlier and was equal to 2% of GDP. The positive current account balance increased because the deficits on the goods account and EUR million primary income account shrank. The services account was in surplus by 1.7 billion euros, which was unchanged from a year earlier. The credit turnover of the current account decreased by 2% over the year, and the debit turnover by %. Estonia traded mostly with countries in the European Union, and members of the EU-28 accounted for 76% of the credit in the current Current account structure account, and 83% of the debit, with euro area countries in the EU-19 accounting for 49% of the credit and 56% of the debit. 15 goods services primary income secondary income Goods Credit turnover on goods was down 2% in 215 at 1.9 billion euros, while debit turnover was down 3% at 11.7 billion euros. The faster decline in goods imports meant that the deficit on the % of GDP goods account eased a little to stand at 861 million -2 euros, or 4% of GDP for the year. Estonia s main trading partner, the European Union, accounted for 79% of the credit turnover of goods and 84% of the debit turnover. Countries of the euro area accounted for 48% of the credit turnover and 6% of the debit. Goods account EUR billion sale of goods purchase of goods balance balance as % of GDP (right scale) % of GDP ESTONIA S BALANCE OF PAYMENTS FOR 215 7

8 Services Services account Services exports stood at 5.2 billion euros in 215, and imports at 3.5 billion euros, meaning exports of services were down 2% and imports 3%. The sharp fall in exports and imports of services in the eastern direction was not offset in other foreign markets. The biggest falls were in exports of transport services and travel services and imports of construction services. The surplus on the services account was very close to its level of a year earlier at 1.7 billion euros, or 8% of GDP for the year. EUR billion exports imports balance balance as % of GDP (right scale) % of GDP Primary income The deficit in primary income in 215 was 418 million euros. The net outflow of income was lower than in the previous year because the net outflow of investment income was smaller. Primary and secondary income and the capital account balance as % of GDP The inflow and the outflow of labour income were both down. Direct investment income was 6 primary income secondary income capital account affected by the unfavourable economic environment and reduced profits, and this was expressed in lower amounts of direct investment income being received and paid out. Income received % of GDP 4 2 from portfolio investment increased, but income -2 paid out was down. Income received and paid out was lower for other investment income, while both income paid out and income received were higher for other primary income ESTONIA S BALANCE OF PAYMENTS FOR Secondary income and the capital account The surplus in secondary income in 215 was 25 million euros. The inflow of secondary income grew by 8% to 481 million euros while the outflow of secondary income was 456 million euros, of which 55% or 251 million euros came from the general government. The surplus on the capital account grew to 421 million euros in 215. Credit on the capital account was up 12% over the year at 47 million euros. Capital transfers from the structural funds of the European Union for infrastructure development in the general government sector and other sectors increased, while companies succeeded in selling the CO 2 quotas they had got earlier. Fewer CO 2 quotas were bought in 215 than in

9 the previous year, and so the debit on the capital account fell to 49 million euros. Financial account Financial account 5 other investment portfolio investment direct investment financial account total Capital outflows from the financial account surpassed inflows by 1 billion euros. The main channels for the outflows were portfolio investment and other investment. Pension funds financed the rest of the world the most, doing so with 226 million euros, while the general government did so with 225 million. Credit institutions continued to be net borrowers, taking in 356 million euros from the rest of the world. Unlike in 214, non-financial companies were net lenders by 134 million euros. EUR billion Direct investment The reduction in direct investment liabilities was Direct investment.2 billion euros larger than the reduction in assets. Direct investment assets decreased by.4 billion euros in 215 and liabilities by.6 billion. Assets shrank primarily because of the flows of loans issued by parent companies. The reduction in direct investment liabilities was due to an outflow of 1 billion euros in equity from unlisted companies. This amount includes both payouts to direct investors and buybacks of companies EUR billion liabilities assets balance balance as % of GDP (right scale) % of GDP from foreign capital. The total amount of earnings reinvested in 215 was.5 billion euros, which was 41% less than in the previous year Portfolio investment The net outflow of capital from portfolio investment continued for the fourth year in a row and stood at 564 million euros. The asset purchase programme that the European central banks started in 215 expanded the securities investments of the central bank significantly. The net outflow was also affected by the investments of insurance companies and pension funds in foreign fund shares and debt securities. The net inflow of financial derivatives amounted to 85 million euros during the year. Portfolio investment EUR billion liabilities assets balance balance as % of GDP (right scale) % of GDP ESTONIA S BALANCE OF PAYMENTS FOR 215 9

10 Other investment Other investment The outflow of capital from other investment continued for the sixth consecutive year and totalled 33 million euros. The source of the net outflow in 215 was the reduction in the trade credit-related liabilities of non-financial enterprises and claims of the general government on the European Union. EUR billion liabilities assets balance balance as % of GDP (right scale) % of GDP Gross external debt Estonia s gross external debt, which is the total external debt of all economic sectors, was 19.2 billion euros in 215, which was 5% smaller than the GDP of the year. The gross external debt grew by only.6% over the year. The external debt of other sectors accounted for 49% of the total gross debt, and 35% of it came from monetary financial institutions except the central bank. The general government debt accounted for about 8% of the gross external debt, having fallen 8% from its level of 214. Estonia s external debt assets have exceeded its external debt liabilities (gross external debt) since 212, which means that the rest of the world has owed more to Estonia than Estonia owed abroad. This surplus has increased steadily, and in 215 it reached 2.1 billion euros, or 1% of GDP. Gross and net external debt of the Estonian economy % of GDP -1-2 ESTONIA S BALANCE OF PAYMENTS FOR gross external debt as % of GDP net external debt as % of GDP

11 CURRENT ACCOUNT The surplus on the current account increased by 15% or 265 million euros during the year to reach 447 million euros, or 2% of GDP (see Figure 1.1). The cause of this notable growth was that the deficits on the goods account and primary income account shrank. The services account had a surplus of 1.7 billion euros, meaning it remained at the same level as a year before. Net exports of goods and services totalled 84 million euros, or 4% of GDP. Figure 1.1. Estonia's current account current account current account as % of GDP (right scale) 6 3 EUR billion % of GDP The turnover of credit and debit on the current account, which had been growing increasingly slowly from 21, started to fall in 215, with credit turnover down 2% on the previous year, and debit turnover down 4%. Estonia traded mostly with countries in the European Union, and members of the EU-28 accounted for 76% of the credit in the current account, and 83% of the debit. The three most important countries in the European Union for both credit and debit turnover were Finland, Sweden and Latvia. The European Union countries with which Estonia had the largest positive current account balance were Sweden, Finland, Latvia and Denmark, while the largest deficits were with Germany, Poland, the Netherlands and Lithuania (see Table 1.3). The countries outside the European Union with which Estonia had the largest surpluses were Norway, the USA, Turkey and Switzerland, and the biggest deficits were with China, Belize and Taiwan. Table 1.3. Current account balance by groups of countries (EUR European Union countries, of which -1, Germany* Sweden Finland Poland Netherlands CIS, of which Russia Ukraine Kazakhstan Other countries, of which 1, ,167.6 Norway China USA Turkey Total * Countries are ranked by the absolute value of last period's current account balance. ESTONIA S BALANCE OF PAYMENTS FOR

12 Goods The turnover on the goods account had been increasing continuously since 21, but it declined slightly in 215 as the credit turnover was down 2% over the year at 1.9 billion, while the debit turnover fell 3% to 11.7 billion euros (see Table 1.4). The faster decline in goods imports meant that the deficit on the goods account eased a little to stand at 861 million euros, or 4% of GDP for the year. Table 1.4. Exports (credit) and imports (debit) of goods Volume* (EUR Goods credit (f.o.b.) Goods debit (f.o.b.) Balance Change from previous period (%) Share in total exports of goods and services (%) Volume* (EUR Change from previous period (%) Share in total imports of goods and services (%) Volume (EUR Change from previous period (%) 26 5, , , , , , , , , , , , , , , , , , , , , , , , , * Data from the goods account of the balance of payments. The methodology used for the goods account has three sub-items: general merchandise, which covers normal exports and imports in international trade 1 and adjustments arising from the balance of payments methodology; net exports of goods under merchanting 2, which shows the balance of goods bought and sold in foreign countries for the purpose of onward selling; and nonmonetary gold, which plays a very small role in Estonia. Under the methodology, purchases of goods under merchanting are recorded as negative credit and sales of them as positive credit. ESTONIA S BALANCE OF PAYMENTS FOR Exports of general merchandise were 1.5 billion euros and imports 11.7 billion euros, and both were down on 214. As imports declined faster than exports, the balance of general merchandise improved a little to stand at 1.1 billion euros. Goods under merchanting also helped reduce the deficit on the goods account, with net exports of them increasing by 26% over the year to 283 million euros as 1967 million euros of goods under merchanting were bought and 2249 million euros were sold. Sales of goods to countries in the European Union were at the same level as in 214 at 8.5 billion euros, and they accounted for 79% of credit turnover (see Table 1.5). The largest partner countries were Sweden, Finland, Latvia, Lithuania and the United Kingdom, and together they accounted for 73% of the exports to the European Union, and 57% of total exports. Sales of goods to CIS countries had fallen by 45% in 214, and they fell a further 26% in 215, with sales to Russia falling by 28%. Exports of goods to other countries were down 5%, and the main trading partners were Norway, the USA and Turkey. The largest sales of goods under merchanting were to the United Kingdom, Russia, Lithuania, Latvia, the USA and Turkey (see Figure 1.2). 1 Exports and imports of goods not including goods crossing the border for the purposes of processing where the ownership does not change. Neither does it include quasi-transit trade, which is flows of goods through Estonia between non-residents. Normal imports are recorded in the balance of payments at FOB (free on board) prices. 2 Goods that resident merchants buy from third countries and sell on to non-residents without the goods crossing the border into Estonian territory.

13 Table 1.5. Exports 1 and imports of goods by groups of countries Export of goods (credit) Import of goods (debit) Volume (EUR Share (%) Change from previous year (%) Volume (EUR Share (%) Change from previous year (%) European Union countries, of which 8, European Union countries, of which 9, Sweden 2, Finland 1, Finland 1, Germany 1, Latvia 1, Latvia 1, Lithuania Lithuania 1, United Kingdom Sweden CIS, of which CIS, of which Russia Russia Belarus Belarus Uzbekistan Ukraine Other countries, of which 1, Other countries, of which 1, Norway China USA USA Turkey Switzerland Total 1, Total 11, Exports of goods (credit) also includes net exports of goods under merchanting. Figure 1.2. Sale and purchase of goods under merchanting by country Sales of goods under merchanting Russia 3% Purchase of goods under merchanting United Kingdom 13% other countries 36% other countries 47% Russia 12% Lithuania 11% Lithuania 4% Latvia 5% Ukraine 6% United Kingdom 8% Germany 12% Purchases of goods from European Union countries declined slightly to 9.8 billion euros, accounting for 84% of debit turnover. The top five trading partners were almost the same as for credit, but with the United Kingdom replaced by Germany. Imports from CIS countries fell by 18%, which was because goods imports from Russia, Ukraine and Belarus dried up. Imports of goods from other countries increased slightly, and the top three sources of imports were China, the USA and Switzerland. Goods under merchanting were bought most from Russia, Germany, the United Kingdom, Ukraine, Latvia and Lithuania. The negative balance on the goods account with European Union countries improved from a year earlier by 3 million euros to 1.3 billion euros. There was also a small deficit in trade in goods with the CIS. In contrast, the trade in goods with other countries was in surplus by 67 million euros. The European Union members with which Estonia had the biggest trade deficits were Germany, Poland and the Netherlands, while the largest surpluses were with Sweden, Denmark and Latvia. Trade in Turkey 5% USA 6% Latvia 6% ESTONIA S BALANCE OF PAYMENTS FOR

14 goods with Russia has been in deficit for two years now, mainly because of goods under merchanting, where purchases of goods from Russia were 3 million euros more than sales to Russia. Estonia had trade surpluses with Norway, Turkey and the USA from the group of other countries, and the largest trade deficit was with China. Normal exports of goods 3 fell by 3.3% year on year to stand at 1.6 billion euros (see Table 1.6). The main impact came from the decline in mineral products as exports of motor fuel fell by 34% and sales of electricity by 13%. Fuels were mainly exported to the Netherlands, Sweden and the USA, while 95% of electricity went to Latvia and minimal amounts to Finland and Lithuania. The largest group of goods as a share of normal exports was machinery and equipment, as before, though exports were down slightly, mainly due to exports of mobile communications equipment to Sweden. The goods items with the largest share were again cables and wiring systems and various components for the production of electronics, and these went to Sweden and also to Finland, Russia, Latvia, Lithuania and Germany. Exports of wood and wood products, including prefabricated wooden houses, furniture and wooden parts used in construction increased strongly to Sweden, Finland, Norway, Denmark and Germany. Exports of food products were down 7% on the previous year. First place in the list of exported food products was still strong alcoholic drinks, sales of which to Russia fell by 4%. Various dairy, fish, meat and cereal products were supplied mainly to Finland, Latvia, Lithuania, Sweden and Germany. Exports of chemical products also declined, primarily those to Russia. The main destinations for chemical products were Finland, Russia, Latvia and Lithuania, to where construction materials, plastic products, medicines, carboxylic acids and rubber tyres were exported. Various iron and steel products and scrap iron went mainly to Finland, and also to a lesser degree to Sweden, Latvia, Lithuania and Turkey. Products from light industry, notably carpets, thread, ready to wear clothing, underwear and footwear, went mainly to neighbouring countries. Table 1.6. Normal exports by major groups of goods ESTONIA S BALANCE OF PAYMENTS FOR Volume (EUR Share (%) Change (%) /214 Food 1,215. 1, Mineral products 1, Chemical products Clothing, footwear and headgear Timber, paper and products 1, , Metals and metal products Machinery and equipment 3, , Transport vehicles Furniture, toys, sporting goods Other Total 11,1.6 1, Normal imports of goods at CIF prices were 12.2 billion euros (see Table 1.7), which was 3.3% down on the previous year. Like with exports, the main reason for the fall in imports was the major decline in the mineral products group of goods. Supplies of motor fuels from Finland and Lithuania were down 24%, and imports of natural gas from Russia were down 13%, but purchases of electricity from Finland increased by a quarter. Top of the list among normal imports were machinery and equipment, notably mobile communications equipment, components for production of electronics, computers, cables and wiring, and these came from Germany, Finland, the Netherlands, Sweden, China and Poland. Chemical products in the form of medicines, plastic products, rubber tyres and fertilisers, and various food products such as strong and light alcoholic drinks, and fish and meat products, came mainly from Latvia, Lithuania, Finland, the Netherlands, Poland and Germany. Imports of transport vehicles 3 The following analysis draws on the foreign trade statistics collected and compiled by Statistics Estonia, which do not contain the adjustments and corrections that are in the balance of payments methodology, or the import and export of processed goods. Exports are recorded at FOB (free on board) prices and imports at CIF (cost, insurance, freight) prices.

15 Table 1.7. Normal imports at c.i.f. prices by major groups of goods Volume (EUR Share (%) Change (%) /214 Food 1, , Mineral products 1, , Chemical products 1, , Clothing, footwear and headgear Timber, paper and products Metals and metal products 1, Machinery and equipment 3, , Transport vehicles 1, , Furniture, toys, sporting goods Other Total 12, , were slightly more than a year earlier, as motor cars, goods vehicles and parts for them, and tractors were bought from Sweden, Germany, Finland and Poland. Various metal products were brought in mainly from Finland, Germany, Sweden, Poland and Russia, wood and wood products came from Finland, Russia and Latvia, and textile products and footwear arrived from Germany, Latvia, Finland, China, Poland and Italy. The deficit in normal trade was 1.6 billion euros, which was 3% less than in the previous year (see Table 1.8). The biggest deficits were in chemical products, transport vehicles, mineral products and machinery and equipment, while surpluses were posted by wood and wood products, furniture, and other industrial goods. Table 1.8. Balance of normal exports and imports by major groups of goods (EUR Food Mineral products Chemical products Clothing, footwear and headgear Timber, paper and products Metals and metal products Machinery and equipment Transport vehicles Furniture, toys, sporting goods Other Total -1, ,64.2 Services Exports of services were down by 2% in 215, and imports by 3% (see Table 1.9). Other markets were not able to compensate for the steep fall of 28% in exports of services to the CIS and of 17% in imports from there (see Table 1.1). However, the surplus on the services account was very close to its level of a year earlier at 1.7 billion euros, or 8% of GDP for the year. Services exports fell by 2% from a year previously (see Table 1.11) and 5.2 billion euros of services were provided to foreign countries. The structure of services exports is relatively stable, with transport services the largest single service type, accounting for 33%, followed by travel services with 25% and other business services with 17%. Other business services include trade-related services, legal services, accounting, management consulting, research and technical services and other professional services, including operating leasing services. Transport services were provided abroad to a value of 1.7 billion euros in 215, and exports of them were down 3%. The notable reduction in transit flows due to economic problems in Russia and direct ESTONIA S BALANCE OF PAYMENTS FOR

16 Table 1.9. Exports and imports of services Volume (EUR Exports Imports Balance Change from previous period (%) Share in total exports of goods and services (%) Volume (EUR Change from previous period (%) Share in total imports of goods and services (%) Volume (EUR Change from previous period (%) 26 3, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table 1.1. Exports and imports of services by groups of countries ESTONIA S BALANCE OF PAYMENTS FOR Exports European Union countries, of which Volume (EUR Share (%) Change from previous year (%) 3, Imports European Union countries, of which Volume (EUR Share (%) Change from previous year (%) 2, Finland 1, Finland Sweden Latvia Latvia Sweden United Kingdom Germany Germany United Kingdom CIS, of which CIS, of which Russia Russia Kazakhstan Belarus Ukraine Ukraine Other countries, of which 1, Other countries, of which Norway Norway Switzerland USA USA China Total 5, Total 3, Table Exports of services by major categories Volume (EUR Share (%) Change (%) /214 Manufacturing services Maintenance and repair services Transport 1,775. 1, passengers freight other transport services other* Travel services 1, , Construction services Telecommunications, computer and information services Other business services Government services Other Total 5, , * Pipeline transport, transmission of electricity and postal and courier services.

17 trade sanctions led goods transport by rail and associated port services to dry up. This led to a decline of 9% in freight transport services, while other transport services were down by 14%. Moving in the opposite direction, exports of postal and courier services almost doubled in 215 in reaction to the rapid development of online trading. Exports of travel services totalled 1.3 billion euros in 215, which is 6% less than in 214 (see Figure 1.3). More than 5.7 million visits were made to Estonia during the year, with visitors from the European Union making 74% of all visits. There were 2.7 million single-day trips, made by 48% of the visitors. Overnight visits averaged 4.2 days in length. Figure 1.3. Travel services 1.6 exports imports balance balance as % of GDP (right scale) 3. EUR million % of GDP While 39% of all visits to Estonia came from Finland, the share of travel services in total exports in monetary terms reached 45% for Finland (see Table 1.12). Travel services exports to Russia made up 11% of total exports. The peak time for Russian tourists to visit Estonia is at New Year, and so their visits help to lift the seasonal low point for the Estonian tourism sector in the winter. The fastest growth in exports of other services in 215 was the 14% growth posted by exports of manufacturing services, though those services are substantially less significant in exports than they were a decade ago. Exports of construction services increased by 3% thanks to increased demand from the Nordic countries. The volume of maintenance and repair services shrank due to the sharp drop in sales Table Travel services by groups of countries European Union countries, of which Volume (EUR Exports Share (%) European Union countries, of which Volume (EUR Imports Share (%) Finland Finland Germany Latvia Sweden Sweden Latvia Germany CIS, of which CIS, of which Russia Russia Ukraine Belarus Other countries, of which Other countries, of which USA Norway Norway Turkey Japan USA Republic of Korea Switzerland Total 1, Total ESTONIA S BALANCE OF PAYMENTS FOR

18 of services to Russia. Telecommunications, computer and information services were down 2% in 215 as sales of information services declined while sales of computer services increased strongly. By far the most important buyer of services from Estonia was Finland, which took a little over one quarter of the exports of services. The largest share of sales of services to Finland was travel services, which accounted for 41%, followed by transport services with 24%, other business services with 12% and construction services on 9%. The second most important destination for exports of services was Sweden, which bought 8% of all services. Exports to Sweden were dominated by transport services, which made up 34% of exports in that direction, and other business services, which provided 18%. Travel services, construction services and telecommunications, computer and information services were also exported to Sweden. Exports to Russia were 23% down over the year. Exports of services to Russia are mainly of two types, with 46% being transport services and a little over a third being travel services, and both of these were down. Of exports to Latvia, 29% were other business services, 26% were transport services, 17% were travel services, and 14% were telecommunications, computer and information services. The country in fifth place for exports, Norway, mainly took construction services, which were 31% of the exports of services in that direction, and transport services, which were 3%. The volume of imports of services was 3.5 billion euros in 215, which was 3% less than in the previous year (see Table 1.13). Transport services accounted for 34% of services imports, followed by travel services with 25% and other business services with 2%. Imports of most types of services declined with the biggest drop coming in construction services, of which about half as much was bought as previously. This is because some large infrastructure projects in Estonia that had used foreign construction workers in previous years were completed. There were also declines of 8% in telecommunications, computer and information services, of 2% in transport services and of 1% in maintenance and repair services. Imports of travel services remained at the level of the previous year at 885 million euros. Estonian residents made a total of 3.6 million visits to foreign countries in 215, though as one trip might visit several countries the actual number of trips made is significantly smaller. European Union countries played host to 8% of the visits, with one visit in five going to neighbouring Finland (see Figure 1.4). Single day trips accounted for 14% of the total while overnight visits averaged 3.8 days. Although four fifths of visits by Estonian residents were to countries in the European Union, the Union only provided 73% of total imports of travel services (see Table 1.12). Russia s share of the imports of travel services reached 5%. ESTONIA S BALANCE OF PAYMENTS FOR Table Imports of services by major categories Volume (EUR Share (%) Change (%) /214 Manufacturing services Maintenance and repair services Transport 1,22.9 1, passengers freight other transport services other* Travel services Construction services Telecommunications, computer and information services Other business services Government services Other Total 3, , * Pipeline transport, transmission of electricity and postal and courier services.

19 Figure 1.4. Numbers of foreign visitors by country Visits to Estonia by non-residents Visits abroad by Estonian residents USA 3% other countries 9% other countries 13% Finland 2% other EU-28 countries Finland 39% 18% Germany 7% other EU- 28 countries 33% Sweden 7% Latvia 13% Latvia 1% Russia 14% Russia 8% Germany 7% The largest supplier of services was Finland, from where 14% of services were imported. The leaders were transport services, which made up 46% of the volume of services bought from Finland, and travel services, which made up 24%. Other business services supplied 15% and telecommunications, computer and information services 6%. The second country for imports of services was Sweden, and the main service types bought from there were transport services, which accounted for 4% of the Swedish total, and travel services, which accounted for 18%. Telecommunications, computer and information services made up a further 18%, and other business services 16%. Transport services again led in Latvia, making up 34% of the services bought from there, while 26% were other business services and 22% were travel services. In Germany too, transport services were the largest group of services, accounting for 46% of all the services imported from Germany, and followed by travel services with 24%, and other business services with 15%. Other business services were 26% of all the services bought from the United Kingdom, while travel services were 23% and transport services were 24%. The balance on the services account was positive by 1.7 billion euros, or 8% of GDP, in 215. This made services an important source of income for the Estonian economy and they helped to offset the negative balance for goods. Most types of services contributed to the surplus (see Table 1.14). At 31%, the largest share of the surplus came from transport services, but the balance for transport services was 52 million euros lower than in 214 (see Figures 1.5 and 1.6). Within this, passenger transport and other transport services were in surplus, but freight transport was in deficit and the deficit Table Balance of exports and imports of services by major categories (EUR Manufacturing services Maintenance and repair services Transport passengers freight other transport services other* Travel services Construction services Telecommunications, computer and information services Other business services Government services Other Total 1, ,71.5 * Pipeline transport, transmission of electricity and postal and courier services. ESTONIA S BALANCE OF PAYMENTS FOR

20 Figure 1.5. Transport services exports imports balance balance as % of GDP (right scale) EUR billion % of GDP Figure 1.6. Structure of transport services by type of transport 9 exports imports balance 8 7 EUR million sea transport air transport rail transport road transport ESTONIA S BALANCE OF PAYMENTS FOR widened by around one third. Although the surplus on travel services shrank, the balance was more than 4 million euros and provided one quarter of the surplus on services. Other business services were in surplus by 13% and manufacturing services were in surplus by 9%. The positive balance of construction was 2.4 times larger than in the previous year because of the reduction in construction services imported. The balance for services was positive with the majority of trade partners. The largest surpluses were of 934 million euros with Finland, and of 273 million euros with Russia, while the largest deficits were of 8 million euros with Cyprus, and of 43 million euros with Spain. Primary income (excluding investment income), secondary income and the capital account The main source of the inflow into primary income (excluding investment income), secondary income and the capital account was transfers from the structural funds of the European Union (see Figure 1.7). These can be reflected in any of the three accounts depending on whether they are subsidies, expenditures targeted at consumption, or capital expenditures. In 215, 696 million euros of such grants was used, which was equivalent to around 3.4% of GDP. This is still 8% more than a year previously, but less than at the start of the decade, when grants stood at 4% of GDP for the year. The general government

21 Figure 1.7. Total primary income (excluding investment income), secondary income and the capital account by groups of countries 1,6 European Union institutions European Union countries other countries 1,4 1,2 EUR million 1, inflow 214 inflow 215 outflow 214 outflow 215 used a little more than half of the amount of structural grants, with 27% going on agricultural subsidies and the rest being used in other sectors, mainly for infrastructure development projects. The primary income net outflow was smaller in 215 than in the previous year because the net outflow of investment income shrank (see Table 1.15). Investment income is discussed in more detail in the analysis of direct, portfolio and other investment, and only the compensation of employees and other primary income are considered here. Table Components of primary income Inflow Outflow Balance Change (%) Change (%) Primary income Labour income Investment income Income on direct investment Income on portfolio investment Income on other investment Other primary income The inflow of compensation of employees was down 1% from a year earlier to 39 million euros in 215. Estonian residents earned labour income mainly in Finland, which was the source for 48% of the labour income inflow, followed by Norway at 12%, Sweden at 7%, the United Kingdom at 6%, Germany at 4%, and Latvia at 3% (see Figure 1.8). The flow of labour income from Finland and Norway were smaller than a year earlier, but more income was received from the United Kingdom. Some 19% of the inflow of primary income came from European Union agricultural subsidies recorded under other primary income. The amount received in other primary income in 215 was 188 million euros. The net outflow of compensation of employees was quite small in 215 at only 53 million euros. It was primarily Finnish and Latvian residents who earned labour income in Estonia. The outflow of other income was made up of European Union production and import taxes, which were 34 million euros in 215. The surplus in secondary income in 215 was 25 million euros (see Figure 1.9). The inflow of secondary income grew by 8% to 481 million euros (see Table 1.16), of which 41% went to the general ESTONIA S BALANCE OF PAYMENTS FOR

22 Figure 1.8. Labour income inflow by country (%) other countries 2% Latvia 3% Germany 3% Finland 48% Great Britain 6% Sweden 7% Norway 12% Figure 1.9. Inflow and outflow and balance of secondary income 6 inflow outflow balance 5 EUR million ESTONIA S BALANCE OF PAYMENTS FOR Table Secondary income and the capital account (EUR Inflow Outflow Balance Change (%) Change (%) Secondary income General government Other sectors Current taxes and subsidies Other current transfers of which personal transfers of which remittances by workers Capital account government and the rest to other sectors. Around four fifths of the transfers to the general government were allocations from EU structural funds, while the rest were mostly tax payments by non-resident employees. Half of the incoming current transfers to other sectors was from EU structural funds, while workers remittances totalled 47 million euros or 17% of the total. The outflow of secondary income was 456 million euros, of which 55% or 251 million euros came from the general government. The majority of this was Estonia s contribution to the European Union. The outflow from other sectors was