Estonia’s external debt drops

TALLINN - The financial positions in Estonia continued to improve in the third quarter of last year: financial assets increased by 300 million euros more than did financial liabilities, reducing the economy’s net liabilities to external counterparties to 75.1 percent of GDP by the end of the quarter, says an Eesti Pank announcement, reports news agency LETA. The real sector’s financial assets, however, did not change much in the third quarter, Raoul Lattemae, senior economist of the Financial Stability Department of Eesti Pank, said.

Corporate financial assets increased by 58 million euros, posting a mere 0.2 percent growth year-on-year. As in the third quarter, most of the growth resulted from an increase in liquid assets and in receivables. Meanwhile, corporate deposits with domestic banks decreased and claims to other companies and to the external sector increased. This is in line with recovering economic activity. Financial liabilities grew as well, by 3.1 percent year-on-year, for the most part due to an increase in foreign owners’ reinvested profits in Estonia and in corporate payables. At the same time, loans and the financial leverage of companies continued to shrink.

The financial assets of households decreased by 17 million euros in the third quarter. The contraction occurred mostly due to a decrease in the stock of deposits, whereas household investment in securities and in pension insurance payments continued to increase. The stock of household financial assets grew by 6.7 percent year-on-year. The stock of loans has been on the decrease as a result of household credit demand, which continues to be modest. Household financial liabilities decreased by about 95 million euros in the third quarter.

The general government’s financial assets grew in the third quarter, owing to seasonal factors and higher tax revenues. Both funds deposited in Estonia and investments in foreign securities increased, totaling 266 million euros. Liabilities of the general government increased, too, but not extensively, making the sector the largest contributor to the improvement in the economy’s financial position in the third quarter.

The financial accounts of the national accounts system reflect the financial assets and liabilities and respective transactions and other changes in assets and liabilities of both different economic sectors and the economy as a whole. Net lending and net borrowing are the balancing indicators of the transactions’ account, representing the difference of transactions with financial assets and liabilities made in the period under review. An economic sector is a net lender if the net acquisition of financial liabilities exceeds the net incurrence of financial liabilities over the same period, or if the decrease in financial liabilities exceeds the materialization of financial assets over the reference period.