Current account deficit plummets

  • 2009-03-18
  • By Adam Mullett
VILNIUS - New statistics from Lithuania's Central Bank have shown that Lithuania's current account deficit plunged by 87.8 percent compared with December, reaching 104.3 million litas (30.23 million euros) in January.
Compared with January 2008, the deficit plummeted by 94.1 percent, the bank reported.

"The main reason is the foreign trade deficit 's data from merchandise trade show that exports are declining by 14.6 percent and imports are declining by about 40.6 percent year on year. It is in fact adjusting much faster than we expected," Lilija Tauraite, a senior economist for SEB Bankas, told The Baltic Times.
Tauraite said the recent monthly results aren't as important or indicative as the year on year results, which show weakening demand in the country.

"The foreign trade deficit decreased 96 percent 's that is amazing. It illustrates that domestic demand is decreasing rapidly. Demand for goods and investment goods are gone. Due to poor expectations, companies are getting less machines, less equipment and less transport," she said.
The central bank also attributed the drop to the decline of the foreign trade deficit.

In 2008 Lithuania's current account deficit was 14.5 billion litas, accounting for 13 percent of Gross Domestic Product (GDP).
In 2007 the deficit soared by 44.6 percent compared with 2006 to reach 12.7 billion litas, or 13.2 percent of GDP.

Tauraite warned that the sudden change in the current account balance could lead to a large decline in GDP.
"On one hand it's a good thing to become balanced on the external side, but the adjustment is very sudden and it would be better to have a more gradual decrease. This is happening too rapidly," she said.
Cash, to be provided by the European Union, would be distributed for investments in the country.

The government has just signed a deal with the European Investment Bank for a 1.13 billion euro loan to fund the economic stimulus package.
Finance Minister Algirdas Semeta and EIB Vice-President Eva Srejber signed the loan on March 13.
"The first installment 's 340 million euros 's will be paid to Lithuania at once, this will comprise 30 percent of the loan, which is the subject of the agreement," Srejber said.

"I would like to point out that the terms of the loan are very favorable. Its term is up to 25 years with a 7-year grace period, during which only the interest will be paid," Finance Minister Algirdas Semeta said.
The fixed annual interest of 4.2 percent would be paid throughout the loan repayment period, he said.
The money will be used for co-funding of 2004-2013 projects supported by the European Union.

The EIB will contribute to co-financing of projects, worth up to 9.56 billion euros, in the following sectors: infrastructure, transport, water, sewerage, health and education.

One of the country's biggest losers over the last year has been the trade of transport vehicles. A large trade of buying cars from Western Europe, then on selling them to eastern countries exist.
However, with a drop in the values of currencies in countries such as Russia and other CIS countries, Lithuania is no longer an attractive place to buy used transport vehicles.

"Transport vehicles were one of the biggest imports, which were then exported to the east. With other countries lowering currencies, they are less likely to buy from us. There was a 76 percent drop in car sales," Tauraite said.