Balance of payments – commentary

2023 Q2

Simultaneously with the publication of the 2023 Q2 balance of payments figures, revised data for 2023 Q1 are being published. The revised data mainly take into account updated CZSO data on exports and imports of goods and services and, on the financial account, an update of data from statements submitted to the CNB by financial and non-financial entities.

xxx

The current account ended 2023 Q2 in a deficit of CZK 30.4 billion. The financial account recorded an outflow of funds (net lending) of CZK 2.6 billion owing to growth in external assets. Reserve assets increased by CZK 2.5 billion (adjusted for valuation differences). The current account deficit was 4.3% of GDP on an annual basis and the goods and services surplus was 2.4% of GDP.

The current account

Ratio of Current Account and Goods and Services Balance to GDP
(CZK billions, right-hand scale in %)

Note: Indicators calculated on the basis of annual moving aggregates

The goods and services balance recorded a surplus of CZK 105.2 billion in Q2. The balance improved by CZK 112.1 billion year on year at current prices due to a decline in goods imports of almost 10% amid a slight increase in goods exports (index 101.2). The goods balance ended in a surplus of CZK 80.6 billion, up by CZK 118.6 billion on a year earlier. The services balance also showed a surplus (CZK 24.6 billion). However, this represented a year-on-year decrease in the surplus of CZK 6.6 billion. The decrease was due mainly to a rise in imports of insurance and telecommunication services, as well as a deficit on foreign travel amid an increase in exported and imported tourism services. The total goods and services turnover at current prices was down by 1.8% year on year in Q2, amid growth in exports of CZK 32.9 billion and a decline in imports of CZK 79.2 billion.

The primary income deficit was CZK 131.1 billion in Q2. Its year-on-year widening of CZK 58.7 billion was due mainly to a rise in dividends paid to foreign owners. Dividends on direct and portfolio investment paid abroad amounted to CZK 159.4 billion, a year-on-year increase of CZK 84.5 billion.

Secondary income ended Q2 in a deficit of CZK 4.5 billion, down by CZK 1.5 billion from a year earlier. The decline in the deficit was due to a decrease in social benefits paid to non-residents.

The capital account

The capital account ended Q2 in a surplus of CZK 50.5 billion. The year-on-year improvement in its balance of CZK 35 billion reflected higher income from the EU budget recorded on the capital account and a surplus on trading in emission permits by Czech corporations.

The financial account

The financial account (including the change in the CNB’s reserve assets) recorded a net outflow (net lending abroad) of CZK 2.6 billion in Q2 owing to external assets increasing more markedly than external liabilities.

Ratio of Financial Account to GDP
(CZK billions, right-hand scale in %)

Note: Indicators calculated on the basis of annual moving aggregates

Foreign direct investment saw a net inflow of funds totalling CZK 25.4 billion. The main factor on the liabilities side was an increase in equity capital in domestic firms, above all in the form of reinvestment of earnings by foreign owners and borrowing from foreign subsidiaries. The volume of transactions on the asset side was affected primarily by growth in the share of domestic owners in reinvested earnings in foreign firms.

Portfolio investment saw a net inflow (net borrowing) of CZK 30.6 billion. This was related to purchases of domestic bank and government bonds by foreign investors leading to an increase in liabilities of CZK 48.4 billion. Assets also rose as a result of purchases of foreign shares by residents of CZK 17.9 billion.

Derivatives trading recorded an inflow totalling CZK 2.5 billion.

Other investment saw an outflow (net lending) of CZK 58.5 billion.

This was due predominantly to the foreign exchange position of the banking sector (including the CNB), which recorded a rise in deposits and loans provided abroad. The net outflow of funds was CZK 67.2 billion.

The external position of general government recorded a net outflow of CZK 12.6 billion, due mainly to repayment of short-term loans abroad.

As regards other sectors, a decrease in trade credits and loans to non-residents outweighed repayment of liabilities, fostering a net inflow of funds totalling CZK 21.3 billion.

The CNB’s own transactions and transactions for CNB clients resulted in an increase in international reserves of CZK 2.5 billion (adjusted for valuation differences).