The Bank of Lithuania has published the data on annual foreign direct investment (FDI) for 2021 by the ultimate investing country. Redistribution of the accumulated FDI by ownership structure allows for determining the main investor that controls the direction of investment and bears the risk, as well as identifying round-trip investment. Round-tripping is when the capital that has been channeled abroad by resident investors is returned to the domestic economy as reinvestment in the form of FDI. This investment does not provide the typical benefit of FDI to the country, since in most cases tax benefits of both other countries and the resident country are utilized.
The data published show that as of 31 December 2021:
- the USA (€6.3 billion) was the largest investor in Lithuania followed by Sweden (€4.1 billion), the United Kingdom (€3.1 billion), and Germany (€1.8 billion);
- round-trip investment amounted to €1.5 billion in Lithuania. The comparison of FDI data by the ultimate investing country with the direct investing country data reflects a significant increase in investment originating from the USA.
In this scenario, the balance of payments for September 2022 shows that:
- compared to August, the deficit on the current account balance (CAB) slightly narrowed (3.7%) to €276.2 million. This was due to an increase in the services surplus and a narrowing of the primary income deficit, which offset a significant widening of the foreign trade deficit;
- the secondary income balance decreased but remained in surplus at €15.8 million;
- the negative net flow of financial account investment (€677.3 million) was mainly driven by the negative net other investment and direct investment flows.
At the same time, the monetary financial institution (MFI) balance sheet and interest rate data for September 2022 show that:
- loans granted by credit institutions to Lithuanian residents increased by €282.0 million, or 1.1%, over the month (their annual growth rate stood at 17.6%);
- loans to Lithuanian households for house purchase, consumption, and other purposes granted by credit institutions increased by €111.5 million, €12.3 million, and €4.4 million over the month, respectively;
- deposits of Lithuanian residents with credit institutions rose by €177.7 million, or 0.5%, over the month (their annual growth rate was 4.9%);
- overnight deposits of Lithuanian households with credit institutions increased by €165.8 million, while those of non-financial corporations diminished by €174.5 million month on month, to €16.8 billion and €9.0 billion respectively;
- interest rates on the new business of loans granted to households by credit institutions went up by 0.49 percentage points to 4.64%. Interest rates on loans for house purchase and consumption grew by 0.72 percentage points and 0.02 percentage points respectively, while those of loans for other purposes declined by 0.32 percentage points. Interest rates on these loans comprised 3.46%, 8.96%, and 5.60% respectively.
To really get prices to pre-2021 levels, governments would have to reduce their spending, so that their indebtedness would decrease. And the ECB would not only stop expanding the monetary base to buy government bonds but also shrink its balance sheet to contract the money supply. Artificially-low interest rates are not the only inflationary factor.