The current and capital account showed a deficit of EUR 1.5bn in the first quarter of 2017, which was somewhat lower than in the same period of the previous year. The deficit on the goods account widened by EUR 0.2bn, in spite of the growth in goods exports exceeding that in imports (18.6% to 15.8% respectively). Net exports of services declined slightly, primarily due to increased residents' tourist spending abroad, whereas revenues only edged up due to the later Easter this year (April 2017 relative to March 2016). However, net revenues from other services increased, primarily those from personal, cultural and recreational services as well as from research and development services and repair services. The primary income balance grew by EUR 0.1bn, primarily driven by income from direct investments. This was boosted by an increase in residents' revenues from foreign equity investments, coupled with a decrease in non-residents' investments in the domestic market. The latter reflects weaker business results of foreign owned domestic entities, mainly in the financial sector (bank provisions for loans related to the Agrokor Group), while most other sectors recorded higher profits, especially the pharmaceutical and oil industry as well as trade. Receipts from compensations to residents working abroad also increased, while interest expenditures on external debt decreased. The overall secondary income and capital account balance also increased (EUR 0.2bn), mostly due to the enhanced absorption of EU funds, while the payments to the EU budget were lower than in the same period of the previous year.

Figure 1 Balance of payments

a) Current and capital account	b) Financial account

1 Four-quarter moving average.

Note: In the figure above showing the financial account, the positive value denotes net capital outflow abroad and the negative value denotes net capital inflow.

Source: CNB.

The four-quarter cumulative current and capital account surplus in the first quarter of 2017 remained at the previous year level of 3.8% of GDP. The primary and secondary income balance improved, in contrast with foreign trade in goods and services.

The financial account recorded a net capital inflow (an increase in net foreign liabilities) of EUR 1.0bn in the first quarter of 2017, for the most part due to a fall in banks' foreign assets and net foreign borrowing by other sectors. Of individual accounts, the highest increase in net liabilities (EUR 2.7bn) was recorded in the other investments' account.^[1] However, over one half of this amount (EUR 1.4bn) was generated by an increase in CNB liabilities. This was due to the investment of international reserves in reverse repo transactions, which increases international reserves by the same amount, thus having a neutral effect on the financial account balance. As regards the remaining part of other investments, net foreign liabilities of other domestic sectors grew by EUR 0.4bn and bank foreign assets were withdrawn in the amount of EUR 0.9bn, partly to accommodate the purchase of foreign government bonds by domestic institutional investors.^[2]

Non-resident investment in this government bond issue was the main source of capital inflows in the portfolio investment account, amounting to EUR 0.7bn. This transaction, however, had a neutral effect on the financial account balance because the government deposited the collected funds, including from domestic institutional investors, with the central bank, thus additionally boosting international reserves. Specifically, an increase in government deposits and already mentioned repo transactions almost completely accounted for a sharp increase of EUR 2.7bn in international reserves in the first quarter.

Net capital inflows from foreign direct investment amounted to EUR 0.2bn. Domestic business entities’ foreign investments stood at EUR 0.2bn, with one half of the amount accounted for by equity investments in the telecommunications sector. Direct investments by non-residents in Croatia, totalling EUR 0.4bn, were to a smaller extent accounted for by new equity investment (EUR 0.1bn), mostly in the real estate sector and trade, while the remaining amount was borrowing from affiliated enterprises and reinvested earnings.

Table 1 Balance of payments

¹ Excluding the change in gross international reserves and foreign liabilities of the CNB (investment of a part of reserves in reverse repo agreements results in a simultaneous, same-amount increase in assets and liabilities of the CNB).
² The sum of the last four quarters.

Note: The positive value of financial transactions denotes net capital outflow abroad and the negative value denotes net capital inflow.

Source: CNB.

As a result of the developments in the financial account, the net international investment position of the Republic of Croatia deteriorated by EUR 0.9bn, primarily reflecting a deterioration in the net positions of banks and the central government, and stood at EUR –33.4bn at the end of the first quarter of 2017 (Figure 2). The relative indicator of the international investment position also worsened slightly, from –71.0% of GDP at the end of 2016 to –72.0% of GDP at the end of the first quarter of 2017.

Figure 2 International investment position (net)

Note: The international investment position (net) equals the difference between domestic sectors' foreign assets and liabilities. Net debt investments include financial derivatives.

Source: CNB.

Data revision

Data on the balance of payments and the international investment position for the previous periods are revised based on data obtained after the last quarterly dissemination.

Detailed balance of payments data

Detailed data on the international investment position

1. They comprise changes in foreign assets and liabilities of the domestic sectors based on loans, trade credits and currency and deposits. ↑

2. The central government issued EUR 1.25bn worth of bonds in the foreign market to refinance a bond that matured in April. ↑