Group 5 : QARMICHE Yasmin BELINGA Lauryne BOURDY Apolline POUVESLE Alix.

TOUITOU
Raphaël TICHET Bérangère

Latvia & Malta

After finding the balance of payments data of 2019 and 2021 for the 2 countries assigned to
your group, you will prepare written answers on the following topics:

Balance of payments Malta: Balance of payments Latvia:

1. Compare the structure of the current account (goods vs services vs primary/secondary

income) across countries and across time.

In a general sense, it can be observed on the balance of payments of both countries that their
current account has decreased between 2019 and 2021.
Indeed, in 2019 Malta's current count was 4.9% and Latvia's was -0.5%. These figures have
dropped to -5.4% and -2.9% in 2021. It can be seen that the decrease was more drastic for
Malta.

Malta’s
Current
Account
 Group 5 : QARMICHE Yasmin BELINGA Lauryne BOURDY Apolline POUVESLE Alix. TOUITOU
Raphaël TICHET Bérangère

Latvia’s
Current
Account :

2. Compare the structure of the financial account (direct investment vs portfolio investment vs
financial derivatives vs other investment) across countries and across time.
3. What does the data tell you about the competitiveness of both countries? (RAPH)
4. What do the data tell you about the funding sources of both countries?
5. Would you say that current accounts are sustainable in one country (which one then?), the
two of them or none? Explain why.
 Group 5 : QARMICHE Yasmin BELINGA Lauryne BOURDY Apolline POUVESLE Alix. TOUITOU
Raphaël TICHET Bérangère

Is the CA in deficit or not? Latvia, Malta

If yes: is it due to higher investment I that will increase Y in the future?
Is it due to an overvalued RER, in that case foreign flows are used for consumption C.
(bc need more domestic goods to buy foreign goods). Growth insufficient to create enough
export to pay them back, CA will continue to increase.

Devenoping countries with a high growth potential should run a CA deficit

Direct investment = FDI
Reserve asset= Reserve assets are financial assets denominated in foreign currencies and held
by central banks that are primarily used to balance payments.

Latvia

Huge increase in investment in 2021 (2019 basis) -> current account decreased

https://www.imf.org/en/Publications/fandd/issues/2020/09/what-is-debt-sustainability-basics

Malta

Small decrease in Investement between 2019 and 2021,

 Group 5 : QARMICHE Yasmin BELINGA Lauryne BOURDY Apolline POUVESLE Alix. TOUITOU
Raphaël TICHET Bérangère

Huge decrease in CA between 2019 and 2021,

Economy relies more on imports than exports, thus if overvalued RER, big impact, CA deficit will
increase

The data are available at the following link: https://data.imf.org/BOP

Becoming an EU member state in 2004 and changing its currency to euro in 2008 helped Malta
to liberalize its economy and make it very attractive to investors. Malta’s economy is mainly
based on tourism and depends very much on foreign trade such as manufacturing goods. Malta
is considered one of the most attractive destinations for foreign investments in Europe
especially due to its legislation for FDI.
https://www.companyincorporationmalta.com/imports-and-exports-in-malta

In the document you will provide, due on 09 December 2022 at the latest (and sent to
vstrausskahn@escp.eu and jcreel@escp.eu with Object: BoP exercise, Group X where X is the
number of your group), you can present your own tables and graphs (and comment them). The
document should not exceed 4 pages. The shorter and the most comprehensive your answers,
the better.