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Wednesday 24.01.2018 | Name days: Krišs, Eglons, Ksenija

Economic Diary. “Everything is fine, Your Highness”

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Аuthor: PantherMedia/SCANPIXLooking back at the events of this week, one would think the situation in Latvia is improving: the turnover of retail trade is gradually increasing, salaries are expected to follow soon.

Consumers gladly spend their money

According to statistical data, the sales volume had increased by 2.1% this March. This shows an increase of optimism among consumers. The types of goods they buy shows this as well: products for home improvement, travel and new clothes. This allows specialist to project a rise in consumer activity in the future as well.

It should be noted that sales of food products have increased more than that of non-food products: this trend was the other way around in previous months. The increase of sales in the group of food products is caused by the upcoming celebrations – the lengthy Easter weekends in particular. In an annual outlook, the total amount of retail trade in Latvia has exceeded the index of march 2012 by 8.8%.

Helping the farmers

Things are said to improve for farmers as well. The government is concerned about their competitiveness. It is planned to allocate nearly 129 million LVL for this goal.

In regard to the increase of subsidies, Latvian farmers are, indeed, among the leaders in the EU. But they remain among the last in terms of support volumes. Direct financial support of the EU currently amounts to a maximum of 90 EUR per 1 ha for Latvians. This amount will be 109 EUR per 1 ha in 2013, followed by 196 EUR by 2019. This will put Latvia on even terms with Lithuania, Estonia and Romania. Nevertheless, without additional motivation from the budget, justice is not likely to come soon: neighbouring countries already receive more than Latvia: 117 EUR in the North and 144 EUR in the South.

This is why the Agriculture Ministry asked the government to allocate 129 million LVL for the industry in the next planning period (2014-2020). The offer was provided support. In reality, only part of this amount (39.8 million LVL) will be used as direct subsidies. This will allow Latvia to come close to its neighbours and provide its farmers more or less equal competition terms in a regional perspective.

The remaining 89.2 million LVL are planned to be used by the government to improve rural roads.

There is stability!

Stability is also noted in the financial industry. The increase of non-residents’ deposits to Latvian banks was 162.2 million LVL. This makes the recent events in Cyprus largely irrelevant for Latvian crediting institutions.

According to data from the Finance and Capital Market Commission, the amount of client funds deposited on accounts of domestic credit institutions had increased by 0.2% (20.3 million LVL) reaching nearly 12.8 billion LVL. There was an increase of 162.2 million LVL (2.6%) noted in the non-residents’ segment.

Concession for concession

Organizations that represent the interests of entrepreneurs have supported the initiative to increase minimum salaries to 225 LVL starting from 2014. The consensus was reached as a result of trilateral negotiations of employers, trade unions and the government. The idea came from the Finance Ministry. The increase of salaries from 200 to 225 LVL means an increase of expenses for the employers (+31.02 LVL).

There are some who do not support this initiative, many of them are representatives of small and medium business in provinces. This is a very sensitive group – even the slightest increase of expenses is notable for them. Nevertheless, participants of the discussion had agreed that it is wrong to build an economy with low salaries. According to Eurostat, Latvia currently has the lowest minimum salaries level in the Baltic countries (287.07 EUR).

After having agreed to the increase of minimum wages, entrepreneur organizations believe their next objective is to achieve different benefits.

Lithuanian taxes to impact Latvia

The only category of residents that may experience some tough times in the near future – are owners of cars that are registered in Lithuania. According to Verslo žinios, Lithuanian politicians are planning to increase the vehicle tax rates. This could include the introduction of additional registration fees and a new annual fee. Specific legislative initiatives are expected to be finished this summer. If this comes to pass, Lithuania’s image as an attractive registration location for Latvian cars could suffer a mighty blow.

Current average expenses to register a car in Lithuania are 29 LVL. Estonia’s fee is equal to 137 LVL. Latvia’s registration fee for three years costs 530 LVL.


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