Latviski English По-русски
Wednesday 22.11.2017 | Name days: Aldis, Alfons, Aldris

Economic Diary of Latvia. Approaching Storm

(No Ratings Yet)

This week’s developments in the Latvian economy can be divided into good and bad ones. Let’s start with the latter.

Approaching Storm

If the eurozone collapses, Latvia will suffer the most of all Central and Eastern European countries, according to auditing company PricewaterhouseCoopers (PwC).

“Most likely, 2013 will see a recession in Western Europe, accompanied with global financial crisis yet of an unknown scale,” PwC says in its latest study Approaching Storm. Report on Transformation.

According to analysts, post-socialist countries are vulnerable to two factors. First, they can easily become victims of a potential global financial panic. Second, they can be closed off from economic ties with Western European countries.

Having conducted an in-depth analysis, the company has come to a conclusion that Latvia is the most endangered country, followed by Slovenia, Hungary and Belarus. Bulgaria, Serbia and Ukraine could also face serious problems. PwC also raises concern over Lithuania, Croatia, Romania, Estonia, Poland and the Czech Republic. Meanwhile, the Russian economy appears to be more stable.

PwC also draws attention to the severe indebtedness – 145.18% of GDP (public and private sectors taken together). For Lithuania, the figure totals 78.5%, while for Estonia – 103.9%. The situation is even more complicated by the fact that Latvia’s loans (53.6% of GDP) are short-term. If markets start panicking, interest rates can go up. The large debt burden and the lack of economic activity may put the national currency – the lat – under huge pressure (just like in 2009).

Dead Debts

Tax debts reach record high – LVL 1.052 billion. The tax debt first hit a ten-digit number back in May 2012. As of September 1, natural and legal entities owned the Treasury LVL 1.052 billion, which is 0.7% more than in July. The amount includes debts to the state basic budget – LVL 709.496 million, the municipal budgets – LVL 208,353 million and the social budget – LVL 133.916 million.

According to the State Revenue Service, debts still applied penalties account for 53.23% or LVL 559.841 million of the total amount. But it is also added that LVL 374.309 million are actually the so-called dead debts. It means that debtors have no money and no assets against which to bring a claim.

Tax debts are no longer growing as fast as a couple of years ago. In future tax debts will not grow more than a percent per month. Some three to four thousand new debtors “join the club” every month, says Santa Garanca, head of the national body for tax debt recovery.

Currently, the total tax debt has a tendency to increase.

The Parliamentary Finance Committee has approved (in the first reading) a bill that establishes a publicly available database of taxpayers whose debt exceeds LVL 100. It is expected to launch the database by January 2013, so that businesses can have a peek in their partners’ ability to pay.

Almighty Latvians

In terms of EU funds acquisition, the Baltic States have advanced to the leader positions among Central and Eastern European countries. Latvia ranks the second in the TOP 10, making use of 87% of the available money.

Meanwhile, Estonia tops the list, according to the audit firm KPMG. The results reject various speculations that Latvia is acquiring the funds too slowly and can miss out on some part of them.

The study shows that Latvians are pretty almighty – they have managed both to catch up with leaders and even outrun them. Back in 2008, when the funding programme kicked off, Latvia had acquired almost nothing. Already 45% of the funds were used a year later, 67% in 2010 and 87% in 2011.

“The low activity of 2008 can be explained with the fact funding was easily available from other sources (including banks) – it is a characteristic of the pre-crisis period,” says KPMG manager Edgars Voļskis.

Despite all the challenges brought along by late 2008 and 2009, Latvia kept acquiring more and more of the EU funds.

“Money was also channeled into infrastructure development, with the transport sector acquiring EUR 1.34 billion, the health sector – EUR 804 million and environment-related programs – EUR 618.33 million. The sectors were followed by human resource development and innovations.

Wage Hikes

Growth in Latvian labour costs still outpaces inflation. In Q2, the annual rise reached 5%. During the period from April to June, compared with a year earlier, labour costs (per hour) were up LVL 0.13 or 3.3%. However, seasonally adjusted figures show an increase of 4.1%, but the Central Statistical Bureau reports a rise of 4.7%.

The biggest leap (+9.4%) was recorded in the sector of transport and warehousing. Labour costs in public administration, defense sector, the compulsory social insurance (+6.7%), hospitality (+6.1%) and other services (+5%) are also well above the average.

“Nominal pay has already been growing for some years. At the moment, the picture has a bit changed – wages are climbing faster than consumer prices. This is a result of improvements in the labour market. The unemployment is dropping and competition for skilled professionals is growing fiercer,” says DNB Bank economist Peteris Strautins.


Leave a reply

Estonian town tempts population to reregister with spa in Latvia and 100 euro payment

The town of Keila, located 25 kilometres away from Tallinn, has started a one-and-a-half month campaign to motivate its residents to register back in the town as many of them have registered in the Estonian capital, which grants free public transport to its population.

EU to impose fine to Poland if logging in Białowieża forest not stopped

The European Court of Justice has issued to Poland a 15-day deadline to provide proof that the country has fulfilled the court's ruling to quit logging in the ancient Białowieża forest threatening with a daily fine of 100 000 euros if it fails to prove this.

Rīgas namu pārvaldnieks: building restoration will be next year’s priority

Rīgas namu pārvaldnieks plans to focus on improving technical state of its managed buildings. The company plans to restore several dozen buildings next year and up to 100 buildings a year in the next five years, says RNP chairman Aivars Gontarevs.

LCB: even deputies should fulfil their promises

Latvijas ceļu būvētājs, which is an association in Latvia with ties to multiple road and bridge construction companies, invites deputies to support the proposal for the restoration of the State Road Fund, BNN was told by the association’s chairman Andris Bērziņš.

Russia rejects claims of nuclear accident despite radioactive cloud over France

Russia has stated that a nuclear accident has not taken place in its territory although its weather service has found high amounts of traces of a radioactive isotope.

Study: taxes for business in Latvia – the most attractive among Baltic States

Latvia’s tax system is the most attractive among Baltic States and 13th most attractive among 190 countries of the world, according to the latest study performed by the World Bank and PricewaterhouseCoopers on tax systems around the world.

Turkish journalist punished with prison term for tweet

A court in Turkey has sentenced on Tuesday, November 21, a journalist from opposition newspaper Cumhuriyet to three years behind bars over accusations of spreading terrorist propaganda in relation to a post on Twitter, which had been briefly on the microblogging site this spring.

Latvia – 35th country in the world ICT development-wise

This year Latvia reached 35th place in the world in terms of development of information and communication technologies, as mentioned in the latest report by UN International Telecommunication Union.

Instant payment infrastructure comes online in Europe

On Tuesday, 21 November, instant payment infrastructure will be introduced across Europe. On top of that, European banks’ founded EBA Clearing will also introduce its RT1 instant payment system. The European-level solution has also been coordinated with the instant payment processing infrastructure prepared by the Bank of Latvia in August 2017, as reported by the bank.

Police dismantle criminal group that caused damage worth seven million euros to the state

Latvian State Revenue Service’s Finance Police dismantled a criminal group in November 2017. A total of 34 searches were performed and two people were found suspect. The criminal group performed tax avoidance and money laundering operations, causing damages worth nearly seven million euros to the state, BNN was informed by SRS.

Zariņš: deputies who vote for the state budget without amendments will have breached their vows

It is unacceptable for the Saeima coalition to follow the Cabinet of Ministers and like the Cabinet of Ministers breach laws during the budget approval process, says Saeima member Ivars Zariņš, adding that deputies who vote for the budget without amendments will thereby have to breach the vow they had previously made to the Latvian nation.

Estonia’s ruling Centre Party shows door to 31 competing members

The leadership of Estonia's Center Party has accepted the proposals of the party's local branches on fellow members, who ran in the Estonian municipal elections this autumn from a separate list, and expelled 31 members from the political party.

Pabriks: state interests should be held higher than party interests

Latvia cannot be allowed to drown in provincialism. It is in the country’s interest to maintain a course towards European and NATO values. In a situation when the number of centric and European-oriented parties is large, it is becoming harder and harder, because it leads to political fragmentation, and the main goal of it is reaching the 5% barrier during elections, not ensuring growth and development for Latvia, says MEP Artis Pabriks.

Reacting to e-commerce growth, Omniva rushes to expand its parcel locker network

Estonian state-owned postal company Eesti Post, which operates the Omniva brand, stated that it will broaden its network of parcel lockers expand its current parcel machines up until Christmas.

Programme: introduction of ‘honest’ taxi counters is stuck

Taxi drivers that had to replace their counters as far back as 15 October, continue delaying the process, as reported by De Factor with reference to State Revenue Service.

Ministry considers reorganizing Latvian Environmental Protection Fund’s administration

After reviewing information from the State Audit, Latvian Environmental Protection and Regional Development Ministry may consider the possibility of reforming the administration of the Latvian Environmental Protection Fund.

Uber to buy 24 000 self-driving Volvo XC90s

U.S. ride-sharing technology firm Uber has agreed with Chinese-owned Swedish carmaker Volvo on the purchase of up to 24,000 self-driving cars.

Snow expected in Latvia this week

Weather in Latvia will be cloudy at the beginning of the week and, although the sun may appear every now and then precipitation, precipitation is expected in most of the country. It will begin with rain and gradually move up to wet snow and snow, as reported by State Environment, Geology and Meteorology Centre.

Lengthy German coalition talks collapse

The German political parties that entered the country’s federal parliament after elections in September, still cannot reach an agreement on making a coalition and a majority government, but German Chancellor Angela Merkel has evaluated that new elections would be better than a minority government.

airBaltic carried more than 4,780 in flights between Riga and Liepaja

In the first six months since airBaltic has started performing regular domestic flights between Riga and Liapaja more than 4,780 passengers have been carried on this route.

Week in Lithuania. Lithuanian parliament passes Magnitsky act

Members of the European Parliament have passed a resolution requesting for the application of the so-called «nuclear option» for Poland, Article 7 of the EU Treaty, because of the threat to the rule of law in the biggest Eastern European country.

BNN summary of the week: medicinal cannabis in Lithuania, cargo anti-record, and Lemberg’s dwindling influence in UGF

BNN offers a summary of this week’s topical news in a variety of categories: Fight; Growth; Truth; Future and Opinion.

NAF: Russia’s attitude remains unfriendly towards Latvia

So far Russia’s demonstrated attitude has remained unfriendly towards Latvia, said Commander of Latvian Armed Forces Leonīds Kalniņš in an interview to LNT.

Lembergs’ turn to testify before parliamentary committee has come

Aivars Lembergs, who is accused of serious crimes and is suspended from performing duties as chairman of Ventspils City Council, has been invited to come to a meeting of the Saeima’s Investigative Committee and answer questions associated with so-called oligarchs case.

How Latvian communities around the world plan to celebrate Latvia’s birthday?

«Celebration of independence of the Republic of Latvia is an important tradition that allows members of Latvia’s diaspora to maintain ties with their homeland – this year’s event will be even more expansive and inclusive than ever before. This is because events associated with the country’s hundredth birthday will be organized all around the world,» says manager of World Federation of Free Latvians office in Latvia Jānis Andersons.