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Friday 20.10.2017 | Name days: Leonīda, Leonīds

Economic Diary of Latvia. Baltic States join forces to combat shadow economy

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, Finance Ministry submitted Latvia’s stability programme for 2015-2018 to the European Commission for review. This document is something of an action plan in the sphere of economics and taxes.

Development of a stability programme is a mandatory measure for all members of Eurozone. This applies to Latvia as well. The main objective of stability programmes is to provide European supervisory bodies information how member states intend to achieve financial stability in a medium-term perspective.

One of the main requirements of the stability pact signed by all Eurozone members is that the level of budget deficit must be close to zero or have surplus (best case scenario). If it is not possible to have a 100% positive result, the index must not exceed 3% of GDP.

Latvia’s stability plan complies with that in full (at least on paper). Budget deficit is estimated at 1.5% of GDP, which is 0.5 percentage points higher than previously planned.

The document also contains outlooks for GDP increases. Latvia’s economy is expected to rise by 2.1%, in 2015 – 3%. Economic rise of 2017 and 2018 is expected to be 3.6%.

As reported by the ministry, the stability programme was developed under conditions of high economic and geopolitical uncertainty and review of fiscal discipline principle in the EU.

Russia could exact pressure in Latvia

Another important document was published by the Constitution Protection Bureau this week. In its annual intelligence report, the bureau warned about certain risks for different areas of Latvia’s national economy that largely depend on Russia.

According to authors of this report, Latvia’s neighbour can potentially employ different mechanisms of pressure on certain areas of Latvia’s economy. The risk group includes transit, energy, finances, agriculture and individual enterprises with a large market segment in Russia.

Moscow had introduced a trade embargo with a plan in mind. According to Latvian counter-intelligence officers, the food industry was specifically chosen because EU member states have a large lobby in it. Russia had made this decision hoping that economic losses would result in conflicts within the EU in regard to additional sanctions against Russia.

As for Latvia’s energy security, the analysis carried out by CPB mentions risks related to having a dominant supplier state. This is why CPB recommends merging of electric and gas networks, diversifying supply routes and liberating the country’s energy sector.

Who is expected to work then?

Latvia remains an anti-leader in terms of outflow of the population in the EU. As noted by parliamentary secretary of Latvian Finance Ministry Arvilds Aseradens, the country has lost 15% of its labourers since 2008. With that, he believes it is highly important to raise minimum wages to the average level in Europe, so that resident would not be tempted to leave for another country.

The current minimum wage in Latvia is EUR 360. Last week, parliamentarians proposed raising it to EUR 375.

According to Aseradens, this increase would help improve the country’s macroeconomic situation. Nevertheless, there are certain subjective and objective problems with that.

According to results of a survey carried out by TNS, 24% of respondents have expressed readiness to leave the country in order to acquire a good job abroad. 54% of these people want to have larger salaries. 17% of respondents said they feel no ties with Latvia, 12% believe they have no choice and 10% wish to experience living in another country. 2% of respondents said they wish to leave because they have relatives living abroad.

62% of respondents have said they do not intend to leave Latvia, which is good news.

Baltic States vs. shadow economy

Politicians and specialists are also hard at work in this area. Lithuanian Prime Minister Algirdas Butkevičius held a trilateral meeting with supervisory bodies of Lithuania, Latvia and Estonia. The main topic of this meeting was shadow economy combating measures.

According to the Lithuanian PM, international tax fraud schemes, tax avoidance and contraband activities are gradually becoming more and more complicated. «Such problems can only be resolved on a national, regional and international level. This conference is the first step in adopting a new practice for joint solutions to combat shadow economy. It will provide significant assistance for honest and transparent businesses, which are currently experiencing difficulties because of geopolitical challenges and Russia’s trade bans,» – said Butkevičius.

Representatives of law enforcement and fiscal authorities of the three Baltic States, Britain and Europol participated in this event.


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