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Friday 28.10.2016 | Name days: Ninona, Ņina, Antoņina, Oksana

Economic Diary of Latvia. An interesting turn of events

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvian parliamentary budget committee has finally approved the state budget plan for 2016 this week. This means deputies of the Saeima’s profile committee have given the main budget document a high grade. Unfortunately, Ilmars Rimsevics, Governor of the Bank of Latvia, does not share the government’s optimism.

Rimsevics believes the budget plan requires some significant improvements. The main one at that is the reduction of expenses. According to Rimsevics, the budget has not right to have deficit, as unnecessary expenses only service to put future generations in debt. «We pay in the form of interest that could have been invested in business development,» – said the governor of the Bank of Latvia.

Rimsevics is certain that it is necessary to carry out in in-depth evaluation of the state budget and develop a ‘zero budget’. Instead, however, the government decides to increase revenue at the expense of increasing taxes, which makes the country’s economy less competitive. Furthermore, constant tax changes undermine the trust of investors and take away their plans to invest money, added Rimsevics.

Rimsevics believes Latvia’s debt is relatively big for such a small economy. The only way to overcome the crisis with a debt of such size is by sorting out the country’s finances.

What is interesting is that, according to information from the State Treasury, the situation is not as dramatic. Yes, the total size of Latvia’s debt has increased: from EUR 8.2 billion in Q2 2015 to EUR 8.65 billion in Q3 2015. According to information from the Central Statistical Bureau of Latvia, there were 1,976,500 people living in Latvia in October. With that, the debt per capita is EUR 4,330 (EUR 4,148 in the previous quarter of the year). Unpleasant to be sure, but, considering the amounts some people owe to banks already, this debt seems laughable.

The debt is not as scary as people say

In addition, according to information from Eurostat, Latvia’s state debt was 35.3% of GDP at the end of Q2 2015. It is the fourth lowest index across EU member states, where the average level of state debt is around 90%. State debt situation is only better in Estonia (9.9% of GDP), Luxembourg (12.9%) and Bulgaria (28.3%). Lithuania’s state debt is equal to 37.6% of GDP.

As previously reported by BNN, the state budget for 2016 provides for revenue worth EUR 7.37 billion and expenses – EUR 7.65 billion. Compared with 2015, budget revenue is expected to grow EUR 114.2 million and expenses – EUR 183.2 million.

According to the budget plan, maximum state debt volume must not exceed EUR 10.1 billion at the end of 2016. The GDP itself is expected to reach EUR 26.13 billion and the allowed budget deficit – 1% of GDP.

Something about liberalization

It has become known this week that Lithuania plans to sell a test-shipment of gas to Latvia in 2015. Litgas has provided its offer to Latvenergo. As confirmed by Litgas CEO Dominikas Tuckus, the test-shipment may be as big as one or several million m3 of gas. Latvenergo will be able to procure gas from Lithuania thanks to rules of use of natural gas infrastructure approved by the Public Utilities Commission on 10 September.

Latvian Economy Minister Dana Reizniece-Ozola has mentioned this week that there is no time for delays with gas market liberalization plans. Among other things, she accused the local monopoly -Latvijas gaze – of blackmail. She also said because Latvia currently receives supplies of natural gas from a single source (Gazprom), there is no choice. With that, Latvian consumers pay 10% more for gas.

In order to create a competitive environment on the gas market, Reizniece-Ozola signed a cooperation memorandum with Lithuanian Energy Minister Rokas Masulis in order to diversify supplies of natural gas and develop an open market. The topic of supplies using Klaipeda LNG Terminal was also mentioned. As mentioned by Reizniece-Ozola, having multiple sources for supplies of natural gas will not only increase the security potential in case of crisis but will also help increase the country’s energy independence.

According to unofficial data, Litgas intends to sell gas bought by Lietuvos duju tiekimas from Gazprom. Liquefied natural gas sold by this company currently costs nearly EUR 33 MW/h, while Gazprom’s fuel costs around EUR 20-21 MW/h.


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