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Friday 20.10.2017 | Name days: Leonīda, Leonīds

Economic Diary. Latvia. Week 4 2012

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How good it is to live in a country we can be proud of. In the fourth week of the year there were some serious reasons to be proud of Latvia for a long period of tight economy and humiliations in front of the international creditors.

Oh GDP, you bring us joy once again!

Market price of all end products made by the people of Latvia in 2011 in all segments of economy, or simply put – GDP increased from 5 to 5.5%. While it is still a projection, it is good to know. In monetary terms our GDP can make up 14 billion LVL, Minister of Finance Andris Vilks says.

The projection for this is may not be as optimistic, but it remains to be positive. European bank of Reconstruction and Development (EBRD) believes that the increase will be 2.6%, which is higher than previously estimated in October last year by 0.2 hundredth of a percent. And this is the highest index among the countries of Central Europe and Baltic countries. Latvian government expects that GDP will grow by 2.5%. Swedbank gives only 2% instead of the previous 3%. The picture is spoiled by Latvian Bank, which decreased its projection of the growth of GDP from 2.5% to 1.3%, but this spoon of tar on the overall positive background does not ruin the barrel of honey. This also looks great on the overall picture of the all European debt agony. But of course Latvia will not be able to avoid the all European problems this year. The decrease in demand in Europe will likely to affect the possibilities of Latvian export, and the growth of internal consumption will slow down because of the pessimistic mood in households that are in the hurry to be throwing money around.

We’ll start living from scratch

The slowdown in economy – is a good reason to make sense of the personal accounting, what the most responsible individuals have already done. State Income Service (SIS) has reported that they have received the first ten thousand «zero declarations». Deputy-director of SIS Dace Peleka explains the rush of people who hand in the declarations, saying that people better remember how much and to whom they owe, and who owes them in the beginning of the year. We would like to remind our readers that according to the Law of Zero declarations the time of hand in – is from the 1st of March to the 1st of June 2012. So the people who did not run to the SIS in the beginning of the year still have time to remember everything that belonged to them from the 31st of December 2011. And if someone forgets, SIS will send reminders, using which the service will tell who and what positions should declare. According to evaluations, the necessity to hand in the zero declaration to SIS can scar 70 thousand people.

Investors where is your money?

The Japanese Rating and Investment Information, Inc (R&I) gave another reason for pride by increasing Latvia’s credit rating by one level up to BBB- level with a stable projection to the further development of the rating. Before this iconic moment, Latvia had a «garbage» rating, but now the country has entered an investment level, which is considered to be a good evaluation of the country’s potential of economic development. Right now the investment ratings of Latvia are also granted by Fitch Ratings and Moody’s credit rating agencies.

«We are witnessing a unique moment when the credit rating of most countries is being decreased, and Latvia’s rating – is being increased. The credit agency has evaluated the government’s efforts to liquidate the misbalances in economy and society. Which is why this evaluation is doubly important for Latvia», – Minister of Finance Andris Vilks triumphantly states.

He is seconded by international business-risk insurers Coface, who have significantly decreased the business environment ratings of many European countries because of the notable worsening in mutual settlements in the Euro zone and payment halt however the perspectives of Baltic countries, including Latvia, in 2012 were positively evaluated.

Judging a book by its cover

Incidentally about investors. Two Swedish clothes manufacturer stores of Hennez & Mauritz (H&M) are due to open in Riga this autumn. H&M – is the second largest clothes store network, which owns about 2.5 thousand trade sites. And now, this network finds its way to Latvia. Why is this so important? Because H&M – is not just quality clothes for men, women and children for humane prices, it’s also a sign to the whole world that Latvia – is a dependent country with good investment and perspectives for business. There are companies, whose presence on the market says a lot. Such as McDonald’s, H&M and IKEA. With the appearance of H&M Latvia merely has to wait for the coming of IKEA.

This smells of surplus

A marvelous event took place in Jurmala this week. Deputies of the City Council have approved a deficit free budget. The revenue of the Latvian resort city, as the deputies assume, will be 45.92 million LVL, and cost – 45.94 million LVL. This way costs are estimated to be more than income by 0.05%. Writing this statement on the sides of the list, the overall State budget deficit is estimated to be 3% of GDP for 2012, and that is the best case scenario. Based on the results of last year this index will most likely end up being close to 4.5% of GDP.

The first person to talk about deficit free budget in Latvia was Andris Skele then the Minister of Finance in the 90s, and he was not slandered as the «assassin» of Latvian economy. During the expired period not one Latvian budget was considered to be deficit free. But in 2008 the government for the first time in the existence of the independent State of Latvia announced a surplus budget of 1% of GDP. The same year another medium-due budget for 2008-2010, this included a surplus of 1.2% for 2009, and a 1.5% surplus for 2010. And this is the great government we used to have. The mortgage crisis hit America in 2007 at the time of the approval of the Latvian budget for 2008, but the members of the Ministry Cabinet still raced forth on the chariot of fatty years. A few month from then they were going to have a rough landing, and did not even know about it.

This is why the deficit free budget of Jurmala city Council for 2012 – is the embodiment of the all-Latvian dream, constantly talked about by the present Prime-minister Valdis Dombrovskis, whereas Jurmala city Council have gone and done it. This is not far away from surplus budget, which is, as economic life shows it to be, existent only in oil collecting countries like Russia, Azerbaijan, and African Republic of Chad. But if it is possible to have a deficit free budget in one city, then it is possible to have a surplus budget as well. All that remains to do is to find oil.


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