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Monday 18.06.2018 | Name days: Madis, Alberts
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Economic Diary of Latvia. On European funds, export growth and GDP

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBecause of mistakes made during the last planning period for European funds, Latvian businesses will receive around EUR 100 million less for the realization of projects. While Latvia was previously being provided with around EUR 700 million from European funds on an annual basis, the country can expect only EUR 562 million this year.

This is because now have to submit more detailed documentation in regards to their development plans, as there were too many mistakes made in the previous planning period. With that, the European Commission requests more serious proof in this planning period. This means more detailed explanations and research materials, explains expert of the Bank of Latvia Baiba Traidase.

Finance Ministry admits that the new planning period’s beginning is not as active as initially planned. The EUR 100 million that will not be provided this year will be carried over to the next year’s balance.

However, slow use of money provided by the European Union will have an impact. For example, the progress of the Economy Ministry’s project for enhancing the energy efficiency of apartment buildings will be slowed.

According to information from the European Commission, money provided by European funds to enhance energy efficiency of schools and kindergartens, repairs of bridges and roads, development of different infrastructure and other needs also boost Latvia’s GDP growth 2.1% annually.

Exporters’ flexibility

Economy Ministry believes the development of Latvia’s national economy will be closely linked to expansion of export capabilities. On the one hand, further export growth is limited by weak demand on CIS markets. On the other hand, positive development on the main EU export markets positively affects Latvia’s export capabilities.

This week, the Central Statistical Bureau of Latvia published information that partially confirms the assessment given by Economy Ministry. According to CSB, the total volume of the export of goods had increased 1.2% in Latvia last year, which can be considered a relatively good accomplishment, considering the generally bad external environment, which includes the recession of the Russian economy and the logical decline of demand in countries with ties to Russia. Exports to Russia had declined by 18% in 2015. The proportion of exports to Russia in Latvia’s total export volume had decreased to 8%, which is a record low level since 2005. Exports to CIS countries had decreased by 8% in 2015. This relatively rapid decline was compensated by export growth to Eurozone by 4% and 2% to other European countries.

Flexibility of Latvian exporters is a positive sight: Latvian exporters actively explored far-away markets like Turkey, Algeria, India and America.

The flexibility of Latvia exporters is a good thing – no doubt about that. However, the increase of labour costs is beginning to impact competitiveness. Growth of productivity remains behind the growth of wages. Investments are needed in order to enhance production efficiency. Unfortunately, the use of European money remains unproductive – only 8% of funds provided by the European Union were used for development projects for the 2014-2020 planning period. Most of that money is meant for road programmes and employment. Progress of investments meant to increase productivity is slow, notes Swedbank economist Andrei Semenov.

Freedom of choice

About the money. Results of a survey carried out by SKDS in January 2016 shows – 39% of respondents believe using banking services reduces the freedom of using personal finances. 10% of respondents believe it enhances the freedom. Only 6% said the freedom to use personal funds is not that important to them. 60% said this kind of freedom is very important. This survey was carried out in cooperation with Bigbank.

45% of respondents mentioned coming across at least one banking practice that limited their overall freedom to use their finances. 88% of respondents believe the commission fee for withdrawing cash from ATMs is one such practice. 78% of respondents said they do not like the practice of adding more beneficial interest rates to the necessity of purchasing bank-offered insurance services. 69% of respondents said the requirement to use multiple banking services to receive better interest rates is another limiting factor.

The work model of modern banks is aimed at concentrating all or most of a client’s financial operations in a single bank, according to results of the survey. Services provided to private persons by traditional banks are tied to one another. For example, a loan will only be provided if the client’s salary is transferred to his account. Better interest rates are offered only if the client uses other services provided by the bank, etc. This makes a client tied to a single bank and avoid considering offers from other banks, adds Bigbank manager in Latvia Artis Berzins.

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