This week, a representative of the Bank of Latvia once again voiced a warning about an upcoming crisis, urging officials to plan the next year’s budget very carefully and consider creating savings for a rainy day.
This announcement was voiced by Uldis Rutkaste, lead economist of the Bank of Latvia. Ilmars Rimsevics, governor of the Bank of Latvia, had previously warned about upcoming problems for the country’s economy.
According to Rutkaste, Latvia’s economic growth rates are gradually becoming slower. There are also different external and internal risks. External risks, according to the expert, are tied to export markets. The potential of Latvian companies is gradually dwindling.
Inside the country, on the other hand, the economy is held back by disorganized tax policy and slow progress of structural reforms. Entrepreneurs who make investments into the development of their business also notice the flaws. In addition, there are also the mutual sanctions between Russia and EU. This is why caution is advised. The state budget needs to have reserves in case the situation in the country gets worse, the economist said.
Finance Ministry’s economists are also worried. This week, the ministry submitted to the government Latvia’s stability programme for 2016-2019, which includes reduced outlooks for the country’s economic development in 2017 and 2018.
Although the economy will continue developing, there is still a great degree of uncertainty, notes the ministry. This is why economic development rate will be lower than previously expected by the stability programme of 2015-2018. According to estimates of the ministry, Latvia’s GDP will grow 3.3% in 2017 and 3.4% in 2018 (previous estimate suggested 3.6%).
The document has approved this document. With that, priority directions for the medium-term budget policy were also approved. Among them are plans to increase budget expenditure on defence, the threshold of expenditures for internal security, healthcare and education. Furthermore, it is also planned to gradually increase minimum wages, adopt a progressive tax-free allowance and enhance tax administration by increasing the volume of tax revenue to one-third of GDP.
The stability programme is a document that describes Latvia’s fiscal policy in a medium-term perspective.
Simple folk have begun making savings for a rainy day on their own, without waiting for predictions from the Bank of Latvia and Finance Ministry. According to information from Swedbank, the level of savings of Latvia’s population has reached a historical maximum. In 2015, the total amount of money kept by Latvian residents on deposit accounts was EUR 5.4 billion (EUR 4.01 billion in 2010). And although monetary stimuli of the European Central Bank have reduced interest rates to their lowest point in recent history (deposits in euro bring 0.1%-0.5% annually in comparison with 1.5%-2% in 2011), the majority of Latvia’s residents (38%) continue to believe that now is the best time to create savings and make investments.
With that, according to the bank, many residents still do not have a safety pillow. In addition, the amounts they divert to its creation are either irregular or too small. Furthermore, low interest rates force them to seem alternative opportunities for investments.
Swedbank has also compiled information on the difference in the choice of deposits made by representatives of different generations. For example, 38% of people aged 21 to 34 most often create savings on bank accounts. 22% of them use deposit or saving accounts.
36% of people aged 35 to 49 most often create savings using the 3rd pension level. 31% of residents make savings in cash or by using a savings account. 23% of respondents mentioned investments in real estate.
31% of respondents aged 50 -64 mentioned using 3rd pension level. 17% of respondents mentioned using life insurance solutions.
Investments into the future
Officials have also been busy lately. They have been making savings of a different kind. Transport Minister Uldis Augulis, for example, travelled this week to Moscow. There he met with his Russian counterpart Maksim Sokolov to discuss the current situation in the sector, the future of economic development in the field of cargo transports, transit and transports, the agreement on the project for direct international rail services, development of the east-west transport corridor and modernization of infrastructure.
Agriculture Minister Janis Duklavs and head of the State Food and Veterinary Service Maris Balodis travelled together to Belarus to discuss perspectives to increase exports of Latvian food products with Agriculture Minister of Belarus Leonid Zaets and other officials.
Belarus is one of Latvia’s most important trade partners.
Foreign Affairs Minister Edgars Rinkevics travelled to Hague to meet with Latvia’s honorary consuls in Benelux countries. The minister called them to become more actively involved in processes to enhance Latvia’s ties with Belgium, Netherlands and Luxembourg.
Consuls promised to work hard to popularize Latvia in those countries, especially in sectors like pharmaceuticals, forestry, IT, tourism and niche products.