Latviski English По-русски
Monday 24.04.2017 | Name days: Nameda, Visvaldis, Ritvaldis

Expert: higher debt this year will require more money for repayment in the future

(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUFor a long time now central banks have been realizing a money policy as a result of which loan interest rates in many developed countries have been very high. Businesses and households benefit the most from such conditions, as their loans for investments and consumption have become cheaper. Governments of different countries benefit from it the most, as reported by economist of the Bank of Latvia Karlis Vilerts.

Decline of government bond value will be reflected in lower state consolidated budget interest costs – with 2016 as the lowest level since the economic crisis.

Lending costs in 2016 were one-third lower than the highest point (1.2% and 1.8% of GDP in 2011).

Vilerts explains: «The general interest cost reduction has been affected by the decline of government bonds’ interest rates. Although the government’s debt was one billion euros larger in 2016 than it was in 2015, interest rate payments have been 53 million euros lower. This means the debt has become cheaper, not smaller.»

The economist notes that the matter of how budget savings from lower interest costs were used has always been interesting.

«In Eurozone’s case, it is too soon to turn away from low interest rates. Especially considering that upcoming elections in multiple Eurozone member states could potentially increase political uncertainty and worsen the already fragile economic growth. The situation in the rest of the world, where talks about raising interest rates have been realized in practice (USA), makes us ask the question about the situation in Latvia. For example: what has been the effect of low interest rates on Latvia’s budget? Or is it possible that increased rates could result in excessive budget deficit?

Looking for an answer for the first question, the economist of the Bank of Latvia notes that 2016 seems notable. The state budget balance is predicted to have had been better than what is usual for post-crisis years, when budget deficit usually exceeded 1% of GDP. Although the end budget balance index is still being determined, such balance development under relatively low interest costs could mean that the government has used savings from low interest costs to reduce deficit and debt burden (smaller deficit – less money to borrow),» he explains.

«Nevertheless, looking at last year’s statistics, a different picture appears,» Vilerts says. Although interest rate costs have been declining for several years, there are no noticeable budget balance improvements. In addition, nominal budget balance outlook did not improve much in 2017 and 2018 in spite of interest rate cost reduction. The economist has concluded that 2016 may be one exception case, and savings from lower interest costs could be used to increase expenses other than debt burden reduction in a longer perspective.

«There is no single correct choice for use of savings. It largely depends on the economic situation in the country and the debt level. This is the factor that states if the focus of fiscal policy is put on stabilization of the economy or longevity of the state debt,» Vilerts says.

The economist of the Bank of Latvia notes that reduction of interest costs can be compared to winnings, which helps improve budget balance without raising other costs and thereby helps reduce the need for further growth of the debt.

«This is undoubtedly beneficial for all government, especially the ones with high debt levels. Nevertheless, the desire to spend immediately tends to be stronger. In addition, interest rate reduction is not always reflected in better budget balance. Often diverting savings to other expenses is explained with economic stimulation efforts aimed at restoring growth to a desired level,» as mentioned in the economist’s report.


Leave a reply

Vejonis and Reirs agree – orphanages should remain in the past

«The interest and needs of children should finally be at the centre of focus. The state and municipalities cannot be allowed to maintain a system of institutions that does not secure full and harmonic development for children,» said Latvia’s President Raimonds Vejonis during his meeting with Welfare Minister Janis Reirs on Monday, 24 April.

airBaltic commences the first charter flights with CS300 aircraft

Latvia’s national airBaltic airline and Tez Tours have commenced the first charter flights with the new Bombardier CS300 aircraft. Charter flights will connect Riga with Antalya, Heraklion, Bourgas and Rimini in the summer season.

Expert: technological companies lay the foundation for modern industry

Projects that are being worked on by science and high-technology companies based in Latvia lay the foundation for modern industry focused on the future, said the founder and manager of Commercialization Reactor acceleration platform Nikolajs Adamovics after the investors and partners day event.

State debt ratio in Latvia was the seventh lowest in EU last year

At the end of 2016, Latvia’s state debt was the seventh lowest among European Union member states, according to data published by Eurostat on 24 April.

Estonian parents increasingly refuse to vaccinate their kids

Estonian health officials have voiced concern that the number of parents refusing the chance of vaccinating their children against a number of infectious diseases is increasing in the northern-most Baltic country.

Rail Baltica’s predicted expenses – benefits outweigh the costs

The costs of Rail Baltica standard European railway line project could be equal to EUR 5.7 billion, as reported by Rail Baltica Global Forum 2017 EY partner in Baltic States Nauris Klava.

Murniece: Latvia still views EU as a strong and independent union of countries

Residents of the European Union expect safe and economic growth, said Saeima speaker Inara Murniece on Monday, 24 April, in her speech at a meeting of colleagues from EU parliaments in Bratislava, Slovakia.

Nordic countries re-launch assistance to Baltic Russian-language media

The Nordic Council of Ministers has stated it would continue supporting financially Russian-language media adhering to journalism standards and having a media-critical approach.

Cido commences exports of juices to Northern Africa

Baltic beverages producer Cido Group continues developing its export potential. The company has commenced exports of juices to Libya this year. This is the first African country that values juices produced in Latvia. Until now, Latvian juices have been exported to markets like China and United Arab Emirates, as reported by the company.

Large cities do not support initiative to increase taxes on alcohol and fuel

Next year’s budget gap is EUR 460 million, which in planned to be compensated by raising taxes for alcohol and fuel. Large Latvian municipalities do not support the government’s proposed tax reform, as reported by Nekā personīga.

Authorities identify multiple suspects in Skonto stadium sale’s criminal case

There are multiple suspects in the criminal process launched for the Skonto stadium’s sale, as reported by De Facto programme.

Catholic Pope sees migrant centres as concentration camps

Roman Catholic Pope Francis has characterised many migrant centres in Europe as concentration camps.

April’s last week will be cool and rainy in Latvia

Latest forecasts confirm that cold masses of air will remain in Latvia until the end of April and warmer masses of air are expected to enter the country at the beginning of May, as reported by Environment, Geology and Meteorology Centre.

Run-off to decide next French President

Centrist Emmanuel Macron has won the first round of the French presidential election, who will on May 7 compete against far-right candidate Marine Le Pen. According to reports, it is the first time in six decades that neither of France's main left-wing or right-wing parties has had a candidate in the second round.

Karins: Theresa May’s stance on Brexit is unclear

British Prime Minister Theresa May personally did not support Brexit. Because of that, her personal stance in the upcoming Brexit talks is unclear, says Latvian MEP Krisjanis Karins.

Week in Lithuania. Imports from Belarus' Astravyets NPP restricted

Seimas on Thursday, April 20, adopted a bill to restrict electricity imports from the Astravyets nuclear power plant under construction in Belarus and other unsafe nuclear facilities in third countries.

Wider economic cooperation between Latvia and Singapore planned

As reported by Finance Ministry, work will be performed to establish wider economic cooperation between Latvia and Singapore, both in the field of tax administration and investments.

Lange: poor road quality causes drivers to lose more than one billion euros every year

Poor road quality in Latvia causes losses for drivers worth more than one billion euros every year, announced Janis Lange, chairman of Latvijas valsts ceļi, at an annual conference on Friday, 21 April.

Latvia and Lithuania continue work on single gas market’s development plan

Latvia and Lithuania continue working on single gas market development plan, BNN was told by Latvian Economy Ministry.

Belarus values Latvia’s experience developing e-management

Belarus values Latvia’s positive experience in development of e-management. Constructive cooperation in this field has provided residents in Latvia and Belarus with cheaper roaming tariffs and improved mobile broadband development, as reported by Environment Protection and Regional Development Ministry.

Poor skills in digital technologies can reduce one’s competitiveness on the market

Only 2% of board members in Latvia’s leading retail trade companies have skills working with digital technologies. The same applies to 6% of board members in transport and logistics companies, 4% - in energy companies and 0% in manufacturing companies, according to results of a study performed by personnel selection company Amrop.

Government decides not to support Ventspils’ involvement in Nord Stream 2

This week, Latvian government decided behind closed doors not to support the involvement of Ventspils Freeport in the Nord Stream 2 project, according to publicly available information.

Estonia to invest millions in IT and technology business development in regions

Close to 160 million euros are planned to be invested in developing the sector of information and communications technologies in Estonia outside larger cities, according to a state budget strategy for 2018-2021 by the Estonian government.

Bite buys Unistars and gains access to 5G frequency

Mobile communications operator Bite has bought telecommunications company Unistars, making a major step towards introducing 5G network in Latvia, as reported by Bite manager Kaspars Buls.

Study: Latvian businessmen feel threatened the most by increasing tax burden

Nearly all Latvian CEOs expect competition to grow in the future. In addition, this will happen in conditions of deficit of qualified workers, according to results of a study performed by PricewaterhouseCoopers.