bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Friday 22.09.2017 | Name days: Maigurs, Mārica, Māris
LatviaLatvia

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

FaceBook
Twitter
Draugiem
print
(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.

Ref: 225.109.109.2982


Leave a reply

Number of bankruptcies down in Latvia and Estonia but up in Lithuania

Last year, the number of bankruptcies declined 12.4% in Latvia and 10.9% in Estonia. Lithuania, on the other hand, had experienced a 35.2% increase in the number of bankrupt companies, according to information compiled by Coface.

Lithuania sets off alarm bells over quality of international brands' foods

What Lithuania‘s State Food and Veterinary service announced last Tuesday was big news in Lithuania, but not so of a discovery to the majority of Eastern European consumers - food of international brands sold in Western Europe and in Eastern Europe, and Lithuania, are not just the same.

Saeima forms a group to support HIV and tuberculosis patients

On Thursday, 21 September, Latvia’s Saeima agreed with deputy Hosams Abu Meri’s proposal to form a deputy group to support HIV and tuberculosis patients, as confirmed by Abu Meri’s assistant Edgars Ikstens.

Politologist comments whether Vējoņis’ authority is at risk or not

Saeima’s vote in which Latvian President Raimonds Vējoņis’ proposal on the status of non-citizens’ children was not pushed forward was as though a strike against the president’s authority, comments Filips Rajevskis.

In pictures: Mexicans rush to find quake survivors

A massive rescue effort is continuing in Mexico City and other areas in Mexico to find possible survivors caught under buildings that collapsed in the September 19 earthquake, which has killed no less than 237 people.

Producer prices in industry grew 0.1% in August

Compared to July, the level of producer prices in Latvian industry rose by 0.1 % in August 2017. Prices of products sold on the domestic market, as well as those of exported products grew by 0.1 %.

Saeima supports simplification of investigation of less serious crimes

On Thursday, 21 September, Latvia’s Saeima conceptually supported changes to the Criminal Process Law that provide for simplification of investigation procedures of less serious crimes.

Ozoliņš: transit and logistics industries should communicate more actively

Mutual communication and information exchange among businesses working in the industry is the pre-condition for improvement of Latvia’s transit industry, said Transport Ministry’s state secretary Kaspars Ozoliņš at a meeting of the Logistics Council.

As Estonia mends ID cyber vulnerability, officials recommended mobile ID

As Estonia tries to solve potential security risks found in the chips of 750,000 national ID cards, state officials using e-services have been recommended to Mobile-ID in addition to ID cards.

Vējonis: peaceful resolution of Ukraine’s conflict is Latvia’s priority

«Russia’s unjustified aggression towards its neighbours is a serious breach of international law. Any aggressor who begins and continues such conflicts should be brought to justice for breach of international law,» says Latvian President Raimonds Vējonis.

Authorities apprehend criminal group that caused 1.7 million euros worth of damage to the state

Latvian State Revenue Service’s Finance Police in cooperation with State Police anti-terrorism unit Omega neutralized a criminal group that specialized in VAT fraud and money laundering, as confirmed by SRS representative Evita Teice-Mamaja.

Russia pledges to respect Beslan siege ruling on 2.9 million euros

European Court of Human Rights has dismissed Russia's appeal against its ruling that excessive force was used to end the Beslan school siege in 2004 leaving 330 people dead and Russia has stated it would comply with a ruling requiring it to pay 2.9 million euros in damages.

Rinkēvičs proposes radically reforming work of UN peacekeeping missions

Latvian Foreign Affairs Minister Edgars Rinkēvičs proposes radically improving United Nations Organization’s rapid response capabilities in peacekeeping missions, as reported by Foreign Affairs Ministry.

Spanish PM urges Catalonia to stop escalation around independence referendum

The Prime Minister of Spain Mariano Rajoy has insisted in a televised speech that separatists in the Catalonia regional government should stop preparations for the October 1 referendum, which he has called a chimera.

Multiple Latvian deputies stand in favour of education only in state language

Coalition partners are prepared to consider National Alliance’s possible proposal for a transition to education only in state language.

KNAB to procure 66 high-class safes for EUR 78,000

Latvia’s Corruption Prevention and Combating Bureau announced last week a procurement procedure for 66 first-class safes, as confirmed by KNAB and Procurement Monitoring Bureau.

Comprehensive Economic and Trade Agreement between EU and Canada comes into force

On Thursday, 21 September, the Comprehensive Economic and Trade Agreement between the European Union and Canada came into force, as confirmed by European Commission’s r press service in Latvia.

Ašeradens: productivity of Latvia’s economy is far behind Europe

Productivity of Latvia’s economy is far behind Europe – 43% behind the average productivity level in the European Union is actual prices, said Economy Minister Arvils Ašeradens in an interview to Neatkarīgā newspaper.

In pictures: Diversity of heads of state UN General Assembly

What suits and costumes have been chosen by presidents of 12 countries in several continents? BNN has compiled a picture gallery devoted to the UN General Assembly taking place this week in New York.

LVSADA is satisfied with healthcare funding legislative draft

The council of Latvian Health and Social Care Workers' Union has decided to conceptually support healthcare funding legislative draft, which was developed in cooperation with Healthcare Ministry, Association of Latvian Hospitals and Latvian Employers’ Confederation.

Riga Airport becomes part of TOP 5 of Europe’s rapidly growing airports

16.2% passenger number increase has allowed Riga International Airport to become one of five most rapidly growing airports in Europe in July. Riga airport has entered the group of airports whose number of serviced passengers reaches 5 – 10 million a year, according to information compiled by Airport Council International.

Producer prices in Estonia rise 4.7% August-to-August

The producer price index of industrial output in Estonia has from July to August this year grown by 0.8%, but from August last year – by 4.7%, Estonian statisticians have estimated.

Nordea and DNB merge to officially happen on 1 October

In accordance with the recent decision of the European Commission to approve the plans of Nordea and DNB Bank to merge their activities in Baltic States, the business deal will take place officially on 1 October 2017.

Kaljulaid in UN underlines effects of climate change and lack of women in peace talks

As the Estonian President Kersti Kaljulaid made her first address at the UN General Assembly on Tuesday, September 19, she pointed out to world leaders effects of climate change and need to involve more women in peace talks.

Pabriks: Russia failed to intimidate anyone with Zapad exercises

Information acquired during Zapad 2017 military exercises will be enough to assess the tactics used and strategy, said MEP Artis Pabriks in an interview to Rīta panorama programme of LTV.

Newest comments