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Friday 06.12.2019 | Name days: Niklāvs, Niks, Nikolajs

Economic Diary of Latvia. Sex, Drugs and GDP

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis Tuesday, September 30th, Latvian Central Statistical Bureau published the data on the country’s GDP growth in accordance with the new EU methodology. This new method data includes areas like illegal business environment, drug distribution, contraband of cigarettes and other goods and level of prostitution in calculations. Starting with September 1st, these factors are recognized as economic and are therefore added in the calculation of the country’s GDP level.

According to information published by CSB, Latvia’s GDP had grown 2.3% in Q2 2014. The index reached EUR 5.9 billion in actual prices. Compared to Q1, when the index increased by 2.5%, it is not a significant but still a decline. Experts choose not to over-dramatize the situation, only saying that even though GDP is expected to decline even more, it will remain in the positive. Therefore, there is no reason to expect a recession or stagnation.

As usual, situations differ from industry to industry. The most rapid growth rates are demonstrated by the construction sector – 15.8%.

In spite of potential risks related to the Ukrainian conflict and previously voiced concerns, transport industry now demonstrates good results (+11%).

Retail trade also demonstrates good results (+4.3%). This includes trade of fuel (+6.1%), food products (+5.9%) and non-food products (3.4%).

Although merely symbolical, Latvian processing industry has also demonstrated growth (+0.1%). With the return of Liepājas metalurgs, the situation in this industry may yet change for the better next year, says SEB Bank economist Dainis Gashpuitis.

CSB did not separate revenue from illegal economic activities. Nevertheless, these factors are to be included in calculation of GDP indexes of all EU member states starting with September 1st. In accordance with new rules, there will be new parameters to consider when calculating GDP – expenses on arms research and revenue from prostitution and drugs contraband.

GDP values are expected to rise thanks to the new additions to guidelines. Some people see the desire to add the impression of improvement of the economic state of the European Union by using this new method. Because even if you do not pay debts, their amount automatically reduces as GDP grows. Experts deny this assumption. Norbert Reth, responsible for the calculation of the index at the Federal Statistical Office in Wiesbaden (Germany), believes the core of the new procedure lies in the wish to acquire adequate comparison of data in the entire world. ‘The new GDP calculation system is not politically motivated and was never intended to be one,’ – he said in an interview to Deutsche Welle.

A similar method was originally discussed in the UN in 2003. In 2008, on the other hand, the organization approved the National Accounts System. Australia was the first to adopt it. USA compiles information in accordance with new rules since 2013. France and Netherlands use this method in the EY. Starting with September 1st, all other members states of the European Union are obligated to use this method as well.

According to results of Eurostat, after the adoption of the new GDP calculation system, EU’s index has increased by 2.4%.

Third time’s the charm

On the last meeting prior to Saeima elections, deputies decided to come back to the initiative that is aimed to prohibit Russian citizens to buy real estate properties in Latvia in exchange for residence permits.

It is stated in the annotation to the draft: A person who…acquires temporary residence permit in Latvia also acquires specific forms of economic influence and is therefore able to influence political and social processes in Latvia, as well as influence the circulation of public information. Taking into account Russia’s aggression in Ukraine, when developments and length of the armed conflict are impossible to predict, Latvia has no need to risk and create new security risks for itself.

While the Saeima had previously declined the idea proposed by the National Alliance (only 30 deputies had supported this idea on the previous plenary meeting), 48 deputies voted in favour of it. 28 deputies voted against it (HC and Reform Party).

The draft has been submitted for review to parliamentary committees. Nevertheless, it is nearly impossible to have it reviewed and adopted in the short period of time left for the current Saeima. The prohibition for Russian citizens is planned to be introduced temporarily ‘as long as Russia remains in breach of international law in its aggression against Ukraine’.

SRS announces amnesty

Based on tax results for 2013 Latvian State Revenue Service has compiled a list of legal persons who have contributed no less than EUR 100,000 to the state Budget and who do not have tax risks. Factors like wage size at an enterprise and lack of losses after taxes are also taken into account.

«We have decided not to take counter-measures against taxpayers who provide the largest contribution of taxes to the state budget and who have earned the trust of SRS,» – says head of SRS Inara Petersone.

As a result, 2,300 enterprises received a notification through the electronic declaration system that no counter-measures will be used against them until May 1st as a way of thanking them for successful cooperation.

SRS plans to update this list every year based on tax results of the previous year.


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