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Monday 23.07.2018 | Name days: Magda, Magone, Mērija

Economic Diary of Latvia. This year will prove to be worse than anticipated

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBank of Latvia has reassessed its outlook on the development of the national economy in 2015: it is very likely that economic growth in Latvia will become even slower and will be 2%, which is largely because of geopolitical situation and global economy.

The outlook has been reassessed because there have been no improvements to the geopolitical situation and the region remains under negative economic influence. This includes Latvia.

Lately there have been serious risks that Russia’s economy could decline even more, which would undoubtedly have a negative impact on Latvia’s national economy, because of the decline in demand for Latvian goods and services and reduced development rates of other trade partners of Latvia, as believed by the bank’s analysts.

Current outlooks have been compiled based on the assumption that Russia’s economy will decline by approximately 5% in 2015. Analysts nonetheless warn that the situation is rather dynamic and that it is possible that the recession in Russia may be even more serious than expected.

Furthermore, other factors could have a negative impact on Latvia’s economic development. This includes weaker than expected economic development in Eurozone, weak crediting, low level of trust among entrepreneurs, etc.

Nevertheless, there are also factors that could have a positive effect on economic development in Latvia: recovery of KVV Liepājas metalurgs and the decline of oil prices (the latter would have a positive effect on Latvia and Eurozone).

Micro-enterprises tax to be changed

Saeima has given green light for amendments to the Enterprises Tax Law: deputies of the parliamentary National Economy Committee have conceptually approved the proposal to maintain the current tax rate of 9% of turnover, but only for the first three years for enterprises that pay micro-enterprise tax.

According to this initiative, this rate will be applied to enterprises with annual turnover of EUR 7,000.01 to EUR 100,000. Starting with the fourth years of business activities, the tax rate will be 12% of turnover.

Entrepreneurs have thoroughly criticized the previous amendments, stating that high tax rates would ruin the very concept of micro-tax.

As a result, in response to the outrage from voters, legislators have decided to write new, entrepreneur-friendly legislative amendments. ‘Amendments will allow us to maintain a beneficial tax environment for micro-enterprises and beginner businessmen. It will also allow us to reduce the proportion of shadow economy,’ – as stated in the annotation to the draft.

The idea of limitations for 9% tax rate was positively accepted in Finance Ministry. Minister Janis Reirs has noted that the state should give entrepreneurs the opportunity to test their skills and only join the established tax-paying order in the event of financial success.

The draft is to be reviewed by the parliament in three readings.

All the best for families with children

Citadele Bank and ALTUM financial development institution have signed an agreement document regarding state support programme aimed to assist families in efforts to acquire housing.

As part of this programme, young families with children will be able to receive mortgage loans in Citadele Bank concessional terms with a reduced down payment.

The maximum amount of financial support depends on the number of children in a family:

-if a family has one child, the amount of support will be 10% of the loan, but no more than EUR 10,000;

-if a family has two children, assistance will be equal to 15% of the loan, but no more than EUR 15,000;

-if a family has three of more children, assistance will be equal to 20% of the loan, but no more than EUR 20,000.

The size of the first instalment will also depend on the number of children. Families with three or more children will be able to receive mortgage loans with the first instalment of 5% (10% for families with two children and 15% for families with one child).

«As part of the state programme, families with children will be able to receive mortgage loans with significantly reduced first instalments and bank funding of up to 95% of property value,» – says head of Citadele Bank’s Private Lending Office Baiba Tetina.

According to the representative of the bank, current mortgage offers provide for first instalments of no less than 25% of property value. This means that a family would need to pay a first instalment of EUR 15,000 in order to buy an apartment worth EUR 60,000.

«Unfortunately, purchasing power of Latvian families that have children is not high enough to afford such a large first instalment and pay rent at the same time,» – concludes Tetina.

Initial funding of the programme is EUR 332,678, which will allow the state to issue guarantees worth a total of EUR 1.33 million.

Latvian ports increase their cargo turnover

In spite of the intense geopolitical situation in 2014, Latvian ports managed to transship 74.176 million tons of cargoes – 5.2% more than in 2013, as reported by Transport Ministry.

Riga Freeport was the most active in increasing its cargo turnover – its results reached 41.081 million tons at the end of 2014 (+15.8% since 2013).

Liepaja Freeport’s turnover had increased by 9.5% (5.3 million tons) in 2014.

Ventspils Freeport, on the other hand, had experienced a decline of cargo turnover: annual turnover declined by 8.9%, down to 26.206 million tons.

Among the five small Latvian ports, the largest turnover of 2014 was noted in Skulte – 742.4 thousand tons (+8.6%), followed by Mersrags – 483.6 thousand (+23.4%) and Salacgriva – 332.4 thousand tons (+12.9%).


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