bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Sunday 22.07.2018 | Name days: Marija, Marika, Marina
LatviaLatvia

FM: there are reasons to expect major speed-up of economic growth in 2017

FaceBook
Twitter
Draugiem
print
(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUAfter relatively strong growth in 2015, Latvia’s economy managed to demonstrate good resilience against external shocks, demonstrating economic growth of only 1.4% in the first three quarters of 2016. The reason for that was the unfavourable situation in the external environment, slower introduction of EU funds and changing fund-planning periods, as reported by Finance Ministry.

Decline in the inflow of EU funds reduced investment volumes, impacting construction sector the most, which had also experienced a 20% decline in the first three quarters. As Russian cargo transit volumes continued to decline, cargo volumes transshipped by ports and railway also declined by 10%. Residents’ income growth also became slower and wage growth was no longer as rapid as it was in previous years.

At the same time, the ability of Latvian businessmen to overcome complicated external risks was demonstrated again in 2016. It was observed in multiple positive trends that allow experts to predict more rapid development rates for the future. In spite of slow growth in the main markets, processing industry did achieve 3.9% growth in the first ten months. Logging industry remained among the main economic sectors that secured growth. Metalworking and construction material production industries also demonstrated growth. Computer and electronic equipment manufacturing industry demonstrated double-digit growth. Food industry began demonstrating growth in the second half of the year.

Although overall exports of Latvian goods had declined somewhat in 2016, it had been mostly due to the decline of re-exports and oil prices. At the same time, exports of Latvian products, aside from goods from the main re-export categories, had increased by at least 3%. In addition to exports, which have been very stable against external risks for years, a pleasant surprise was provided by exports of services, which, in spite of major decline in transport industry, had managed to achieve 2.9% growth in the first ten months.

Influence from external environment

European and world economies failed to reach their goals this year. It was dictated by unexpected political turns, including Brexit and US presidential elections. According to latest economic estimates of the European Commission, EU’s general economic growth will have been 1.8% in 2016 instead of the 2% previously predicted in 2015. Instead of the predicted 3.5%, the world economy has grown by 3% in 2016, which is the lowest growth rate since the global economic crisis.

British citizens voted in favour of their country leaving the EU in June. This piece of news initially caused panic on financial markets. Several days after the initial shock, however, stock markets began rapid growth. Even the unexpected outcome of the US presidential elections failed to impact it. US indexes had even reached new records in December, which had also contributed to the new US president’s more expansive fiscal policy.

Brexit vote and US presidential elections did have an impact on the currency markets: euro suffered a decline against US dollar. Expecting more rapid economic development, US Federal Reserve system performed the second interest rate rise in the post-crisis period. This stimulated US dollar exchange rate. In December, euro value against US dollar dropped to the lowest level in the past fourteen years. This euro value decline was beneficial for Latvian exports to USA and other countries whose currencies are tied to dollar.

The influence of both of those political events on the world’s and Latvia’s economic development remains unclear and hard to predict. Although Britain is Latvia’s sixth largest export partner with 5.2% proportion of the total export market (2015), the biggest influence from Brexit is related the most to uncertainty and the possible negative influence on Europe’s growth, not direct impact on trade relations, Finance Ministry explains.

Last year was also notable with rapid fluctuations in commodity markets, with oil price dropping to the lowest level in the past twelve years – below USD 30 per barrel. Following an agreement by OPEC in regards to the reduction of oil production, Brent price reached USD 50 per barrel in December.

Tax revenue

Tax revenue growth rate was 7.2% in the first 11 months of 2016. It was significantly above GDP growth in actual prices, which had increased by 1.8% in nine months of 2016 when compared with the same period of 2015.

Compared with macro-data predictions of 2015, real data indicates more towards lower development rates in 2016. Experts predict lower GDP growth index, lower job wage growth, lower consumption and lower tax revenue. It is indicatively estimated that with a lower macro-economic base, tax revenue may be reduced by approximately EUR 45-50 million.

It is also predicted that general budget revenue will have exceeded expectations in 2016. This means SRS activities have become more effective and work on the realization of initiated reforms should be continued.

Grey economy combating and 2017 budget

Continuing the dialogue with social and cooperation partners and other state institutions, it has been decided to approve the grey economy limitation plan. Work has commenced on the development of goals listed in the plan to ensure the reduction of grey economy. The most important part of the plan is that most measures were submitted to the plan by different industries.

For example, it was possible to find a solution for the grain industry this year. Efforts have borne fruit. This industry used to suffer from countless cases of VAT fraud.

Saeima’s support has helped initiate efforts to realize at least 20 of the plan’s detailed measures next year. Those efforts are aimed at reducing grey economy in taxi industry and construction sector, as well as reduce VAT fraud risks and increase control over cash money in turnover and transactions in the electronic environment.

The system for the prevention of money laundering and terrorism financing has been improved as well.

To sort out the system and prevent the abuse of Latvia’s financial system for criminal goals and make information exchange more convenient between market participants and law enforcement institutions, a legal basis has been created for the creation of the Accounts Register, which is planned to house information regarding actual beneficiaries in transactions performed using Latvian credit institutions. Appropriate legislative regulations will come into force on 1 July 2017. The system for reporting suspicious and unusual transactions has also been improved.

During the formation of the 2017 budget, the main directions for the budget had been grey economy combating measures, more effective use of resources, limitation of tax optimization and improvement of the competitiveness of the business environment, as explained by the ministry.

The government has succeeded in preparing a balanced budget. No significant changes were added to the biggest taxes. All tax policy changes are currently being discussed and developed in close cooperation with the government’s social and cooperation partners. Work will continue on the State Tax Policy strategy 2017-2021.

Foundation on a new process was laid this year as well. This process is the review of the state budget expenditures. There are two goals for the review – ensure more effective expenditures and better results. In accordance with initial expenditure review results, the government supported measures aimed to make resource use more effective in 2017 and 2018. According to indicative assessment, ministries have introduced initiatives to the 2017 budget worth more than what the budget can afford. Budget and function reviews will be carried out annually from 2017 onward. In addition, it is also important to clarify budget documentation. The focus is put on achievable industry indexes in each political field.

A comparison between the 2016 and 2017 state budgets, next year’s expenditures will have grown by 8.3% next year. Revenue is expected to grow 8.4%. All of the additional funds will be diverted to priority industries. For example, funding for defence will reach 2% of GDP in 2018, Finance Ministry states.

This year, the government decided to form a medium-term fiscal security reserve. The goal of this reserve is to ensure budget balance at the appropriate level in the event of economic fluctuations and in order to compensate the possible rise of expenditures because of fiscal risks, ensuring a better approach for budget planning processes.

2017 for municipalities

2017 will mean tax revenue rise for municipalities. It is predicted that 2017, when compared with 2016, will result in tax revenue growth of 6.5% or EUR 95 million for municipal budgets.

2017 will be the first year when new municipal financial equalization principles will start working without a prior transition period. «We see that conditions listed in the law ensure equal resource availability for all Latvian municipalities. This is the main goal of the new law. However, it is no less important for the law to motivate municipalities to develop businesses in their territories, as well as contribute to economic development, because tax revenue rise ensures equalized revenue growth for all municipalities,» – says Finance Minister Dana Reizniece-Ozola.

EU funds in 2016 and 2017

Risk management and financial discipline contributing measures implemented in 2016 as part of the previous planning period (2007-2013) offer confidence about Latvia’s ability to use the funding offered by the Cohesion polity in the country’s best interest, opening the way for investments of EUR 4.5 billion in the country’s economy. EU funds have already helped create more than five thousand new jobs, train and re-qualify nearly 150,000 unemployed people and job seekers, modernize 27 scientific institutions, offer support to more than 1,200 companies to ensure growth, raise energy efficiency of more than 740 homes, build and reconstruct approximately 1,000 km of roads and 52 km of railway.

Commencement of the new EU fund planning period (2014-2020) has continued successfully. In 2016m the finance ministry and the government’s social and cooperation partners managed to approve conditions for investments worth EUR 2.7 billion from European funds.

The second half of 2016 also stood out with a more transparent selection and realization of projects. Contracts have been signed in relation to one-third of the financing available for the planning period – 4.4 billion. With that, 2017 is viewed as a year rich with different projects. To ensure successful integration of EU finances in Latvia’s national economy, officials regularly perform monitoring and risk assessments.

Preparations have commenced for talks regarding the funding available to Latvia from EU funds after 2020. As confirmed by EC, Latvia was one of the main stories of success in the 2007-2013 planning period. In the period of time between 2007 and 2015, Latvia had secured national economic growth of approximately 5%. Because of that, it is highly important for Latvia to retain Cohesion fund’s policy as an important component of EU’s internal development and convergence, simplifying EU fund investment requirements and maintaining emphasis on local development needs, adds the minister.

Economic development outlooks

Developments in Latvia and elsewhere in the world in 2016 allow for more rapid economic development in 2017. Overall economic development had improved in recent months thanks to EU investments and rise in state expenditures. An additional stimulus for economic development in 2017 will be the expected increase of state budget expenditures by 7% and larger expenditures for areas like defence, public order, healthcare and education, as BNN was informed by the ministry.

In spite of different political and economic problems, the mood of businessmen and consumers in the EU continued to improve, which offers good perspectives for Latvia’s processing industry and exports. Positive influence may be noticed for euro exchange rate, improving Latvia’s exports to countries outside of Eurozone. Although economic growth perspectives for Europe has reduced for next year, the situation in Latvia’s main external trade partner countries (Lithuania, Estonia, Germany, Russia, Sweden, UK and Poland) continued to improve in 2016, and the general growth, according to EC, will speed up to 2.1%. With that, political instability in the world has not reduced lately and external risks for Latvia’s economy remain high. In spite of that, economic development will likely become stronger in 2017, Finance Ministry states.

Ref: 224.109.109.6098


Leave a reply

SRS: cash register reform still stagnates, but has become much faster than it was last year

The cash registers reform continues stagnating. However, it has become much faster than it was a year ago, as reported by State Revenue Service.

Specialists to search for solutions to topical environmental problems in Ventspils

On Friday, 20 July, a meeting was held between Ventspils Commercial Port representatives and specialists from State Environment Service.

Children with functional disorders to receive services financed by EU funds

Child invalids will have access to social services intended to improve their social skills and mobility. More than EUR 4.2 million has been allocated for this goal from the European Social Fund, as confirmed by Latvia’s Central Financing and Contracting Agency.

Producer price level in industry up 4.3% in Latvia

Compared to June 2017, the average level of producer prices in Latvian industry increased by 4.3 % in June 2018. Prices of products sold on the domestic market rose by 4.8 % and those of exported products by 3.7 %.

Total tax debts in Latvia in July – 1.212 billion euros

At the beginning of July total tax debts in Latvia, including outstanding debts, halted debts and debts applied with repayment term extensions, accounted for EUR 1.212 billion, which is 0.8% less than a month prior, according to data from the State Revenue Service.

Survey: every third Latvian resident has received illegal loan offers

Nearly every third resident in Latvia or 31% of respondents admit having received offers to use illegal loan services, as concluded in a survey performed by Latvian Alternative Financial Services Association and SKDS.

Libya opposed to EU's idea to establish migrant centres in North Africa

Libya is against the solution of the European Union to set up migrant centres in the North African country as a means to keep migrants from arriving in the bloc and Libya would not be convinced with financial support, its Prime Minister Fayez al-Sarraj has noted.

Arrest warrant on Catalan ex-President cancelled by Spain

The Supreme Court of Spain cancelled a European arrest warrant for former Catalan regional leader Carles Puigdemont, as Germany refused to extradite him to face accusations of rebellion for declaring the independence of Spain's region, Catalonia in 2017.

Latvian government plans to allow handing expired food to charity

Latvia’s Agriculture Ministry has prepared amendments to the Law on the Supervision of the Handling of Food that provide permission to hand over certain types of food products to charity after the end of their expiry date.

Estonian industrial producer prices up 2.9% since June 2017

Estonian industrial producer price index has risen by 2.9% between June 2017 and the first summer month this year, resulting in an increase of export prices as well, Estonian statisticians have estimated.

Putin urges NATO to quit «irresponsibly» developing ties with Ukraine, Georgia

Russia's President Vladimir Putin cautioned NATO against developing deeper relations with Ukraine and Georgia, evaluating such a policy was irresponsible and would have consequences for the military alliance.

Latvian parliament not in a hurry to support president Vejonis for a second term

Political parties represented in the Saeima are not eager to support President Raimonds Vējonis for his remainder for a second term.

Weather in Latvia will remain warm and even hot at times

Weather in Latvia in the nearest couple of days will be dictated by a cyclone. Because of that the sky will be partially covered by clouds; thunderstorms are also expected, as reported by State Environment, Geology and Meteorology Centre.

Hungary sued in EU Court for criminalising help to illegal immigrants

The European Union's executive body has stated that a law in Hungary that criminalises support for illegal immigrants is in breach with EU law and Hungary has now been referred to the European Court of Justice for the alleged non-compliance.

Estonians buy alcohol in Latvia; country loses EUR 20 million in six months

Latvian stores located close to the Latvian-Estonian border have sold 1.6 million litres of strong alcoholic drinks in the first half year of 2019. This means Estonia has lost more than EUR 20 million in taxes, according to data from Association of Estonian Alcohol Producers and Importers.

Lithuania’s election watchdog slams ruling LFGU over popular TV series

Political messages can be channeled in various ways and the ruling now Lithuanian party, LFGU has chosen a very delicate way of the communications – through a TV series featuring the beauty and the ambiance of Naisiai, a picturesque settlement in Siauliai district.

Association: around 3,3000 people know of their HIV infection but receive no treatment

HIV remains a serious problem in Latvia – around 3,300 people are aware of their status but receive no treatment and continue spreading the infection. Because of that, it is necessary to act quickly for Latvia to lose its status as HIV kingdom and limit the spread of the infection, says Baltic HIV Association, informing decision-makers and responsible officials in institutions and hospitals about the HIV/AIDS situation.

Driver shortage may force reduction of international road haulage volumes

Latvia’s road haulage companies have started experiencing shortage of drivers. On top of that, if employment conditions for residents of non-EU member states do not change, it may be necessary to reduce the volume of road haulage volumes, says Latvijas auto president Valdis Trēziņš.

Lattelecom’s turnover up 9% in first half-year of 2018

Lattelecom Group’s turnover reached EUR 98.7 million in the first half-year of 2018, growing by 9% in comparison with the same period of 2017, according to unaudited financial results.

1,140 fewer births registered in Latvia in 2017

Since 2016 the number of births in Latvia is declining again. Compared to 2016, a total of 1,140 births fewer were registered in 2017. Also, the provisional number of births registered over the first six months of 2018 (9,664 children) is by 664 children smaller than that registered over the respective period of 2017.

Citadele Bank decides to reform Lithuanian subsidiary as a branch office

Citadele Bank has decided to reform its Lithuanian subsidiary as a branch office, as confirmed in the statement the bank submitted to Nasdaq Riga.

Russian pension age hike discussed amid protest outside Duma

As the Russian paliament votes on the proposal to gradually increase he pension age to 65 for men and 63 for women, some 200 people were seen protesting against the reform in Moscow.

Corruption watchdog chief says bureau has done no illegal actions

After going through Corruption Prevention and Combating Bureau’s past investigative activities, the bureau’s chief – Jēkabs Straume – found it confusing that officers often took no appropriate actions after acquiring evidence or receiving indications regarding necessary steps.

Illegal border crossings to Estonia on rise after Russia World Cup

Football fans with temporary residency permits of the Russia World Cup, or fan Ids, are trying to illegally cross the Russian border with Estonia, a member of the European Union.

Estonian 13-year-old lethally overdoses fentanyl

Estonian prosecutors have accused a 15-year old of negligent homicide after a girl, 13, passed away from fentanyl overdose.