Latvia's "Bright" Economic Situation

Europe-East, October 30, 2001 | Go to article overview

Latvia's "Bright" Economic Situation


Strict monetary and fiscal policies, successful integration into the global economy, improvement of the investment climate, growth of foreign direct investment volumes and the consistent advancement towards the EU, implying certain obligations for improvement of the economic environment, promise bright future perspectives for Latvia, according to the country's Ministry of Foreign Affairs. The latest figures, in mid-October, show inflation reached 0.7% in August 2001 (goods: -0.9%; services: +0.2 %). In the first half of 2001 it was 0.6%, in 2000 it was 1.8%, 1999 - 3.2%, 1998 - 4.7%. For several years it has been among the lowest in Central Europe and currently only slightly lags behind the average level of the EU. Gross Domestic Product (GDP) in the first half of 2001 has grown by 8.8% comparing to the first half of 2000. The growth of GDP of the 2nd quarter of 2001 comparing to the 2nd quarter of 2000 was even larger - 9.2%. In 2000 the GDP growth was 6.6%, which was the highest among the Baltic States (Estonia 6.4%; Lithuania 3.3%). Forecasts for GDP growth in 2002 range from 4.4 to 6.6%. Most economists and prominent business publications (e.g., the Financial Times, Business Central Europe) predict a sustained GDP growth in the future.Growth of the Economic Activity Index (EAI) accounted for 6.9% in August 2001, which Latvia claims is another proof of the revival of its economy (in the first half of June 2001 it was 7.0%). The fiscal deficit, according to the Law On State Budget was to reach 3.18% of GDP in 2000, but in reality it was 2.75%, while in 2001 it is envisaged that it will reach 1.74% of GDP and in 2002 - 2.76%. In 1999 the fiscal deficit was 4.0% of GDP, mostly due to the financial crisis in Russia (1997 and 1998 were completed with a fiscal surplus of 1.2% and 0.1% of GDP, respectively). The external debt has decreased from 9.5% of GDP in 1999 to 8.0% of GDP in 2000. The total central government debt (at the end of 2000) was 13.2% of GDP.The official unemployment rate in Latvia in June 2001 was 7.8% (8.4% - 2000). The average monthly salary in the public sector was LVL 182.27 in the first quarter of 2001.Latvia's economic success has been recognized by international credit rating agencies: Standard & Poor's evaluated Latvia's credit rating in 2000 as stable BBB, while FITCH IBCA recently (June, 2000) confirmed a credit rating of BBB, indicating Latvia's economic stability and capacity to absorb external adverse shocks. According to the credit ratings, Latvia ranks among the economically strongest Central and Eastern European countries. The balance of payments current account decreased from -9.6 % of GDP in 1999 to -6.8% of GDP in 2000. Although the current account deficit remains significant, the total balance of payments in 1999 was positive due to positive contributions by the service account and the FDI inflow. The liberal foreign trade regime (in 2000 79% of Latvia's imports and 85% of Latvia's exports take place under the most favoured nation (MFN) treatment) is considered a very important precondition for rapid and successful restructuring of economy. Data from the Central Statistical Bureau indicate that exports in the first 7 months of 2001 have increased by 12.4% comparing to the same period of 2000, but imports have increased by 14.6%. Imports now exceed exports by 65.2% (while at the end of July 2000 this difference was only 62.1%). In the first 7 months of 2001 Latvia's exports and imports to the EU comprised 62.5% and 52.3% of total exports and imports respectively, while exports and imports to CIS countries were 9.5% and 15.4% of total exports and imports respectively.The largest Latvian export trade partners in the period of January - July 2001 were: Germany (17.3%), Great Britain (15.7%), Sweden (9.7%), Lithuania (8.0%) and Estonia (5.8%). The most important export articles were: wood and articles of wood (35.4%), textiles and textile articles (13.9%) and base metals and articles of base metals (13. …

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