Latvia's economy has emerged from the recession triggered by the Russian crisis. Executive Directors commended the strong economic growth and low inflation. They appreciated the open and liberal trade system and the soundness of the banking system. They emphasized the need to maintain fiscal and monetary policies, and accelerate structural reforms. They urged the authorities to implement reforms to improve private sector development, increase foreign direct investment, enhance governance, and also to privatize state-owned enterprises, and approved a Stand-By Arrangement for the country.
April 20, 2001
Since issuance of the staff report (EBS/01/44), additional information has become available on macroeconomic developments, the fiscal and monetary performance during the first quarter of 2001, and structural issues. This information does not alter the thrust of the staff appraisal.
The macroeconomic outcome in 2000 was better than expected. Reflecting a strong growth rate of 8.7 percent in the fourth quarter of 2000, real GDP grew by 6.6 percent for the year as a whole, about a percentage point above the estimate in the staff report. Indices on industrial production and retail trade indicate that economic activity remained buoyant in the first quarter of 2001. Inflation remains low, with the CPI increasing by 1.4 percent in the twelve months through March 2001. The external situation in 2000 also turned out better than estimated. Reflecting continued strong exports to the EU and improvements in the income account, the external current account deficit declined to 6.8 percent of GDP, about half a percentage point lower than expected. The share of this deficit financed by foreign direct investment rose to 82 percent, compared to the preliminary estimate of 75 percent in the staff report.
The general government fiscal deficit and the NIR and NDA of the Bank of Latvia were within the indicative targets set for end-March. The general government fiscal deficit amounted to LVL 9 million, about half of the deficit ceiling, with the authorities succeeding in containing expenditure in light of somewhat lower tax receipts. Parliament adopted the amendments to the excise tax law ahead of schedule, which bodes well for strengthening tax collections. In line with the commitments under the program, the Bank of Latvia reduced the monthly auction volume for two-year swaps to LVL 5 million beginning in April.
In the structural area, last week the government decided on the minimum bidding price for the privatization of the Latvian Shipping Company (LASCO), with the auction tentatively scheduled for May 11.
The Latvian authorities would like the staff report and the program documents to be published.