Front Matter Page
IMF Country Report No. 15/110
REPUBLIC OF LATVIA
2015 ARTICLE IV CONSULTATION—STAFF REPORT; INFORMATIONAL ANNEX; AND PRESS RELEASE
May 2015
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2015 Article IV consultation with the Republic of Latvia, the following documents have been released and are included in this package:
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration o a lapse of time basis, following discussions that ended on March 2, 2015, with the officials of the Republic of Latvia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 9, 2015.
An Informational Annex prepared by the IMF.
A Press Release
The document listed below has been or will be separately released
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
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Front Matter Page
REPUBLIC OF LATVIA
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION
April 9, 2015
Key Issues
Context. Latvia has made remarkable economic progress since the crisis: the output gap is now largely closed, the current account deficit has been reduced to sustainable levels, and unemployment continues to fall. However, the economy has recently slowed considerably in the face of a deteriorating external environment, weak investment, and persistently shrinking bank credit
Challenges. Subdued economic growth is expected to continue in 2015 due to continued weakness in trade partners, particularly Russia. An escalation of geo-political tensions or protracted low growth in the Euro Area poses further downside risks. Rapid productivity growth will be needed over the medium term if per capita income is to converge to core Euro Area levels.
Staff views.
The continued contraction of bank credit is likely to constrain investment going forward. Recent efforts to catalyze SME lending and improve the implementation of insolvency procedures are welcome.
Over the medium term efforts are needed to increase the revenue envelope to ensure that necessary capital and social expenditures can be accommodated.
Although geopolitical tensions do not appear to have significantly affected the inflow of non-resident deposits (NRDs) to date, continued vigilant supervision and regulation of the NRD banking sector is needed.
Structural reforms are needed in several areas—such as education, infrastructure, labor markets and the judicial system—to maintain competitiveness over time in the Euro Area currency union.
Authorities’ views. The authorities were in broad agreement with staff recommendations, notwithstanding some differences on tax and benefit policies. They agreed to explore ways to build fiscal space over the medium-term to accommodate essential expenditures. They also concurred with the need for higher prudential standards and intensive monitoring of risks associated with NRD banking sector.
Approved By
Philip Gerson (EUR) and Mark Flanagan (SPR)
Discussions were held in Riga during February 19-March 2, 2015. The team comprised Mr. Aiyar (head), Messrs. Srour and Lian (all EUR), and Ms. Diouf (SPR). Mr. Rutkaste (OED) also joined the discussions.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy
B. Financial Supervision
C. Resuscitating Bank Credit
D. Structural Reforms
STAFF APPRAISAL
BOXES
1. Russia Linkages
2. External Sector Assessment
3. Risk Assessment Matrix
FIGURES
1. Real Sector, 2009–14
2. Inflation and the Labor Market, 2007–14
3. Fiscal Developments, 2008–14
4. Financial Market Developments, 2006–15
5. Banking Sector Development, 2007–14
6. Balance of Payments, 2007–14
7. External Debt and Vulnerabilities in the Banking System
TABLES
1. Selected Economic Indicators, 2008–15
2. Macroeconomic Framework, 2010–20
3. General Government Operations, 2010–20
4. Medium-Term Balance of Payments, 2010–20
5. Financial Soundness Indicators, 2006–14
6. Indicators of Fund Credits, 2009–16
ANNEXES
I. Public Debt Sustainability Analysis (DSA)
II. External Debt Sustainability Analysis (DSA)
Front Matter Page
REPUBLIC OF LATVIA
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
April 9, 2015
Prepared By
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 15/186
FOR IMMEDIATE RELEASE
May 04, 2015
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