Republic of Latvia: Staff Report for the 2019 Article IV Consultation—Informational Annex

2019 Article IV Consultation-Press Release; and Staff Report

Abstract

2019 Article IV Consultation-Press Release; and Staff Report

Fund Relations

(As of June 30, 2019)

Membership Status: Joined May 19, 1992; Article VIII General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans: None

Latest Financial Arrangements:

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Projected Payments to Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

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Exchange Rate Arrangement:

As of January 1, 2014, the currency of Latvia is the euro, which floats freely and independently against other currencies. Prior to 2014, the currency of Latvia was the lat, which was introduced in March 1993 to replace the Latvian ruble. The exchange rate was pegged to the SDR from February 1994 to December 2004, within a ±1 percent band. On January 1, 2005, the lat was re-pegged to the euro at the rate 1 euro = 0.702804 lats, and on April 29, 2005, Latvia entered ERM II, maintaining the previous band width. Latvia maintains an exchange system free of restrictions on the payments or transfers for current international transactions. Exchange restrictions maintained for security reasons have been notified to the Fund for approval most recently in January 2018 (see EBD/18/5, January 25, 2018).

Previous Article IV Consultation:

Latvia is on the 12-month consultation cycle. The last Article IV consultation was concluded on September 5 2018 (IMF Country Report No. 18/266). The Executive Board assessment is available https://www.imf.org/en/News/Articles/2018/09/05/pr18340-republic-of-latvia-imf-executive-board-concludes-2018-article-iv-consultation

Safeguards Assessment:

The safeguards assessment completed on July 8, 2009 concluded that the Bank of Latvia (BoL) operates robust internal audit and control systems. The assessment recommended clarifying the respective roles of the BoL and the Treasury in holding, managing, and reporting to the Fund audited international reserves data. It also recommended amendments to the mandate of the BoL’s audit committee and improvements to the financial statements’ disclosures. The authorities have already taken steps to implement these recommendations, notably by establishing a formal arrangement between the BoL and the Treasury, revising the audit committee charter and expanding the existing accounting framework.

FSAP Participation and ROSCs:

A joint World Bank-International Monetary Fund mission conducted an assessment of Latvia’s financial sector as part of the Financial Sector Assessment Program (FSAP) during February 14–28, 2001. The Financial Sector Stability Assessment (FSSA) report was discussed at the Board on January 18, 2002, together with the 2001 Article IV staff report (Country Report No. 02/10). An AML/CFT assessment mission took place during March 8–24, 2006, and the report was sent to the Board on May 23, 2007. A joint IMF-World Bank mission conducted an FSAP Update during February 27–March 9, 2007. A World Bank mission conducted an FSAP development module during November 8–18, 2011.

ROSC Modules

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Republic of Latvia: Technical Assistance (2007–18)

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Resident Representative Post: Mr. David Moore was appointed Resident Representative from June 11, 2009 to June 11, 2013.

Statistical Issues

Assessment of Data Adequacy for Surveillance

General: Data provision to the Fund for surveillance purposes is adequate (A).

National Accounts: The Central Statistical Bureau of Latvia (CSB) compiles and publishes quarterly national accounts with the production, expenditure, and income approaches on a regular and timely basis. Data is compiled in accordance with the European System of National and Regional Accounts (ESA 2010). Since September 2011, national accounts are calculated with the NACE rev. 2 classifications, determined by the European Commission. However, there are discrepancies between the GDP estimates based on production and those based on expenditure. The statistical discrepancy is included in changes in inventories on the expenditure side.

The underlying data for the production approach is obtained primarily through a survey of businesses and individuals and are supplemented by data from labor force surveys and administrative sources. The CSB believes that the basic data understate economic activity, particularly in the private sector, and there is an ongoing effort to increase coverage. Additional data for the expenditure-based accounts are obtained from household budget surveys and other surveys from the State Treasury and ministries.

Government finance statistics: Fund staff is provided quarterly with monthly information on revenues and expenditures of the central and local governments and special budgets. With some limitations, the available information permits the compilation of consolidated accounts of the general government. The Government Finance Statistics database in the IMF’s eLibrary website contains cash data in the GFSM 2001 format. Quarterly general government data on an accrual basis are provided through Eurostat for the International Financial Statistics on a timely basis.

Monetary statistics: The monetary and financial statistics (MFS) for Latvia are reported by ECB and published in the IFS. The monetary and financial data cover balance sheet data for the central bank and other depository corporations (ODCs) using Euro Area wide and national residency criteria.

Financial sector surveillance: Latvia reports all 12 core and 13 encouraged financial soundness indicators (FSIs) for deposit takers on a quarterly basis. Also, 1 FSIs for non-financial corporations and 2 FSIs for real estate markets are reported on a quarterly basis. Latvia reports data on several series and indicators of the Financial Access Survey (FAS), including the two indicators —the number of ATMs per 100,000 adults and the number of commercial bank branches per 100,000 adults—adopted by the UN to monitor Target 8.10 of the Sustainable Development Goals (SDGs).

Balance of payments: The BoL assumed responsibility for compiling the balance of payments statistics from the CSB in early 2000. The data collection program is a mixed system, with surveys supplemented by monthly information from the international transactions reporting system (ITRS), and administrative sources. The BoL is also responsible for compiling international investment position (IIP), external debt, and international reserves statistics. The BoL reports quarterly data on balance of payments and IIP, and monthly international reserves to STA on a timely basis. Balance of payments data are compiled using the format recommended in the Balance of Payments Manual, sixth edition (BPM6). Latvia reports comprehensive data to two STA’s initiatives: (a) to the Coordinated Direct Investment Survey (CDIS), and (b) to the Coordinated Portfolio Investment Survey (CPIS). The BoL disseminates quarterly external debt data in the World Bank’s Quarterly External Debt Statistics (QEDS) database.

Data Standards and Quality: Latvia is a subscriber of the Special Data Dissemination Standard (SDDS) Plus since August 2018 and a link to Latvia’s metadata is available at the IMF’s website for the Dissemination Standards Bulletin Board (DSBB).

Reporting to STA: The authorities are reporting data for the Fund’s International Financial Statistics, Government Finance Statistics Yearbook, the Direction of Trade Statistics, and the Balance of Payments Statistics Yearbook.

Republic of Latvia: Table of Common Indicators Required for Surveillance

As of July 2019

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Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means

Both market-based and officially-determined, including deposit and lending rates, discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability position vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Not Available (NA).

Republic of Latvia: 2019 Article IV Consultation-Press Release; and Staff Report
Author: International Monetary Fund. European Dept.