Analytics, Economics, EU – Baltic States, Financial Services, GDP, Latvia

Griffith pointed out that Latvia's economy is recovering from the crisis, therefore the mission has improved Latvia's economic growth projections for this year. He also explained that short-term indicators show that the country's economy could grow even faster if unaffected by external factors.

Latvia's economic growth rate accelerated to 5.5% in 2011 and 6.8% in the first quarter of 2012, noted Griffith and added that inflation is still low and could reduce to 2.6% this year, if global energy and food prices do not experience rapid changes.

The mission believes that Latvia's budget deficit should reduce to 2% of GDP this year. Tax proceeds considerably exceeded the projected figure in the first quarter of 2012. However, taking into account Latvia's significant internal demand, the largest share of these proceeds should be saved up. At the same time, Latvia could consider allocating additional funds to the sectors hit by the crisis the most, for example - health care, road maintenance, social security. According to Griffith, state administration salaries, compared to the private sector, should become competitive, to prevent the loss of highly qualified employees and strengthen tax administration. Any expenditure increases should be limited and purposeful, said Griffith.

Latvia must continue its strict policy to increase the chances of meeting the Maastricht criteria in a sustainable manner, said Griffith. Meanwhile, Finance Minister Andris Vilks (Unity) pointed out that Latvia has decent chances of fulfilling all Maastricht criteria in March 2013.

Vilks noted that the mission's assessment is positive and Latvia's international loan program was successful at least due to the fact that the country used only slightly more than a half of its funds. He emphasized that Latvia must continue to heed IMF/EC recommendations to maintain its course.

The mission concludes its visit to Latvia today. During the visit, the mission laid emphasis on the implementation of the convergence program and other agreements reached with the international lenders.

Latvia officially concluded its three-year international loan program on December 21, 2011, during which the country implemented stringent austerity measures to stabilize its finances after the economic downturn. The loan program formally concluded on January 20 this year.

During the program, Latvia used EUR 4.4 billion made available by the IMF, the European Commission and the World Bank. The IMF approved the first tranche of the loan on December 23, 2008.