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

International Internet Magazine. Baltic States news & analytics Friday, 29.03.2024, 09:55

Problems in banking and transit sectors hinder Latvia's economic development – Dombrovskis

BC, Riga, 15.10.2018.Print version
Problems in the banking sector and in transit hinder Latvia's economic development, informs LETA referring to the European Commission Vice-President Valdis Dombrovskis.

Valdis Dombrovskis. BC.

Latvia's economic growth this year and in 2019 is projected at 3.3% and 3.2% respectively, well ahead of the European Union's average figures, said Dombrovskis. Internal demand is rising along with a comparatively fast increase in wages, and economic development is quite successful.


"The factors that to a certain extent hinder economic development are also well-known: these include problems in the banking sector and falling volumes in the transit sector. At the moment, it is important to improve productivity of the economy and to invest in companies," said Dombrovskis. "Wages are increasing fast, and they should be growing if we consider, for instance, emigration trends. Wages is the main factor in order to halt emigration and turn it the other way round, which is currently happening in Lithuania, to some degree."


In order for the economy to remain competitive at a time wages are growing so fast, productivity needs to be increased, added Dombrovskis. If not, competitiveness will suffer and a crisis may follow. That is certainly a possibility that must be avoided, he said.


Commenting on concerns that financing for Latvia will decrease 500 mln euros in the next EU funding period, Dombrovskis confirmed that these concerns were well-founded if measured in constant prices. In terms of current prices, the financing for Latvia will remain unchanged: 4.8 bln euros in 2014-2020, and the same 4.8 bln euros in 2021-2027, he explained.


This Commission's proposal is yet to be discussed, however. The Baltic prime ministers have said that the planned funding reductions for the Baltic countries are too steep, although the reduction in financing for Latvia will be far smaller than for the other Baltic countries, because financing for Lithuania and Estonia will also decrease in current prices, said Dombrovskis.


The Commission's offer comes at a rather complicated time when Great Britain is leaving the EU. Great Britain is one of the largest net contributors in the EU, and Brexit will leave a gap in the EU budget. The Commission has offered to close the gap by, for instance, partly reducing cohesion expenditures and Common Agricultural Policy (CAP) spending, although CAP financing for Latvia will increase, said Dombrovskis. This is a complex compromise that the Commission arrived at through balancing out different factors.


As for the reputation of Latvia's financial sector and its impact on the Latvian economy, Dombrovskis said that problems in the financial sector already are a factor hindering Latvia's economic growth. What happens next will depend on how successfully the government of Latvia implements recommendations offered by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval) of the Council of Europe, he added.

 






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