Latvia’s Prime Minister Valdis Dombrovskis today described how the country emerged from deep recession to become the fastest growing economy in the European Union.
At the Invest in Latvia Forum 2013 hosted by the EBRD and cosponsored by the Latvian Embassy in the UK and the Investment and Development Agency of Latvia , the Prime Minister outlined recent economic developments in Latvia and the country’s opportunities for investors.
This year Latvia is expecting an impressive growth rate of 5.5-5.6 per cent with 4.2 per cent forecast for next year. The imminent adoption of the euro on 1 January 2014 is expected to be an additional boost for potential investors.
“Joining the eurozone means that you are able to meet very strict Maastricht criteria, which sends a positive signal about the financial and economic stability of your country,” Mr Dombrovskis said. “It is worth remembering how we got there.”
When the boom years ended abruptly in 2008, the government acted quickly, first and foremost through fiscal adjustment and major expenditure cuts, he continued.
The country’s budget deficit is below 1 per cent of GDP this year, having been 10 per cent in 2009. The return of financial stability helped restore the confidence of financial markets but went hand in hand with stimulus measures.
The government put an increased emphasis on the effective absorption of EU funds, the support of private entrepreneurship through the reduction of red tape and one of lowest corporate income taxes in EU, as well as measures to deal with the social consequences of the crisis.
Mr Dombrovskis also paid tribute to the EBRD for its support of Latvia over more than 20 years. In the past “it was very important to have the expertise and financial lending capacity of the EBRD to make transformation happen,” he said in a video interview.
“The EBRD is still playing a very important role in Latvia. The EBRD’s presence is still very much seen in Latvia and I think we are still benefitting from the EBRD’s experience.”
Today, Latvia presents itself as a regional hub in the Baltics at the crossroads with its EU neighbours, with excellent regional infrastructure, a reliable electricity network and solid IT infrastructure.
The government is focussing its support on those industries where it holds a competitive advantage, such as wood and machinery. It is also keen to promote investment possibilities in the transport and financial sectors.
The Prime Minister was keen to share lessons learnt from the last few years. “Delaying fiscal adjustments means you are delaying financial stability making future adjustments even more difficult,” he said.
He further stressed that in order to preserve the European social model and to create more sustainable growth, the EU needs to increase its competitiveness and tackle administrative burdens, adopt measures to facilitate foreign trade and focus more on research and innovation.
EBRD Chief Economist Erik Berglof praised the country for its remarkable transformation and resilience after the financial crisis: “The most important lesson for us should not be about the adopted austerity measure but about improving the investment climate and creating a more flexible and agile business environment which allowed Latvia to grow again and quickly.”
Latvia and the EBRD have a strong partnership, having concluded 61 projects for a total value of over €2 billion.
Most recently, the EBRD helped the Latvian government restructure Parex Bank, now operating under its new name, Citadele Bank. The EBRD is a 25 per cent shareholder and supports the future privatisation of the Bank.