Current account still with a surplus; the growing industrial sector will require more imports
In August 2010, the balance-of-payments current account surplus was retained, shrinking to 29.2 mil. lats.
With the economic activity gradually picking up in Latvia, the imports of intermediate consumption goods (particularly in the metals group) necessary for industrial production increased, and thus the excess of imports over exports increased slightly. The value of services received also grew somewhat, primarily on account of the volume of cargo services and financial services received while the value of services rendered remained virtually unchanged thus reducing the positive balance of the services trade.
The overall balance of the revenue account did not change substantially, but the dynamics of investment revenue points to gradual positive changes in the business of the foreign direct investment companies: their losses, which resulted in substantially improving the crisis-period current account balance, shrank. At the same time, the volume of dividends paid also shrank (payments of dividends are more characteristic of the middle of the year), slightly changing the surplus of the revenue account.
In August, as Latvia received an instalment of the International Monetary Fund loan as well as receiving inflows of EU funds, the value of reserve assets increased.
Since the Latvian economic growth is gradually resuming, it is expected that the flow of goods will intensify and the imports of capital and intermediary consumption goods will increase. In absolute terms therefore, a reduction in the surplus of the current account is expected in the next few months. Although Russia and Ukraine have set some and are planning other limits on their grain exports, no great improvement in the balance of Latvia's foreign trade is expected even taking into account the rise in global grain prices. The reason is that the kinds of grain exported by Latvia and the above countries are different, and the grain harvest in Latvia is not considered sufficient. One of the most serious risks affecting services exports in the near future will be the limits set on the number of cargo transport licences granted by Russia.