Current account surplus again in August

In August 2011 the current account surplus was at 21.0 mil. lats. The improvement in the current account balance compared to July was significantly impacted both by the shrinking in the negative trade balance and the inflows of EU funding which exceeded the levels of the previous two months.

As was clear from the external trade data for July, the increase in the imports of the group of mechanical and electronic goods should be considered a separate purchase of investment commodities and in August no trend of increased goods imports developed. The export value of goods, on the other hand, reached its historic maximum in August after a two-month-long decrease. The positive balance of services trade also grew, determined both by a small rise in exports in several groups of services (e.g., travel, financial services and other business services) and a smaller value of financial services received.

The shrinkage of the negative balance in the income account to 11.0 mil. lats was primarily the result of a smaller volume of dividends paid compared to previous months, whereas the positive balance of current transfer account increased again due to the funding received from the European Social Fund and European Agricultural Guidance and Guarantee Fund, reaching 52.4 mil. lats.

The positive balance in the capital and finance account resulted from the inflows of funding from the EU Cohesion and Regional Development funds and a positive flow of net foreign direct investment ensured both by the reinvested earnings by foreign investors and investments in equity capital.  The volume of non-resident deposits also grew.

A small current account surplus could remain the case in 2011 overall, with the goods and services trade close to balanced and the level of current transfers close to the one in 2010. Several third quarter confidence indicators register a positive or stable dynamic and some Latvian enterprises, with the help of foreign investors, are making rather substantial investments in development; Cohesion fund financing is also available for a successful implementation of infrastructure, transport and energy projects. Lending activity however remains low and there is continued concern regarding a slowdown in external demand. These concerns are likely to slow down imports as well as limit a rise in the negative balance of the profit-and-loss account in the coming periods.

Latvia's balance of payments (data)