Latvia's Balance of Payments in the Fourth Quarter of 2012

With exports of goods continuing on an upward trend, the current account of Latvia's balance of payments recorded a surplus of 22.1 million lats (0.5% of the forecast GDP) in the fourth quarter of 2012.

The foreign trade deficit in goods and services decreased to 45.4 million lats or 1.1% of the forecast GDP in the fourth quarter. The annual growth in exports of goods and services stood at 15.2% in the fourth quarter, while the respective imports increased by 8.6%. The weak external demand notwithstanding, exports of Latvian goods posted further growth in the fourth quarter, with the market shares of Latvian exporters also expanding in the European Union countries in general and in such major trade partners as Denmark and Finland in particular (in Estonia and Lithuania they remained broadly unchanged). Although the external demand posted no notable growth, Latvian exporters have succeeded in improving their position vis-à-vis their competitors in foreign markets.

At the close of the year a decline in exports of transportation services persisted on account of both long-term trends pointing to moderating activity in services trade and several one-off factors (repairs affecting the rail freight throughput). Despite the fact that total exports of services shrank quarter-on-quarter, several small but prospective services sectors developed, e.g. the information and computer services sector.

In the fourth quarter the total surplus of current transfers and capital account stood at 221.6 million lats or 5.3% of the forecast GDP. Inflows of the European Union funding accounted for its major part: 212.0 million lats were received in the fourth quarter, with the largest inflows coming from the European Regional Development Fund and the Cohesion Fund, associated with capital increases and investment in the future development of the national economy and businesses. 

The financial account deficit rose to 200.0 million lats or 4.8% of the forecast GDP. At the end of the year Latvia issued government bonds in the amount of 662 million lats and fully repaid the loan from the International Monetary Fund (493 million lats). In this period Latvia saw an inflow of foreign direct investment in the amount of 145.6 million lats or 3.5% of the forecast GDP. Real estate, energy, financial and insurance activities, as well as information and communications services sectors experienced the steepest investment growth. The international credit rating agencies Fitch Ratings and Standard & Poor's upgraded Latvia's credit rating already in November, with the agency Rating and Investment Information following suit in February 2013, providing international acknowledgement of Latvia becoming more attractive to foreign investors and pointing to attractive environment for future investment.

In 2012 the current account deficit of Latvia's balance of payments contracted to 259.9 million lats or 1.7% of the forecast GDP. The deficit resulted from imports of raw materials and capital goods necessary for Latvia's growth. Such a moderate current account deficit, fully covered by foreign direct investment (3.5% of the forecast GDP in 2012), causes no concern as to its financing in the long term.