End of 2010 sees more foreign investment in Latvia

In December 2010 Latvia's balance of payments current account balance was negative, (‑50.2 mil. lats) resulting from the foreign trade transactions on goods and payment of dividends, which increased the revenue account deficit.

The negative trade balance (-33.2 mil. lats) of goods and services was substantially affected by the fluctuations in goods exports: in December a drop was observed, with the value of exports still remaining above the monthly average in 2010. The services trade balance improved slightly (to 62.1 mil. lats) as a result of increasing exports of cargo transportation services by truck and rail as well as the growing value of financial services rendered.

The negative balance of the revenue account increased to 77.8 mil. lats, and even though the reinvested profit item again reflected the loss by foreign direct investment companies, there was a substantial increase in the volume of paid dividends in the dividends and distributed profit item.  

The balance of the regular transactions account equalled that of November but was substantially larger than the monthly average in 2010. This was effected by the inflow of EU funds, which, in contrast to the previous month, came mostly from the European Social Fund and, to a lesser extent, were product subsidies.

No significant inflows of EU funds were observed in the capital account, yet positive changes affected the finance account whose surplus in December was determined by the increase in direct foreign investment in the share capital of Latvian enterprises. At the beginning of 2010, net outflows were still observed in the foreign direct Latvian investment account but within a year the situation improved substantially, with net inflows reaching 89.8 mil. lats in December. Even though Latvia's position as evaluated by the international investment agencies is still rather low, the recent evaluations by Fitch IBCA and Standard&Poor's (an improvement in the rating outlook and an improved rating, respectively) indicate a stabilizing of the investment environment in Latvia and point to a potential inflow of investment in the future.

According to the Latvian balance of payments operational data and GDP forecast, a small surplus was maintained in the current account in the fourth quarter of 2010 and in the year overall the current account surplus was 4%.

Latvia's balance of payments