A small surplus of the current account remains in the first three months of 2011

According to the monthly data, in the first three months of 2011 combined, the current account surplus was 36.8 mil. lats, with March posting a small deficit in the amount of 17.1 mil. lats. The current account deficit in March was substantially affected both by the negative balance of the income account and the increase in the negative balance of goods trade transactions.

Month-on-month, the goods imports in March grew slightly faster than exports, particularly affected by the rises in commodity prices. The foreign trade balance of services improved by contrast, which was determined by an increase in transportation services exports in nearly all kinds of transportation (except by air). The value of transportation services has also grown year-on-year. After a prolonged downslide, the value of transportation services by sea granted to non-residents has also grown, though it has not quite reached the level of previous year's respective period. The positive balance of services trade in March also benefited from the growth in exports of such other services as travel and financial services.

The 24.1 mil. lats deficit in the revenue account in March was primarily determined by the profits of the banking sector. Profits in the banking sector have been observed since the beginning of the year and they have a tendency to grow as the need for increasing loan loss provisions decreases.

About two thirds of the surplus in the current transfers account, which in March reached 33.8 mil. lats, was accounted for by the received finances from the EU Social fund, yet the overall EU fund inflows registered in the first three months are substantially smaller than in the first quarter of 2010. A decrease has been observed in the capital account, which, probably because of the low demand activity in this period, has received a relatively small amount of financing from the EU Cohesion fund.

The finance account balance in March was positive (39.2 mil. lats), with a notable rise in foreign direct investment, which mostly acted to increase liabilities to direct investors. In the first three months of the year, there have been registered net inflows of foreign direct investment.

The current account can be expected to remain close to balanced in 2011: even though foreign direct investment enterprises are receiving larger profits and that has a negative effect on the income account balance, a positive contribution could come from a resumption of activity in services exports as well as mastering financing from EU funds, which would push up the current account surplus (inflows of EU funding in 2011 un 2011 can be expected to be even slightly higher than in 2010). Lately there has been an increase in the interest of foreign investors in purchasing shares in Latvian enterprises, which could have a positive effect on the finance account balance.

Latvia's balance of payments