A surplus in Latvia’s current account in September

An increase in the goods exports in September and an influx of funds into the current transfers account ensured a 28.0 mil. lats surplus in Latvia’s current account.

The goods external trade deficit dropped to 90.1 mil. lats and was almost entirely compensated by  the positive balance of services trade (86.3 mil. lats). The export growth indicators were still positive (according to the data of Central Statistical Bureau (CSB) the annual increase in exports was 16.5% in September), ensured by the diversified structure of exports.

The services trade balance did not change substantially in September because the value of services both granted to foreigners and received from them dropped slightly. The volume of granted trip services continued to grow in September. The CSB data on the occupancy of hotels and beds likewise point to a slight increase in the tourism branch, although it is too early to judge as to its sustainability. A stable increase was also for the exports of information and computer services; this is one of the small branches that is gradually taking on a more important role in the structure of Latvian services exports. The exports of transportation services dropped slightly in September as a result of a drop in the value of transportation services by sea and railroad while an increase was observed in transportation by road.

In the income account the trends of previous months were still maintained and in September there formed a small deficit (10.6 mil. lats). A total of 71.8 mil. lats was received from European Union funds in September and that had an impact on the increase in the positive balance of the current transfers account (up to 42.3 mil. lats) and the surplus in the capital account (36.3 mil. lats).

In the financial account there also formed a slight surplus (14.2 mil. lats). The liabilities of other investment dropped in the financial account in September, as the government paid back a substantial part of the International Monetary Fund loan (a total of 206 mil. lats, including 150 mil. lats ahead of term, which means an opportunity to reduce interest payments on this loan).

After the rapid growth of direct investment in the previous year, the inflows in the first three quarters of this year were more moderate. Data of recent months, however, indicate that foreign investors have retained their interest in Latvia and in September direct investment in Latvia grew by 31.3 mil. lats.

Overall, the data by month indicate that in the third quarter a small deficit formed in the current account, as previously predicted. Albeit the rapid growth in exports has acted to bring down the goods external trade deficit substantially, in the longer perspective, the increase in Latvian imports will be impacted by procurement recently announced by several enterprises (means of public transportation, airplanes). The fact that the international ratings agency Standard & Poor's announced last week about improving Latvia’s credit rating meanwhile implies that in the coming months the inflows of foreign direct investment will probably continue to increase. It is expected that in 2012 overall the current account deficit will also be small.