IMF: "War in Ukraine may have major repercussions for Latvia’s economy"

The International Monetary Fund (IMF) has published the concluding report on its most recent Article 4 mission to Latvia. Article 4 missions are regular economic assessments of the situation in all IMF member states.

According to the IMF, Latvia's economy "fared relatively well during the pandemic" but warns that "the war in Ukraine may have major repercussions for Latvia’s economy. Vulnerabilities come mainly from trade exposure to Russia, notably Latvia’s high dependence on imported Russian gas until recently. The spillover effects from the war are already manifested in spikes in energy and food prices, supply disruptions, refugee inflows, and increased budgetary pressures."

Growth is projected to slow down to about 2.5 percent in 2022 and 2.7 percent in 2023, as high inflation starts to weigh on private consumption. Average inflation is projected to peak this year at 14.5 percent before declining to 7.5 percent in 2023.

The IMF makes numerous recommendations for policymakers, including flexible fiscal policy, an improved insolvency regime, and further strengthening anti- money laundering measures.

"The authorities should persevere with their plan to further strengthen the effectiveness of their AML/CFT regime, including through renewed emphasis on emerging risks (including sanctions evasion) and enhanced risk-based supervision of banks. The reform aimed at banks formerly serving foreign clients (BSFCs) should continue to be executed," said the IMF.

More work also needs to be done to reduce inequality, the organizations said: "Income inequality in Latvia is among the highest in the EU and largely reflects weaker social protection in comparison with peers. Vast regional differences in employment opportunities are another important contributor to inequality. The authorities are taking a range of measures to improve outcomes, including strengthening the adequacy of minimum income benefits, old-age pensions, and support to people with disabilities, along with reforms and investments to improve education and infrastructure in the regions."  

 You can read the full assessent at: https://www.imf.org/en/News/Articles/2022/06/16/republic-of-latvia-staff-concluding-statement-of-the-2022-article-iv-mission

 

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