LTV: Latvia has been relatively stingy with aid measures

Take note – story published 3 years ago

Latvia's economy must face another wave of COVID-19. Latvian Television investigative broadcast De Facto reported November 8 that although Latvian politicians say spring was a success, Latvia's economy was hit hardest of the Baltic States.

The number of infected people and fatalities from COVID-19 in the spring was similar in the Baltics. But the differences are evident in the economy. In Lithuania, gross domestic product (GDP) fell by 4.6% in April, May and June compared to the same months last year, in Estonia – by 6.2%, in Latvia – by 8.6%.

During these months, the fall in private consumption was unique to Latvia. People spent less money: they didn't buy clothes, shoes, watches, books, and other things unnecessary when sitting at home. Didn't go to theaters and concerts as those were canceled.

Such a large drop in consumption did not happen in either Lithuania or Estonia. The Bank of Latvia concedes that this can partly be blamed on relatively lower government support for households.

According to the Bank of Latvia's estimates, compared with neighbors, Latvia spent less money in the spring for aid measures in general and much less to maintain the income of the population.

At the beginning of September, Latvia had paid money to maintain household income at 0.3% of GDP, Estonia – 0.8%, Lithuania – 0.9%.

More of the help was shifted to financial instruments for companies.

"What softens shock to the economy in short term is support for households. And here we see, compared to the Baltic States, that the amount of downtime benefits and other benefits for households were lower than in neighboring countries. And given the fact that households consume a large part of their income directly, it certainly has an immediate effect on the economy," said Bank of Latvia economist Kārlis Vilerts.

The Fiscal Discipline Council, which earlier this year urged the government not to grow public debt, expressed surprise in one of the autumn reports how little had been paid in social benefits. Downtime benefits cost €58.4 million of the planned €134.6 million.

In the summer months, the situation got better. The fall in GDP in Q3 against the same period last year in Latvia was less rapid: -3.1%. In Lithuania, the drop was even smaller: -1.7%.

Unemployment, which surged in June, declined gradually in the second half of the year. 13.7 thousand registered for the unemployed in the spring have got a job in autumn, according to the State Employment Agency.

This is exactly what politicians of New Unity party have been repeating in recent weeks – that Latvia has sustained low unemployment.

"I look at neighboring countries where a lot of money has been given out, but our unemployment rate, which has not long been so, is lower than in Estonia," the Prime Minister Krišjānis Karins (“New Unity”) said in an interview to Latvian Radio in mid-October. Minister of Finance Jānis Reirs (“New Unity”) also said that “we probably have a lower unemployment rate than Estonia for the first time in a decade”.

Economists agree that unemployment is a good indicator, but not the only one. In the sectors most affected by the crisis, aviation, catering, accommodation, there was a sharp drop in wages. Many of those who had been dismissed were not taken back.

For example, organizers of events also failed to recover in the summer. According to the Latvian Association of Event Producers, 20% of tickets from the annual norm have been sold this year.

Since spring, organizers have to take account restrictions, including in recent weeks. But industry spokesman Guntis Ērglis-Lācis said government aid doesn't cover losses. For example, a week ago, money was allocated to the hotel and restaurant industry but not to the event operators.

Guntis Ērglis-Lācis said he has a feeling that the Finance Ministry is measuring “average temperature in the hospital” but not delving into the specifics of each industry:

“There must be other relief mechanisms for companies whose activity in COVID-19 is not limited but stalled. Our fall is not a failure in business or ill-considered business decisions. No, the reason for our fall is the limits adopted by the government.”

For several weeks, there have been various restrictions imposed by the Cabinet, which had not been followed by compensatory measures.

"At the moment, we see that it is the service sectors – sporting events, cultural events, private events. There is a whole range of businesses and households that are directly affected by the restrictions. What we can learn from spring is better to give somebody too much in this situation without imposing too strict conditions than to forget someone," said Vilerts, economist at the Bank of Latvia.

This week, after a long break, a working group led by Finance Minister Reirs to support entrepreneurs and employees gathered together. It has decided to renew downtime benefits for affected industries in the coming weeks. This time there are also partial benefits that were not introduced in the spring.

Reirs confirmed after Thursday's government meeting that businesses will be able to combine benefits – both to announce full downtime and to reduce the amount of work. “Unlike the previous period, we also think about helping companies because no one has canceled utility payments, no one has canceled rentals,” the finance minister said.

Reirs, however, is not prepared to fully compensate for sick leaves demanded by businessmen and the Ministry of Economy. Instead, it is offered to pay the first day from the State and then from the tenth day.

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