OREANDA-NEWS. December 23, 2011. the Executive Board of the International Monetary Fund (IMF) decided on closing the Latvian loan programme, within the framework of which Latvia in total used 4.4 billion euro or 3 billion lats received from the IMF, the European Commission and World Bank in the period from December 23, 2008, when the IMF Executive Board approved the first part of the loan.

Prime Minister Valdis Dombrovskis underlines: “Latvian population has managed the biggest financial crisis in the history of renewed Latvia and therefore Latvian population can be proud of common achievements – return of the economic to sustainable growth. At the same time it is important to continue implementation of balanced fiscal policy and not to live over one’s means.”

Finance Minister Andris Vilks says: “Concluding successfully the international loan programme Latvia has proved that it can act in a responsible and politically stable manner. I am satisfied that Latvia is one of the few countries that are concluding positively the international loan programme at a time when more and more countries need financial assistance. Thus Latvia has made a positive signal to both rating agencies and foreign investors. It should be also noted that the programme’s closure will mean twice as much responsibility for political decisions in the future.”

“I would like to thank every Latvian resident for their understanding, patience and support in intense economic conditions in recent years. These three years have not been easy for none of us, but together we have achieved that Latvia is currently managing the crisis with far more arranged economy, public administration and public finances. I believe that Latvia has become stronger and more experienced. Only together we can overcome difficulties and strive for welfare and prosperity in coming years!”

To meet the set budget deficit target since 2008 budgetary consolidation has been made in amount of 2.3 billion lats with the fiscal impact of 17.5% of GDP. Approximately 907.2 million lats or 7% of GDP are made of measures taken on the revenue side, in turn, measures on the expenditure side total to 1.4 billion lats or 10.5% of GDP. Budgetary consolidation has been implemented in both central and local government budgets, and has covered all sectors.

Through fiscal consolidation not only has Latvia been pursuing the budget deficit target set in the international loan programme, but also tried to implement a fiscal policy to faster and better cope with excessive budget deficit and aim to a balanced budget.

Given the significant changes in the Latvian economy and gradual global economic recovery from the sharp downturn, already since mid-2010 the Latvian economy is returned to growth. Currently, industrial production growth rates in Latvia are one of the highest in the European Union.

Gross Domestic Product structure has become more balanced and sustainable – the share of industrial sectors in the sector structure has increased, but the amount of imports has exceeded exports on the expenditure side.

Economic development is now based on exporting industry. Successfully using external demand and price increase exports have already reached pre-crisis levels, while industrial output is close to that level. An important condition for the development of exports has also been competitiveness growth – productivity continues to grow faster than real wages also in 2011.

Currently, interbank lending rates in 2010 – 2011 are historically low; the Latvian credit risk assessment is significantly reduced and is lower than in a number of European countries. In 2011 the Latvian banking sector returned to profit.

Within the international loan programme Latvia has provided a framework for the implementation of a sustainable fiscal discipline, a fiscal discipline law has been developed with the goal of ensuring sustainable economic development, macroeconomic stability and reducing economic vulnerability as a result of external shocks. It is very important that in the future Latvia would run counter-cyclical fiscal policy, which means that in the economic cycle upswing phase a restrictive fiscal policy will be implemented and in the economic downturn phase – a fiscal policy stimulating the economic development will be implemented.

While executing the international loan programme the government expenditure structure has been improved, the number of employees in public administration and wages have been reduced notably, as well as the use of social safety net measures has been improved.

Changes to the tax policy have also been made, which is an essential resource for consolidation, but the tax burden of GDP did not increase due to changes to the economic structure and improved export-import ratio. Incentives were introduced for businesses and employment – corporate income tax relief, micro-enterprise tax, faster value-added tax refund, etc. After completion of the programme the main focus of the tax policy is reduction in taxes on labour. Active work is going on at combating the shadow economy and improving tax administration.

Significant structural reforms have been performed – in the general education a funding model “money follows the student” is introduced, while for vocational education – optimization of the number and location of vocational training institutions in regions has been started. The health sector has undergone a rapid transition from hospital care as the most expensive health care stage – to cost effective outpatient care. The primary health care system has been strengthened, as well as establishing of a single Emergency Medical Service has been completed. Latvia, however, must not stop on achieved, it should continue implementation of structural reforms, which provide necessary solutions to improve efficiency of sector policies and work on sustainable restructuring of sectors.

The estimated amount of the Latvian international loan programme was 7.5 billion euros. Given that the country’s economic and financial situation improved, Latvia had no need of receiving in full the available loan funds. Within the framework of the programme Latvia in total has used 4.4 billion euro or 3 billion lats.

Latvia plans to repay the funding received by refinancing the national debt at the international financial market. In June this year Latvia successfully returned to international financial markets issuing ten-year bonds for 500 million U.S. dollars. With this emission Latvia confirmed its ability to finance budgetary needs, and a sound basis is put for successful refinancing of the debt in coming years at public financial and capital markets.