Oct 22

IMF’s Report on Latvia

Posted by Kristjan Velbri | Posted in Europe | Posted on 22-10-2009

The IMF delegation has just put together an overview of Latvia, a recipient of IMF stabilization funds. The report can be reached here. I haven’t had the time to read the full report, which is 114 pages, but here are some of the more interesting paragraphs and charts. The overall theme of the report is very grim and having read the recent news out of Latvia, I would say that even as it stands, it is still an understatement. The situation become somewhat more clear if you take a look at Swedbank’s Q3 report and the speed of which the amount of impaired loans has been increasing in Latvia compared to neighboring Estonia and Lithuania. The share of impaired loans, gross, was 6.42 per cent in Estonia, 19.74 per cent in Latvia and 12.33 per cent in Lithuania. Here are the notes from the IMF report:

From page 4, introduction and summary
- Staff and the authorities project that GDP will fall 18 percent this year, with a slow recovery to take hold only in the second half of next year. Much of this output loss will be permanent, though the still-large negative output gap implies significant deflationary pressures for the next year or two.

- Public discontent is a concern. The coalition parties did poorly at the municipal and European elections on June 6, and lost control of Riga city council. The coalition also faces deep internal divisions. All coalition parties signed the Letter of Intent, notwithstanding earlier questions by some of them on the need for a Fund arrangement. Opposition to spending cuts has been subdued since January’s demonstrations, but could pick up during the winter when unemployment benefits run out for many, and the heating season begins.

Page 5:
- Retail sales fell 25 percent year-on-year in the first quarter of 2009, reflecting declines in household incomes and consumer confidence. Construction and consumer durables spending have fallen even faster (car sales down 80 percent in the first quarter), in part reflecting the credit crunch.

A few interesting charts:

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