Main problem is access to capital for our economy - Valainis

RIGA - The main problem at the moment is the availability of capital for the Latvian economy, Minister of Economy Viktors Valainis (Greens/Farmers) said at an extraordinary session of the Saeima on Thursday.

Valainis stressed that not only structural funds help develop the country's economic growth, but the biggest difference between Latvia, Lithuania and Estonia is the inflow of private investment into the economy.

The Minister said that there is too little private investment in Latvia, so we need to define clear goals on how we want to change this situation in the next year.

It would be necessary to increase the balance of loans to Latvian non-financial corportation from 14 percent of gross domestic product (GDP) to 17 percent of GDP.

We also need to increase the amount of accumulated foreign direct investment in the equity of Latvian companies to EUR 32 billion, he said. Valainis pointed out that in Lithuania and Estonia this figure already stands at EUR 35 billion and EUR 34 billion respectively.

Valainis stressed that a total of EUR 3.7 billion is needed to start talking about economic development.

The minister also pointed out that the volume of issued loans has been declining for 10 years, but the figures for the first quarter of this year show that lending in Latvia is increasing. It is also evident that banking activity has increased and banks have started to fight for customers. The European Central Bank has also cut interest rates and banks are starting to compete for the issuing of housing loans.

Valainis said that the Latvian economy has experienced many major shocks, the three most significant being the financial market overhaul, the Covid-19 pandemic, and the war in Ukraine, which have a direct and significant impact on our economy. At the same time, there have been other factors and circumstances that have affected the economy. In particular, the transit business industry is in a downturn, which is affecting the economic development of the country, and we need to think about what can be done to reverse this.

The above factors have been present over the past five to six years, but "if we look at the financing available to our economy, the decline in the amount of issued loans started in 2014," said Valainis, pointing out that this began to create a gap in Latvia's economic development compared to Lithuania and Estonia.

Valainis stressed that when talking about economic turmoil, one cannot avoid discussing the issue of tariffs launched by the US, which also affects the Latvian economy. Although the US is Latvia's 11th largest export partner and seventh largest import partner, tariffs do not directly affect the Latvian economy, but indirectly do.

There is also no direct estimate of the impact of the tariffs on Latvia yet, but it is evident that economic growth forecasts have been downgraded, including a 0.8 percent downgrade of the Eurozone growth forecast. "The current negative trend that is emerging will be the basis for productive discussions, so that all parties involved could seek changes in the forecasts," Valainis said.

The Economy Minister said that a number of issues were raised a year ago, including human capital, investment, a competitive business environment, regional development, climate change, investment in green infrastructure, among others. And the current issues raised have not changed since last year.

Valainis pointed out that, in terms of attracting investment, the Latvian Investment and Development Agency (LIAA) was reorganized last year to focus on foreign visits, which has so far also yielded results. Following the reorganization of the LIAA, it is evident that there is much room for improvement in investment attraction. LIAA intends to organize and create an attractive investment portfolio.

Work has also been done on cutting red tape to improve the overall environment, as well as on human capital issues, including, according to Valainis, the Human Capital Development Council, which has become more effective over the year.

At the same time, Valainis mentioned in his address that an innovative approach to raising money for pension funds is needed. Currently, much of this money flows out of the Latvian economy, mainly to the US. There is also a need to talk about residence permits for investors.

Valainis also mentioned that port management is an important issue. At the moment we can see that there has been an actual reduction of about 30 percent in volumes, which is affecting the economy. And current trends show that the decline in port volumes will continue and then "instead of ports being the engine of our economy, we will have to start subsidizing them".

The Economy Minister called on the Parliament to put an end to the issue of port administration reforms as soon as possible.

In his address, Valainis stressed the importance of the pharmaceutical sector for economic development. The pharmaceutical sector could increase its turnover from EUR 400 million to EUR 1.5 billion in 10 years.

At the same time, the LIAA should be able to attract more than EUR 1 billion in investments every year, Valainis said.

A targeted policy is also needed to support companies' export development.

The Saeima session examined the progress report on Latvia's Fiscal and Structural Plan 2025-2028.