SSE.LT

The surplus will increase because “the goods and services deficit shrank, as well as due to losses of foreign companies and the intake of European Union funds for agriculture,” Rimsevics said today in a statement.The bank will officially
release the data on Sept. 23.

Many thanks are going to Mr. Rimsevics for creating transparency in Latvian accounting. Now we see more of what we would like to see from a country with doubtful currency peg and weak fundamentals. That’s foreign companies’ losses and EU funds that drive rising CA. The question “how sustainable it is” persists.

goods and services deficit shrank

True in some way. Trade balance became more balanced, but still negative, despite severe drop in internal demand caused by fiscal tightening. Should the country touch “the bottom”, trade deficit will again return.

losses of foreign companies

Are they going to operating below the breakeven infinitely? No. Either they leave, and transfer capital outside Latvia. Or continue to earn rents when GDP recovers, further worsening external balance.

intake of European Union funds

This will continue until the EU wants it to continue. By the way, stimulus money transfers from the European Commission should also expire soon, just IMF left.

In total, Latvian authorities couldn’t do anything valuable to fix its external balance. Fiscal policy is too powerless to curb overheated economy, most of the changes are subject to foreign decision makers. But transparency problem is being tackled. And that creates some promise in there.

Latvian current account summary