## REPUBLIC OF LATVIA: STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION

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### Recent economic developments
- Real GDP growth rose to 2.7 percent in 2015, up about ¼ percent over the previous year.  
- Gross capital formation was 2.1 percent in 2015 following a contraction of almost 5.5 percent over 2013–14.  
- Exports of goods and services grew by only 1.4 percent in 2015.  
- Private consumption grew by 3.3 percent in 2015.  
- Current account deficit narrowed to -1.2 (percent of GDP) in 2015.  
- HICP inflation fell to 0.2 percent in 2015; core inflation averaged 1 percent; producer price growth reached -1.6 percent.  
- Nominal GDP was 24.4 (billions of euros) in 2015.  
- Output gap described as almost closed.

### Labor market and wages
- Unemployment rate (LFS; period average): 9.9 percent in 2015.  
- Working age population (15–74) declined by 1.5 percent in 2015.  
- Real gross wages increased by 6.7 percent in 2015 (6 percent increase in previous year).  
- Minimum wage: EUR 285 per month in 2013 → EUR 360 in 2015; authorities raised minimum wage in 2016 in line with productivity (about 2.5 percent in 2016).  
- Staff note measurement issues: under-reporting of earnings may overstate recorded wage increases for some workers.  
- Structural challenges: skills mismatches, limited regional labor mobility, relative shortage of higher-skilled workers.

### Fiscal developments and public finances
- General government deficit: around 1.3 percent of GDP in 2015 (0.3 percentage points higher than targeted in the budget).  
- Total revenue: 36.2 (percent of GDP) in 2015; total expenditure: 38.0 (percent of GDP) in 2015.  
- Basic fiscal balance: -1.8 (percent of GDP) in 2015.  
- ESA balance: -1.3 (percent of GDP) in 2015.  
- General government gross debt: 34.8 (percent of GDP) in 2015.  
- Higher outturn reflected change from long-term renting to purchasing newly built State Revenue Services offices.  
- Staff: additional fiscal space needed over the medium term to strengthen social safety net, promote social inclusion, and boost productive public spending.  
- Authorities: measures adopted to increase revenue envelope and make tax system more progressive; plan to bring tax revenue up to a third of GDP by 2020.

### Banking sector and financial stability
- NPL ratio declined to 5.4 percent in March 2016.  
- Capital adequacy ratio increased to close to 23 percent.  
- Bank profits robust; liquidity abundant.  
- Credit to the private sector: -2.2 (annual percentage change) at end-2015.  
- Resident deposits grew 9 percent (y-on-y) in 2015.  
- Stock of non-resident deposits (NRDs) (at constant exchange rates) increased just above 1 percent y-on-y in December 2015 (compared to 15 percent a year earlier); modest outflow in Q1 2016 (3.7 percent y-o-y).  
- Authorities’ AML actions: bank fines, personnel actions, revocation of Trasta Komercbanka’s license in early March 2016 (Trasta Komercbanka accounted for 1.4 percent of total banking sector assets and remaining assets expected to cover over 90 percent of its liabilities).  
- Rietumu Banka undergoing an AQR ahead of supervision transition to the SSM.  
- Banking sector structure: foreign (largely Nordic) banks provide more than 85 percent of domestic lending; domestic banks rely on NRDs and hold highly liquid foreign assets.  
- Financial Condition Index (FCI) explains more than 75 percent of covariance of data; suggests return to neutral/positive financial conditions.

### Credit conditions and policy recommendations for lending revival
- Assessment: Latvia likely towards end of repair stage of credit cycle; absence of credit growth is concerning.  
- Constraints for SMEs and households: lack of documentable income, lack of collateral, insufficient cash flow; 2007 legislation restricts lending against unreported income.  
- Example: out of 200 thousand registered companies, only 15–20 thousand potentially eligible borrowers after excluding loss-making or negative-equity firms.  
- Policy recommendations:
  - Facilitate SME lending via well-designed government programs (loan guarantees, subordinated loans through Single Development Institute).  
  - Explore supervisory codes of conduct to prevent discrimination against SME lending (example cited: Credit Review Office in Ireland).  
  - Use benchmarking results of banks’ risk models (with European partners) to align risk models with current Latvian conditions.  
  - Consider expanding public sector initiatives to catalyze SME lending.

### Non-resident deposits (NRDs), AML/CFT, and supervisory vigilance
- NRD banks account for about 50 percent of total deposits; over 80 percent of NRDs estimated from Russia and CIS countries.  
- NRD banks hold close to 60 percent of assets in liquid instruments; stress tests suggest they can withstand outflows of close to 60 percent.  
- Average four-quarter growth rate of NRD deposits in 2015: 19 percent (vs 12 percent in 2014); after valuation adjustment average growth in 2015 was 6.5 percent (vs 11.5 percent in 2014).  
- Staff recommendations:
  - Bring AML/CFT framework in line with the FATF standard.  
  - Ensure sufficient resources for AML supervision (in line with OECD Working Group on Bribery recommendations).  
  - Maintain vigilant supervision to mitigate real and reputational risks associated with NRD banks.

### External sector and exchange rates
- Exports growth: 1.4 percent in 2015; imports of goods and services: 1.8 percent in 2015.  
- Trade balance: -8.7 (percent of GDP) in 2015.  
- Gross external debt: 137.7 (percent of GDP) in 2015; net external debt: 25.9 (percent of GDP) in 2015.  
- U.S. dollar per euro (period average): 1.11 in 2015.  
- Real effective exchange rate broadly in line with fundamentals; euro depreciation against the dollar offset ruble depreciation.  
- Box 1 highlights Russian FDI share in inward FDI: "around 7 percent in 2015", "6 percent in 2014", "around 4.5 percent in 2012–13".

### Outlook, projections, and inflation
- 2016 growth forecast: 2½ percent (expected slight slowdown in 2016).  
- Inflation forecasts: 0.2 percent in 2016; 1.7 percent in 2017.  
- Medium-term growth projection: 4 percent per year (authorities’ commitment and track record cited).  
- Medium-term growth composition: led by exports and investment, buttressed by robust private consumption; contingent on structural reforms, labor market adjustments, and resumption of credit growth.

### Key risks and Risk Assessment Matrix (RAM)
- Main risks: weak external environment (Euro Area, Russia), diminishing productivity gains, delays in EU funds absorption, persistent gray economy (estimated 20-25 percent of GDP), constrained credit growth.  
- RAM entries (likelihood and policy responses):
  - Sharp asset price decline and decompression of credit spreads — Likelihood: Medium; mitigation: euro area monetary policy, backstops, resolution mechanisms.  
  - Structurally weak growth in key economies — Likelihood: Low/Medium; mitigation: coordinated European response, allow automatic stabilizers, consider discretionary fiscal action if needed.  
  - Heightened fragmentation/security dislocation — Likelihood: High; mitigation: diversify export markets, vigilant AML supervision, integration policies for migrants.  
  - Mounting Russia/Ukraine conflict — Likelihood: High; mitigation: diversify markets, vigilant AML supervision, European coordination.  
  - Brexit referendum (June 23, 2016) — Likelihood: High; mitigation: euro area monetary policy, allow automatic stabilizers, consider discretionary fiscal action if shock is large.  
  - Failure to advance structural reforms — Likelihood: Medium; mitigation: continue reforms in business environment, labor markets, SOE governance, infrastructure, human capital.  
  - Failure of credit growth to pick up — Likelihood: High/Medium; mitigation: explore policy options to address market failures, ensure appropriate macro-prudential settings.

### Policy recommendations (staff summary)
- Progress structural reforms in judiciary, business environment, education, infrastructure, and labor markets to support competitiveness and productivity.  
- Intensify measures to reduce the gray economy and improve participation in the formal economy.  
- Facilitate lending to support investment, especially to SMEs, through legal and structural reforms and cooperation between authorities and banks.  
- Maintain vigilant supervision to mitigate real and reputational risks, particularly in the NRD banking sector, and continue AML/CFT enhancements.  
- Use reviews of tax and expenditures to improve incentives, recalibrate the tax burden equitably, and explore options to open fiscal space (including raising CIT, introducing PIT surtax on high-income earners, reducing minimum non-taxable threshold for pensioners, better-targeting allowances, implementing cadastral valuation reform with exemptions for poorest households).

### Public Debt Sustainability Analysis — Key baseline projections (As of March 10, 2016)
- Nominal gross public debt: 24.4 (2014); 38.6 (2015); 34.5 (2016); 34.9 (2017); 34.4 (2018); 32.8 (2019); 31.7 (2020); 30.7 (2021).  
- Public gross financing needs: 4.2 (2014); 3.7 (2015); 11.0 (2016); 4.8 (2017); 6.8 (2018); 4.2 (2019); 5.6 (2020); 6.4 (2021).  
- Real GDP growth (percent): 2.7 (2014); 2.4 (2015); 2.7 (2016); 2.5 (2017); 3.6 (2018); 3.8 (2019); 3.8 (2020); 3.9 (2021).  
- Inflation (GDP deflator, percent): 6.2 (2014); 1.2 (2015); 0.6 (2016); 0.5 (2017); 1.5 (2018); 1.9 (2019); 1.9 (2020); 2.0 (2021).  
- Effective interest rate (percent): 5.1 (2014); 4.3 (2015); 4.8 (2016); 4.1 (2017); 3.5 (2018); 4.0 (2019); 4.2 (2020); 4.4 (2021).  
- Change in gross public sector debt (year-on-year, percent of GDP): 2.5 (2014); 3.1 (2015); -4.1 (2016); 0.4 (2017); -0.6 (2018); -1.5 (2019); -1.1 (2020); -1.0 (2021).  
- Baseline external debt (percent of GDP): 146.2 (2011); 138.7 (2012); 134.0 (2013); 142.2 (2014); 137.7 (2015); 128.1 (2016); 124.7 (2017); 122.2 (2018); 119.3 (2019); 116.4 (2020); 112.5 (2021).  
- Gross external financing need (billions of US dollars): 20.4 (2011); 20.0 (2012); 22.2 (2013); 22.4 (2014); 23.0 (2015); 20.0 (2016); 21.4 (2017); 21.5 (2018); 22.3 (2019); 23.6 (2020); 24.6 (2021).

### Staff appraisal and outlook
- Directors commended steady economic progress and broadly favorable macro conditions despite slowdown.  
- Medium-term outlook broadly positive but depends on higher productivity and additional fiscal space.  
- Directors emphasized continued structural reforms across judiciary, business environment, education, infrastructure, SOE governance, and insolvency regime.  
- Directors urged monitoring wage developments; recommended minimum wage increases not exceed productivity growth over the medium term.  
- Banking system considered well capitalized and profitable; concern that weak bank credit constrains investment and growth.  
- Staff recommends next Article IV consultation on the standard 12-month cycle.

*Source: REPUBLIC OF LATVIA — STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION (IMF), May 17, 2016.*

### 2.1 percent following a contraction of almost 5.5 percent over 2013–14. Exports grew by only

### REPUBLIC OF LATVIA: STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION

### Recent economic developments
- Real GDP growth rose to 2.7 percent in 2015, up about ¼ percent over the previous year.  
- Gross capital formation was 2.1 percent in 2015 following a contraction of almost 5.5 percent over 2013–14.  
- Exports of goods and services grew by only 1.4 percent in 2015, reflecting tepid growth in the euro area and the prolonged recession in Russia.  
- Private consumption grew by 3.3 percent in 2015, spurred by gains in employment and real wages.  
- The current account deficit narrowed to 1.2 percent of GDP in 2015 as imports fell faster than exports.  
- HICP inflation fell to 0.2 percent in 2015; core inflation averaged 1 percent; producer price growth reached -1.6 percent.  
- Nominal GDP was 24.4 (billions of euros) in 2015.  
- The output gap is described as almost closed.

### Labor market and wages
- Unemployment rate (LFS; period average) was 9.9 percent in 2015.  
- Working age population (15–74) declined by 1.5 percent in 2015 due to demographics and emigration.  
- Real gross wages increased by 6.7 percent in 2015, following a 6 percent increase the previous year.  
- Minimum wage increases: from EUR 285 per month in 2013 to EUR 360 in 2015.  
- Staff note measurement issues: some workers under-report earnings (claiming minimum wage) so recorded wage increases may overstate actual wage changes for those workers.  
- Structural labor challenges: skills mismatches, limited regional labor mobility, relative shortage of higher-skilled workers.

### Fiscal developments and public finances
- General government deficit was around 1.3 percent of GDP in 2015, 0.3 percentage points higher than targeted in the budget, but consistent with domestic and EU fiscal rules.  
- The higher outturn reflected a change from long-term renting to purchasing newly built State Revenue Services offices.  
- Total revenue was 36.2 (percent of GDP) and total expenditure was 38.0 (percent of GDP) in 2015.  
- Basic fiscal balance was -1.8 (percent of GDP) in 2015.  
- ESA balance was -1.3 (percent of GDP) in 2015.  
- General government gross debt was 34.8 (percent of GDP) in 2015.  
- Staff note additional fiscal space is needed over the medium term to strengthen the social safety net, promote social inclusion, and boost productive public spending.  
- Authorities raised the minimum wage in 2016 in line with productivity growth; measures adopted to increase the revenue envelope and make the tax system more progressive.

### Banking sector and financial stability
- Non-performing loan (NPL) ratio declined to 5.4 percent in March (2016).  
- Capital adequacy ratio increased to close to 23 percent.  
- Bank profits were robust and liquidity abundant.  
- Credit to the private sector declined by 2.2 percent (y-on-y) at end-2015; credit growth remained elusive.  
- Resident deposits grew at 9 percent (y-on-y) in 2015.  
- Stock of non-resident deposits (NRDs) (at constant exchange rates) increased by just above 1 percent y-on-y in December 2015, compared to 15 percent a year earlier; modest outflow in Q1 2016.  
- Authorities took AML actions including bank fines, personnel actions, and revoking Trasta Komercbanka’s license in early March (2016); Trasta Komercbanka accounted for 1.4 percent of total banking sector assets and remaining assets expected to cover over 90 percent of its liabilities.  
- Rietumu Banka is undergoing an AQR ahead of supervision transition to the SSM.

### External sector and exchange rates
- Exports growth: 1.4 percent in 2015; imports of goods and services grew 1.8 percent in 2015.  
- Trade balance was -8.7 (percent of GDP) in 2015.  
- Gross external debt was 137.7 (percent of GDP) in 2015; net external debt was 25.9 (percent of GDP) in 2015.  
- U.S. dollar per euro (period average) was 1.11 in 2015.  
- Real effective exchange rate remained broadly in line with fundamentals; euro depreciation against the dollar offset ruble depreciation.

### Key macroeconomic indicators (selected exact figures for 2015)
- Real GDP: 2.7 (percent)  
- Private consumption: 3.3 (percent)  
- Public consumption: 3.1 (percent)  
- Gross fixed capital formation: 2.7 (percent)  
- Exports of goods and services: 1.4 (percent)  
- Imports of goods and services: 1.8 (percent)  
- Nominal GDP: 24.4 (billions of euros)  
- GDP per capita: 12.3 (thousands of euros)  
- Gross national saving: 20.8 (percent of GDP)  
- Gross capital formation: 22.0 (percent of GDP)  
- Credit to private sector (annual percentage change): -2.2  
- Broad money (annual percentage change): 8.0  
- Current account balance: -1.2 (percent of GDP)

### Executive Board / Directors’ assessment and staff views
- Executive Directors commended steady economic progress and generally favorable macroeconomic conditions despite slowdown.  
- Medium-term outlook broadly positive; higher productivity and additional fiscal space needed to support inclusive growth and employment.  
- Directors emphasized continued structural reforms across judiciary, business environment, education, infrastructure, SOE governance, and insolvency regime to enhance productivity, competitiveness, and equity.  
- Directors urged monitoring wage developments and their impact on competitiveness; generally considered that increases in the minimum wage should not exceed productivity growth over the medium term.  
- Directors called for further efforts to reduce the gray economy to improve resource allocation and revenue.  
- Directors noted banking system is well capitalized and profitable but expressed concern that persisting weak bank credit constrains investment and growth; urged addressing legal and structural constraints hampering lending to SMEs and households.  
- Directors commended AML/CFT strengthening and urged continued vigilance, implementation of enhanced regulations, and alignment with international standards.  
- Directors considered fiscal stance broadly appropriate but noted vigilance needed to ensure adherence to targets and EU rules; recommended using reviews of tax and expenditures to consider comprehensive reforms to improve incentives and recalibrate the tax burden equitably.

### Risks and challenges
- Key risks: weak external environment (euro area, Russia), diminishing productivity gains, delays in EU funds absorption, persistent gray economy, and constrained credit growth.  
- Structural challenges: sustaining income convergence (per capita GDP around 40 percent below the EU-15 average), addressing skills mismatches, improving labor participation, and strengthening infrastructure and SOE governance.

### Policy recommendations (staff summary)
- Progress structural reforms in judiciary, business environment, education, infrastructure, and labor markets to support competitiveness and productivity.  
- Intensify measures to reduce the gray economy and improve participation in the formal economy.  
- Facilitate lending to support investment, especially to SMEs, through legal and structural reforms and cooperation between authorities and banks.  
- Maintain vigilant supervision to mitigate real and reputational risks, particularly in the NRD banking sector, and continue AML/CFT enhancements.  
- Use ongoing reviews of tax and expenditures to improve incentives, recalibrate the tax burden equitably, and explore options to open fiscal space.

*Source: REPUBLIC OF LATVIA — STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION (IMF), May 17, 2016.*

### 10. The general government deficit was around 1.3 percent of GDP in 2015, 0.3

### 10. The general government deficit was around 1.3 percent of GDP in 2015, 0.3 percentage points higher than targeted in the budget

### Fiscal outturn and structural position
- General government deficit: around 1.3 percent of GDP in 2015, 0.3 percentage points higher than targeted in the budget.
- Cause of higher outturn: change from long-term renting to purchasing newly built offices of the State Revenue Services.
- Tax revenue drivers: strong wage growth and improved tax compliance, albeit showing signs of weakening in the first quarter of 2016.
- Structural deficit estimate: 1.1 percent of GDP in 2015 (staff estimate), in line with the Fiscal Discipline Law (FDL) and Latvia’s European Union commitments.

*Outlook and Risks*

### Growth and inflation outlook
- 2016 growth forecast: 2½ percent (expected slight slowdown in 2016).
- Near-term drivers of slowdown: marked deceleration in construction at end-2015 and early-2016 due to slow start-up of 2014-2020 EU Structural Funds projects, continued economic and geopolitical uncertainty, and weak performance in the Euro Area and Russia.
- Forecast pick-up: growth expected to pick up later in 2016 and into 2017, supported by robust real wage growth, higher disposable income due to low inflation, improved external conditions, and a pickup in investment and credit partly triggered by EU-funded projects.
- Inflation forecasts: 0.2 percent in 2016; 1.7 percent in 2017 (reflecting upswing in oil prices, base effects, and pick-up in growth).
- Medium-term growth projection: 4 percent per year, based on authorities’ commitment to and track record of delivering reform (noted as roughly the average attained over the last fifteen years).
- Medium-term growth composition: led by exports and investment, buttressed by continued robust private consumption; predicated on implementation of structural reforms, alleviating a tightening labor market, and resumption of credit growth.

### Key downside risks
- Prolonged weak growth in the Euro Area and Russia → adverse impact on exports and confidence.
- Protracted geopolitical tensions → disrupted trade, higher risk aversion.
- Global financial volatility → higher cost of parent bank financing → hindered credit growth.
- Non-resident deposits (NRDs) susceptible to sudden reversals given a sufficiently large shock.
- Failure of credit to pick up → dampened investment and growth.
- Long-run risk: failure to implement structural reforms → impeded productivity growth and competitiveness, undermining convergence.
- External assessment: projects downward trend for debt-to-GDP over medium term, but severe growth or current account shock could reverse this.

### Authorities’ views
- Broad concurrence with outlook and risks; emphasized downward risk from Russia and sluggish investment.
- Noted demographic headwinds and potential upside from stronger Euro Area recovery or faster absorption of EU structural funds.
- Reinforced importance of prudent policymaking.

### Policy framework — overview
- Two-pronged strategy recommended:
  - Macro-structural reforms to enhance productivity, maintain competitiveness, and improve equity medium-to-long run.
  - Macro-financial policies to resuscitate credit to support investment and growth in the short run.
- Addressing the gray (informal) economy is crucial; estimates suggest the gray economy may amount to 20-25 percent of GDP.

### A. Productivity
- Latvia’s PPP per capita GDP: around 60 percent of the EU-15 average.
- Historical productivity growth: averaged 4 percent over the past two decades.
- Labor force projection: projected to decline; future convergence burden rests on investment and continued TFP growth.
- Latvia’s labor productivity across all sectors in 2014 (measured in 2010 euros): about a third of the EU15 average.
- Structural reform priorities to raise productivity:
  - Improve SOE governance and business environment:
    - SOEs dominant in network sectors; natural monopolies present.
    - Re-introduction of independent boards and annual reporting from 2016 for largest SOEs welcomed.
    - Framework law to strengthen SOE governance passed October 2014; cross-sectoral coordination unit set up—implementation is key.
    - Reduce complexity of regulatory procedures, simplify license and permit systems, remove compulsory chamber membership in professional services.
  - Enhance public infrastructure to attract FDI and know-how:
    - Ports (Riga, Ventspils) overly dependent on low-value bulk traffic; rail connectivity limited; many local roads in poor condition.
    - Initiatives such as Rail Baltics and regional energy market integration can boost efficiency and reduce energy/transmission costs.
  - Improve insolvency regime effectiveness and efficiency:
    - Recent reforms (consolidating court districts, training, greater income disclosure and supervision of insolvency administrators) beginning to bear fruit.
    - In-court proceedings length fell from 3 to 1.5 years in the past 5 years; clearance rates have risen.
    - Banks still report concerns about lengthy procedures and low recovery rates; effective implementation and monitoring urged.
  - Support innovation and R&D to move up value chain:
    - R&D intensity: current 0.6 percent of GDP.
    - Share of high-technology exports: 9.2 percent in 2014.
    - Authorities aim to more than double R&D spending to 1.5 percent by 2020, largely through enhanced private sector spending and EU-funded schemes.
    - Staff notes achieving 1.5 percent may be difficult without boosted total financing; greater uptake of incentive schemes and stronger industry-science links needed.

### B. Labor competitiveness
- Wage pressures and competitiveness:
  - Real unit labor costs have risen past 2005 pre-crisis level.
  - Labor force expected to continue declining due to low birth rate and emigration, and lack of skilled workers—putting upward pressure on wages.
- Minimum wage considerations:
  - Minimum wage rose to about 44 percent of the average wage in 2015, an increase of almost 4 percentage points from 2013.
  - Staff estimate: a minimum wage increase of 5 percent in excess of labor productivity could cause a 1 percent loss of employment among low-income earners.
  - Authorities put on hold plans for further steep hikes and raised the minimum wage by about 2.5 percent in 2016 in line with productivity.
  - Recommendation: minimum wage increases should not exceed productivity growth over the medium term.
- Policies to alleviate tightening labor market:
  - Raise participation rate and reduce structural unemployment:
    - Statutory retirement age being raised gradually toward 65 years by 2025; currently stands at 62½.
    - Criteria for early retirement and disability tightened.
    - Female labor force participation: 55 percent.
  - Strengthen active labor market policies (ALMPs), consider in-work tax credits and improved tapering of benefits to enhance work incentives, and attract high-skilled foreign workers.
- Education and skills:
  - Reforms underway in higher and vocational education; performance-based financing model introduced.
  - Consolidation of higher education institutions with quality-based accreditation; public funds targeted to science, technology, mathematics.
  - Pilot apprenticeship program completed; efforts to align vocational programs with market demand.
- Authorities’ stance:
  - Agree on need to preserve competitiveness and address tightening labor market and education reforms.
  - Expect labor participation to continue to rise over the medium term; note stabilization of student numbers in sciences and technology despite overall student population declines.
  - Agree minimum wage should move in line with productivity over the medium term.

*Italic source: IMF staff report content provided in the supplied PDF chapter excerpt.*

### 20. Latvia’s banking sector is bifurcated, and dominated by commercial banks with strong

### 20. Latvia’s banking sector is bifurcated, and dominated by commercial banks with strong cross border linkages

### Banking sector structure and performance
- The banking sector is bifurcated into two segments with very different business models.
  - Foreign (largely Nordic) banks: deal mainly with domestic clients and provide more than 85 percent of domestic lending.
  - Domestic banks: rely mostly on non-resident deposits, and their assets are composed of highly liquid foreign assets.
- Post-crisis repair outcomes:
  - NPLs have declined from 20 percent in 2010 to 5.4 percent at end-March 2016.
  - Provisioning is described as strong.
  - The banking system is characterized as well capitalized, liquid, and profitable.
- Financial Condition Index (FCI):
  - For Latvia the FCI explains more than 75 percent of the covariance of the data.
  - The index suggests a return to neutral/positive financial conditions.

### Credit cycle, lending activity, and risks
- Assessment:
  - Latvia is likely towards the end of the repair stage of the credit cycle.
  - Absence of credit growth is concerning as rising wage pressures could erode firms’ ability to self-finance investment.
- Drivers of subdued lending:
  - For larger firms: demand factors help explain subdued lending activity.
  - For SMEs and households: supply factors are likely more important.
    - Key constraints cited by banks: lack of documentable income, lack of collateral, insufficient cash flow.
    - Legislation introduced in 2007 prohibits lending to natural persons against income other than that reported to the State Revenue Services.
    - Example: out of 200 thousand companies registered, only 15–20 thousand are potentially eligible borrowers after excluding loss-making or negative-equity firms.
  - Banks’ risk aversion:
    - Larger banks have adopted a more cautious lending stance due to slow bankruptcy procedures and low recovery rates post crisis.
    - Bank lending standards tightened sharply since the onset of the crisis and have not changed substantially thereafter.
    - Evidence suggests centralized risk management by parent banks may over-weight recent crisis experience, making lending overly constrained and more procyclical in Latvia than in home countries.

### Policy recommendations to revive credit to SMEs and households
- Access to credit for SMEs should be facilitated:
  - Government programs such as loan guarantee schemes and subordinated loans through the Single Development Institute are welcome if well designed to address market failures.
  - These programs cannot alleviate problems for firms or individuals in the gray economy.
  - Authorities should explore supervisory codes of conduct to prevent discrimination against SME lending (example cited: Credit Review Office in Ireland).
- Improve alignment of Nordic subsidiaries’ lending with Latvian conditions:
  - Use results of the benchmarking exercise of banks’ risk models, conducted with European partners, to ensure risk models appropriately capture current risk and that crisis legacies do not unduly constrain lending.
- Consider expanding public sector initiatives to catalyze SME lending as part of a multi-pronged approach.

### Non-resident deposits (NRDs), AML/CFT, and supervisory vigilance
- NRD risks and characteristics:
  - NRD banks account for about 50 percent of total deposits.
  - Over 80 percent of NRDs are estimated to originate from Russia and CIS countries.
  - NRD banks enjoy high liquidity ratios; stress tests suggest they can withstand outflows of close to 60 percent.
  - NRD banks hold close to 60 percent of their assets in liquid instruments.
  - NRD banks are subject to higher capital and liquidity requirements and higher contributions to Latvia’s deposit guarantee scheme per dollar of deposits.
- Evolution and recent flows:
  - The average (over four quarters) growth rate of NRD deposits in 2015 was 19 percent, higher than the 12 percent seen in 2014.
  - Given that over 60 percent of NRDs are in US dollars, valuation effects from the euro’s movement against the dollar are significant.
  - After correcting for valuation effects, the average growth rate in 2015 was 6.5 percent compared to 11.5 percent in 2014.
  - The stock of NRDs (at constant exchange rates) in December 2015 was just 1 percent above the stock a year earlier.
  - Q1 2016 saw a modest outflow of 3.7 percent on a y-o-y basis.
- AML/CFT and supervisory actions:
  - Authorities have stepped up AML efforts: fines imposed on banks, requested board replacement of one bank, and revoked a bank license.
  - Actions include widening the definition of Politically Exposed Persons (PEP), adoption of a risk-based supervision strategy, increases in internal resources, and use of external resources for in-depth analyses.
  - Staff recommendations:
    - Bring AML/CFT framework in line with the FATF standard.
    - Ensure sufficient resources are allocated to AML supervision activities, in line with recommendations of the OECD’s Working Group on Bribery.
    - Maintain vigilant supervision to mitigate both real and reputational risks associated with NRD banks.

### Fiscal policy, social spending, and structural reform priorities
- 2016 budget stance:
  - The 2016 budget targets a structural deficit of 0.9 percent of GDP (described as broadly appropriate and close-to-neutral).
  - Increases in defense and social spending of about ½ percent are offset by revenue-enhancing measures, including a “solidarity tax” on high-income earners, excise duty increases, measures to broaden the tax base and improve tax compliance, and lower current expenditures.
  - Automatic stabilizers should be allowed to operate fully if growth falls below forecast.
  - Latvia’s Fiscal Discipline Law sets a medium-term objective (MTO) of 0.5 percent of GDP, but allows a deviation of about 0.5 percent of GDP this year for revenue transfers to the privately managed Pillar II pension fund.
  - The Solidarity Tax effectively amounts to the removal of the cap on social security contributions for income earners over EUR 4050 per month which was introduced in 2014 but without the corresponding accumulation of benefits.
- Medium-term fiscal needs and options:
  - Social spending in Latvia is currently over 10 percentage points of GDP lower than the EU average.
  - Planned spending increases (e.g., defense or pensions) place additional demands on resources.
  - Authorities’ plan to bring tax revenue up to a third of GDP by 2020 is commended and will require sustained efforts to improve tax collection and policy.
  - Policy options to create fiscal space could include:
    - Raising the corporate income tax (CIT) given its low starting point.
    - Introducing a PIT surtax on high-income earners.
    - Reducing the minimum non-taxable threshold for pensioners.
    - Better-targeting of tax allowances and expenditures, such as child benefits.
  - Shift tax burden toward growth-friendly taxation, including property taxation:
    - Property taxation currently accounts for about 0.8 percent of GDP in revenue.
    - Implementation of cadastral valuation reform is recommended, with exemptions for the poorest households.
  - Improve social protection targeting and efficiency, e.g., Guaranteed Minimum Income (GMI) benefits and means testing.
  - Reform the micro-enterprise tax regime, which has lent itself to considerable abuse.
  - Continue efforts to combat the gray economy to boost compliance and revenue.

### Staff appraisal and outlook
- Growth outlook and risks:
  - Growth is expected to slow slightly to 2½ percent in 2016 due to delays in absorption of EU funds and continued geopolitical tensions and economic uncertainties.
  - Growth momentum is expected to build later in 2016 and into 2017 as EU programs start up and the global economy strengthens, though timing is uncertain.
  - An average growth rate of 4 percent is feasible going forward but will require sustained structural reforms.
  - Major downside risks include: prolonged slowdown in key trading partners, heightened geopolitical tensions, failure of credit to resume, or failure to advance structural reforms.
- Priority reform areas to achieve sustained 4 percent growth:
  - Infrastructure and SOE management.
  - Increasing the efficiency and effectiveness of the judicial system and insolvency regime.
  - Tax policy reforms to improve incentives to work.
  - Education and vocational training to reduce skills mismatches.
  - Ensure minimum wage increases do not exceed productivity growth over the medium term, with complementary policies to address inequality and poverty.
- Additional recommendations:
  - Implementation of court and insolvency reforms and reporting on progress.
  - Use benchmarking results of banks’ risk models (with European partners) to ensure risk models do not overstate current risk and unduly constrain lending.
  - Consider expansion of public sector initiatives to catalyze SME lending.
  - Continue enhanced AML/CFT implementation and allocate sufficient resources to AML supervision to strengthen the reputation of the Latvian financial sector.
- Administrative point:
  - Staff recommends that the next Article IV consultation be held on the standard 12-month cycle.

*Source: IMF staff report excerpt on Latvia’s banking sector, credit conditions, AML/CFT efforts, and fiscal policy.*

### Box 1. Evolving Role of Russia (concluded)

### Box 1. Evolving Role of Russia (concluded)

### Non-resident Deposits
- Charted series (labels preserved): 2010 2011 2012 2013 2014 2015.
- Two plotted series indicated: "Original" and "Adjust for exchange rate".
- Vertical axis label from chart: Non-resident  Depoits (Billion  euros).
- Note on chart: Dec-2010used as base year for exchange rate adjustment.
- Sources listed in chart: FKTK; andIMF staff calculations.

### Russian FDI to Latvia
- Russian FDI to Latvia has accelerated since 2014.
- Russia’s share in inward FDI:
  - "around 7 percent in 2015"
  - "6 percent in 2014"
  - "around 4.5 percent in 2012–13"
- Interpretation: This increase is consistent with strong NRD inflows, suggesting that the incentives of Russian investors to allocate their deposits and capital to Latvia have not so far been harmed by geopolitical tensions.
- Second chart information (labels preserved):
  - Horizontal time axis: 2000 2005 2010 2011 2012 2013 2014 2015.
  - Legend entries: Russia, Euro Area, Sweden, Others.
  - Vertical axis scale markers shown: 0 25 50 75 100.
  - Sources listed in chart: Bank of Latvia; and IMF staff calculations.

*Source: _cr16171 - Box 1. Evolving Role of Russia (concluded), _cr16171 - Box 1. Evolving Role of Russia (concluded)*

### Box 3. Risk Assessment Matrix

### Box 3. Risk Assessment Matrix

### Overview of RAM methodology
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline ("low" is meant to indicate a probability below 10 percent, "medium" a probability between 10 and 30 percent, and "high" a probability between 30 and 50 percent).
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

### Sharp asset price decline and decompression of credit spreads
- Likelihood: Medium
- Impact if Realized:
  - Sharp asset price decline and decompression of credit spreads as investors reassess underlying risk and respond to unanticipated changes in growth and financial fundamentals in large economies, Fed policy rate path, and increases in U.S. term premia, with poor market liquidity amplifying volatility.
  - Could lower funding for Nordic parent banks reliant on wholesale funding, raising the cost of financing and hindering credit growth.
- Policy Recommendations / Mitigation/Response:
  - Euro area monetary policy is first line of defense against liquidity stress, supported if needed, by activation of backstops and resolution mechanism.

### Structurally weak growth in key advanced and emerging economies
- Likelihood: Low/Medium
- Impact if Realized:
  - Structurally weak growth in key advanced and emerging economies. Weak demand and persistently low inflation from a failure to fully address crisis legacies and undertake structural reforms, leading to low medium-term growth and persisting financial imbalances.
  - The Euro Area remains Latvia’s single largest trade partner, while Russia and other CIS countries are also significant export destinations. A protracted slowdown would have a direct impact on exports while also eroding business and consumer confidence.
- Policy Recommendations / Mitigation/Response:
  - Participate in coordinated policy response at the European level.
  - Allow automatic stabilizers to operate.
  - If the shock is of sufficient magnitude, discretionary fiscal action could be considered.

### Heightened risk of fragmentation/security dislocation in parts of Middle East, Africa, and Europe
- Likelihood: High
- Impact if Realized:
  - Heightened risk of fragmentation/security dislocation in part of the Middle East, Africa, and Europe, leading to a sharp rise in migrant flows, with negative global spillovers.
- Policy Recommendations / Mitigation/Response:
  - Continue to diversify product and export markets.
  - Maintain vigilant financial supervision, including AML supervision.
  - Participate in coordinated policy response at the European level.
  - Pursue policies to hasten integration of migrants, including active labor market policies, and language and skill training.

### Mounting Russia/Ukraine conflict
- Likelihood: High
- Impact if Realized:
  - A mounting Russia/Ukraine conflict would depress business confidence and heighten risk aversion.
  - Escalating sanctions/countersanctions could threaten other sectors of the Latvian economy (apart from food exports, which are already sanctioned).
  - Non-resident deposits (NRDs) could be susceptible to sudden stops or reversals in case of a sufficiently large shock.
- Policy Recommendations / Mitigation/Response:
  - Continue to diversify product and export markets.
  - Maintain vigilant financial supervision, including AML supervision.
  - Participate in coordinated policy response at the European level.
  - Pursue policies to hasten integration of migrants, including active labor market policies, and language and skill training.

### Brexit referendum (UK vote on June 23, 2016)
- Likelihood: High
- Impact if Realized:
  - An exit could pose major challenges for Europe: an extended period of heightened uncertainty and disruptions in trade and financial flows that would spillover to Latvia.
  - Potential impact on Latvian migrants in the UK could be significant.
- Policy Recommendations / Mitigation/Response:
  - Euro area monetary policy is first line of defense against liquidity stress, supported by activation of backstops and resolution mechanism.
  - Allow automatic stabilizers to operate.
  - If the shock is of sufficient magnitude, discretionary fiscal action could be considered.

### Failure to advance on structural reforms
- Likelihood: Medium
- Impact if Realized:
  - In the absence of structural reforms productivity growth and the business environment would suffer, harming competitiveness and employment.
- Policy Recommendations / Mitigation/Response:
  - Seek to build base for support to continue with reform agenda focusing on improving the business environment, labor markets, SOEs governance, infrastructure, and human capital.

### Failure of credit growth to pick up
- Likelihood: High/Medium
- Impact if Realized:
  - Persistently weak bank credit growth would constrain investment and growth.
- Policy Recommendations / Mitigation/Response:
  - Explore policy options to address market failures, and ensure appropriate macro-prudential policy settings.

*Republic of Latvia — Risk Assessment Matrix as presented in Box 3 of the IMF staff report.*

### Annex I. Public Debt Sustainability Analysis (DSA)

### Annex I. Public Debt Sustainability Analysis (DSA)

### Baseline public sector DSA — Key projections and indicators (percent of GDP unless otherwise indicated; As of March 10, 2016)
- Nominal gross public debt: 24.4 (2014); 38.6 (2015); 34.5 (2016); 34.9 (2017); 34.4 (2018); 32.8 (2019); 31.7 (2020); 30.7 (2021); 29.8 (2021 projection label repeated in table).
- Public gross financing needs: 4.2 (2014); 3.7 (2015); 11.0 (2016); 4.8 (2017); 6.8 (2018); 4.2 (2019); 5.6 (2020); 6.4 (2021); 3.1 (2021).
- Real GDP growth (percent): 2.7 (2014); 2.4 (2015); 2.7 (2016); 2.5 (2017); 3.6 (2018); 3.8 (2019); 3.8 (2020); 3.9 (2021); 4.0 (2021 projection).
- Inflation (GDP deflator, percent): 6.2 (2014); 1.2 (2015); 0.6 (2016); 0.5 (2017); 1.5 (2018); 1.9 (2019); 1.9 (2020); 2.0 (2021).
- Nominal GDP growth (percent): 9.6 (2014); 3.6 (2015); 3.4 (2016); 3.0 (2017); 5.2 (2018); 5.8 (2019); 5.9 (2020); 6.0 (2021); 6.1 (2021).
- Effective interest rate (percent): 5.1 (2014); 4.3 (2015); 4.8 (2016); 4.1 (2017); 3.5 (2018); 4.0 (2019); 4.2 (2020); 4.4 (2021); 4.8 (2021).
- Change in gross public sector debt (year-on-year, percent of GDP): 2.5 (2014); 3.1 (2015); -4.1 (2016); 0.4 (2017); -0.6 (2018); -1.5 (2019); -1.1 (2020); -1.0 (2021); -0.9 (cumulative beyond table); cumulative -4.7.
- Identified debt-creating flows (year totals, percent of GDP): 1.5 (2014); 2.6 (2015); 0.6 (2016); 0.6 (2017); -0.4 (2018); -1.4 (2019); -0.9 (2020); -0.8 (2021); -0.8 (further); cumulative -3.7.
- Primary deficit (percent of GDP): 2.1 (2014); 0.4 (2015); 0.2 (2016); 0.2 (2017); 0.2 (2018); -0.8 (2019); -0.4 (2020); -0.4 (2021); -0.4 (further); cumulative -1.6.
- Primary (noninterest) revenue and grants: 35.2 (2014); 36.0 (2015); 36.0 (2016); 35.9 (2017); 36.4 (2018); 37.6 (2019); 37.0 (2020); 36.0 (2021); 35.8 (2021); cumulative 218.8.
- Primary (noninterest) expenditure: 37.3 (2014); 36.4 (2015); 36.2 (2016); 36.1 (2017); 36.6 (2018); 36.8 (2019); 36.5 (2020); 35.7 (2021); 35.4 (2021); cumulative 217.1.
- Automatic debt dynamics contribution: -0.6 (2014); 2.3 (2015); 0.4 (2016); 0.4 (2017); -0.6 (2018); -0.6 (2019); -0.5 (2020); -0.5 (2021); -0.4 (further); cumulative -2.2.
- Interest rate/growth differential: -0.7 (2014); -0.9 (2015); -0.9 (2016); 0.4 (2017); -0.6 (2018); -0.6 (2019); -0.5 (2020); -0.5 (2021); -0.4 (further); cumulative -2.2.
  - Of which: real interest rate: -0.4 (2014); -0.1 (2015); 0.1 (2016); 1.2 (2017); 0.6 (2018); 0.6 (2019); 0.7 (2020); 0.7 (2021); 0.8 (further); cumulative 4.6.
  - Of which: real GDP growth: -0.3 (2014); -0.8 (2015); -1.0 (2016); -0.8 (2017); -1.2 (2018); -1.2 (2019); -1.2 (2020); -1.2 (2021); -1.2 (further); cumulative -6.8.
- Exchange rate depreciation contribution: 0.1 (2014); 3.2 (2015); 1.3 (2016); dots thereafter (no further contributions listed).
- Other identified debt-creating flows: 0.0 for most years; small entries 0.0-0.1 in projections and -0.1 noted.
- Residual, including asset changes: 1.0 (2014); 0.4 (2015); -4.7 (2016); -0.2 (2017); -0.2 (2018); -0.2 (2019); -0.2 (2020); -0.2 (2021); -0.1 (further); cumulative -1.0.

### Composition of public debt, public financing needs and maturity/currency structure (historical and projected)
- Charts and tables indicate gross nominal public debt and public gross financing needs by year (2014–2021) with projections; by maturity (short-term vs medium and long-term) for 2005–2021; and by currency (local vs foreign currency) for 2005–2021. (Numeric series preserved in primary tables above.)

### Alternative scenarios considered in the Public DSA
- Baseline scenario assumptions (selected):
  - Real GDP growth: 2.5 (2016); 3.6 (2017); 3.8 (2018); 3.8 (2019); 3.9 (2020); 4.0 (2021).
  - Inflation: 0.5 (2016); 1.5 (2017); 1.9 (2018); 1.9 (2019); 2.0 (2020); 2.0 (2021).
  - Primary balance: -0.2 (2016); -0.2 (2017); 0.8 (2018); 0.4 (2019); 0.4 (2020); 0.4 (2021).
  - Effective interest rate: 4.1 (2016); 3.5 (2017); 4.0 (2018); 4.2 (2019); 4.4 (2020); 4.8 (2021).
- Historical scenario assumptions (selected):
  - Real GDP growth: 2.5 (2016); 1.8 (2017); 1.8 (2018); 1.8 (2019); 1.8 (2020); 1.8 (2021).
  - Inflation: same as baseline series.
  - Primary balance: -0.2 (2016); -1.9 (2017); -1.9 (2018); -1.9 (2019); -1.9 (2020); -1.9 (2021).
  - Effective interest rate: 4.1 (2016); 3.5 (2017); 3.6 (2018); 3.5 (2019); 3.4 (2020); 3.5 (2021).
- Constant Primary Balance scenario:
  - Primary Balance held at -0.2 for 2016–2021; other assumptions similar to baseline.

### External Debt Sustainability Framework (2011–21) — Key external debt indicators (percent of GDP unless otherwise indicated)
- Baseline external debt (percent of GDP): 146.2 (2011); 138.7 (2012); 134.0 (2013); 142.2 (2014); 137.7 (2015); 128.1 (2016); 124.7 (2017); 122.2 (2018); 119.3 (2019); 116.4 (2020); 112.5 (2021). Debt-stabilizing non-interest current account: -9.7.
- Change in external debt (percent of GDP): -21.8 (2011); -7.5 (2012); -4.7 (2013); 8.2 (2014); -4.5 (2015); -9.6 (2016); -3.4 (2017); -2.5 (2018); -2.9 (2019); -2.9 (2020); -3.9 (2021).
- Identified external debt-creating flows (sum of lines 4+8+9): -22.6 (2011); -5.8 (2012); -6.6 (2013); -3.4 (2014); 2.4 (2015); -3.8 (2016); -6.1 (2017); -6.3 (2018); -6.7 (2019); -7.2 (2020); -7.7 (2021).
- Current account deficit, excluding interest payments: -2.4 (2011); -1.0 (2012); -0.8 (2013); -1.1 (2014); -1.3 (2015); 0.4 (2016); -0.5 (2017); -0.2 (2018); -0.2 (2019); -0.2 (2020); 0.0 (2021).
- Exports (percent of GDP): 58.1 (2011); 61.5 (2012); 60.2 (2013); 59.5 (2014); 58.8 (2015); 57.8 (2016); 57.8 (2017); 58.1 (2018); 58.4 (2019); 58.6 (2020); 58.9 (2021).
- Imports (percent of GDP): 62.9 (2011); 65.8 (2012); 63.6 (2013); 61.8 (2014); 60.2 (2015); 59.1 (2016); 59.4 (2017); 59.8 (2018); 60.0 (2019); 60.1 (2020); 60.2 (2021).
- Net non-debt creating capital inflows (negative): -3.8 (2011); -2.2 (2012); -1.9 (2013); -0.7 (2014); -2.4 (2015); -2.4 (2016); -2.7 (2017); -3.1 (2018); -3.5 (2019); -4.0 (2020); -4.5 (2021).
- Automatic debt dynamics (percent of GDP): -16.4 (2011); -2.5 (2012); -3.8 (2013); -1.6 (2014); 6.2 (2015); -1.8 (2016); -2.9 (2017); -3.0 (2018); -3.0 (2019); -3.0 (2020); -3.1 (2021).
- Contribution from nominal interest rate: 5.2 (2011); 4.3 (2012); 3.2 (2013); 3.1 (2014); 2.5 (2015); 1.5 (2016); 1.5 (2017); 1.5 (2018); 1.4 (2019); 1.4 (2020); 1.3 (2021).
- Contribution from real GDP growth: -8.7 (2011); -5.9 (2012); -3.9 (2013); -3.0 (2014); -4.5 (2015); -3.3 (2016); -4.4 (2017); -4.5 (2018); -4.4 (2019); -4.3 (2020); -4.4 (2021).
- Residual, incl. change in gross foreign assets: 0.8 (2011); -1.7 (2012); 1.9 (2013); 11.6 (2014); -7.0 (2015); -5.8 (2016); 2.7 (2017); 3.8 (2018); 3.8 (2019); 4.2 (2020); 3.7 (2021).
- External debt-to-exports ratio (percent): 251.5 (2011); 225.6 (2012); 222.5 (2013); 239.0 (2014); 234.3 (2015); 221.5 (2016); 215.8 (2017); 210.3 (2018); 204.3 (2019); 198.5 (2020); 191.1 (2021).
- Gross external financing need (in billions of US dollars): 20.4 (2011); 20.0 (2012); 22.2 (2013); 22.4 (2014); 23.0 (2015); 20.0 (2016); 21.4 (2017); 21.5 (2018); 22.3 (2019); 23.6 (2020); 24.6 (2021).
- Gross external financing need (percent of GDP): 71.9 (2011); 71.3 (2012); 73.3 (2013); 71.5 (2014); 85.1 (2015); 10-Year and 10-Year labels appear in table (formatting in source).

### External debt sensitivity and bound tests (scenarios and shocks)
- Bound tests include:
  - Interest rate shock: permanent one-half standard deviation shocks applied (results show baseline external debt percent of GDP at 112 and shock scenarios up to 119).
  - Non-interest current account shock: scenarios shown with baseline 112 and shock up to 133 in figures.
  - Growth shock: baseline 112 and historical/scenario comparisons (growth shock values: Baseline 2.4; Scenario 3.7; Historical 1.2 in one figure; elsewhere Baseline 3.8; Scenario -0.8; Historical 3.8).
  - Combined shocks: individual and combined shocks (including permanent 1/4 standard deviation shocks to real interest rate, growth rate, and current account balance).
  - Nominal depreciation shock: one-time nominal depreciation of 30 percent occurs in 2016 in the specified shock; combined shock results show values up to 140 (percent of GDP) in figures.
- Gross financing need under baseline chart referenced (right scale); non-interest current account shock expressed in percent of GDP.

### Key macroeconomic assumptions underlying baseline (selected series)
- Real GDP growth (percent): 6.2 (historical 2011); 4.0 (2012); 3.0 (2013); 2.4 (2014); 2.7 (2015); 3.8 (2016); 9.2 (historical outlier); 2.5 (2016 baseline); 3.6 (2017); 3.8 (2018); 3.8 (2019); 3.9 (2020); 4.0 (2021).
- GDP deflator in US dollars (change percent): 12.5 (2011); -5.1 (2012); 4.6 (2013); 1.3 (2014); -16.0 (2015); 6.7 (2016); 13.3 (history); 0.6 (2016 baseline); 2.3 (2017); 2.1 (2018); 2.4 (2019); 2.7 (2020); 1.8 (2021).
- Nominal external interest rate (percent): 3.7 (2011); 2.9 (2012); 2.5 (2013); 2.4 (2014); 1.5 (2015); 3.7 (2016); 2.3 (2016 baseline); 1.1 (2017); 1.3 (2018); 1.3 (2019); 1.3 (2020); 1.2 (2021).
- Growth of exports (US dollar terms, percent): 28.2 (2011); 4.4 (2012); 5.6 (2013); 2.4 (2014); -14.8 (2015); 16.4 (2016); 18.5 (2017); 1.5 (2018); 6.0 (2019); 6.6 (2020); 6.9 (2021); 7.1 (further); 6.3 (last).
- Growth of imports (US dollar terms, percent): 36.1 (2011); 3.3 (2012); 4.2 (2013); 0.6 (2014); -15.9 (2015); 52.6 (2016); 111.6 (2017); 1.3 (2018); 6.5 (2019); 6.8 (2020); 6.8 (2021); 6.0 (last).
- Current account balance, excluding interest payments (percent of GDP): 2.4 (2011); 1.0 (2012); 0.8 (2013); 1.1 (2014); 1.3 (2015); -3.7 (2016); 9.2 (historical outlier); -0.4 (2017); 0.5 (2018); 0.2 (2019); 0.2 (2020); 0.0 (2021).
- Net non-debt creating capital inflows: 3.8 (2011); 2.2 (2012); 1.9 (2013); 0.7 (2014); 2.4 (2015); 2.8 (2016); 1.6 (2017); 2.4 (2018); 2.7 (2019); 3.1 (2020); 3.5 (2021); 4.0 (further); 4.5 (last).

### Analytical notes and definitions (from IMF staff)
- Public sector defined as general government.
- Effective interest rate defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
- Automatic debt dynamics derived per formula: [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
- Real interest rate contribution derived as r - π (1+g); real GDP growth contribution as -g.
- Exchange rate contribution derived as ae(1+r).
- Residual includes asset changes and interest revenues and, for projections, includes exchange rate changes during the projection period.
- Scenario assumptions for historical scenarios use ten-year historical averages for variables and project five years ahead.

*Source: IMF staff (Annex I. Public Debt Sustainability Analysis (DSA), _cr16171), As of March 10, 2016.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16171.pdf_