The geopolitical instability that came about after Russia’s invasion of Ukraine may reduce the volume of private investments in Latvia, says governor of the Bank of Latvia Martins Kazaks.
“The geopolitical background in certain cases may reduce the plans of the private sector to invest, because insecurity and uncertainty can, in some cases, have a snowball effect. From the state we should expect supportive action. If we see the private sector decided to not use construction output, for example, the state may step in and continue using the output. In this case we have to monitor the entire perimeter,” said the governor of the Bank of Latvia.
At the same time, he stressed that Latvia’s economy and Baltic States in general were safe as never before, because NATO member states were not under any threats at the moment.
However, Russia’s attack on Ukraine may reduce the optimism of investors.
“Inflation may increase costs and slow investments, but I hope the slowing of investments and lending will be temporary,” said Kazaks.
He did admit that, for example, lending had been a painful topic since 2008 and 2009 and the weak lending was also reflected in weak investments. This is why Latvia has fallen behind Estonia and Lithuania in the past ten years.
“Looking at the next business cycle, we cannot afford to make such mistakes. Investment activity needs to be much higher. But this is not an issue only for banks. This is an issue of risk assessment and how cautiously banks look at risks. This is also an issue of enterprises’ ambitions. Enterprises cannot remain within Latvia’s borders because Latvia’s economy with a declining population offers limited growth potential. Lets look past Latvia’s borders! This will definitely require larger investments and lending,” stressed Kazaks. (BNN/Business World Magazine)
