Both the state budget deficit and Latvia’s external budget suffered an avalanche-like surge during the term of the government of Prime Minister Krišjānis Kariņš. While in 2019, when Kariņš’s government was first composed, the deficit of the general government budget was EUR 63.2 million, in eleven months of 2021 the deficit of the state consolidated budget reached EUR 1.03 billion – EUR 490.5 million more than in the same period of last year. In this situation it would be best to think of ways to earn more money. Instead Latvian officials, it seems, are seriously working on targeted destruction of sea port and transit business.
Of course, the surge in budget deficit came from the need to soften the consequences from Covid-19 crisis. Once it is over, the deficit will decrease automatically. However, wiggle all you like, but in the end Latvia will be up to its ears in debt. To compare it is worth mentioning the following – while in 2019 the state debt was EUR 10.8 billion, in 2021 it reached EUR 14.9 billion. In 2022 Latvia’s state debt is expected to reach EUR 17 billion. In this situation every entrepreneur and the taxes they pay are highly important. However, in a paradoxical turn of events, Latvia’s government and its short-sighted and poorly-thought through decisions are aimed at destroying the industry that not so long ago contributed more than EUR 1 billion to the national economy annually and provided jobs to more than 80 000 people.
In recent years the situation at Latvia’s biggest sea ports and international railway freight services has deteriorated dramatically due to the geopolitical situation.
After Russian freight left, Latvia switched its focus towards cooperation with Belarus. In 2020 this country was offered cooperation in the field of transport and logistics. As the Minister of Transport Tālis Linkaits wrote in the letter accompanying the offer: «Latvia and Belarus have a similar vision for mutual cooperation and partnership that would ensure and integrated intermodal logistical connection network and make the movement of freight between Europe and Asia much easier».
This «similar vision» fell apart like a house of cards after the EU and the US imposed economic sanctions on Belarus. It was clear then already that Latvia’s transit and logistics sector would be hit by this the most.
After Lithuania’s efforts to «quit» the transit of Belaruskali mineral fertilizer freight through its territory, considering the country intends to stop with that completely in February 2022, this could be an opportunity for Latvia to take over. As BNN was told by University of Latvia professor Dr. sc. Ing. Edvīns Karnītis, this would be an opportunity for Latvia’s railway and sea ports to recover from the major drop in freight, but «no one will look at this from an economical viewpoint, although they should. The prime minister has said on multiple occasions that we [Latvia] do not need a transit industry».
It is entirely possible Latvia’s PM Krišjānis Kariņš will try to hide behind US sanctions.
However, as officially confirmed by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the US has never imposed sanctions on the transit of products from Belarusian company Belaruskali through Lithuania’s territory.
This means internationally Latvia is not prohibited from carrying this freight. Whether or not Latvia’s own government decides to completely destroy all the hopes of the transport industry is another issue altogether. The general feeling is that information reported by the Latvian Employers’ Confederation about many transport sector businesses that have historic ties with both Belarus and Russia being at risk of bankruptcy is like white noise for the Minister of Transport.
There is no and will be no aid from the state in Latvia for companies that suffer due to the sanctions imposed on Belarus. Even if there are no sanctions put on the transit of Belarusian mineral fertilizer freight through Latvia, the government will still decide to not let such freight enter the country’s territory. The Ministry of Transport is of the opinion even when pushed to the brink of collapse, the industry will be able to adapt on its own and find enough money, Lord only knows where, to finance reorientation of its business direction and reorganisation of specialised terminals.
At the same time, there still is no clear and justified explanation as to what companies of the transit sector are allowed and not allowed to do with Belarusian freight in this situation. This severely impacts entrepreneurs’ ability to cooperate with the financial sector. This results in an absurd loop – enormous investments are needed to reorganise specialised terminals, banks refuse loans because they fear losing money, and the state provides no support and makes it unambiguously clear it has no intention to do so either.
It is well-known that the OFAC sanctions do not apply to the carrying of Belarusian freight through any country’s territory. It is unclear if sanctions apply to Belarusian oil products that have changed owners multiple times before being delivered to European sea ports and are now owned by someone from Georgia, for example.
Unfortunately, instead of a clear explanation there is only a political manifest.
It is also necessary to strictly adhere to the EU and US economic sanctions imposed on Belarus. But – did the Latvian government consider the fact that other European sea ports work with sanctioned Belarusian freight? Has the government done any estimates as to the losses Latvia’s national economy would suffer if Belarusian freight is not allowed to enter the country’s territory? Finally, has anyone put any thought into any kind of mechanisms to stimulate the economy?
Only a very naive and short-sighted person (and minister Linkaits is definitely not one) thinks leading the transport sector to a collapse would impact only this industry. It’s not just about the thousands of people employed at sea ports and transport sector who will lose their jobs, countless smaller businesses that service this sector will go bankrupt as well. What will happen is a domino effect, because the wave of bankruptcies of smaller businesses will have negative consequences of their own.
Meanwhile, it should be clear to everyone that Belarusian transit freight (worth mentioning again that US sanctions do not extend on transit of this freight) will not remain unclaimed for long.
If we don’t take the freight, someone else will. What we will get is moral satisfaction, bankrupt businesses, almost empty sea ports, losses worth hundreds of millions of euros for the national economy, a considerable increase in unemployed numbers and lost tax revenue.
Considering the aforementioned, it would be a good idea to think why Latvia’s general government budget deficit, according to data from the Ministry of Finance for 2021 (9.3% of GDP) was twice as large as Lithuania’s (4.4% of GDP) and about three times larger than Estonia’s (3.3% of GDP)? Perhaps the reason is because the government puts emphasis on spending, not earning money, which would include supporting local businesses and ensuring a healthy industry?
Opinion | Latvian government doesn’t think about budget deficit, it thinks about destroying transit sector