RIGA Jan 28 Latvia is on course to adopt the
euro in 2014 but has to keep an eye on banks with volatile
deposits from elsewhere in the former Soviet Union, the
International Monetary Fund said on Monday.
The IMF nudged up its growth forecast for the Baltic state
to 3.7 percent this year and expressed concern about a cut in
benefits for the poor in one of Europe's most unequal countries.
"Latvia appears on track to meet all the Maastricht
criteria, subject to uncertainties on two criteria -- inflation
and interest rates -- whose reference values are not yet
determined," the Fund said in a report on Latvia.
The Washington-based lender co-financed a 7.5 billion euro
lifeline with the European Union for Latvia in 2008. Latvia
repaid all its debt to the IMF last December.
To adopt the euro, a European Union country has to meet five
economic criteria on deficits, debt, long-term interest rates, a
stable currency peg to the euro and low inflation.
The IMF said the interest rate and inflation goals were yet
to be set but the EU and European Central Bank officials had
said in talks ahead of the report that the two criteria would be
The IMF raised the growth forecast from an earlier 3.5
percent but that is slower than the 5 percent notched up in 2012
and the lender said risks were on the downside due to an
uncertain external environment.
It noted 80 to 90 percent of non-resident deposits (NDRs) in
the banking sector came from former Soviet states, such as
Russia, either directly or through countries like Britain,
Cyprus, Belize and the British Virgin Islands.
"Given the size of the sector, a sudden reversal of NDR
flows, and the potential of contagion to resident deposits,
represents a source of vulnerability to international reserves
and a significant contingent fiscal liability," the Fund said.
The Fund urged Latvia to reassess cutting a key benefit for
the poor to 35 lats ($67.50) a month from 40 lats.
"We are concerned about these developments, especially in
the context of Latvia's already high levels of inequality," IMF
mission chief, Shekhar Aiyar, told the IMF Survey Online
($1 = 0.5186 Latvian lats)
(Reporting By Aleks Tapinsh; editing by Anna Willard)