The economies of Estonia, Latvia, and Lithuania, all of which are small and vulnerable to shocks, are launching relief and stimulus programmes to avert the worst impacts of the coronavirus outbreak steamrolling through Europe.
The pandemic is expected to push Baltic GDP growth below zero this year, an effect of choked domestic demand and spillovers from abroad. According to a forecast by Swedbank – released in the early stages of the pandemic on March 11 – a likely scenario for the Baltic states will see their economic growth decline to 1.2% in Latvia, 1.4% in Estonia, and 1.6% in Lithuania.
Latvia has since said the impact would be far worse. The country’s economy ministry said today GDP would contract 1.2% in 2020 – or more if the crisis is prolonged.
Riga has said it will cover 75% of the costs of outbreak-induced sick leaves or workers’ downtime, or up to €700 per month. Latvia will also allow postponement of tax overdues for up to three years if the overdues are an effect of the outbreak.
Latvia will also simplify and speed up tax refunds for entrepreneurs and forego personal income tax advances in 2020. The government did not say what the value of the support measures will be.
Estonia, in turn, is rolling out a €2bn support programme – equal to 7% of the country’s GDP – including loans securitisation, sick leave compensation, and suspension of payments into the pension system.
Tallinn expects the Estonian economy might go into recession in 2020, although that is not an official forecast but speculation in the local media by Finance Minister Martin Helme.
The Lithuanian government unveiled a €5bn – equivalent to 10% of GDP – support plan earlier this week, consisting of €500mn for health and public security systems, €500mn for jobs and personal income protection, as well as €500mn for maintaining business liquidity.
€1bn will go to speeding up investment while the Bank of Lithuania is kick-starting measures like reduction of capital adequacy requirements for credit institutions worth €2.5bn.
Lithuanian lawmakers also voted on March 17 to raise the government’s borrowing limit from €900mn to €5.4bn.
The measure comes in response to the government’s analysis, which said the country’s tax revenues will fall €4.2bn short – or 20% – of the budget plans.
Vilnius expects the economy to contract 1.3%-2.8% in 2020 in the wake of the coronavirus pandemic.
On March 19, Latvia had 86 coronavirus cases, Estonia 267 and Lithuania 47.