After several years of budget cuts, which have had an impact on the healthcare sector, Latvia's pharmaceutical market is re-emerging with steady growth forecast. Spending on pharmaceuticals will be driven by the strength of the private sector since the market has a high proportion of out-of-pocket expenditure. Meanwhile, the country's manufacturing sector should benefit from its anticipated membership of the eurozone, which remains on track.
Headline Expenditure Projections
- Pharmaceuticals: LVL221mn (US$307mn) in 2012 to LVL230mn (US$432mn) in 2013; +4.0% in local currency terms and +6.1% in US dollar terms. Forecast broadly unchanged from previous quarter.
- Healthcare: LVL946mn (US$1.74bn) in 2012 to LVL1.00bn (US$1.88bn) in 2013; +5.8% in local currency terms and +7.9% in US dollar terms. Forecast broadly unchanged from previous quarter.
Risk/Reward Ratings: Latvia is ranked 15th out of the 20 countries surveyed in the Central and Eastern Europe (CEE) region in Q413. Despite an improvement of two places from the previous quarter, Latvia's composite score of 48.8 remains below the regional average of 51.8, indicating the country's challenging business environment, particularly in terms of potential industry rewards. Consequently, direct multinational operations are limited and domestic companies such as Grindeks have looked abroad for growth opportunities.
Key Trends And Developments
- In August 2013, it was reported that Grindeks was planning to build a pharmaceutical manufacturing plant in the Russian city of Ufa, according to Dmitry Sharonov, the deputy prime minister of the Republic of Bashkortostan.
- In July 2013, Grindeks successfully passed a US Food and Drug Administration (FDA) inspection. The FDA issued a certificate for a Grindeks facility, enabling them to export medicines to their US partners. Grindeks intends to export xylazine, xylazine hydrochloride and droperidol to the US, as well as continuing to supply oxytocine and detomidine to the US.
BMI Economic View: Overall, we maintain our previous assessment of Latvia's budget balance, whose fiscal and debt dynamics we regard as among the strongest in Europe. We forecast Latvia's budget deficit this year to arrive only slightly wider than 2012's shortfall, at 1.3% of GDP in 2013 versus 1.2% in 2012, due to our slightly below-consensus expectations for real GDP growth. While we still regard the Latvian government as one of the most hawkish in the European Union, we believe that in light of the major progress achieved in fiscal consolidation, the government will ease up on austerity measures over the coming years, although we do not expect the fiscal deficit to widen substantially as a result. Indeed, in light of the severity of austerity measures implemented since the global financial crisis, a relaxation of government spending, or a reduction in tax rates could prove relatively beneficial to the economy.
BMI Political View: As we have long anticipated, Latvia has successfully met all the eurozone convergence criteria and has received the green light from the EU and ECB to adopt the single currency on January 2014. Nonetheless, domestic attitudes towards the euro remain more negative than most other recently acceded EU member states which have yet to join the euro. Despite this, we maintain the euro will be adopted without delay in January, and expect attitudes towards the single currency will improve in the months following its adoption.