Latvia could devalue the national currency - the lat, at least 15% by the end of 2010, to boost exports and reduce the budget deficit on the background of the maximum for more than ten years the pace of economic recession in the country, analysts believe RBC Capital Markets and Barclays Capital.

Latvia's GDP in the second quarter of 2009 fell by 18,7%.

Despite the announcement by the Government of Latvia to the fact that it has reduced costs and increased budget revenues equivalent to 11% of GDP, the European Commission predicted the country's budget deficit increased to a record 10% of GDP this year.

This figure is twice the level projected by international financial organizations in the past year. Reducing the budget deficit to 5% was part of a program to stabilize the economy of Latvia, on the basis of which it has received a loan of 7.5 billion euros in late 2008.

The Latvian government may devalue the currency at any time, because it simply can not afford to further cut the budget, - said a strategist for emerging markets RBC Capital in London, Nigel Rendell.

Prime Minister of Latvia Valdis Dombrovskis this month said that the devaluation of the negative impact on people's savings and salaries, as well as lead to an increase of the bad loans from banks, 91% of which were issued in euros. The increase in outstanding bank loans has led to a drop in the index MSCI Eastern Europe by 21% in the first two months of this year.

According to the forecast

Randell, Exchange rate may fall by 30% in the next six months.

At the same time, currency strategist for emerging markets Barclays Capital in London Kun Chow believes that Latvia devalues its currency by 15-20% in 2010 and will retain its value in a corridor of plus or minus 15% of the new level.

The probability of devaluation is very high, the difficulty lies only in determining the time when it will happen - said Chow.

Currency devaluation makes exports from the Latvian producers more competitive and help restore the economy, which three years ago showed themaximum growth rate among EU countries.

At the same time, analysts said Fitch, currency devaluation will increase the cost of the country to service external debts amounting to 129% of GDP.

agreed in late 2008 agreement, the IMF, European Commission, World Bank, European Bank for Reconstruction and Development and a number of EU member-states of Latvia provide financial assistance amounting to 7.5 billion euros.

Late last year, approximately 600 million euros in Latvia provided the IMF, in the first quarter of this year, the country received 1 billion euros from the European Commission. She also highlighted July 27 Latvia next tranche of the loan in the amount of 1.2 billion euros.

In turn, the IMF in early September, has remitted to the State Treasury of Latvia next tranche of 200 million euros.

Exchange rate is tied to the euro in relation 0,7028 lats per euro.

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