“I guess now I’ve seen everything…” The former Minister of Economy does not hide his surprise at the proposed solution to reduce the budget deficit

Next year’s budget currently shows a deficit or “negative fiscal space” of 275 million euros, which could be reduced by increasing the allowed structural deficit, Finance Minister Arvil Asheraden (JV) told journalists on Monday after the meeting of the coalition partners.

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Economist and former Minister of Economy Vyacheslav Dombrovskis has published a post on the chat platform “X” in which he is not afraid to express his surprise at the proposed solution:

Currently, the law allows for a structural deficit of 0.5%, but the coalition has expressed support for amendments to the law that would allow the structural deficit to increase to 1%, thus the negative fiscal space could be reduced to 56 million euros next year, explained the finance minister.

Asheraden does not yet give up hope that the country can reach a neutral fiscal space in 2025 in an optimistic scenario.

The Speaker of the Saeima, Daiga Mieriņa (ZZS), emphasized that this time, together with the Stability Program of Latvia presented by Asheraden, the government will also consider the economic development report prepared by the Ministry of Economy on the development of Latvia’s growth.

This echoes the call of many MPs to establish a tradition in the Saeima about national economy and economic debates, Mieriņa pointed out. The two mentioned documents are expected to be presented to the leaders of the Saeima factions on May 9, and both the Minister of Finance and the Minister of Economy Viktors Valainis (ZZS) plan to give reports on them at the Saeima sitting on May 16.

Meanwhile, this year revenues are likely to be 185 million euros lower than planned in the adopted budget. According to Asheraden, if the government does not take on additional, so far unforeseen obligations and the budget deficit is kept at no more than 2.9%, no austerity measures will have to be taken this year.

The Ministry of Finance (MoF) has evaluated the currently planned expenditures of the country and concluded that it is a realistic goal to finish the year with the above-mentioned budget deficit of 2.9%, explained the Minister of Finance. Therefore, the government must strictly adhere to the planned spending plan for this year, the politician called.

The government plans to discuss Latvia’s Stability Program at Tuesday’s meeting.

As reported, the Ministry of Finance (MoF) has prepared and submitted to the government the draft of Latvia’s Stability Program for 2024-2028, LETA agency was informed by representatives of the MoF.

The FM informs that the year 2024 is characterized by the recovery of growth, a rapid decrease in inflation, the stabilization of energy resource prices, a stable labor market and, in general, indicates the resilience of the national economy against external economic shocks. We can also talk about sustainability in fiscal policy. Although the general government budget deficit is close to 3% of the gross domestic product (GDP), most of it is made up of one-time expenses related to the internal and external security of the country. The structural deficit is close to the 0.5% of GDP limit and therefore the public debt is sustainable. Unfortunately, investments in the field of internal and external security are necessary – both to ensure the safety of the country’s citizens and to create the necessary conditions for economic development.

According to the forecast of February 2024, Latvia’s GDP will increase by 1.4% in 2024, while in 2025, economic growth is expected to accelerate to 2.9%. The GDP growth forecast for 2024 has been reduced by 1.1 percentage points, but the forecast for 2025 has not been changed. In the next three years, economic growth will slow down slightly, reaching 2.5% in 2026 and slowing down to 2.3% by 2028.

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