RIGA - Leftist oppositionists in Parliament supported the minority government's budget amendments last week that will increase expenditures by 54.4 million lats (81.5 million euros) but keep the deficit at 2 percent of GDP.
Sixty-two parliamentarians backed the additional expenses, with 19 voting against and six abstaining. Left-wing opposition MPs, including the National Harmony Party and For Human Rights in a United Latvia, led the support for the minority Cabinet, which ensured that the windfall in budget revenues would be used to increase salaries across a broad specter of budget-based workers.
Farmers were set to get the largest amount of additional funds, or 20 million lats, while teachers would receive a salary increases worth 9.6 million lats and doctors and nurses would get an additional 7.4 million lats. Security agencies and ministries will have an extra 2.4 million lats this year as well.
The final budget amendments are expected to be approved by Parliament Aug. 26.
If the amendments are adopted, 2004 budget revenues will reach 2 billion lats and expenditures 2.18 billion lats, making for a fiscal deficit if 156.1 million lats.
Economists, however, criticized the government for failing to use the opportunity to reduce the deficit and runaway inflation, which in Latvia has reached a staggering 6.7 percent. Budget planners, they said, were acting irresponsibly at a time when the economy risked overheating.
Martins Gravitis, a spokesperson for the Bank of Latvia, said that the bank's recommendations for keeping the deficit to 1 percent - 1.5 percent of GDP have been ignored, and that the government was essentially promoting inflation by pumping all the extra money into the economy.
"It's a lack of foresight. We eat everything today and save nothing for any crisis situation, which does inevitably happen in an economy," said Gravitis, adding that the 2 percent budget deficit was in no way stabilizing the macroeconomic situation.
The bank, he said, would have to consider further measures.
Year-on-year inflation in Latvia is approximately 6.7 percent, according to the latest Finance Ministry reports.
Economist Uldis Osis seconded the bank's opinion, stating that the budget deficit must be reduced to facilitate future growth.
"It seems that the Bank of Latvia understands the issue more than the politicians, as they always want to be better with something. Latvia is developing, but this shouldn't be toyed with. Development must be stable," said Osis.
The International Monetary Fund has also expressed concern about the budget deficit, saying in a recent report that, considering high inflation rates and the continuous growth in crediting, Latvia's external factor risks were increasing.
Economy Institute director Raita Karnite agreed with the IMF, saying that the extra money to be distributed among teachers, pensioners and maternity wages was a good thing, though it would ultimately increase spending and thus lead to inflation.
Finance Minister Oskars Spurszins has countered by saying that the budget amendments would leave the deficit unchanged at 2 percent, so no macroeconomic problems should arise.
