Slow growth complicates budget talks

RIGA - The necessary budgetary consolidation amount for 2012 should be “considerably below 150 million lats,” said President Andris Berzins on the LNT morning show ‘900 sekundes’ on Nov. 8, reports LETA. The president believes that the talks with the international lenders are difficult, because the 2012 national budget will be based on highly cautious economic growth forecasts - 2.5 percent, compared to 3 and 4 percent projections in other Baltic states, even though there are no significant differences among these countries.

“[The] 2.5 percent [figure shows] extremely low growth. It is a huge margin to reduce the consolidation amount,” he said.
Berzins predicted that the talks with the European Commission and the International Monetary Fund will lead to the completion of the international loan program and that the country will have more freedom when drafting its budget. He emphasized that the budget is not “kept in secret,” and the government’s social partners’ opinions are being taken into account in drafting it. The talks with the lenders, however, are “confidential.”

The president also said that it is too early to assess the government’s performance, since it consists of many new ministers who must first become familiar with the developments in their sectors. Berzins noted that Prime Minister Valdis Dombrovskis (Unity) has promised to assess and replace those ministers who will not be able to cope with their duties, therefore there should be fewer reasons to worry about the quality of the Cabinet’s work.

There is no reason to believe, said Prime Minister Dombrovskis on Nov. 7, that the necessary budget consolidation amount for 2012 could be reduced substantially. The prime minister added that the consolidation amount has still not been made.
So far, the talks indicate that “it could rather be worse than better,” therefore it is important to maintain the current position on the consolidation amount than to discuss any possible reductions, pointed out Dombrovskis.

Welfare Minister Ilze Vinkele (Unity) told Latvian State Radio that the government has agreed with the lenders to reduce the required budget consolidation amount from 175 million lats to 150 million lats (214.2 million euros).
The minister also promised that the Cabinet will attempt to reduce this amount even more. Vinkele also said that the talks with the lenders are difficult, even though her more experienced colleagues claim that they are easier than during the previous years.

The lenders were the ones to propose the required consolidation amount for 2012 at 175 million lats. With the reduction, Vinkele added that the government will attempt to maintain its goal of achieving a 2.5 percent budget deficit and take into account that the 2012 national budget will be based on highly cautious economic growth forecasts.

The minister believes that next year’s consolidation measures will not have a negative impact on the country’s needy residents; however, the government must break the vicious circle where people choose benefits instead of low-paid jobs.
It is also clear that Latvia’s pension system is in need of reforms as well; the figures indicate that changes are necessary to ensure the stability of the social system.

The 150 million lats figure is the amount that the deficit has to be reduced in the state budget, either through higher taxes or lower spending, in order to bring next year’s forecast budget deficit to 2.5 percent of GDP.