Bank of Latvia warns budget deficit might soon become excessively large

RIGA - The Bank of Latvia warns that Latvia's budget deficit might soon become too large. 

At Tuesday's meeting of the government and the Crisis Management Council, representatives of the Finance Ministry informed about the situation with the budget program Funds for Unforeseen Events and Latvia's macroeconomic situation. 

According to the Finance Ministry's forecasts, in 2021, Latvia's general government deficit will grow from the planned EUR 1.2 billion, or 3.9 percent of GDP, to an estimated EUR 2.9 billion, or 9.4 percent of GDP.

Commenting on the information provided by the Finance Ministry, Edvards Kusners, an adviser to the Bank of Latvia Council, said that the projected government debt of 50 percent of GDP is acceptable but that the projected budget deficit is too large in the situation where the economy is growing. 

"Of the money we are currently spending, every fourth euro is borrowed money. Latvia had a record-large budget deficit - at 9.6 percent of GDP - in 2009, in the wake of the severest economic crisis," Kusners said. 

The Bank of Latvia representative noted that during the Covid-19 crisis, some sectors are growing and some have suspended operations. From the central bank's standpoint, there is no need to stimulate the economy. Instead, it is necessary to provide targeted support to crisis-stricken businesses and prepare for the moment when the economy resumes growth. 

"There is no point in stimulating an idling sector. We are urging to spend resources purposefully, with a long-term effect," said Kusners.