Faster economic growth at the moment would be a miracle - head of Fiscal Discipline Council

RIGA - In the context of high geopolitical tensions and still restrictive monetary policy of the European Central Bank (ECB), faster growth of the Latvian economy would be a miracle, and taking into account the contraction of inflation, the growth of budget revenues could be slower this year, Inna Steinbuka, the chair of the Fiscal Discipline Council (FDP), admitted in an interview with LETA.

She noted that in the first two months of the year, the general budget tax collection plan was under-executed by 8.2 percent, but in March, according to the State Treasury, the plan was already over-executed by 14 percent, while in April the situation has deteriorated again. "However, at the moment I still do not see a tragedy in the under performance of tax collection, because it remains to be seen what the situation will be in the coming months of the year. Tax revenues depend on inflation and GDP growth. Both were forecast higher at the time of the budget - GDP at 2.5 percent, compared to 1.4 percent now, and inflation at 2.2 percent compared to 1.6 percent - and this is the reason for the slippage. The forecasts underlying the tax collection plan were optimistic. Not very, but still," said Steinbuka.

She admitted, however, that in the current highly uncertain environment, it is hardly possible to forecast developments more accurately. "It should also be stressed that the scenario of the Ministry of Finance was more cautious compared to the forecasts of the Bank of Latvia and international institutions. The Finance Ministry always assesses the tax plan with great caution," added the FDP chair.

According to Steinbuka, there are not many options for faster growth of the Latvian economy. "We need investment from the private sector, which is still lagging behind in Latvia. The Council of Foreign Investors, the PEAK think tank at the University of Latvia and the Bank of Latvia have come to similar conclusions in various studies about the problems that limit private investment in the Latvian economy, including the availability of labor, the low quality of education and the mismatch of skills with labor market demand, as well as the burden of bureaucratic procedures in construction and other sectors," said the FDP chair.

She stressed that investment in competitive innovative projects and human capital is vital to ensure labor migration from low-productivity sectors to high value-added sectors, boost productivity, foster growth and increase budget revenues.

"We need to be aware that we are in an area of great geopolitical instability and the low level of private investment is natural, unfortunately the government does not have many instruments to influence this at the moment. Red tape reduction is therefore a tool available to the government and is a strong motivator for investors that does not require additional budget funding," said Steinbuka.