Latvia's planned expenditure growth steeper than recommended - Dombrovskis

RIGA - The European Commission has assessed the draft 2024 budgets of European Union member states and concluded that Latvia's budget plan is not quite in line with the Commission's recommendations regarding expenditure growth, as Latvia plans to increase spending faster than recommended, according to European Commission Executive Vice President Valdis Dombrovskis (New Unity). 

As Dombrovskis' advisor Maija Celmina told LETA, the Commission has found non-compliance with its recommendations also in other member states' budget plans. Dombrovskis underlines that Latvia, as well as a number of other member states, should pay more attention to issues related to fiscal discipline. 

"If we look at the European Commission's autumn economic forecasts, Latvia is projected to have a budget deficit of just over 3 percent of gross domestic product (GDP) this and next year. It is important to gradually reduce the deficit in the following years," Dombrovskis said. 

The Commission's executive vice president noted that a similar recommendation has been provided to the euro area as a whole, i.e., to move towards a stricter fiscal policy so that the fiscal and monetary policy were in balance. According to Dombrovskis, the European Central Bank (ECB) is currently tightening the monetary policy to reduce inflation, so it is important that the fiscal policy also helps to reduce inflation - at the moment, additional fiscal stimulus would boost inflation rather than the economy.

The Commission also concludes that there are no macroeconomic imbalances in Latvia so there is no need for an in-depth assessment. 

As reported, a majority of Saeima members on November 16 endorsed the bill on Latvia's 2024 state budget and the budget framework for 2024-2026. The Saeima is scheduled to start the second and final reading of next year's budget on December 7.

The general government budget's revenue next year is projected at EUR 17.8 billion and expenditure at EUR 19.1 billion. The general government budget deficit in 2024 is therefore planned at EUR 1.3 billion, or 2.8 percent of gross domestic product.

The budget deficit in 2025 is projected at 2.3 percent of GDP and in 2026 at 0.9 percent of GDP.

Government debt next year is projected at EUR 18.6 billion, or 41 percent of GDP.

The three main budget priorities next year include internal and external security, education, and healthcare.

Compared to the 2023 budget, the 2024 state budget revenue is projected to increase by EUR 1.763 billion. On the other hand, budget expenditure in 2024 is expected to be EUR 1.538 billion higher than in 2023.

The budget was drafted assuming that GDP at actual prices would increase to EUR 45.524 billion in 2024, EUR 48.338 billion in 2025 and EUR 51.122 billion in 2026. The GDP growth is projected at 2.5 percent for 2024, 2.9 percent for 2025 and 2.9 percent for 2026.

The budget bill sets the adjusted maximum government expenditure at EUR 13.578 billion in 2024, EUR 13.725 billion in 2025 and EUR 14.116 billion in 2026.