RIGA - Latvia's fiscal surplus, reached in the first months of the new year, should be used exclusively to reduce the budget deficit, Bank of Latvia President Ilmars Rimsevics told the press March 21.
Rimsevics said that the bank's use of monetary policy instruments to control inflation was limited in an environment of a fixed lat-euro rate, and thus the onus of fiscal discipline was on the executive and legislative branches of government. Fiscal policy was the only tool that could be used for balancing macroeconomic risks, including the current account deficit, the central banker stressed.
Rimsevics said that actual budget deficit last year was lower than planned at the beginning of 2004, standing at 1.1 percent of GDP, and that the reduction of the budget deficit was definitely commendable. "We have to achieve further reduction of budget deficit this year. I hope that lowering the budget deficit will continue as required under the Stability and Growth Pact," he said, referring to the treaty that regulates eurozone members' spending and borrowing.
"Upon rapid economic growth it is the task of every government to ensure the lowering of budget deficit. With an economic growth rate as fast as Latvia's in the last six years, the budget deficit should be close to zero, or we should have a budget surplus just like our neighbors" in Estonia, said Rimsevics.
In the first two months of 2005 Latvia's aggregate state budget had a fiscal surplus of 30.8 million lats (43.8 million euros), of which 13.1 million lats was the state budget surplus.
This year the state budget deficit has been planned at 134.5 million lats, or 1.7 percent of GDP. Many economists, however, have called for a deficit of 1 percent of GDP in order to rein in inflation, which in Latvia was the highest among all EU member states last year.