RIGA - With revenues falling short of target, government ministers have agreed in principle to amend the budget and retain a 0.5 percent budget surplus.
Prime Minister Ivars Godmanis told journalists on June 12 that ministries have been asked to assess their budgets and find possibilities to economize. In addition, all state institutions will be ordered to reduce expenditures proportionally.
"The goal is to end the year with a positive balance," said Godmanis, adding that the government does not plan to end the year without a surplus. "We cannot afford it," he stressed.
Still, the 0.5 percent surplus is down from the budgeted 1 percent, which was a victory for the Bank of Latvia, which has been harping on ministers to control spending.
Godmanis said that the main focus in reducing expenditures will be to reduce state administration expenses, revise state procurements and liquidate long-term vacancies.
He said that spending cuts will not affect the wages of teachers, medics and policemen and pensions.
Godmanis said that this year the surplus would amount to more than 100 million lats (142 million euros).
Finance Minister Atis Slakteris said that the budget performance improved slightly in May but was still some 70 million lats (99.6 million euros) short of the planned figure.
"There is still a shortage, and this is precisely why budget amendments are needed," the minister said, explaining that VAT revenues have been lagging behind target since the beginning of the year, while other tax revenues have exceeded planned figures.
The declining VAT figures point to a sharp drop in consumption.
Slakteris pointed out that high inflation has also been affecting budget performance, as it increases state expenditures and requires more money for pensions.
According to the Finance Ministry data, in the first quarter of 2008 the consolidated budget posted a surplus of 70.5 million lats, which was 26.9 million lats, or 27.6 percent, less than during the first three months of 2007.
Slakteris stressed the importance of proportionality of the budget cuts and the need for a budget surplus.
"The state budget developed too optimistically during the steep economic growth. The budget fulfillment data for the first five months show that the tax collections are not being performed as fast as planned, thus, it is important to work on the amendments to the budget by reducing the expenses," Slakteris said.
State procurements will take a major hit. Godmanis said the state makes procurements of approximately 825 million lats per year, and "we will no longer be able to afford that."
He said state institutions would have to reduce those purchases that do not stimulate the economy.