RIGA - As it continues to work on 2009 budget amendments in efforts to cut back on spending, the Latvian government has announced that it may ask ministries to cut spending by an additional 40 percent.
Finance Minister Einars Repse told reporters that ministries will have to submit their ideas on how they can cut individual spending by 20, 30 or 40 percent by April 17. He said that the Finance Ministry has already planned a 40 percent pay cut scheme.
The further cuts are part of an effort to help the country slash spending and bring the deficit in line with the requirements outlined by the International Monetary Fund, which issued the country a loan earlier this year.
A few ministries have already replied to the Finance Ministry's request, however, saying that such deep cuts are not possible after the ministries have already been forced to trim their budgets. This may put additional strain on other ministries to make even deeper spending cuts.
The Finance Minister said that the government can no longer afford to continue wasting money in this manner, and that it is vital that these cuts be made.
"Otherwise, we will continue to fall deeper into debt," said Repse.
The Finance Minister explained that even if all the ministries managed to make 40 percent cuts, it may not be enough.
"Forty percent will be barely enough for us to remain in the financial limits. Of course, if we somewhere cut costs less than 40 percent, we simply will not have enough money to pay," said Repse.
As the Finance Ministry already has drawn up plans to reduce spending by 40 percent, Repse said that he knew it was feasible for other ministries to do the same. As the total amount of money cannot change, advisors at the Finance Ministry said that all ministries will have to balance each other out with their expenditures.
Repse also responded to possible critics of the new round of budget cuts, saying that the plan isn't just a political scheme.
"You have to understand that this is not just tricks and politics 's this is a necessity of life. The situation is clear, if we do not minimize the spending, then in the middle of the year we will not have money to pay salaries and pensions," explained Repse.
The Finance Minister also told Latvians to live within their means.
"We won't raise taxes, and we aren't asking more money from people, I'm at peace with that," said Repse.
On April 21, the government will have an extraordinary session to decide on budget amendments that would solidify the new cuts.
The government will decide at this session whether or not it will be able to continue in the same direction of cutting costs to reach the necessary budget deficit of 5 percent and remain within the boundaries set by the IMF.
The new government, led by New Era member Dombrovksis, has already begun work on the budget amendments 's which go hand in hand with cost-cutting structural reforms 's and plans to reduce salaries by 20 percent.
It is planned that the budget amendments will be written at the end of May and will then go before parliament sometime in early June.
The government is working to keep the budget deficit at 5 percent. The 2009 government budget deficit is expected to be 705.7 million lats (1 billion euros), or 4.7 percent of GDP. Currently, the budget has been planned with the expected 5 percent GDP decrease. There is also a worst case scenario plan that forecasts a decrease of 12-13 percent.
