Breathing room for the budget

  • 2010-08-11
  • Staff and wire reports

RIGA - Latvia’s economic recovery may mean less austerity in next year’s budget, Prime Minister Valdis Dombrovskis (New Era) said in an interview on Bloomberg Television in Riga on Aug. 3, reports news agency LETA. “We are quite clearly on track as regards the state budget,” Dombrovskis said. “The bulk of the fiscal consolidation is already over.”
Latvia’s economy is rebounding from last year’s 18 percent slump, on top of a 5 percent drop in GDP in 2008, as manufacturing and exports advance.

The prime minister said on Aug. 9 that the provisional data indicate second quarter economic growth of 0.1 percent over the first quarter. This comes after first quarter growth of 0.3 percent from the previous quarter.
Dombrovskis said that “The recession is over and on the basis of certain indicators, it can be expected that in the second part of the year Latvia’s economy will regain growth in terms of both quarterly and annual indicators. This means a more positive gross domestic product, tax income, employment and other rates.”

His government’s economic recovery program will go ahead even if his government loses in the October parliamentary elections. “Of course we are looking to win the election but, in any case, any new government will be confronted with the same issues. They will have a substantial budget deficit,” he said.

Society has shown a “degree of appreciation” that the austerity measures were necessary and Latvia is on the path to recovery, Dombrovskis said. “We do not intend to go for any massive additional wage reduction in the public sector,” he said, adding “In the first quarter of this year our wages in the public sector are down by some 25 percent. That is quite a substantial decrease and we do not intend to go for an additional substantial decrease.”

Latvia has agreed with the international lenders to keep its budget deficit to 8.5 percent of GDP this year and cut it to 6 percent next year by making an additional 400 million lats (571.4 million euros) of spending cuts and revenue increases in the 2011 budget. “Depending on the economic forecast this figure may change, and currently it seems it may change to the lower side,” Dombrovskis said.

The IMF and the EU now expect the economy to shrink 3.5 percent this year, compared with an earlier forecast for a 4 percent contraction. The Latvian Central Bank and Swedbank estimate the contraction may be about 2.5 percent.
The Finance Ministry’s initial estimates and proposals for possible 2011 budget cuts could be made known in September.