Money saving ideas delivered with latest IMF tranche

  • 2010-08-19
  • Staff and wire reports

RIGA - Latvia has received its latest loan installment from the International Monetary Fund, totaling 105.8 million euros, reports news agency LETA. This is the fourth payment from the IMF within the framework of the international lending program. It is planned that further amounts of 100 million euros and 200 million euros will be received from the World Bank and European Commission, respectively, by the end of September this year.
In accordance with concluded agreements, the latest loan installment will be used for general purposes within the state budget.

The Finance Ministry stressed that during the lending program, Latvia had only used funds from the institutional lenders - the IMF, European Commission and World Bank. Loans which were planned from other European states will be used as credit lines, and Latvia will only draw money from these in case of necessity; in this way, by the end of 2011, Latvian will have used only 5 billion euros out of the 7.5 billion euro total which was made available.

This latest disbursement comes on the heels of Prime Minister Valdis Dombrovskis’ (New Era) recent comments that Latvia’s economic recovery may mean less austerity in next year’s budget. Sounding optimistic, he added, “We are quite clearly on track as regards the state budget. The bulk of the fiscal consolidation is already over.”
Latvia’s economy is rebounding from last year’s 18 percent slump as manufacturing and exports march higher.

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 promised. “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,” he noted, offering support to a corps of beleaguered public sector workers.

The next state budget, however, still includes the possibility of reducing salaries in local governments and state-funded enterprises, according to a report by the technical mission of the IMF. IMF experts though have concluded that central government salaries cannot be further reduced without analysis of the involved risk. However, cuts in local government salaries are still possible through revision of functions, especially in consideration of the recent territorial reform.

The IMF also noted that overall, state-funded companies had so far been shielded from salary cuts. Suggested solutions include: the companies could be reformed into agencies or government institutions, combined or removed from the state sector by means of privatization.
In the view of the organization, road maintenance programs and subsidies for passenger transport on bus routes could also be rationalized, or cut.

The IMF also suggested that a uniform pay scale should be applied to all central government institutions with only some exceptions. Top officials and highly-skilled employees should receive additional payments only on condition that these are transparent and tightly regulated.
In the opinion of the IMF, a five percent reduction in state employee numbers would allow a saving of 0.20 percent of GDP.

Latvia has agreed to keep its budget deficit to 8.5 percent of GDP this year and cut it to 6 percent next year by making up to an additional 400 million (USD 747 million) of spending cuts and revenue increases in the 2011 budget.

On Aug. 17 the Finance Ministry’s state secretary, Martins Bicevskis, said that the budget consolidation gap could be closer to 100 to 200 million lats (285.7 million euros), due to the country’s improving financial conditions.