Latvia shoots for 2.5 percent deficit

RIGA - In compliance with the latest agreement with the international lenders, Latvia will resolve to implement stricter fiscal discipline, Finance Ministry State Secretary Martins Bicevskis said during a Saeima Budget and Finance Committee session on May 11, reports news agency LETA. The letter of intent to the International Monetary Fund (IMF) and the memorandum of understanding with the European Commission are still classified, since the lenders have not confirmed the documents yet.
Bicevskis pointed out that Latvia will discuss the fiscal discipline bill with the lenders and will submit it, together with corresponding amendments to the Constitution, for review in Saeima by end-November.

According to the current schedule, the necessary laws will be passed by mid-2012 and will come into force in 2013. The agreement also envisages that a medium-term state budget bill will be added to the 2012 state budget. Bicevskis confirmed that next year, Latvia will resolve to keep its budget deficit below 3 percent of gross domestic product (GDP) and will try to reach a 2.5 percent budget deficit. The government predicts that the budget deficit will decrease to 1.9 percent in 2013 and 1.1 percent in 2014. Latvia will consolidate the state budget next year by an additional 150 million-180 million lats (214 million – 257 million euros).

The agreement also envisages re-channeling of funding that was previously allocated for stabilization of the financial sector to budget deficit needs. 300 million euros will be reallocated when the restructuring plan of Latvijas Hipoteku un zemes banka (Mortage Bank), Citadele Bank’s sales strategy, and Parex Bank’s restructuring strategy will be prepared.
An additional 100 million euros will be re-channeled when Mortgage Bank’s sales strategy will be submitted to the European Commission and re-channeling of the remaining 249 million euros will depend on progress of Citadele Bank’s and Mortgage Bank’s sale, said Bicevskis.