BUDGET DEFICIT TO BE EVEN FURTHER REDUCED

Latvia follows since some years a plan in order to reduce the previously very large budget deficit. According to this the 2010 deficit of 8.5 percent, relative to GDP, would go down to 6 percent this year and to 3 percent in 2012. The intention is to pave the way for euro entry about 2014.

Now the government wants to increase the speed! The budget consolidation so far undertaken takes this year's deficit down to 5.4 percent, which is a dramatic improvement. But the government is not content with this. The idea is to reach down to 5.0 percent this year.

There are clear advantages to this. It would probably make Latvia's credit rating improve. Standard & Poor's rating is still at a level which is just below a recommended level of investment. If this improves so wll the potential for foreign investments, something that Prime Minister Valdis Dombrovskis (Unity) has been discussing with several leading politicians in recent times, last week with Swedish Prime Minister Fredrik Reinfeldt.

A reduced budget deficit would also give Latvia the opportunity to borrow at a lower interest rate. At the same time the country would be seen as safe and predictable. All this is conducive to further investment climate.

This means that there are several benefits if the government can further reduce the budget deficit. Meanwhile, there are also a number of problems. The Finance Ministry has at times been opposed by lenders, when presenting various savings proposals. Thus, the government has got to start over again.

At yesterday's meeting the government agreed on a budget consolidation at LVL 50 million. This is consistent with the lenders' requirements. But the goal is now set at LVL 65 million. In addition, the government expects that the measures taken to overcome the so-called shadow economy would bring the Finance Ministry an additional LVL 12.8 million.



(Andra intressanta bloggar om politik, Lettland, Baltikum, Europa)

(Andra intressanta bloggar om politics, Latvia, Baltcs, Europe)