Fiscal Council: Government should create a balanced state budget more quickly  22 April 2018

The latest data on the government deficit and government debt from the Central Statistical Bureau indicates that the budgetary outcomes are better than the planned for 2017, however the government needs to focus more quickly on a balanced budget, targeted at lowering the high government debt burden, the Fiscal Discipline Council (Council).

The general government budget deficit in 2017 was 131.1 mln. euro or -0.5% of gross domestic product (GDP) compared to the surplus in 2016 - 15.6 mln. euro or 0.1% of GDP, according to the preliminary results of the Central Statistical Bureau (CSB). Compared to 2016, government debt has risen from 10.1 billion euro (40.5% of GDP) to 10.8 billion euro (40.1% of GDP) in 2017. The Social security fund closed last year with the budget surplus, while expenditures in the central government and municipalities exceeded revenues.

Commenting on these data, the Council recalls its interim report on the Latvia's Stability Programme 2018-2021. In 2017, the general government consolidated budget balance was better than planned, instead of 301.4 mln. euro the year ended with 221.7 mln. euro budget deficit. "However, the government's decisions on reducing TEC-1 and TEC-2 requirements for the Riga thermal power plant in the form of a cogeneration electricity government in exchange for a one-off compensation in 2017 significantly weakened the general government balance. Similarly, the general government budget balance in 2017 was followed by a series of the decision of the government to redistribute savings from different budget programs", states Council chairman Janis Platais.

According to the Council, the Stability Programme also forecasts a deterioration of the local government consolidated budget balance in 2018, reaching a deficit of 18.3 mln. compared to the planned 31.6 mln. the medium-term budgetary framework for euro surpluses 2018-2021. Monthly Treasury data on financial changes in the local government budget in the first months of 2018 indicate a significant increase in projected borrowing. The Council expects that the mechanisms governing local government borrowing due to this trend will not lead to a significant deterioration of the fiscal balance.

"The Council reiterates the Government's attention to the need to use the current economic recovery period in order not to increase spending on public money and build up a financial reserve to reduce debt levels during the economic downturn," J.Platais emphasizes.