The Fiscal Discipline Council assesses the impact of Covid-19 on Latvia's economy and state budget 12 March 2020
On March 12, the first meeting of the newly elected Fiscal Discipline Council was held to assess the potential impact of the Covid-19 coronavirus on Latvia's economy and state budget.
The Council concluded that, in the current exceptional circumstances, the economic situation is highly volatile and unpredictable.
The Council expects that reaching the projected economic growth indicators by Ministry of Finance's will be particularly challenging in the coming months, with lower-than-projected budget revenues and a widening of the budget deficit.
This is related to the risks posed by Covid -19, which include:
The effect of quarantine measures, which may take the form of an increased burden on the State Social Security Fund;
Declining industrial activity due to global supply chain disruption;
Decline in revenues in the tourism and related sectors - passenger transportation, catering and accommodation;
Cash flow risks for insurance companies due to increased demand for services.
The Council notes that the outbreak of Covid-19 took place against the background of the economic slowdown in Latvia and the European Union. The Council has previously pointed to external and internal economic risks, including trade uncertainty, the decline in freight volumes in the transit sector, which began in 2019, and low lending activity.
The Council notes that such extraordinary economic tensions are also occurring in other EU Member States. Several eurozone leaders have announced the need for stabilization and support measures with fiscal impact.
The Council considers that, should the Latvian government decide to implement similar support measures, they should be short-term, responsibly evaluated and aimed at mitigating the negative economic effects.
At the same time, the Council reminds that an unjustified increase in the budget deficit, which would adversely affect Latvia's credit rating and impede access to international financial markets, should not be allowed.
In view of the uncertain economic development and the high level of risk, it would be desirable to postpone the implementation of tax reform and other tax-sensitive measures until the situation is normalized.