Statement on Latvia by Commissioner Almunia, after meeting with the Latvian government in Riga
The Commissioner made the following statements on Latvia on 6 and 13 October 2009.
"I welcome the preliminary agreement reached by the Latvian government to reduce the 2010 budget deficit by 500 million LVL, thereby targeting a 2010 general government deficit of no more than 8.5% of GDP (in European System of Accounts, ESA95, terms). I am looking forward to seeing that agreement translated in the draft budget that will be presented to the Latvian parliament later this month.
In my meetings today with the Prime Minister and Finance Minister, I have welcomed the fact that the necessary budgetary adjustment will be achieved also on the revenue side. Doing it only through expenditure cuts would be too hard on society, particularly for low-income families.
The European Union and other international lenders are helping Latvia weather the global financial and economic crisis. Without the €7.5 billion loan, most of which is being provided by the EU and other individual lenders in the Union, the budgetary adjustments would be much bigger and painful.
If delivered, the fiscal adjustment agreed in a Memorandum of Understanding last July will put the Latvian public finances on a more sustainable path, will help the country to ultimately be able to finance itself in the markets without international assistance and will allow it to share the EU economic recovery expected for 2010. Delivering the commitments agreed in July will also support the Latvian strategy on euro adoption."
Commissioner Almunia had meetings with Prime Minister Valdis Dombrovskis, Finance Minister Einars Repse, the leaders of all political parties and of the Parliament's Budget and Finance Committee chaired by Solvita Aboltina, Deputy Speaker of the Saeima, and Governor of the Bank of Latvia Ilmars Rimsevics. He also met with bank representatives and the social partners and other stakeholders. His visit will end with a meeting with President Valdis Zatlers.
The discussions centred on the economic and budgetary situation and the preparation of the 2010 budget. This was Commissioner Almunia's third visit to Latvia
Commissioner Almunia is a Member of the European Commission, in charge of Economic and Monetary Affairs. As such he has responsibility for economic and budgetary surveillance of the EU Member States, a task conferred on the Commission by the EU Treaty, and which is essential to the Economic and Monetary Union and the euro. Among other things, he is also responsible for analysing requests for financial assistance, including Balance of Payment loans such as the €3.1 billion one agreed for Latvia, as well as the implementation of the loan agreements.
"The Commission is following closely the economic situation and preparation of the 2010 budget in Latvia and is in regular contact with the government as well as the other lenders supporting Latvia's stabilisation programme. A technical mission is currently taking place together with the IMF.
In the Memorandum of Understanding (MoU) signed by the Latvian government only last July, Latvia agreed to "progress with the preparation of the 2010 budget law entailing a further improvement in the budget balance by 500 million LVL, thereby targeting a 2010 general government deficit of no more than 8.5% of GDP (in European System of Accounts, ESA95, terms)". The Commission expects the Latvian government to present a budget to parliament that is in compliance with these commitments. This is necessary to restore confidence and for the country to ultimately be able to finance itself in the markets without international assistance.
The agreed fiscal adjustment path, which should bring the deficit below 3% of GDP in 2012, is the one needed to avoid that the Latvian debt enters an unsustainable path and to support the Latvian strategy on euro adoption.
The MoU also clearly states that the 500 million LVL improvement in the budget balance should not be achieved only through expenditure cuts. This would be too hard on society, particularly for low-income families. We consider important to safeguard social safety nets and EU-Funds related expenditures, to ensure a fair distribution of the adjustment on the population and to promote the competitiveness of the country."