Latvia’s goal is returning to the Maastricht criteria before the end of the current political cycle, said Minister of Finance Arvils Ašeradens. He also said that the Ministry of Finance and Ministry of Climate and Energy plan to come up with a more focused support system for households.
On Thursday, the 9th of February the government plans to submit to the Saeima the state budget for 2023. The budget plan details a general budget deficit, which covers the entire state and municipal administration structure, as well as state social insurance institutions, of EUR 1.77 billion or 4.2% of GDP.
The deficit of the consolidated government budget is planned at EUR 1.95 billion or 4.6% of GDP.
The peak state debt cap is planned at EUR 19.2 billion or 45% of Latvia’s GDP.
The minister stressed that returning to the Maastricht criteria is a very important task. Currently the government is trying to control the structural budget deficit. This process is under very tight supervision from international rating agencies to make sure the country does not spend too much money and acts responsibly about spending money. Ašeradens said he believes at least the situation is under control.
«It is relatively easier to accomplish in a situation of high inflation. But if prices start rapidly stabilising, we will need to review the situation. Of course, we would like to reduce the nominal deficit as much as possible. We are moving towards that. It would be irresponsible for me to say we are rapidly moving toward zero deficit budge,» said the minister.
At the same time, the minister said the support for residents to help reduce rise of prices of energy resources will likely be necessary in the next heating season. The European Commission and Fiscal Discipline Council both point out the need to gradually reduce support measures.
Ašeradens reminds, though the European Commission has permitted deviations from the Maastrichtr criteria for this year, the European Central Bank (ECB) and ECB President Christine Lagarde stresses: the more generous the European Union is in support, the more intensely ECB will have to raise its interest rates.
«This is all connected, and we expect the next two years will show progress of inflation. For the global economy the big question is how and when the Russian-Ukrainian war will end,» said Ašeradens.
The minister added that he supports compliance with fiscal discipline. Ašeradens is positive about Latvia maintaining a cautious approach towards borrowing. With the current debt level – 43% of GDP – Latvia is in the Top 6 of EU member states with the lowest debt level. The minister said that in a country with an unclear demographic development scenario it would be wrong to have children carry the debt.
The minister stressed that Latvia did borrow a lot during Covid-19 pandemic, because it was clear to everyone the country cannot allow the scenario that was in the crisis of 2008-2009, when a wave of emigration took place after major belt-tightening.
«It is clear the government had to maintain the economy during Covid-19 pandemic, and the government did just that. Expenses were justified and all of us had to be responsible. It is clear that at 20% inflation households have to deal with a considerable loss of purchasing power. The government needs to come up with compensation mechanisms. It is also clear we need support activities,» admits Ašeradens.
According to him, the system for compensation of electricity prices was successful. Approximately 80% of households have received this support in Latvia so far.
As for compensation of heating costs, support is not socially focused, said the minister, because what happens there is:
the bigger the house and higher energy needs, the bigger the support that needs to be provided.
Ašeradens believes this needs to be changed, adding that the EC would like to see this support be provided to those who need it the most. «At this time I can say support will be more socially oriented, similar to the support with electricity,» said the minister.
In his interview to LTV on Thursday, the 9th of February, the minister allowed for certain changes to the budget project for 2023 once the Saeima starts its review. He said the Saeima will have discussions over various topics, including healthcare funding. He stressed that
healthcare will receive one of the most generous amounts of support from the budget.
The minister added that deputies shouldn’t dive too deep with voting in more proposals for the budget, since approving one proposal would mean refusing a different one.
Also read: Fiscal Discipline Council says Latvia’s budget complies with economic situation