To reduce state budget expenditures in the future, reforms must already be planned now — reforms aimed at optimizing public infrastructure networks, transferring certain state functions to the private sector, and analyzing the cost efficiency of public institutions, said Uldis Rutkaste, Head of the Monetary Policy Department of the Bank of Latvia, in comments to the news agency LETA regarding the next year’s state budget project.
He stated that under the current circumstances, security is the top priority, and savings should not be made in this area — sufficient funding must be allocated for strengthening defense capabilities.
“People’s confidence in a secure future is also an essential factor influencing the economy. In this respect, the budget takes serious steps forward,” emphasized Rutkaste.
He added that at the same time, budget expenditures have significantly increased in recent years, and in the coming years it will become even more challenging to limit the budget deficit. Rutkaste stressed that if budget spending needs are not reduced, tax increases in the future will become inevitable, which would have a negative impact on the economy.
“Unfortunately, past experience shows that in the political process — without serious structural reforms — it is impossible to agree on sufficient and sustainable reductions in budget expenditures,” said Rutkaste. He explained that, in the Bank of Latvia’s view,
work on planning such reforms should begin immediately to reduce the need for state budget expenditures
in the future.
He clarified that these reforms should focus on: optimizing public infrastructure networks (education, healthcare, transport, etc.), delegating certain functions currently carried out by the state to the private sector, and strengthening control mechanisms and conducting systematic cost-efficiency analyses across various government institutions.
As previously reported, on the 14th of October, the government approved the 2026 state budget, in which consolidated general government revenues are planned at €16.064 billion, while expenditures are set at €17.945 billion.
Compared to the 2025 budget, in 2026 the growth in budget revenues is expected to outpace expenditure growth. Revenues are projected to increase by €944.6 million, while expenditures will rise by €804.3 million.
In the basic budget, revenues are planned at €10.9 billion and expenditures at €13.2 billion.
In the special budget, revenues are expected to total €5.5 billion, and expenditures €5.1 billion.
Latvia’s gross domestic product (GDP) at current prices is projected at €43.953 billion next year. Accordingly, the budget deficit will amount to 3.3% of GDP, while national debt will remain below 55% of GDP.
General government expenditures will decrease next year to 47% of GDP, compared with 47.5% this year. At the same time, while overall spending declines, defense expenditures will increase.
Overall, expenditures will be reduced by €171 million next year.
A total of €693.5 million will be allocated for priority measures, including €448.3 million for defense and security.
The Ministry of Finance (FM) notes that the 2026 state budget and the medium-term budget framework for 2026–2028 have been prepared in accordance with the European Union (EU) and national fiscal discipline rules.
The next year’s budget includes additional investments in national security, as well as support for families with children and quality education. FM also notes that the budget provides for over €1 billion in EU fund investments, along with an increase of €151.4 million in municipal revenues.
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