If Latvia’s national airline airBaltic fails to carry out its initial public offering (IPO), the national budget deficit could face “severe problems,” said Nils Sakss, Director of the Fiscal Policy Department at the Ministry of Finance (MoF), during a meeting of the Saeima’s European Affairs Committee on Wednesday.
“Everything must be done to ensure a full-fledged IPO. If that doesn’t happen, we’ll be in serious trouble,” Sakss stated.
He explained that if a proper IPO is conducted, the state’s investment in airBaltic shares would not impact the general government budget deficit. However, if the IPO is not realized or ends up being purely formal (with only state participation), the impact on the deficit would be significant.
Sakss also acknowledged that there are no billions available in the national budget for implementing the Rail Balticarailway project. Currently, only the minimum necessary funding is allocated to leverage investments from EU funds.
He noted that public-private partnerships (PPP) might become the only viable solution for continuing the project. Although this wouldn’t reduce overall costs, it would spread the expenses over 20–25 years instead of four.
As previously reported, the Ministry of Finance’s draft Fiscal Structural Plan for 2025–2028 projects a general government budget deficit of 3.1% of GDP in 2025—0.2 percentage points higher than initially planned.
The MoF will continue monitoring the development of the general government deficit and, if necessary, will submit proposals to the Cabinet of Ministers to ensure that the deficit remains below 3% of GDP in 2025.
Over the medium term, under a no-policy-change scenario, the general government deficit is forecast at 3% of GDP in 2026, 3.2% in 2027, 2.8% in 2028, and 2.3% in 2029.
The MoF report indicates that while the deficit trajectory is downward, the overall deficit level has increased due to revised tax revenue forecasts.
Based on current projections, the indicative fiscal space available for preparing the 2026–2028 budget framework remains negative—minus €22.9 million in 2026, minus €202.6 million in 2027, minus €292.4 million in 2028, and minus €420.7 million in 2029.
Considering ongoing geopolitical and domestic challenges, the Ministry concludes that public finances will remain tight over the medium term, and a number of difficult decisions will be required during this year’s budget process to balance revenues and expenditures.
The macroeconomic scenario for 2025–2029 anticipates stabilization of the Latvian economy, with moderate growth expected in 2025 at 1.2% of GDP. Growth is forecast to accelerate to 2.1% in 2026 and up to 2.2% in subsequent years. The MoF notes that the recovery will be driven by increased public and private consumption, more active absorption of EU funds, and faster export growth.