Latvia’s fiscal policy in the coming years must ensure that public debt does not exceed 55% of gross domestic product (GDP), Finance Minister Arvils Ašeradens (JV) said during an extraordinary session of the Saeima on Thursday, presenting the 2025 Progress Report for the Fiscal Structural Plan 2025–2028.
The minister informed MPs that by the end of last year, national debt had reached 19 billion euros, or 47% of GDP. According to the current forecasts of the Ministry of Finance, this figure will rise to 53% of GDP over the next three years.
“These are alarming figures,” Ašeradens stated.
He emphasized that Latvia must meet defense needs and support economic growth at the same time. The goal, he said, is to maintain public debt at around 50% of GDP, since the state also holds a liquidity reserve of 3–4% of GDP to cover urgent needs.
To manage potential future crises while staying below the EU’s 60% debt-to-GDP threshold, Latvia must currently maintain debt closer to 50%.
“Therefore, we must agree on a maximum debt target and conduct fiscal policy so that national debt does not exceed 55% of GDP. This means that the potential to increase spending amid moderate growth is extremely limited unless new revenue sources are found,” Ašeradens said.
He projected that next year, public debt will likely remain below the 55% threshold. However, he warned that the era of automatic funding increases for various sectors is over. In the future, additional resources will only be allocated if new funding is identified.
Given the current geopolitical climate, particularly the intensifying aggression from Russia and its full transition to a war economy, Ašeradens said Latvia must allocate at least 5% of its GDP to defense. He noted that Estonia plans to reach 5.4% and Lithuania 5.6% of GDP in defense spending.
According to the minister, much of the increase in defense spending will be financed by invoking the EU’s national escape clause for defense expenditure. However, this option is only available until 2028. To support further funding, he proposed listing at least 10% of shares from major state-owned enterprises on the stock exchange.
In parallel, the budget deficit must be reduced to 1.5% of GDP by 2029.
To achieve this, the public sector will need to implement substantial spending cuts and efficiency measures over the next three years, he said.
Ašeradens stated that the public sector must save at least 450 million euros in the coming years. This will require downsizing public administration, eliminating some functions, merging state institutions, and possibly even merging certain ministries.
He added that tax revenues in the first quarter of this year exceeded forecasts by 54 million euros, though full-year revenue is expected to reach only 99% of projections.
For 2024, the Ministry of Finance forecasts GDP growth of 1.2%, driven primarily by a recovery in domestic consumption. Overall, moderate economic growth and stabilization are expected through 2029.
As previously reported, the 2025 Progress Report of the Fiscal Structural Plan projects this year’s general government budget deficit at 3.1% of GDP—0.2 percentage points above initial estimates.
The report states that the Ministry of Finance will continue monitoring the deficit and, if necessary, will propose measures to the Cabinet of Ministers to keep deficit levels below 3% of GDP in 2025.
Looking ahead, the projected general government budget deficit under a no-policy-change scenario is 3% in 2026, 3.2% in 2027, 2.8% in 2028, and 2.3% in 2029.
The Ministry of Finance notes that while the deficit trajectory remains downward, the overall deficit level has increased due to revised tax revenue forecasts.
Given current projections, the indicative fiscal space for new expenditures in the 2026–2028 medium-term budget framework will remain negative: –22.9 million euros in 2026, –202.6 million euros in 2027, –292.4 million euros in 2028, and –420.7 million euros in 2029.
Taking into account ongoing geopolitical and domestic challenges, the ministry concludes that Latvia’s public finances will remain under significant strain in the medium term, and difficult decisions will be required during this year’s budget planning process to balance revenues and expenditures.