Analytics, Budget, Financial Services, Latvia

Commenting on a proposal, made by Prime Minister designate Valdis Dombrovskis (New Era), to reduce budget spending 20%, Slakteris underlined that "mechanical budget cuts are impossible at this moment."

Although it will be primarily a political decision, the new government will have to assess each sector separately to decide on the permissible budget cuts in each, writes LETA.

Godmanis underlined that, contrary to allegations, his government has been working on budget amendments, which would have been forwarded to Saeima at the beginning of April, after an analysis of financial data for the first three months.

Godmanis said that, in the current situation, it would be possible to cut the budget by approximately LVL 480 million, along with discussing with the International Monetary Fund the option to increase the budget deficit this year.

Reducing spending by LVL 700 million, as proposed by Dombrovskis, is not realistic, said Godmanis.

According to Godmanis, the government had clearly defined principles for reducing the budget spending.

Further cuts would deal with financing for the State Road Fund, subsidies for regional flights, as well as salaries for doctors and teachers, which were previously the least affected by budget spending reduction.

Godmanis is confident that the new government will have to reduce expenditure in all sectors and, furthermore, the planned increase in social budget will not be possible.

The outgoing government also doubts if any changes to the tax policy could be introduced this year.

Slakteris in turn underlined that, contrary to what many say, Latvia is not heading for bankruptcy. At the end of the last year, when the state had to take over Parex banka, the situation at the State Treasury was critical at some moments, however, thanks to immediate action and arranging the international loan, the situation was stabilized and "extra time was gained".

In conclusion of the press conference, which continued almost two hours, Godmanis said, "We will overcome the crisis if we act rationally, I am confident about it."

LETA also reported that IMF representatives and Finance Ministry reached agreement on the macroeconomic framework that would form the basis for preparing the budget amendments.

According to latest prognosis, this year annual inflation in Latvia could shrink to 3.3%, the average registered unemployment rate could surge to 12.7%, the decreasing imports volume will make the current account deficit drop to 7.3% of the gross domestic product, and the GDP volume is expected to contract 12% in current prices.