Analytics, Budget, Financial Services, Latvia

April 2010 government budget deficit and debt notification: main indicators

Compared to provisional data of the Treasury, which indicated general government budget deficit of 892.1 mln lats (6.7% of GDP) in 2009, according to methodological requirements of ESA’ 95, calculated budget deficit is more by 296.6 mln lats or 9.0% of GDP.

Major adjustments with negative impact (deficit increase as percent of GDP) have:

- Exclusion of revenues from greenhouse effect gas emission trade belonging to the

country from budget – by 0.7%;
- Inclusion of Southern bridge construction costs into sub-sector expenditure of local governments – by 0.6%;
- Adjustment regarding creditors – by 0.6%;
- Adjustment of accrued and paid interest difference – by 0.5%;
- Tax adjustment using time-adjusted cash method – by 0.3%;
- Impact of enterprise balance results controlled and financed by state and local governments reclassified to general government sector – by 0.2%;
- Adjustment of European Union funds acquisition – by 0.1%.

At the same time, adjustment with positive impact has been carried out (deficit decrease in % of GDP):
- Exclusion of instalments in the equity capital of Latvian Guarantee agency from budget expenditure – by 0.5%;
- Adjustment regarding requirements towards debtors – by 0.3%.

Necessity for adjustment arises from ESA’ 95 methodological requirements and guidelines for the preparation of government sector statistics. They require that accrual (instead of money flow) principle is followed in the calculations, and that financial transaction from government sector balance, as well as influence of European Union funds are excluded.

Government budget deficit or surplus by sub-sectors in 2006-2009, as% of GDP

In 2009 general government sector debt value exceeded debt level of 2006 four times and reached 4,783.4 mln lats or 36.1 % of GDP. Central government sector debt before consolidation among sub-sectors was 5,242.8 mln lats, local governments' debt – 740.0 mln lats, social security fund debt – 0.2 mln lats.

General government consolidated gross debt at nominal value, at the end of the year

In the calculations of notification of April 2010 data from the Ministry of Finance, the Treasury, the Ministry of Economics, Central Statistical Bureau and Riga City Council are used. Adjusted data on general government budget deficit and debt on 2009 the CSB will publish in October 18 2010.

On the April 22 the EU Statistical Office Eurostat will release information on the results of the April 2010 notification in all EU member states.

[1] In compliance with the requirements of Regulation EC No. 479/2009, the government deficit and debt notification is submitted to the European Commission twice a year, by April 1 and October 1. The results of the notification are used for assessing how the EU member states observe the compliance of the respective economic indicators with the criteria established by the Maastricht Treaty, that is, the ratio of the planned and actual government budget deficit to the gross domestic product (GDP) at current prices must not exceed 3.0% and the ratio of the government debt to the gross domestic product at current prices must not be higher than 60.0%.