Budget, Financial Services, Latvia

Valdis Domrovskis.

However, Dombrovskis emphasizes that New Era does not support reducing pensions. Also, in his opinion, there is no reason to curtail co-financing for utilization of European Union structural funds, and it could even be increased. Thus, expenditures in all other sectors will have to be reduced 20%, writes LETA.

Dombrovskis points out that, if taxes are raised, budget cuts could be smaller.

"We have to realize that there is not much time and we could run short of money already in April," Dombrovskis said. "If we have to adopt budget amendments in one month, we will not be able to carry out functional audits and thorough analysis, which means that we will have to mechanically cut expenditures."

Dombrovskis also emphasized that much depends on what has been accomplished by the previous government, how well it prepared the budget amendments.

"Judging from talks with the International Monetary Fund (IMF), not much has been done so far," Dombrovskis said.

On the other hand, outgoing Prime Minister Ivars Godmanis (Latvia's First Party/Latvia's Way) underlined in an interview on LNT television broadcast "900 sekundes" this morning that his government has prepared budget amendments plan and harmonized macroeconomic projections with the IMF.

"We are continuing work so that the new government would not have to start from zero – it's not my way of doing things," said Godmanis.

He also said that cutting state budget expenditure by another LVL 700 million, needed to retain the budget deficit within the 5% limit, is not realistic. Instead, state budget deficit could be increased to approximately 8%.

During the work on state budget amendments so far, tax revenue projection was reduced LVL 480 million, furthermore, the budget reductions will not be mechanical, Godmanis underlined.

Godmanis believes that taxes can be raised no more this year. He also said that now the increased tax rates are in the limelight, and it appears that no one remembers that personal income tax and corporate tax rates were reduced at the beginning of the year.

As reported, today Godmanis and Finance Minister Atis Slakteris (People's Party) will hold a joint press conference to inform about the prepared 2009 state budget amendments plan and the results of talks with the International Monetary Fund (IMF).

The press conference will start at 11 a.m. at the Cabinet of Ministers building, LETA learned from the Cabinet of Ministers press secretary Aivis Freidenfelds.

As already reported, 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.

LETA also reported that according to the current estimates, this year's state budget revenues could be LVL 480 million lower than previously planned, whereas Dombrovskis announced last week that state budget spending must be reduced by LVL 700 million.