Bloomberg News

Latvian Parliament Backs 2012 Budget With Narrower Deficit

December 15, 2011

(Adds comment in fourth paragraph.)

Dec. 15 (Bloomberg) -- The Latvian Parliament approved the 2012 state budget, trimming the deficit below the European Union’s limit as the Baltic nation prepares to adopt the euro in 2014.

The legislature voted 56-42 today in Riga to pass the budget with a shortfall of 2.5 percent of economic output, below the EU’s 3 percent ceiling, and down from an expected 4.5 percent this year. The plan, economic growth of 2.5 percent, is the final budget in the country’s 7.5 billion-euro ($9.7 billion) lending program from a group led by the European Commission and the International Monetary Fund.

Latvia turned to the lenders in late 2008 after its second- biggest bank needed a state rescue and a real-estate bubble burst. The government has adopted spending cuts and tax increases of 2.3 billion lati ($4.3 billion), or 17.8 percent of GDP, since seeking aid.

“We did a great job of lowering the fiscal deficit, and this consolidation amount is huge,” said Finance Minister Andris Vilks, in a telephone interview today. “No one is going to follow us in such categories.”

The Baltic country came to a staff-level agreement with its lenders on Dec. 8 for a fifth and final review of the lending program, which will be completed this year. The estimate for 2.5 percent economic growth is “too optimistic” because conditions in the euro area are deteriorating, central bank Governor Ilmars Rimsevics said on Dec. 6.

Slowing Growth

Growth may slow to 1 percent next year according to estimates from Citadele Banka AS and Nordea AB. Estonia’s central bank yesterday cut its forecast for growth to 1.9 percent for 2012, compared with a June forecast for a 4.2 percent expansion, and said the bank’s negative scenario was for a 4 percent contraction.

“Our trading partners are going to grow at the level of 1.5 percent to 2 percent at least. Therefore 2.5 percent for Latvia doesn’t seem very optimistic,” Vilks said.

--Editors: Alan Crosby, Andrew Langley

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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