European Commission has coordinated Latvia’s 2019 budget plan

European Commission has coordinated Latvia’s 2019 budget plan, adding that it generally fits requirements of the Stability and Growth Pact. However, the old government in Latvia is not able to push it forward. This is why it has been decided to wait for the formation of a new government in Latvia to resolve problems.

In October, Latvian government supported the draft of the General Government Budget Plan for 2018 and had it submitted to the European Commission. Finance Ministry reports that unlike previous years, when the government used the time to also prepare the state budget, this time the budget plan project will be submitted in accordance with unchanged policy. It covers expected revenue and expenditures that fit the last macroeconomic outlooks and all decisions made before the end of September.

EC has noted in the report that Latvia is not expected to divert much from its medium-term budget goal in 2018 or 2019, with deviations staying within 0.1% and 0.2%. With that, the current outlook is favourable towards compliance with medium-term budget goal.

At the same time, Latvia is expected to ensure its primary government expenditures growth does not exceed 6% in 2018 and 4.6% in 2019.

According to EC, if future outlooks detect no compliance with medium-term budget goal, it may be necessary to consider possible deviation from requirements.

EC stresses that Latvia has made limited progress with implementation of fiscal recommendations provided by EC on 13 July 2018. Because of that, EC invites the government to speed up the process.

Additionally, EC also notes that the government will do the same – prepare and submit to the EC and Euro Group a reviewed budget plan.

Thinking about ways to resolve next year’s budget approval, the government decided to ask the parliament on Wednesday, 21 November, to approve amendments to the Law on Budget and Financial Management.

During a meeting of the Cabinet of Ministers, Prime Minister Māris Kučinskis said that because of the slow government formation process, the 2019 budget plan will not be approved. This is why Latvia will have to start next with a so-called temporary budget.

The government presented Finance Ministry’s report on proposals for solutions of problematic matters, whose financing is not expected to increase due to delays with budget approval.

It is proposed to resolve financing problems with amendments to the Law on Budget and Financial Management, specifically its Section 15, which, according to ministries, does not help resolve several major aspects important to keep in mind when planning the temporary budget.

It is planned to drop the principle that governs situations when the budget is not approved and budget expenditures per month do not exceed one-twelfth of the previous year’s appropriations. Instead it is planned to ensure next year’s budged expenditures cannot exceed medium-term budget’s relevant expenditures with room for corrections that support the previous year’s approved activities and policy, including the financing of regulations.

Finance Ministry has developed a legislative draft for proposed changes. The plan has been coordinated with Justice Ministry.

Proposals will be submitted to Saeima’s Budget and Finance (Taxation) Committee for approval.

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