Latvia’s prime minister not prepared to increase country’s budget deficit

Latvia’s Prime Minister Krišjānis Kariņš is not prepared to increase budget deficit to satisfy growing budget requests from ministries. The prime minister says every ministry has provided arguments in favour of increasing funding for their respective sectors from the 2020 state budget.

However, it is already clear it will not be possible to satisfy all requests.

«An additional EUR 600 million is requested from the country’s 2020 budget. Funding requests for the 2021 budget already exceed EUR 1 billion. I will not increase budget deficit or taxes simply because ministers’ appetite is too large,» said Kariņš.
He added, however, that the budget development process has only just begun. The process will last the entire summer and a solution will be found. At the same time, work on sorting different industries will continue. The reformation process will also cover review of their policies to help increase cohesion and make the state administration system more efficient.

When asked if any priority fields have been outlined so far, Kariņš confirmed that priorities are clear, adding, however, that any budget development process is political, which is why he expects talks to turn out complicated.

«Every minister has put forward their own requests for funding of specific fields. My main focus as prime minister is reducing budget deficit. All these desires and requests are put in the same pot. Time will tell what comes out of it. I do not condemn any minister for their desire to invest in specific fields, because it is clear we should invest everywhere. However, we have to balance needs with abilities,» said the prime minister.

He also admits that there have been proposals to increase budget deficit. The prime minister, on the other hand, says «it is economical madness to increase the state debt in a time when global economy is growing». Kariņš believes now is not the best time to increase deficit, as now is the time to save up for unexpected situations.
On 15 April, Latvia’s Cabinet of Ministers supported the country’s Stability Programme Project for 2019-2022, in which the fiscal space of 2020 is expected to be negative EUR 11.9 million. The plan has been submitted to the European Commission for approval.

After the government meeting, Finance Minister Jānis Reirs said review of expenditures could help make the 2020 budget’s fiscal space positive. He said the fiscal outlook developed at the beginning of each year always turns out negative.

«The government has always been able to find additional funds by either changing programmes of reviewing expenditures. Usually the majority of said funds is acquired as a result of review of expenditures,» the minister explains.

The opinion of the Fiscal Discipline Council on the government’s approved Stability Programme for 2019-2022 was harsh. The council believes Latvia’s budget space in 2020 will be minus EUR 145.3 million, not the ministry’s predicted EUR 11.9 million.

According to the Fiscal Discipline Council, it is necessary to improve the government’s fiscal strategy.

«Results of 2018 and the 2019 budget assessment points to an increase of budget expenditures that is more rapid than potential economic growth. For 2020 the council sees a need for greater budge consolidation to meet fiscal discipline requirements,» as noted by fiscal discipline supervisors.

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