Considering that state support to help reduce the impact of COVID-19 crisis on the economy has already reached 9% of Latvia’s GDP, the Fiscal Discipline Council (FDP) has once again asked the government to limit new economy-stimulating measures and instead start thinking about gradual reduction of the state debt.
This much was concluded by FDP in the sixth monitoring report on the influence of COVID-19 on the state economy and fiscal situation.
The report mentions that the amount of taxes collected in July exceed the amount observed in July 2019. Even results of the special budget turned out good. Therefore it can be concluded with a great degree of certainty that the lowest point in tax collection in comparison the previous year is already behind Latvia, FDP notes.
Data from the State Treasury shows the state debt has increased by approximately EUR 2 billion since March.
Considering positive trends observed for economic indexes and tax collection, FDP invites the government to start thinking about gradual reduction of the state debt.
The council turns attention towards the invitation from Jose Angel Gurria, secretary general of the of the Organization for Economic Co-operation and Development (OECD), to avoid repeating the mistakes observed in solutions picked to resolve the previous financial crisis.
“Government’s measures aimed at softening fiscal norms are justified. However, the result of high deficit and low GDP will be a much bigger debt burden. Strong fiscal support is needed, but it will have consequences. In the future governments will have to reduce debt volumes, but they should avoid repeat the mistakes observed after the last crisis, and it is too soon to reduce expenses or increase taxes. State expenditures should be accurately planned to support the least protected people and secure investments needed for sustainable recovery,” says Gurria.
“In Latvia’s case mistakes were not allowed during the previous crisis, because it was thanks to consolidated policy Latvia had managed to join Eurozone. On top of that, the country is also able to provide strong state support during COVID-19 crisis. The government’s position does not currently include any radical budget expenditure reductions or plans to speed up tax reform meets the recommendations provided by OECD,” stresses FDP chairperson Inna Steinbuka.
In its latest crisis monitoring report also mentions how it is necessary to form a more effective state support provision monitoring mechanism. Development Finance Institution Altum now holds a great deal of responsibility, which is why in order to ensure good management and prevent financial risks, in formation about support provided by Altum and approved projects should be made publicly accessible. It is also recommended to plan support measures and audit of expenditures in advance, stresses FDP.
FDP is an independent collegial institution that was founded in order to monitor adoption of fiscal discipline requirements. (BNN/Business World Magazine)
