On October 16, the legislative draft for Latvia’s 2021 state budget was submitted to the Saeima’s committees for review. The budget plan plans expenditures at EUR 10.758 billion.
The chairman of Saeima’s Budget and Finance Committee Martins Bondars promised to work for several days on the legislative draft, stressing that ministers and the prime ministers would remotely come to the meetings to follow discussions.
Bondars was surprised by the intent of other politicians to vote against the budget draft’s submission to committees, because this would be acting against doctors, teachers and high school teaching staff.
It is planned committees will start working on the budget and its accompanying legislative drafts this week in order to approve everything after the state holiday.
Next year budget’s revenue is planned at EUR 9.579 billion, whereas expenditures are planned at EUR 10.758 billion.
Grants for municipalities are planned in the amount of EUR 405,085,822, whereas state grants for local governments are planned in the amount of EUR 199,345,789.
GDP outlook for 2021 is EUR 30.022 billion, whereas the allowed general government budget deficit is expected to reach 3.9% of GDP. Maximum state debt in nominal values is outlined at EUR 14.44 billion next year.
It is planned to establish that the distribution of revenue from PIT between the state and municipal budgets will be 25% and 75%, respectively.
The volume of grants for municipalities will be EUR 405.08 million, which will be mainly diverted to pay teachers’ wages. State budget grants for municipalities will reach EUR 199.34 million and the amount of EUR 198.68 million for the municipal financial equalization fund.
The 2021 budget legislative draft also states that the State President’s monthly wage will not exceed EUR 5,960 and representation expenditures a month will not exceed EUR 1,192.
The legislative draft also outlines the portion of dividends to be paid by state companies. AS Latvenergo is to pay no less than EUR 98.24 million to the state budget from profits gained in 2020, Latvian State Forests is to pay no less than EUR 90.49 million and Augstsprieguma tikls – no less than EUR 2.71 million.
Medium-term budget is to secure fiscal guarantee reserves for 2021, 2022 and 2023 at 0.1% of GDP.
According to Finance Ministry’s developed macro-economic development scenario, it is assumed the COVID-19 pandemic is localized in the first half of 2020 and economic activity in the world and in Latvia starts gradually recovering. The scenario outlined in the plan states that Latvia’s GDP will drop by 7% this year and start gradually recovering in future years. GDP growth in 2021 is expected to reach 5.1%. In 2022 and 2023 it is expected to reach 3.1%.
Annual inflation is predicted to reach 0.2% in 2020 and 1.2% in 2021. In the next two years consumer price increase will get back to 2%. It is expected the unemployment level in 2020 will increase to 10.5% when compared to 2019. In 2021 and 2022, with economic growth restored, the number of employed people will increase slightly, gradually stabilizing at 883,000 until 2023. Unemployment level is expected to drop to 9.8% in 2021.
The budget content legislative draft outlines the maximum permitted structural deficit for each of the years outlined in the draft – 2.1% of GDP in 2021 and 1.1% of GDP in 2022. This is significantly more that would be allowed under normal economic conditions. However, it is allowed because of the pandemic, the state of emergency and its economic effect for the next two years.
In 2023, it is planned to return to the structural deficit of 0.5% of GDP as outlined in the Fiscal Discipline Law. The general government debt, which increased by 10.4% in 20202 and reached 47.3% of GDP, will reduce in the coming years and will reach 44.8% of GDP in 2023. (BNN/Business World Magazine)
