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Saturday 22.10.2016 | Name days: Irīda, Īrisa

Economic Diary of Latvia. Life in debt

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, Latvian Finance Minister Janis Reirs submitted the portfolio containing Latvia’s budget for 2016 to the Saeima. Reirs said the country’s main financial documents was developed with full responsibility and in accordance with the geopolitical and political situation in the country. The State Audit believes the budget was planned inefficiently. The Fiscal Discipline Council reports that the government sector continues spending more than planned.

The budget of 2016 was submitted the Saeima on 30 September. This budget’s priorities include defence, internal security, healthcare, education, reduction of inequality and tax collection optimization.

Saeima Speaker Inara Murniece promised that this document will be approved before 30 November. Karlis Sadurskis, head of the Saeima Budget-Finance Committee, does not exclude that the process will not be easy, as he expects many proposals from deputies, as well as rational and irrational criticism.

To put an end to financial lawlessness

Shortly after being submitted to the Saeima, the state budget plan for 2016 immediately got bombarded with criticism. The Fiscal Discipline Council has noted that Latvia has once again exceeded budget deficit by more than 1% of GDP. The government continues spending more than it promises year after year. This financial lawlessness has to stop, warns the council.

According to the head of the Fiscal Discipline Council, Janis Platais, the volume at which this year’s budget is expected to exceed the allowed deficit range is 0.4% – 0.5%. Those are millions of euros that will only be added to the state debt. The biggest problem, according to the council, lies in far too optimistic predictions of economic growth. None of them have come to pass in recent years. Furthermore, Latvia has not been successful in increasing tax collection.

As noted by the council, the only budget in Latvia that had no debts was only in 1997. With that said, it will be hard to forget old habits. And although the budget of 2016 does contain 1% deficit, it is quite likely it will not be possible to remain within its borders.

Unhealthy habits

Earlier, Governor of the Bank of Latvia Ilmars Rimsevics warned just how dangerous the country’s desire to live in debt really is. He reminded that Latvia’s external debt has only increased over the years. At the end of August 2015, Latvia’s external debt was EUR 8.1 billion (33% of GDP). According to the budget plan for 2016, the maximum size of the state debt must not exceed EUR 10.1 billion.

Latvian State Audit has also come to the conclusion that the budget is planned inefficiently, because previous mistakes are repeated over and over again.

The practice of requesting money from the programme for emergencies continues. On top of that, this money is often requested for expenses that could have been planned in advance. Last year, EUR 33.9 million (74% of resources of the programme) was spent this way. Finance Ministry, as the institution responsible for the budget’s development, has failed to provide an analysis of budget requests for their compliance with appropriate goals, auditors say.

Analyzing budget revenue, StateAudit has concluded that they are planned in a short period of time, tax policy does not change depending on the needs and tax debts are poorly collected. The latter is because the State Revenue Service combats consequences, not causes.

Elita Krumina, head of State Audit, also reminds that she had previously mentioned illegal advance payments, expensive corporate events and the ‘December fever’ – the period when funds left at the end of the year are actively spent. These expenses mean institutions have loose funds, which begs the question as to how effectively the state budget is truly planned, she adds.

No hunger for us

Information portal recently published a very positive article about Latvia. According to the author of the article, although Latvia is a very small country, it has many qualities big countries can only dream of. The author starts of his article with those words, and continues talking about reasons why it is worthwhile to visit Latvia. The author mentioned a total of 10. Here are a couple of them.

People in Latvia can sleep calmly. No earthquakes (well, maybe very minor ones), floods, wars and other unpleasant disasters.

Latvia is situated in temperate climate, which means four distinct seasons of the year. This is great – being able to wear shorts and coats every once in a while.

Only Latvia can be proud of unique celebrations. Ligo – one festive night and five whole days off. Latvians also possess great singing voices and sense of rhythm – the Song and Dance Celebration.

No matter how much people complain about expensive education in Latvia, any child can be provided with secondary education absolutely free. Latvian universities are well-known across Europe.

Every Latvian resident has the opportunity to spend time at the beach, and they don’t need to travel to the other end of the planet to do so.

In Latvia, almost all products are ECO and without any gene-modified additives. Farmers grow wheats and bake all kinds of bread. Birch juice is ample in spring and mushrooms – in autumn.


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