“Every state budget plan is unique in its own right. However, not every budget can be considered truly a historic feat. The budget of 2014 can be categorized as a true feat because of three reasons,” – says Prime Minister Valdis Dombrovskis.
“First of all, this is the first budget of Latvia that is compiled in euro currency. Only this factor makes this budget unique. Any new beginning is as though a new line in a text. Latvia’s lat, as a currency, is left behind. It will not fade away – it will become a foundation for Latvia’s membership in Eurozone. The girl depicted on LVL 5 coins of the Republic of Latvia will be seen on a new currency. This currency is considered common for 332 million residents of Europe. Without a doubt, lat has played a large role in our country’s economic recovery and development. Throughout its existence, lat has been stable and helped out country’s economy recover from the economic crisis. However, lat can be as stable as euro when tied to it. We have noticed in resent past what happens when lat’s stability is put into question, when different “smart guys” call for devaluation and perform speculative attacks on lat. Euro adoption will make sure something of the sort never appears again. It will diversify and strengthen Latvia economic and financial stability,” – PM says.
Secondly, according to Dombrovskis, the budget plan for 2013 complies with the beginning of the National Development Plan for 2014-202 and the new EU fund planning period. Thirdly, this is the first budget of Latvia that actually employs medium-term budget planning measures.
“Global economy has recovered from the crisis and continues to grow moderately. Data of Q2 of 2013 provide optimism regarding countries like USA, Germany, France, Japan and England. However, the latest outlook of the International Monetary Fund (IMF) forces projections to be corrected for possible reductions. Judging from latest trends and information from the leading analytical organisations – IMF, European Commission, OECD – it is expected that global economic growth rates will gradually grow in the next couple of years. Nevertheless, this process will likely be more moderate than it was before the crisis. Slower growth rates are mainly due to lower development rates of countries,” – says the PM.
“Optimism in regard to perspectives of Latvia’s economy lies in the fact that economic growth of Latvia’s main trade partners – Lithuania, Estonia, Russia, Germany and Poland – is much stronger than the average in the EU. This partially explains the resistance of Latvia’s economy against external shocks and its strong economic growth rates. It is expected that this trend will be carried on to future years, strengthening Latvia’s position as one of the strongest economies in the EU.
One of the largest risks is the economic and political situation in Russia. IMF and the World Bank have reduced Russia’s GDP growth outlook to 1.8% (previously 3.3%). This is explained with a rather strong backlash in global economy in relation to slightly reduced oil prices and trade volume drop. It is also affected by the Sochi Olympics 2014 project and Nord Stream. Even though the outlook of IMF regarding Russia’s GDP growth is set at 3.1% for 2014, there is a possibility that the country’s economic growth will be at risk, because it still depends on prices of raw materials in global markets. The current Russian-Lithuanian milk war is a good example how diversification of export goods can impact national economy’s development,” – says Dombrovskis.
Latvia’s GDP is expected to grow 4.2% next year. This means Latvia will remain the most rapidly growing economy in the EU for a third consecutive year.
“Latest data for 2013 suggest a slight drop in development rate. Domestic consumption has become the leading economic growth engine, which is based on good results in the job market. The drop in investments poses a serious threat to national economy. Export growth rates have declined significantly. Import growth rates have become negative. We will need to carefully follow macroeconomic developments and make necessary corrections in the next couple of years.
I will not say that we have entered a phase of happiness immediately after overcoming the crisis. There are concerns that we could become careless about our spendings. I do not think it will come as a surprise to anyone that the budget preparation process was tence and complicated. This is mostly because the euphoria had set in too soon as our economy started to grow again. Many politicians had forgotten that state budget is not a limitless resource. Given that many already want to spend money that has not yet been earned, I would like to call everyone not to make the same mistakes again.
We had been promised seven fat years in the past. But there were no more than two in reality. Trying to come back to the times of irresponsible expenses, it is not likely that we will have even a single year. We should keep in mind that rapidly growing expenses usually have a large impact on social areas and infrastructure. International financial markets have changed their crediting policies and now perform more critical risk assessments. Countries that try to carry out irresponsible fiscal policies are punished with high interest rates or are excluded from financial markets altogether,” – he added.
During his speech, he concluded that “budget of 2014 is aimed at bringing results for Latvia’s residents as soon as possible. This is planned to be achieved by helping the least socially protected group of residents and by raising salaries for those working in the social sector. Secondly, this budget project is aimed at growth and development, because it provides tax reduction and investments in the most competitive state industries and National Development Plan priorities. This lays the foundation for multiple national projects that will provide high-quality economic growth in the future. Finally, we will no longer think within the confines of one year. Instead we will plan our moves in a perspective of at least three years, which is an important factor for stability and state policy’s predictability.”