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Wednesday 29.01.2020 | Name days: Valērijs, Aivars

Experts call Latvia’s 2020 budget growth outlook «optimistic»

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe 2.8% economic growth outlook detailed in the 2020 budget plan is very optimistic, said analytics of different banks, commenting on the budget supported by Latvia’s government in Friday, 11 October.

SEB Bank’s macroeconomic expert Dainis Gašpuitis said that the government’s work on the 2020 budget transpired more quickly than previously expected. Still, he called communication during budget clumsy.

«Parties did not risk an excessive confrontation. Instead they agreed on guidelines in the backstage. Communication during budget formation talks was clumsy, as the budget was dubbed the biggest in Latvia’s history from the very beginning and then parties focused continued describing it from defence positions, tirelessly trying to justify the reasons why one or the other previously given promise is not possible to implement,» he said.

Gašpuitis noted that this also applies to the «generally muddy communication about the constantly fluctuating fiscal space and machinations to add desired spending into the budget».

«This does not promote trust. Of course, such pressure did increase the need to review expenditures, which with flick of a magic wand did provide results. This raises questions why systemic evaluation still not been performed, only campaign-like proclamations following powerful pressure from society. Budget expenditures are a political instrument, which is why we would like to see more specific and detailed progress through reforms,» stressed Gašpuitis.

He also mentioned that on the one hand the government has ensured tax stability. However, the step with excise tax shows such an action proves the lack of specific plans.

«Although the request for stability is understandable, there are enough problems and need to improve the current system. If discussions recommence only next year, specific changes will not come sooner than 2021,» said SEB Bank’s macroeconomic expert.

Gašpuitis also admits that in the context of Europe, Latvia is far behind when it comes to quality of public institutions. Their efficient work varies when it comes to economic and social development. This is why it is necessary to work more seriously on financial enhancement of public media, Ombudsman’s Bureau, State Audit and other institutions.

More on this topic: Latvia’s 2020 budget revenue predicted at 9.89 billion, expenditures – at 10 billion

«What is lacking? For yet another year there is a lack of progress with increase of financing for research and development. Existing funding is significantly below the level outlined in the National Development Plan – 1.5% of GDP, which is less than what is needed to come close to the world’s best economies. Still we see domination of short-term interests. At the same time, the principled approach to avoid increasing deficit is welcomed. Nevertheless, considering recession trends, we have to be prepared to react to the situation and balance out the economy. The budget’s included growth outlook 2.8% is very optimistic,» said Gašputis.

Citadele Bank’s economist Mārtiņš Āboliņš notes that neither the budget nor the development process differ much from previous years.

«The good news is that the budget has been composed in time even though the situation was complicated and the slowing of economic growth reduced opportunities in the budget. It is also good that the government decided to keep its promise and avoid adding changes to taxes in next year’s budget. This offers hope there will be time to discuss the next tax reform in detail. The practice of reviewing costs, I think, is worth praise, because it is clear we will not be able to implement all budget needs with economic or tax growth alone. This is why this approach should definitely continue in future years,» said Āboliņš.

As for the negatives, Citadele Bank’s economist mentioned the inability to comply with old promises: increase of wages for doctors, as well as planned reduction of investment expenditures, which could result in a slight dip for Latvia’s construction industry. There was also unsuccessful communication in regards to certain topics, such as insufficient collection of fines from penalties applied using speed cameras and pitting against one another teachers’ wage increase and completion of the plan for the confiscation of illegally obtained funds.

«Those are technical-level questions that cause confusion for society, but they do not require a specific policy,» said Āboliņš.

He mentioned that some concerns come from the fact that the next year’s fiscal space in the state budget was found through division of money between the state and municipalities and postponement of investment projects.

«The desire to put the negative fiscal influence from public transport company Rīgas satiksme on the shoulders of municipalities is understandable, but such serious changes to municipal funding could create unexpected results, such as postponing investment projects, which could further impact the construction sector,» said Āboliņš.

He also admits that some concerns are raised in relation to the state budget’s economic growth outlook, which he finds rather optimistic.

«Since summer, when state budget development had only begun, short-term economic indexes in Latvia, Europe and elsewhere in the world have become worse than expected. Risks, on the other hand, have only increased. Unfortunately, in the past two years of good growth we have used all possible deviations to increase budget deficit and now we have no ways to increase it. It is the opposite, in the next year’s budget we are forced to reduce deficit in a time when economic growth is already slowing down,» admits Citadele Bank economist.

Read also: Rīgas satiksme’s tear in state budget to be covered using residents’ money

As it is known, on Friday, 11 October, Latvia’s Cabinet of Ministers supported the 2020 state budget at an extraordinary meeting. In it, consolidated budget revenue is predicted at EUR 9.89 billion, whereas expenditures – at EUR 10 billion.

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