On Thursday, April 14, review mission negotiations between the Latvian government and International Monetary Fund (IMF) and European Commission (EC) were successfully completed.
The negotiations have resulted in the draft Letter of Intent of Latvia to the IMF and supplemental Memorandum of Understanding between Latvia and the European Commission, as well as a number of agreements on which final decisions at the IMF and EC management level will be made in the nearest future.
After the meeting with the lenders, in an extraordinary sitting of the government a decision was made to authorise the Prime Minister and Minister of Finance to sign the above said documents.
The Prime Minister V. Dombrovskis emphasised: “During the last two years Latvian government has been implementing serious, though unpopular programme to stabilize economy, resume competitiveness and strengthen sustainable growth. Now the forecasted budget consolidation amount for 2012 is 150-180 mln lats and it could be adjusted according to the economic situation and state budget execution trends. If in 2012 Maastricht criteria are met, in 2014 we will be able to introduce the euro. It will be a new incentive for further development, attraction of investments and increase in living standards for all Latvian population”.
In view of Latvia’s strategic goal – to ensure economic stabilisation and growth revival, as well as the plan to introduce the euro in 2014, the agree budget deficit for 2012 is under 3% of GDP. Taking into account the consolidation measures to be performed and rising growth, Latvia could achieve even a better result – budget deficit in amount of 2.5% of GDP.
The main 2012 budget consolidation directions and further action directions have been agreed with the lenders, focusing the consolidation on expenditure cuts, combating shadow economy and reform of real estate tax, evaluating possibilities to make state subsidies more efficient, ensuring implementation of sustainable social insurance system conception. The government will continue implementation of structural reforms in education and health care sectors, ensure development of the social safety net strategy for 2012 and 2013 by August 2011 and a number of other measures.
The lenders have expressed their support to the 2011 state budget amendments accepted by the Parliament on Thursday envisaging reduction of the state budget deficit down to 3.7% of GDP (according to national methodology; 4.2% of GDP according to EC methodology), inter alia by introducing consolidation measures this year in amount of 27.9 million lats.
During the negotiations the lenders accepted Latvia’s initiative to use gradually for general government budget deficit financing goals part of the international loan which is now reserved in the Treasury in amount of 650 million euro for ensuring stability of the financial system. If financial sector related issues are solved successfully, it is planned that already in June it will be possible to transfer almost half of this reserve to finance the 2011 state budget.
Comments after negotiations (audio – 1) The Prime Minister Valdis Dombrovskis, 2) Head of the IMF’s Mission to Latvia Mark Griffiths, 3) Head of the EC’s Mission to Latvia Gabriele Giudice): http://filesocial.com/214hmzs
The Prime Minister Valdis Dombrovskis: “Today we concluded the negotiations on the Review Mission. As regards the government, we have reached the mission-level agreement. There are still some issues to be solved with the Bank of Latvia, but we have concluded the negotiations with the government. In addition to the information I provided yesterday on the provisional amount of consolidation of the 2012 budget - LVL 150-180 million, on the 2011 budgetary amendments, which the Saeima adopted today at the second reading, we have also specified the amount of the share of the financial sector’s stabilization reserve to be exempted - EUR 300 million. The main precondition here is to submit the strategic plan for sale of Citadele banka to the European Commission. Afterwards the Economic and Financial Committee will decide on this issue. We have reached this agreement at the mission-level.”
Information prepared by:
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