LATVIA'S 2009 BUDGET

UNCLAS RIGA 000702 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN PGOV LG SUBJECT: LATVIA'S 2009 BUDGET ¶1. On November 14th, the Saeima (Parliament) passed the government's 2009 budget, with plans to run a deficit of 1.5% of GDP. Revenue next year is projected to be LVL 5.316 billion (USD 9.4 billion), while expenditures are planned to total LVL 5.564 (USD 9.9 billion). The budget assumes a 1% fall in GDP in 2009. ¶2. In light of nearly all macroeconomic indicators showing no sign of early recovery (Latvia's GDP in the third quarter experienced the steepest fall in the EU - a contraction of 4.2%),the new budget should be viewed as temporary. Falling tax revenues will soon call for further cuts in both panned revenues and expenses. Several key political figures, including the Minister of Finance, have stated publicly that the budget will be amended in early 2009 to reflect updated economic conditions. ¶3. Economists attending a lunch hosted by the Ambassador on the day the budget was being reviewed in the parliament agreed that at the proposed budget is far from perfect and noted the risks of running a deficit in the current global environment. However, they all also acknowledged that further cuts in spending would be politically impossible at this time. The Governor of the Bank of Latvia, Ilmars Rimsevics, was supportive of the government's decision to cut an additional LVL 228 million (USD 404 million) in spending and lowering projected revenues by LVL 145 million (USD 258 million) prior to final passage, but reiterated the critical importance of a balanced budget given the current state of the Latvian economy. ¶4. We will be seeking further information on how this reduced budget will effect government operations in key areas. Larson