Amount of last year's budget deficit almost one billion lats

According to the provisional data of the Central Statistics Department of Latvia, the EDP deficit of the 2010 Latvian state consolidated general budget which was prepared in accordance with EKS'95 methodology and by which the compliance with the Maastricht criteria is evaluated, was 983.9 mil. lats (7.7% of GDP). It means that in 2010 Latvia fulfilled the agreement with the international lenders as to the maximum budget deficit at 8.5% of GDP and has not exceeded it. 

From the perspective of macroeconomic stability, however, a budget deficit at 7.7% of GDP is still to be considered as excessive and it determines an increase in the Latvian national debt. Last year the national debt grew by 891.7 mil. lats or from 36.7% of GDP in 2009 to 44.7% of GDP in 2010. The source of financing this increase was primarily the resources received from the European Commission, International Monetary Fund, and the World Bank within the framework of the international loan at relatively low interest rates. It should be noted, however, that within the next few years the government will refinance in the financial market and the interest rates will to a great extent depend on the financial situation the country finds itself in. Therefore it is all the more important to move towards a balanced budget as soon as possible, so that excessive sums of money do not need to go to pay the interest and can be directed towards financing vital sectors of the economy. 

According to the national methodology, which is more narrowly defined and accounts for the state financial indicators using the cash-flow principle, the deficit reached 802.7 mil. lats (6.3% of GDP). The difference, in the amount of 181.2 mil., was accounted for by several (both deficit-increasing and deficit-reducing) adjustments, switching from the national methodology to EKS'95. As in the previous three years, the amount of adjustment was substantial, which yet again proves that the difference in the amount of deficit between the two methodologies tends to be significant. Its amount is also difficult to predict, for several important items accounting for this adjustment can be evaluated only after the publishing of the annual financial statements, e.g., the changes in creditors/debitors of the institutions in the public sector, which worsened the balance by 44.5 mil. lats this year. The possible adjustments are important to keep in mind when planning the compliance with the Maastricht budget criteria, which is measured using EDP methodology. In order not to exceed the threshold of the budget deficit provided in the Maastricht criterion when drafting the budget in accordance with the national methodology, a certain "safety cushion" should be provided for, i.e. the budget deficit must be substantially smaller than the 3% of GDP set in the criterion.