Attaining the budget deficit projection will be threatened by the increasing fiscal risks, including the risk of deflation, high proportion of the shadow economy, and tax system that does not ensure sufficient budget revenue as compared to the projected amounts of public services and social support, said the Fiscal Discipline Council's Chairman Janis Platais.
In addition, structural reforms, aimed at increasing the economic potential and making public services more effective, will also encounter various challenges.
The council expects that the general government budget's deficit will reach 1.2 percent of gross domestic product in 2016, exceeding the projected deficit by 0.2 percent. The main reason for this is that there is no fiscal reserve necessary to compensate for fiscal risks, explained Platais. The government should draw up and introduce efficient measures for reducing budget deficit, both this year and in the coming years. There have been deviations from the fiscal targets provided in the law, he added.
Economic growth in Latvia, although one of the fastest in the European Union, is quite moderate when compared to the past several years. Furthermore, external circumstances - limited development in the euro area and uncertain geopolitical situation - mean that Latvia's economic growth may actually be slower than anticipated, added the Fiscal Discipline Council's member, "Swedbank" chief economist in Latvia Martins Kazaks.
Latvia's Fiscal Discipline Council is an independent institution that oversees compliance with the rules of fiscal discipline.