Although global economic growth prospects are improving, there still remains a lot of uncertainty, and for that reason Latvia's economic growth in the medium term is now expected to be weaker than forecast in the Stability Program for the 2015-2018 period.
According to the Finance Ministry's latest forecasts, Latvia's gross domestic product will increase 3.3 percent in 2017 and 3.4 percent in 2018 - as compared to 3.6 percent growth projection provided in the Stability Program for 2015-2018.
The Finance Ministry's Stability Program offers specific fiscal policy goals, which also are the priorities of the medium-term budget policy.
The defense spending will be increased to 2 percent of GDP by 2018. In order to achieve sustainable and balanced economic growth, the state budget priorities will include defense, internal security, healthcare, and education.
The minimum wage and non-taxable minimum income will be gradually increased in order to reduce income inequality. The proportion of tax revenue in GDP will be gradually increased to one-third of GDP, primarily by improving tax collection.
The Finance Ministry's program says that, according to the current forecasts, the fiscal space in 2017 will be 0.16 percent of GDP, and then increase to 0.75 percent of GDP in 2018 and 1.18 percent of GDP in 2019.
The Stability Program of Latvia is a medium-term policy document, describing Latvian fiscal policy and which has been prepared following the conditions and guidelines of the Stability and Growth Pact. The Stability Program is focused on implementation of strict and sustainable fiscal policy and on the provision of macroeconomic stability.
The Stability Program will be submitted to the European Commission.
As reported, the Bank of Latvia has reduced GDP growth projection for 2016 from 2.7 percent to 2.3 percent. However, the Finance Ministry believes that Latvia's GDP will increase 3 percent this year.