This past April, the government approved Latvia's Stability Program for 2018-2021, which said that Latvia's GDP would increase 4 percent in 2018 and 3.4 percent in 2019. However, according to the latest macroeconomic forecast that will be presented to the Cabinet of Ministers next week, on October 15, Latvia's GDP is expected to increase 4.2 percent this year and 3 percent in 2019.
The ruling coalition agreed earlier this week to increase defense spending this year by EUR 5.7 million because of GDP growing faster than anticipated and in order to ensure that Latvia's defense budget is no lower than 2 percent of GDP.
It is unclear at the moment what effect the increased GDP growth forecast will have on the 2019 state budget and fiscal space, as the Finance Ministry is yet to report on different ministries' expenditures. According to the Stability Program for 2018-2021, negative fiscal space of minus EUR 45.2 million is projected for 2019.
Finance Minister Dana Reizniece-Ozola (Greens/Farmers) previously said that if macroeconomic projections improved, the fiscal reserve, which is currently 0.1 percent of GDP, could be increased.