Government starts to flesh out budget plans

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On Thursday, December 22, the Cabinet of Ministers (MK) examined the Finance Ministry's updated forecasts of macroeconomic indicators as part of the preparations for the 2023 budget.

The updated forecasts of macroeconomic indicators predict that Latvia's gross domestic product (GDP) at constant prices will grow by 1.6% in 2022, but will decrease by 0.6% in 2023, while inflation in 2022 will be 17.3% and in 2023 – 8.5%. In the medium term, economic growth is expected to accelerate again, with GDP growth reaching 3.0% in 2025, while consumer price growth will stabilize at 2.0% by 2025.

More detailed information on forecasts of macroeconomic indicators is available on the website of the Ministry of Finance .

The updated general government budget deficit for 2022 is estimated at 5.0% of GDP, 2.0 percentage points lower than previously forecast, due to higher tax and non-tax revenues as a result of high inflation and wage bill growth.

In the medium term, the general government budget deficit is projected to be 2.6% of GDP in 2023, 0.4% of GDP in 2024 and 0.4% of GDP in 2025 under unchanged government policies.

Compared to the forecasts approved in October, based on the revised macro data and the decisions made by the government in October-December, the state budget expenditures for defense (reaching 2.5% of GDP in 2025), state pensions, compensation have been increased to ensure both the promised increase for teachers and the minimum wage worth of 620 euros from 2023 and 700 euros from 2024. 

According to the assessment of the State Treasury, which was prepared in conditions of great uncertainty and which takes into account that in the next four years, the assumed debt obligations of around 7 billion euros must be refinanced, the general government debt could be around 41% of GDP by the end of 2022 and 42%  by the end of 2023. It is predicted that in 2024-2025 the general government debt will be below 40% of GDP.

According to the fiscal strategy and the developed macroeconomic and fiscal forecasts, the fiscal space for new policy priorities in 2023 is 215.1 million euros, in 2024 it is 444.2 million euros and in 2025 is 408.0 million euros.

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