Latvia will have to start 2023 with 'temporary' budget, says Finance Ministry

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The lengthy government formation process following October 1 Saeima elections means that Latvia will go into 2023 with a "technical" or "temporary" budget, the Ministry of Finance said November 23.

"The Law on Budget and Financial Management stipulates that in the Saeima election year, the draft of the state budget law (package of budget bills) must be submitted to the Saeima no later than four months after the newly elected Saeima has expressed its confidence in the Cabinet of Ministers. If the annual state budget law has not entered into force at the beginning of the financial year, a temporary or technical budget is approved, which provides for the implementation of the current policy without changing it. The interim budget does not foresee policy changes, new initiatives and new solutions. Next year, 2023, will also start with a technical or temporary budget in Latvia, while proposals for policy changes and new measures will be put forward by the new government," the Ministry said.

The last time a technical or temporary state budget was prepared was 2019.

If the annual state budget law has not entered into force at the beginning of the financial year, the Minister of Finance approves the state budget expenditures, loan and borrowing limits necessary for the operation of the state, subject to several conditions, based on the medium-term budget framework law for the relevant year. It is adjusted to ensure the fulfillment of international obligations such as interest payments on national debt and the implementation of projects co-financed by foreign financial aid (including European Union funds), but means there can be no major new policy initiatives with financial implications.

"It should be noted that financing of activities started in the previous financial year is continued, but services that were not provided in the previous financial year are not paid for, and no investments are made that were not implemented in the previous financial year," the Ministry said. 

"It is necessary to ensure the enforcement of existing laws and regulations in the field of pensions, benefits and compensation, as well as to ensure the making of such mandatory payments as expenses for the fulfillment of state debt obligations in accordance with the provisions of existing agreements and state contributions to the EU budget. At the same time, the implementation of the budget policies and conditions stipulated in the state budget law of the previous economic year is continued at an unchanged level, with the exception of the time-bound measures that are expected to end in 2022," said the Ministry.

In order for local governments to be provided with stable funding necessary for the performance of their functions, the distribution of targeted grants and grant funding, borrowing and guarantee limits are approved. Their use for the implementation of projects co-financed by the EU and other foreign financial aid will be ensured.

The "techncial" budget is complicated  by the fact that in recent years, Latvia's economy had to recover from the Covid-19 crisis, provide extensive state support to businesses affected by restrictions, to residents who lost their income, and to less well-off groups in society. On top of that came Russia's war in Ukraine, sanctions, and other emergency measures.

"These time-bound crisis management measures must be incorporated and continued within the framework of the temporary budget," the Ministry said.

"It should be noted that the timely adoption of the budget is essential in ensuring the recovery, development and financial sustainability of the national economy. In order to ensure the technical preparation of the temporary budget and correct calculations, the Ministry of Finance has developed basic principles that must be followed when calculating the temporary budget indicators. Primarily, the calculations will be carried out by the responsible structural units of the Ministry of Finance, with the involvement of line ministries if necessary. After making all the necessary calculations, an order of the Minister of Finance on the temporary budget will be prepared. In order to ensure the availability of information and to inform the legislator, within five working days after the approval of the temporary budget, it will be published on the website of the Ministry of Finance and sent to the Budget and Finance (Tax) Commission of the Saeima," the Finance Ministry said.

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