Clearly it is “unreal” to satisfy all of these needs, but extra procurements will certainly need to made to defense and health, he said.
The economy’s second-quarter showing was slower than expected, less from the effects of the Russia-Ukraine conflict than from reductions in growth of the service sector, prompting many questions about why growth is performing under potential, the minister pointed out.
He suggested growth might pick up for the third and fourth quarters despite Russia’s food imports embargo, which affects less than 1% of the GDP.
However, the Finance Ministry (FM) follows the lead of other institutions and experts, adjusting projections down – in this case, growth from 4% to 2.9%, cutting into potential allocations of state budget funding, warned Vilks. “There will be a need to put the brakes on any ambitious spending,” he said.
He added it was “awful when elections and budget drafting times coincide,” causing Latvia’s reputation to suffer in investors’ eyes as they look for whether the state will continue to shrink the deficit or “let the reins loose.” During election campaigns everyone wants to support and defend their entrusted sectors, but one needs to look at reality, and while populism levels are high nothing remains but to await the next elected government, he told Labrīt.
The minister explained that he doesn’t doubt the necessity of the requests, however raised the question of how much time it might take to satisfy them. The current request total by all of the ministries is clearly impossible to meet.
Current procurements are already “in the red”, Vilks explained further, because the budget was adopted according to 4% growth forecasts, and tax revenues are down as well.
He stressed that the sectors deserving mandatory extra funding were defense, health and “perhaps another branch or two” but that raising the budget deficit would be unacceptable now.