The general government budget deficit this year is forecast at 3.1% of gross domestic product (GDP), 0.2 percentage points higher than planned, according to the Ministry of Finance’s (MoF) progress report on Latvia’s Fiscal and Structural Plan 2025-2028 , LETA reports on 7 April.
In the medium term, the general government deficit is planned at 3% of GDP in 2026, 3.2% of GDP in 2027, 2.8% of GDP in 2028 and 2.3% of GDP in 2029, with unchanged policies.
The MoF report indicates that the deficit trajectory will remain downward sloping, but the overall deficit level has increased with the revision of tax revenue projections.
At current projections, the indicative fiscal space available for the preparation of the 2026-2028 budgetary framework, or the money available in the budget to finance new public expenditure, will remain negative in the medium term: minus €22.9 million in 2026, minus €202.6 million in 2027, minus €292.4 million in 2028 and minus €420.7 million in 2029.
Bearing in mind the geopolitical and domestic challenges, the MoF report concludes that the situation of the country’s public finances will remain tense in the medium term and a series of difficult decisions will have to be taken during this year’s budget procedure to balance budget revenue and expenditure.
The macroeconomic scenario for 2025-2029 foresees a stabilisation of the Latvian economy with moderate growth in 2025, when GDP growth is projected at 1.2%, accelerating in the following years to 2.1% in 2026 and 2.2% thereafter. The MoF points out that the recovery will be driven by an increase in both public and private consumption, as well as by a stronger absorption of EU funds and faster export growth.
According to the MoF’s forecasts, annual average inflation will be 2.5% this year, compared to 1.3% in 2024, taking into account the faster increase in food prices in Latvia and in prices of some energy resources on the world market, which will have a lagged impact on heat and gas supply tariffs.
Finance Minister Arvils Ašeradens (New Unity) said in his report that in the coming years, solutions will have to be found to compensate for a reduction in tax revenue streams of around €200 million, compared to what was planned at the time of the budget last autumn, due to lower GDP growth.
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