According to economic experts and analysts the Latvia budget 2012 will see several reductions in expenses a continuation of previous trends. The fact that 40 percent of Latvia s legislators are first timers could make it tough for them to create an effective budget.
Highlights of Latvia Budget 2012:
Latvia has not been able to come to terms with the International Monetary Fund (IMF) and the European Commission (EU) regarding steps for reducing the budgetary allocations.
The mission chief of the International Monetary Fund in Latvia, Mark Griffiths, has said that the issue is taking some time but a certain degree of progress has been achieved. At present, Latvia does not need financial assistance from either IMF or EU.
The Latvia budget 2012 will look to bring down the fiscal deficit to 2.5 percent of the Gross Domestic Product.
This will help it to adopt the euro in 2014.
An estimated 100 million lati (US$195.8 million) will be spent in various measures in 2012 fiscal.
The national government expects that in 2012 the economy will grow by 2.5 percent. For 2011 the projected growth rate is 4.5%.
The Latvian government is thinking about doing away with state financing and letting the municipalities pay out the guaranteed minimum income this will amount to a monthly sum of 40 lati for adults.
This, if implemented, will be an important measure of budget reduction.
The government has opted against increasing taxes as part of the 2012 budget.
Expectations from Latvia Budget 2012:
It is expected that the 2012 Latvia budget will focus primarily on fiscal consolidation and this will help the Baltic country get closer to becoming a part of the Euro region. Its credit rating can also, as a result, go up to Baa3, which is the lowest ranking for investment.
However, if Latvia increases taxes and decides to do away with the spending deductions its ratings could go down as well. The Bank of Latvia feels that the 2012 budget will go a long way in determining how well the country deals with the present global economic condition.
It is expected that the growth rate for 2012 fiscal will be lesser than that of 2011 fiscal. This is because the global financial crisis will affect the exports of Latvia. It is being assumed that its major export partners will focus on balancing their budget and will import lesser number of goods from Latvia. This in turn, is expected to slow down levels of domestic consumption.
The economic policymakers will focus on creating a high-class and timely budget that will be more than capable of dealing with these issues. It is expected that from 2012 onwards Latvia shall be able to repay its foreign debts.
Latvia Budget 2012 – Expert Analysis:
According to experts Latvia has remained a competitive economy through reduction of its expenses and this has surprised many. The policy makers will further do away with the mistakes in drafting the 2012 budget, so that they can focus more on securing the economy rather than taking short term measures.
They have congratulated the new government on the 2012 budget saying it is a good one given the short time in which it was framed. As per the analysts this budget could impact the overall living standards of Latvians for the coming decade and determine whether euro will be used in the Baltic nation.
Latvia Economy Future:
Following are certain factors that can come into play if Latvia is unable to manage its budgetary deficit in 2012:
The banks might not provide loans to the government as they are unsure about how the deficit will be dealt with.
Latvia s companies will not have the same volume of international business and networking opportunities.
Latvia s ratings will stay low.
People in Latvia will reduce their expenses influenced by the way the government is spending. This will hold back economic recovery.
Interest rates on loans could go up as a result of the decisions taken by the banking sector.
Now, if the government decided to reduce their expenses and increased the taxes following are some possible consequences:
Lower income levels
Increasing overseas debts
Such steps could also compromise the recent strength and performance achieved by the Latvian companies and the economy in general. They feel that the country needs to focus on retaining its credibility as its economy is primarily dependent on investments and exports.
Analysts think that one way Latvia can stay credible is by doing away with expenses that surpass its income and in such a scenario they will be able to procure loans at lower rates and operate the economy properly.
National credibility will also help the companies to eke out better deals with the international business bigwigs. In such a situation people will also have access to money at convenient rates and this will sustain overall economic production.