Tuesday, July 01, 2008

Even bigger austerity package on the way...

While I was wondering whether Latvian state finances are indeed in so bad shape that they need a 100 mln lat (140 mln euros, 0.6% GDP) of budget cuts, Latvian government decided on even bigger package of cuts. Our minister of finance now says that we should expect 250 mln lats (360 mln euros, 1.6% of GDP) of cuts!

My opinion remains the same as in my previous post. There's still no evidence of major revenue shortfall. So, we have the following possibilities:
  1. there's something very bad coming and I don't see that but the government does;
  2. the government is seeing something very bad that is not actually happening;
  3. the government is acting under behind the scenes pressure from IMF/EU/whoever else;
  4. the government has decided to use the situation as an excuse to cut the bloated Latvian bureaucracy.

1 comment:

martins said...

there is a lot of evidence of revenue shortfall, just compare revenue this year with last year, look at the fact that budget was built on an estimate of 7% GDP growth and that now that estimate is 2%-3%. Any rise in unemployment will certainly impact the budget, and increased pension payments will also hurt. 250 may sound like a lot, but it may not be the last cut.