Riga - Latvian Finance Minister Einars Repse delivered a make-or-break 2010 budget to the national parliament, or Saeima, Monday, ahead of its first reading on Thursday and a later second reading. Failure to approve the budget would have serious consequences, including the likely freezing of future loan payments to Latvia. That in turn could lead to a default and possible currency devaluation, economists have argued.
Rejection of the budget by parliament could also signal the end of the already fragile five-party coalition government headed by Prime Minister Valdis Dombrovskis.
In a statement released Monday, Dombrovskis admitted that key areas such as education and healthcare would be affected.
"During the crisis period, priority sectors are not provided with their usual increase in spending but with relatively small reductions in spending," he said.
Plans to save 500 million lats (1 billion dollars) by reducing spending and increasing revenues represented "one of the most difficult budgets in the history of the Latvian financial system," Finance Minister Repse said as he handed his proposals parliamentary speaker Gundars Daudze.
The budget represented "the best possible compromise" and would protect the most vulnerable members of society while providing the prerequisites for economic recovery in the recession-hit Baltic state, Repse said.
After a lengthy boom fuelled by a property market bubble and the availability of cheap credit after Latvia joined the European Union in 2004, the country was severely affected by the global economic crisis of 2008.
The government predicts that Latvia's gross domestic product (GDP) will contract by 18 per cent in 2009 and 4 per cent in 2010.
On Friday, Eurostat reported that Latvia's unemployment rate in September was the worst in the EU at 19.7 per cent and rising.
The level of the government budget deficit is expected to reach 6.1 per cent of GDP in 2010 and 5 per cent in 2011. With Maastricht criteria for euro adoption allowing only a 3 per cent deficit limit, Latvia's hopes of adopting the euro as its national currency have receeded into the medium term.
The date of the budget's submission had been postponed more than once as members of the government argued over its contents and international lenders, including the International Monetary Fund and EU, ascertained whether the budget meets the conditions of Latvia's 7.5-billion-euro (11-billion-dollar) bail-out agreement.
