Latvia envisages 1.6-percent budget deficit in 2018

Latvia's government approved a budget on Tuesday that is expected to run a deficit of 1.6 percent of gross domestic product (GDP) next year as a result of tax and health reforms and increased defense spending.

In 2016, the Latvian government budget showed a surplus for the first time since 1998.

The reforms and defense spending are part of a four-year stability program for the country beginning in 2017.

Under the program, Latvia's GDP is projected to grow by 3.2 percent this year and by 3.4 percent in 2018. In the following years, Latvia's economic growth is expected to slow to 3.0 percent in 2020.

Latvia's annual inflation rate is projected at 2.0 percent in the period from 2018 to 2020.

While the average monthly gross wage is expected to rise 5.0 percent per year during the period, the unemployment rate is likely to drop from 9.4 percent in 2017 to 8.2 percent in 2020.

In 2019, the budget deficit is expected to contract to 1.2 percent of GDP and 0.5 in 2020.

The planned budget deficit would still be in line with the fiscal rules of both the European Union (EU) and Latvia, the ministry said.

The country's central fiscal policy activity planned under the stability program is the tax reform, intended to ensure an economic breakthrough, which would be achieved if Latvia's economic growth quickened from 3.0 percent to 5.0 percent a year.

The finance ministry has come up with sweeping reform plans, proposing to shift the tax burden from labor to capital. Endit