Analytics, Economics, EU – Baltic States, Financial Services, Latvia

The gross domestic product growth projections included in the Stability Program have been reduced to 2.1% in 2015 and 3% in 2016. In the medium term, as the external uncertainty reduces, growth is expected to become better balanced between external and domestic demand. According to the Stability Program, Latvia's GDP in 2017 and 2018 will be growing by 3.6% annually. The economic growth projections have been discussed with the Bank of Latvia and Economy Ministry.

Slower growth has an impact on the budget balance. That is why the general government budget deficit in 2015 is projected at 1.5% of GDP, a 0.5% increase from the original projection. If government policy does not change, the deficit projection for 2016 will be 1.6% of GDP. The forecast for 2017 and 2018 is 1.3% and 1.7%, respectively.

According to the Finance Ministry, the Stability Program has been drawn up at a time of high economic and geopolitical uncertainty, also during a period when the European Commission is reviewing the applicable fiscal discipline rules. Budget deficit projections are also affected by the Commission's macroeconomic forecast that will be specified in May. Therefore it is possible that macroeconomic and fiscal projections in the fall, when work on the 2016 state budget will be under way, will be different from those used in preparing the Stability Program.

All European Union member states hand in their stability or convergence programs every April to inform the European Commission about their budget forecasts for the next three years and to specify the projections for the current year. These documents are the basis for the Commission's assessment of member states' financial health and compliance with the EU fiscal discipline rules.