OREANDA-NEWS. November 05, 2009. In the report accompanying the draft budget 2010, Prime Minister Valdis Dombrovskis emphasizes that this is the first budget of the Latvian state drafted applying a new approach - planning the expenditure reduction by function (COFOG). The assessment of the functions was performed by the social partners of the Government (LDDK, LPS), cooperation partners (LRTK, LPS), as well as the public (8427 unique website visitors) who involved in the assessment of the functions using a special voting tool on the website, reported the Official website mk.gov.lv.

”The Cabinet of Ministers has developed the 2010 state budget, which should be defined as the crisis budget, where the expenditure and revenue items have been directly affected by extraordinary and previously unforeseeable sharp fall in GDP in 2009 - 18% against the year 2008”, the report says.

The Head of the Government notes that education, health, social sector, as well as public order and security are the priorities of the draft budget.

”Unfortunately, during the crisis period, the priority sectors are not provided with usual increase in spending but with relatively smaller reductions in spending”, V.Dombrovskis admits in the report. At the same time he reminds that the Government has complied with its commitment - provide for 3.4% of GDP for health care funding, while setting relatively smaller spending reductions - 6% of base expenditure for education and public order functions and only 3% of base spending reductions for social sector.

In the report, the Prime Minister informs the Saeima that the work of the Government aimed at overcoming the crisis is being carried out in three main directions - fiscal consolidation, social security network to mitigate social tension and measures for economy heating.

”The goals of the program for stabilization of Latvia’s economy remain the same - a stable monetary policy based on a fixed peg of the lats to euro, as well as tight fiscal policy. The medium-term objective of fiscal consolidation is to reduce the 2012 general government deficit to the level set by the Maastricht criteria - 3% of GDP”, the report says.

With regard to the next year's tasks in the area of structural reforms, V.Dombrovskis says that the structural reforms aimed at boosting the national competitiveness are set as the medium-term priority.

Therefore, also in 2010 the work on making the public administration and the government apparatus more effective will continue by reducing and restructuring the number of the employed in these sectors, as well as optimizing the budget institutions and agencies based on the results of function audit and proposals of the ministries.

The Head of the Government considers that the measures of the”social security network” - the guaranteed minimum income benefit increase, the involvement of the unemployed in temporary jobs with scholarships, access to health care services and medicine for the poor and support to local governments in education system reforms will play an important role in ensuring the social balance and stability.

In the report, the Head of Government also underlines the increased support to export industries and infrastructure projects that was allocated to Latvia for period 2007-2013 and the measures already initiated by the Government for simplification of the EU fund administration promoting more efficient use of resources and more rapid turnover of funds.

In conclusion of the report, V.Dombrovskis calls on the members of the Saeima to pass the draft budget 2010 which should be considered as the crisis budget, but at the same time it allows to receive the international loan and to move towards economic recovery.

The agreements signed with international lenders (EC and IMF) were considered in drafting the 2010 budget which provide for fiscal consolidation in the amount of LVL 500 bill (LVL 301.6 bill spending reductions, LVL 203.9 bill additional income from tax changes and non-tax income) and the general government budget deficit for 2010 – 6.1% of DGP according to the cash flow principle to ensure compliance with the deficit level defined in the signed agreements (up to 8.5% of GDP according to “ESA 95” methodology.

The state budget revenues are planned in the amount of LVL 3.8 bill, while expenditures - LVL 4.3 bill based on a forecast of annual GDP decline of 4%, the economic growth in the second half of the year, annual deflation of 3.7% and stabilization of the unemployment rate of 13.8% respectively.