General government budget surplus narrows to EUR 188.6mn in Jan-May in Latvia

The general government budget surplus narrowed to EUR 188.6mn in Jan-May from EUR 257.5mn in the corresponding period last year, according to data provided by the finance ministry. General government revenues rose only slightly as the central government revenues remained a drag. We believe that central government revenues were negatively influenced by the end of absorption of EU funds under the 2007-2014 budget framework. Moreover, government proceeds in the first months of the year were likely negatively affected by stockpiling due to the excise duty hike. Thus, we deem that fiscal receipts will start to increase in the coming months. The rise of the tax intake should be aided by better tax collection and strengthening economic activity.

General government expenditures rose by 8.7% y/y on the back of higher central government spending. Some contribution to the growth came from the increase in wages of medical staff from February and the raise of the minimum pay from January. The planned hike of teachers’ wages from September will exert further upward pressure on public payroll costs.

In its Article IV report on Latvia, the IMF stated that the fiscal performance is seen as appropriate. Still, it urged the government to continue with the budget consolidation measures in the medium-term, in order to improve the social safety net. The Fund praised government’s plans to boost tax receipts.

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