Latvia's budget deficit is significant. Although currently it is understandable and related to increased defense spending, there is concern that in two to three years the state will have to "tighten its belts" as the exceptions granted by the European Commission will expire, and it will be necessary to address the consequences of previously made decisions, commented Karlis Vilerts, head of the research department of the Bank of Latvia, in the tv3.lv podcast "Piķis un ģēvelis!"
Overall, according to the expert, by around 2028–2029, the budget will need to find about 600 million euros, which is approximately 1 to 1.2% of GDP.
"In some form, we will have to tighten our belts. This can be done by cutting expenses, raising taxes, reducing staff – optimizing the public sector," said Vilerts.
The Bank of Latvia has analyzed various scenarios in which "tightening the belts for the state would be the least painful." The expert identified the optimal option as cutting expenses, including layoffs in the public sector.
One of the more extreme scenarios involves reducing up to 8,000 public sector employees, as well as cutting other expenses in this area.
Vilerts explained in the podcast that the central bank develops economic forecasts twice a year, widely using mathematical and econometric models, as well as scenario analysis. This serves both as a basis for forecasts and as a verification of them, especially when assessing inflation and economic growth.
