Page 68 - CE Outlook Regions 2022

purpose of raising wages for individual professions in the public sector,
as currently discussed) and rescheduling some investment and
healthcare related spending to 2022 and even in 2023.
Government investment is expected to grow considerably, but mostly
on account of EU projects, with the negative effect of the national
co-financing on budget balance offset by the positive effect of
investment on economic growth.
On November 23, the Saeima, Latvian parliament, passed the 2022
State Budget Law in its final reading by 52 votes to 37. The budget for
2022 is aimed at growth and strengthening Latvia, therefore the largest
increases in funding are in the areas of health, education, internal and
external security, said Finance Minister Jānis Reirs.
In 2022, the state consolidated budget revenue is planned to be
€10.7bn, while expenditures are €12.4bn.

The general government budget deficit is planned at €1.62bn or 4.8%
of GDP, based on a projection of 5% GDP growth in 2022. Fitch Ratings
forecasts a gradual reduction of the general government deficit to 4% of
GDP in 2022.

A considerable increase in spending to reduce the fallout from the
COVID-19 pandemic over the last two years has pushed the debt up
again, although not as much as during the global financial crisis. But
the effects are still continuing, and government debt is forecast at
50.9% of GDP in 2022. It has almost quadrupled over two decades.

Given the current demographic trends in Latvia, the money borrowed
today will have to be repaid by generations with an even more shrinking
number of employed. Consequently, the debt per capita and debt per
working person will continue to grow even if the borrowed amount
remains broadly the same.

According to Latvijas Banka estimates, government debt will remain
below 50% of GDP in the medium-term.
Fitch Ratings affirmed Latvia's Long-Term Foreign-Currency Issuer
Default Rating at 'A-' with a stable outlook in autumn 2021.

Fitch predicts a public debt/GDP ratio peaking at 49.7% in 2022 (versus
the current 'A' median of 62.2%). Favourable financing conditions
(yields on medium-term external issuance have been at or below 0.1%
in 2021) and sound debt management support medium term debt
sustainability.

On December 6, 2021, Latvia issued Latvia's first sustainability
Eurobonds with a maturity of eight years, raising funding of €600 million
with a yield of 0.263% and establishing a fixed coupon rate of 0.25%.
Bonds are issued to support sustainable development in Latvia and to
raise funding for measures and priorities aimed at mitigating the
negative impacts of climate change, moving towards climate neutrality,
and increasing prosperity.

68 CE Outlook 2022 www.intellinews.com