1. General information

1.1. Legal and methodological basis of the general government budget deficit and debt notification preparation

General government deficit and debt notification preparation methodology and deadlines are regulated by the following legal acts and methodological materials:

1) Council regulation (EC) No 322/97 of 17 February 1997 on Community Statistics;
2) Council regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community;
3) Council regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community;
4) Council regulation (EC) No 679/2010 of 26 July 2010 amending Regulation (EC) No 479/2009 as regards the quality of statistical data in the context of the excessive deficit procedure;
5) ESA’95 manual on government deficit and debt issued by the Statistical Office of the European Union - Eurostat (further in the text - Eurostat);
6) Guidelines for the general government deficit and debt notification under the “Excessive Deficit Procedure”(EDP);
7) Regulations No.748 “Order in which general government budget deficit and debt notification has to be prepared” of October 4, 2011 by the Cabinet of Ministers of the Republic of Latvia.

1.2. Order of general government sector composition determination

According to ESA’95, general government sector (S.13) in Latvia consists of three subsectors:

  1. central government sub-sector (S.1311);
  2. local government sub-sector (S.1313);
  3. social security fund sub-sector (S.1314);

On 31 December 2010 general government consisted of 1264 independent budgetary institution (central government (321 institutions, including 53 derived public persons and 4 non-financed institutions), local government (942 institutions) and social security fund (1 institution).

140 units have been reclassified from the non-financial corporations sector to the General Government sector (39 units to the central government and 91 units to the local government).

The list of enterprises related to general government sector is prepared by the Central Statistical Bureau (CSB) by verifying enterprise compliance with the following criteria:

- whether it has institutional unit features;
- whether it belongs to the government sector (participation of central and local governments  in the enterprise’s equity capital exceeds 50%);
- whether it is considered an institutional unit of the non-market public sector.

If the main function of a unit is participation in national income and treasure division and it has Classification of Economic Activities NACE Rev.2 code starting with „84” (classification section „Public administration and defence; compulsory social security”), the unit is related to the general government sector. Belonging to the general government sector is determined by analysing data on financial activity provided in the annual report. Data from reports of the previous five years is used for the analysis. If the condition is met (for the last three years) that the unit’s net turnover minus received general or local governments budget assignation is less than 50% of the unit activity costs, the unit is related to the general government sector.

1.3. Relation between national methodology of general government budget calculation and European System of Accounts ESA’95

In order to ensure transition from government budget deficit or surplus to net borrowing, net lending, additional adjustments have been made according to ESA'95 methodological requirements and guidelines for the preparation of financial statistics of the government sector. They require that the accrual (instead of cash flow) principle is followed in the calculations, and that financial transaction from government sector balance, as well as influence of the European Union funds is neutralized.

General government debt is gross debt at nominal value outstanding at the end of year of the whole general government sector. General government debt is comprised by general government sector liabilities in the following categories: Currency and deposits (AF.2); securities other than shares, excluding financial derivatives (AF.33) and loans (AF.4) which are calculated according to ESA’ 95 requirements.

1.4. Submission of notification on general government budget deficit and debt

Since 1998, when Latvia still was a EU candidate country, notification of government budget deficit and debts was regularly sent to EU institutions in accordance with the single form liable to all EU member countries  in set terms (twice a year – before April 1 (provisional data) and before October 1 – (final data)).

The institution responsible for preparation of the notification is the CSB. Specialists from the Ministry of Finance, the Treasury and the Ministry of Economy, as well as from the Bank of Latvia are involved in the process of preparation of the notification. If necessary, additionally specialists from other institutions (the Ministry of Defence, the Ministry of Welfare, Riga City Council, etc.) are involved.