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. European Parliament and Council regulation (EC) No 223/2009 of 11 March 2009 on European Statistics and which cancels European Parliament and Council regulation (EC, Euratom) No 1101/2008 on transmission of such statistical information to the Statistical Office of the European Communities to which confidentiality concerns, Council regulation (EC) No 322/97 on Community Statistics and decision of Council 89/382/EEC, Euratom which establishesCommittee on the Statistical Programmes of the European Communities;
  2. European Parliament and Council regulation (EU) No 549/2013 of 21 May 2013 on the European system of national and regional accounts in the European Union;
  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 (ES) 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. Commission regulation (EU) No 220/2014 of 7 March 2014 amending Council regulation (EC) No 479/2009 as regards the European system of national and regional accounts in the European Union;
  6. Manual on government deficit and debt (Implementation of ESA 2010) issued by Statistical Office of the European Union Eurostat;
  7. Regulations No.756 “Procedures for Preparing the Notification of General Government Deficit and Debt” of December 22, 2015 by the Cabinet of Ministers of the Republic of Latvia.
     

1.2. Order of general government sector composition determination

According to ESA 2010, general government sector (S.13) in Latvia consists of three subsectors:

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

On 31 December 2016 general government consisted of 1060 independent budgetary institutions, of which central government (227 institutions), local government (832 institutions) and social security fund (1 institution). 127 units have been reclassified from the non-financial corporations sector to the General Government sector (49 units to the central government and 78 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 (1st criterion);
  • whether it belongs to the government sector (participation of central and local governments in the enterprise’s equity capital exceeds 50%) (2nd criterion);
  • whether it is a government-controlled unit (3rd criterion);
  • whether it is considered an institutional unit of the non-market public sector (4th criterion).

It is assumed that theoretically any economically active enterprise recorded in the Statistical Business Register corresponds with the 1st criterion, as any legal unit, which has independent accounting and autonomy in decision making, is considered as an institutional unit.

While identifying correspondence with the 2nd criterion, entries of the Statistical Business Register having “10”, “20”, “82” and “83” as the first two digits of the Typological Classifier of Statistical Units are selected, which means that the state or local governments own 50 % or more of the share capital of the enterprise.

While determining correspondence with the 3rd criterion, it is analysed whether the general government secures control over the institutional unit being reviewed in accordance with the indicators set in Paragraphs 2.38 and 20.309 – 20.310 of ESA 2010.

When determining to what extent the units selected as a result of the procedure indicated in Paragraph 5 correspond with the 4th criterion, the following analysis is carried out:

  1. if the main function of a unit is participation in national income and treasure division and it has been assigned a code of the Classification of Economic Activities NACE Rev. 2 starting with “84”, the unit is related to the general government sector;
  2. if the main function of the unit is financial intermediation and it has been assigned a code of the Statistical classification of economic activities NACE Rev. 2 starting with “64”, “65” or “66”, the unit is classified outside of the general government sector unless special methodological conditions foreseen in the Guidelines for the government deficit and debt are not related to it;
  3. the belonging of other selected units to the general government sector is determined by analysing the data on financial activity provided in the annual report. Data from reports of the previous five years (n-6 to n-1) are used for the analysis. If the unit’s net turnover minus the received general or local government budget assignations has been less than 50% of the unit activity costs (including net interest payments) for at least the previous three years, the unit is related to the general government sector;
  4. an enterprise is related to the general government sector immediately, starting with the year n, if it is established in the calculation carried out according to the procedure prescribed in Paragraph 7.3 during the reference year n-1 that 50 % of the conditions have come into effect, and the total liabilities at the end of year ¬n-1 indicated in the balance, excluding the equity capital and savings, exceed 0.01 % of the gross domestic product value of the year n-1 in current prices;
  5. in cases when more than a half of the net turnover of the unit is comprised by remuneration of units of other general government sectors for the services provided, the results obtained according to the procedures indicated in Paragraph 7.3 are not taken into account and the respective unit is related to the general government sector.

The CSB prepares a list of units corresponding with all criteria, providing information on each unit’s:

  • register identifier (NMK);
  • full name;
  • ISC code.

The CSB groups the units by the sub-sectors of the general government sector (S.1311, S.1313, S.1314) and shares the information on the CSB website.

The CSB carries out a regular analysis of the list until the 20 December of every year.

Extraordinary changes may be introduced in the list of enterprises related to the general government sector in the following cases:

  • if the enterprise included in the list has been liquidated in the Enterprise Register of the Republic of Latvia;
  • new state or local government institutions formed according to the laws and regulations of the Cabinet of Ministers or decisions of local governments are added to the list by implementing regular changes in the list.

1.3. Relation between national methodology of general government budget calculation and European System of Accounts ESA 2010

In order to ensure transition from government budget deficit or surplus to net borrowing, net lending (B.9) according to ESA 2010, additional adjustments are made which are based on applying accrual principle in listing. Revenues and expenditure in the budget are listed according to cash flow principle, i.e., at the moment the money goes into the account, however, national account methodology requires recording flows at the moment they form.

Moreover, data on budget are adjusted on financial transactions, debts and liabilities, revenues from selling real estate, as well as supplemented with data on the results of activity of merchants controlled and financed by the central and local governments.

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); debt securities, (AF.3) and loans (AF.4) which are calculated according to ESA 2010 requirements.

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

Notification of government budget deficit and debts is 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 and the Treasury, 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 Economy, the Ministry of Defence, the Ministry of Welfare, Riga City Council, etc.) are involved.