Notification on General Government Budget Deficit and Debt in October 2010

18.10.2010

According to results of the October 2010 general government budget deficit and debt notification1, which were prepared in conformity with methodology of European System of Accounts ESA’95, the general government deficit in 2009 reached 1,340.5 mln lats or 10.2 % of Gross Domestic Product (GDP) and the general government debt was 4801.9 mln lats or 36.7 % of GDP.

April 2010 government budget deficit and debt notification: main indicators

 

2006

2007

2008

2009

Budget deficit (-)/surplus (+), mln LVL

General government

-51.9

-46.8

-672.2

 

-1340.5

Central government

-230.1

-360.4

-722.8

-789.7

Local government

-53.9

-101.0

-203.5

-233.5

Social security fund

232.1

414.6

253.4

-317.3

General government consolidated gross debt at nominal value at end of year, mln LVL

1189.9

1329.8

3181.4

4801.9

Gross domestic product at current prices, mln

11171.7

14779.8

16188.2

13082.8

As % over GDP

General government net borrowing (-)/net lending (+)

-0.5

-0.3

-4.2

-10.2

General government consolidated gross debt at nominal value at end of year,

10.7

9.0

19.7

36.7

Necessity for adjustment arises from ESA’ 95 methodological requirements and guidelines for the preparation of financial statistics of government sector. They require that accrual (instead of money flow) principle is followed in the calculations, and that financial transaction from government sector balance, as well as influence of European Union funds is neutralized.

Compared to annual report data of the Ministry of Finance, which indicated general government budget deficit of 897.9 mln lats (6.9% of GDP) in 2009, according to methodological requirements of ESA’ 95, calculated budget deficit is more by 442.6 mln lats and reaches 10.2% of GDP.

Major changes in final data of 2009 (0.9% of GDP) are related to financing of support activities of Parex bank – government investment of 113.6 mln lats in the equity capital of Parex bank. According to the requirements of the Manual of General Government Budget Deficit and Debt, investment of general government in the Parex bank is acknowledged a capital transfer which increases government expenditure.

Other major adjustments with negative impact (deficit increase as mln lats and percent of GDP) have:

- Exclusion of revenues from greenhouse effect gas emission trade belonging to the country from budget – by 91.4 mln lats or 0.7%;
- Inclusion of Southern bridge construction costs into sub-sector expenditure of local government – by 80.0 mln lats or 0.6%;
- Adjustment regarding creditors - by 74.3 mln lats or 0.6%;
- Adjustment of difference of interest accrued and paid – by 57.6 mln lats or 0.4%;
- Tax adjustment using time-adjusted cash method – by 39.7 mln lats or 0.3%;
- Impact of enterprise balance results controlled and financed by state and local government reclassified to general government sector – by 30.4 mln lats or 0.2%;

At the same time, adjustment with positive impact has been carried out (deficit decrease as mln lats and % of GDP):

- Adjustment of acquisition of European Union Funds – by 75.3 mln lats or 0.6%;
- Income from privatisation – by 9.9 mln lats or 0.1%;
- Write - off of derived financial instruments – by 9.3 mln lats or 0.1%;

 

Government budget deficit or surplus by sub-sectors in 2006-2009, as % of GDP

In 2009 debt value of the general government sector, compared to previous year, increased by 1620.5 mln lats or 12.4% of GDP, however it does not exceed Maastricht criterion (60%).

Debt before consolidation among sub-sectors was 5241.4 mln lats to the central government, 760.0 mln lats – to local government, 0.2 mln lats – to social security fund.

General government consolidated gross debt at nominal value, at the end of the year

In the calculations of notification of October 2010 data from the Ministry of Finance, the Treasury, the Ministry of Economics, Central Statistical Bureau and Riga City Council are used.

On October 22 the EU Statistical Office Eurostat will release information on the results of the October 2010 notification in all EU member states.

 

Prepared by the Government Finances Section
Vija Veidemane
tel. 67366963


1 In compliance with the requirements of Regulation EC No. 479/2009, the government deficit and debt notification is submitted to the European Commission twice a year, by April 1 and October 1. The results of the notification are used for assessing how the EU member states observe the compliance of the respective economic indicators with the criteria established by the Maastricht Treaty, that is, the ratio of the planned and actual government budget deficit to the gross domestic product (GDP) at current prices must not exceed 3.0% and the ratio of the government debt to the gross domestic product at current prices must not be higher than 60.0%.