In order to evaluate the government’s vision and possible proposals for patching the hole in the country’s next year’s budget, I think you should first measure the temperature of the economic situation, because those assessments are more or less dramatic – some talk about a declining economy, others about the fact that it simply does not grow. Are we in crisis? How severe do you think the diagnosis is and how did we get to where we are?
The correct word is that the economy is not going anywhere right now, it is in a state of stagnation where it actually has no growth. And the forecast for economic growth that was at the beginning of the year did not come true, as a fairly high probability predicted it. And the reasons for this are simple – if you look at this formula, how the gross national product was calculated, on the basis of which we can in turn predict tax revenues, it includes several factors, but the two biggest ones are – consumption and investment.
The big forecast, which was based on the assumption that the economy would grow, was a substantial increase in the wages of citizens. Therefore, it was a logical prediction that the population would start spending more, resulting in an increase in consumption. But a rather large role was played by the fact that, when the base interest rates increased, part of the money that was usually used for consumption was spent by the citizens by paying the increased interest on bank loans. As a result, consumption did not grow and VAT revenues fell significantly. What do we see from it? Residents supposedly had more money left over, but because of the large additional expenses, they either didn’t spend more or spent while on foreign trips, which do not contribute to VAT revenue. In other words, our citizens spent their supposedly adult budget in such a way that consumption in Latvia did not increase, VAT revenues did not increase or even fell against the plan.
The second factor, or the second great hope, was that we will receive very large funds from the European Union – we will be free Rail Balticaother projects, the financing of which has not yet been mastered, will open, thus investments in the Latvian economy will increase, which in turn will give this economic growth. As we see, European projects are not fulfilled, Rail Baltica is late, and this forecast also turned out to be inadequate.
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2024-08-31 22:02:30