This document discusses fiscal policy and risk management in Latvia. It outlines Latvia's fiscal policy strategy of maintaining a balanced budget over the economic cycle and a structural budget deficit of no more than 0.5% of GDP in the long term. It also discusses Latvia's fiscal rules established in the Law on Fiscal Discipline, which govern expenditure growth and structural budget balances. Finally, it describes Latvia's process for general management of fiscal risks, including a required declaration of fiscal risks submitted with the annual budget and oversight by the independent Fiscal Discipline Council.

1. Identification and management of
fiscal risks in Latvia
Krista Belija
Senior Expert
Budget Development Division
Budget Policy Development Department

2. Developments in budgetary governance
2
Medium-term budgetingFiscal rules
Spending reviews
Linkage of strategic
planning documents and
budgetary resources
Budget communication
Identification and
management of
fiscal risk

3. Fiscal policy strategy is based on a balanced budget during the economic cycle
General government structural budget deficit in the long term (MTO) shall not exceed 0.5%
To provide a contribution through the fiscal policy measures for potential growth to increase
from 3% to 5% of GDP by implementing tax reform measures
To maintain the general government structural budget balance at -0.5% of GDP in 2019,
and -0.4% of GDP in 2020
3
Fiscal policy plans
-1.2 -1.2
-1.4 -1.4
0.1
-0.6
-1.0
-0.5 -0.4
-4.3
-3.3
-2.9
-2.3
-1.7
-1.0
-0.6
-1.0 -1.0
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
2012 2013 2014 2015 2016 2017 2018 2019 2020
Latvia EU-28
General Government Budget Balance (% of GDP)
Source: Eurostat, AMECO, Latvia’s Stability Programme 2019-2022

4. The Law on Fiscal Discipline
4
Balance rule
Expenditure should
not grow faster than
average potential
GDP growth
Expenditure thresholds
of the first and second
year of the FL are
inherited from the second
and third year of
previous FL
Expenditure growth
rate rule
Expenditure thresholds
for the medium term
Structural balance
should not be less
than -0.5% of GDP
*FL – Framework Law

5. General management of fiscal risks
Declaration of Fiscal Risks
(annexed to the Medium-Term Budget Framework Law)
5*Cabinet Regulation No. 229 «Regulations Regarding the General Management of Fiscal Risks
and Methodology for Determining the Amount of Fiscal Security Reserve»
General management
of fiscal risks
Specific fiscal risks
Individual fiscal risks
Ministry of Finance
Central State institutions
State commercial companies
Implementers of:
• the projects and measures
• public-private partnership projects

6. 6
Fiscal Discipline Council
An independent
collegial body
Monitors the compliance with the
rules of the fiscal discipline
Fiscal risks working group
reviews the government statement of
the fiscal risks accompanying the draft
annual budget and the budget
framework laws
Assesses if the Fiscal Safety
Reserve allocation has been
sufficient to counter the probability of
fiscal risks happening during the
fiscal year
Fiscal Discipline Council

7. Thank you!
Smilšu street 1, Rīga, LV-1919, Latvia
Phone: +371 67 095 405
Fax: +371 67 095 503
E-mail: info@fm.gov.lv
Homepage: www.fm.gov.lv