Latvian Lawmakers Approve Budget With Deficit of 1.5% of GDP

By Aaron Eglitis

Nov. 15 (Bloomberg) -- Latvia's parliament approved next year's budget, which anticipates a deficit of 1.5 percent of gross domestic product and an economic contraction of 1 percent.

The 100-seat parliament voted 53-43 to accept the budget late last night in its second reading. The parliament cut about 227 million lati ($407 million) in spending after the first reading.

Latvia's economy contracted a preliminary 4.2 percent in the third quarter, after expanding 10.3 percent last year, as real-estate prices fell and consumer spending dipped. The budget deficit may expand further than estimated as the economy contracts more than expected, Central Bank Governor Ilmars Rimsevics said on Nov. 13.

The budget's estimate of an economic contraction of 1 percent next year is ``too optimistic,'' he said. The economy may contract as much as 3.9 percent next year, boosting the budget deficit to as much as 3.9 percent of GDP, he said.

Standard & Poor's cut Latvia's credit rating to BBB- on Nov. 10, saying it may lower the country's credit rating to junk in the next 90 days, after the Baltic country took control of Parex Banka AS, its second-biggest bank, when the lender had liquidity problems and depositors withdrew money.

To contact the reporters on this story: Aaron Eglitis in Riga, Lia, at aeglitis@bloomberg.net