The IMF Opposes Fiscal Plans in Latvia

FMIThe IMF Opposes Fiscal Plans in Latvia

Latvia’s initiative to cut back on income taxes was not well-taken by the International Monetary Fund (IMF), which warned about the risks of putting the measure into practice, while at the same time expressing its support for revising the fiscal limit in the European nation, a plan that seeks to diminish inequality.
During a visit in Latvia by the IMF officials, the latter declared that the nation’s economy is staying “strong”; however, the idea of cutting back on income taxes—at the moment, taxes on earnings are 15% in Latvia—will have to be reconsidered, so as to keep in line with the recently approved “fiscal discipline law”.
Nonetheless, the IMF delegation feels that the government’s plan to place more generous and differentiated tax limits is “appropriate” and, in addition, expressed its hope that the measures in this area will be informative for a study by the World Bank, scheduled for the beginning of June.
The IMF assures us that Latvia has complied with its mid-term objectives, under the Stability and Growth Pact, of a fiscal structural deficit of 0.5% of the GDP. According to the organization, the Latvian government must grow about 4% in 2013 and inflation must stay low. The IMF demands maintaining “constant vigilance” on non-resident deposits, even though recent measures will help contain the risk that this suggests.
In addition, the IMF showed concern for the high unemployment rate in Latvia and asks for new structural plans for improving the work force and business environment. And, last of all, the IMF announced that this summer, it would close the representative office in Riga that inaugurated the 2009 measures in the context of the assistance plan loaned to the Baltic Republic, because it paid off the received assistance ahead of time.
According to the IMF, Latvia has reached “macroeconomic stability” and its recovery is presently on a fast track, despite the challenges that still persist, including high unemployment and microeconomic level reforms.
The IMF will continue to collaborate bilaterally with Latvia, even though these contacts will develop through the IMF’s central offices and the office of the regional IMF representational resident for Central and Eastern Europe, located in Poland.