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UPDATE 1-IMF upbeat on Latvia, PM sees smaller GDP drop

By Aija Braslina RIGA, Nov 12 (Reuters) - Latvia's economy will fall less than expected this year and the International Monetary Fund (IMF) said on Friday this meant budget deficit cuts next year could also be less than thought previously. Prime Minister Valdis Dombrovskis told reporters that the economy would contract in 2010 by 0.4 percent rather than 1 percent and called that "a very cautious outlook". The government has been revising its forecasts as it works out how to meet public sector deficit reduction targets for 2011 set as part of an international funding agreement and to get on course for eventual euro entry, eyed in 2014. The government stuck to a forecast for 2011 growth of 3.3 percent and saw consumer price inflation of 1.1 percent. IMF mission chief to Latvia, Mark Griffiths, told reporters after meeting Dombrovskis that the economy was doing well, which led to expectations of less budget cuts next year to reduce the deficit to 6 percent of gross domestic product from an expected 8.5 percent of GDP this year. In its latest letter of intent with the Fund in July, Latvia said it was targetting cuts to the 2011 budget deficit of 395-440 million lats. The government later revised down this estimate to 350-395 million lats ($673-$760 million). "It's definitely less than 400 million lats," Griffiths said when asked how much would need to be cut from the 2011 budget deficit. Talks about a definite number were still going on. Griffiths said Latvia needed to meet budget deficit targets in a sustainable way and maintain budget discipline. "This year's deficit should come in below target, which means a lower adjustment in coming years," Griffiths said. Latvia had the worst recession in the European Union in 2009 with an 18 percent contraction. It showed its first quarterly expansion for more than two years in January-March on a year-on-year basis. It has pledged to cut its budget deficit to 3 percent of GDP by 2012 under the IMF-led 7.5 billion euro bailout the country was forced to take in 2008. (Reporting by Aija Braslina; Editing by Ron Askew) ($1=.5200 Latvian Lat) Keywords: LATVIA ECONOMY/ (Riga newsroom, aija.braslina@reuters.com, +371 26 596 553) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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