Tightening economic policies are on the agenda - Prime Minister Silina
In a significant shift from traditional austerity measures, Latvia's government has announced a growth-oriented investment strategy for the coming year, with priorities set on defense and security, demography, and education.
Prime Minister Evika Silina of New Unity has emphasized the need for a more efficient public sector and a reduction in general government spending by at least €450 million in the period 2026-2028, with at least €150 million in 2026. However, the strategy avoids reducing services or increasing general government debt, as confirmed by the latest available information.
The government's approach centers on bold investment and economic growth initiatives. One such initiative is a comprehensive investment attraction strategy, which aims to boost foreign direct investment (FDI) by nearly €10 billion over the next decade. This strategy includes reforms in pension capital deployment and export credit guarantees to strengthen the economy without cutting public services or raising government debt.
The importance of investing in public wage levels, staffing, vocational training, and lifelong learning for addressing labour shortages and improving service quality is also highlighted in broader EU and regional policy frameworks.
Despite calls from various organizations and society for budget cuts elsewhere, no published plan provides explicit mechanisms detailing how these goals will be achieved without reducing services or increasing public debt. Instead, the intention is to fund growth via increased FDI, better capital access, and more efficient public sector investment.
The finance ministry's analysis is still pending to objectively assess the current situation, but initial assessments suggest that the situation is slightly better than usual. However, austerity measures are still necessary to address demographic issues, security, and education.
Meanwhile, the budget for service pensions has been growing rapidly due to rising salaries, but the service pension system, partly a Soviet legacy, is under review. Those currently entitled to a service pension will not be deprived of it, but the system will need to be reviewed in the future.
As part of the efficiency gains and expenditure reductions, the increase in defense financing will be made in such a way that the general government debt does not exceed 55 percent of GDP. Spending reviews will be conducted to assess how public money is spent and to find more efficient solutions.
Prime Minister Silina has announced that she will meet with ministers to discuss the implementation of key plans such as demographic measures, education programs, and strengthening security. The budget forecasts are usually released at the beginning of August, with the latest estimates on tax revenue and budget execution being released this week.
In addition to these challenges, farmers in Latvia are facing a state of emergency and need contingency funds. Climate issues also need to be addressed at the European level, which Latvia cannot ignore. The prime minister has stressed the need to look at the functions and efficiency of institutions, particularly capital companies and services.
In conclusion, Latvia's approach for the coming year is a growth-oriented investment and reform strategy rather than traditional austerity. The government seeks to address demographic, security, and educational needs by attracting foreign investment and improving public sector efficiency without explicit service cuts or debt increases, but detailed austerity measures and their implementation methods have not been publicly outlined in the available sources.
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