The Ministry of Finance forecasts economic growth of 5.1% in 2021 :: Dienas Bizness

The Ministry of Finance (MoF) on Tuesday, August 18, informed the government about the prepared macroeconomic development scenario, which will be the basis for the state budget for 2021 and the medium-term budget framework for 2021-2023. year.

Gross domestic product (GDP) at constant prices is forecast to fall by 7.0% this year, with private consumption, exports and investment declining as a result of the COVID-19 crisis, while economic growth is projected to recover by 5.1% in 2021, with GDP growth stabilizing 3 , 1% in 2022 and 2023.

The medium-term macroeconomic scenario was developed in June 2020, based on conservative assumptions, taking into account GDP data for the first quarter of 2020 and short-term macroeconomic information available until June, as well as government-approved support measures to mitigate the effects of the COVID-19 crisis. In order to continue the preparation of the budget framework, the Ministry of Finance also presented to the government the updated general government budget balances for 2021-2023. taking into account the updated macroeconomic forecasts, tax revenues, additional expenditures to finance the support measures approved by 26 July and other adjustments.

In 2020, the general government deficit is projected at 7.6% of GDP, which is significantly higher than planned in the Law on the Medium-Term Budget Framework for 2020, 2021 and 2022, when there was no COVID-19 crisis. At the same time, the deficit is lower than projected in the spring of the Stability Program 2020-2023. as the actual situation with regard to the implementation of tax revenue and expenditure on sickness benefits improves. The general government deficit under the medium-term government policy scenario is projected at 3.9% of GDP in 2021, 2.8% of GDP in 2022 and 1.7% of GDP in 2023, respectively.

Given the projected increase in GDP, the budget balance and the significant increase in borrowing to support support measures, general government debt is projected at 48% of GDP in 2021-2022 and 47% of GDP in 2023 under a unchanged government policy. In addition to the baseline scenario, the MoF has also developed a “2nd wave” scenario of COVID-19 impacts, if the negative risks of the baseline macroeconomic development materialize and the coronavirus containment is prolonged or a new strong wave of disease occurs, leading to a faster decline in GDP and employment.

Compared to the baseline scenario, the “wave 2” scenario envisages a faster decline in GDP at constant prices of 9.0% in 2020 and a slower economic recovery in the coming years, with GDP growing by 2.0% in 2021, 4.6% in 2022 and 3.2% in 2023. Due to slower growth, budget revenues would decrease in the coming years compared to the baseline scenario, and the general government budget balance would deteriorate to 6.0% of GDP in 2021, to 4.2% of GDP in 2022 and to 2.9% in 2023. of GDP.

It should be noted that the COVID-19 pandemic has also introduced changes in the country’s fiscal policy. In 2020, the general exemption clause of the European Union’s Stability and Growth Pact was activated, which allows for an increase in the general government deficit to mitigate the economic damage caused by the pandemic. Thus, the COVID-19 Influence Management Act provides for derogations from the conditions of fiscal discipline only in 2020 and 2021. Starting from 2022, in accordance with the Law on Fiscal Discipline, the structural deficit targets set therein must be observed. The exact objectives of the general government budget balance will be determined by submitting a draft law on the medium-term budget framework for 2021, 2022 and 2023 to the Saeima, and will be based on the adopted decisions in the field of expenditures and revenues.

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