Republic of Latvia - Second Review and Financing Assurances Review Under the Stand-By Arrangement, Request for Extension of the Arrangement and Rephasing of Purchases Under the Arrangement and Request for Waiver of Nonobservance and Applicability of Perform (Electronic book text)

1. The authorities have improved their program implementation, especially with respect to fiscal policy. The authorities have realized substantial savings by implementing the June 2009 supplementary budget almost in full, and in December they adopted a strong budget for 2010 with a further 4.2 percent of GDP fiscal adjustment. However, a recent Constitutional Court ruling has overturned last June's pension reductions, and this will add 1 percent of GDP to the 2010 deficit. All quantitative performance criteria (PCs) for end-September and end-December 2009 were met by large margins (data for the end-December performance criteria on the fiscal balance and public guarantees are not available but seem likely to be met, and for the fiscal balance by a similarly large margin). For the monetary performance criteria these reflect the substantial buffers that were included earlier, but the fiscal adjustment has been considerably stronger than anticipated or allowed for under the program. The authorities are working to clear small amounts of external payments arrears that resulted in nonobservance of a continuous PC. They have also fulfilled most of the structural benchmarks (though some with slight delay), although one was met only partially (assessment of the wage grid) and one has been reset (fiscal responsibility law).