According to the Law on Budget and Financial Management, medium term state budget planning is a process in which the resources accessible for the medium term are determined and the use of these resources is ensured in conformity with the priorities determined by the government. Medium term is a three-year period formed by the financial year for which the state budget is planned and the subsequent two financial years.
Medium term budget planning system was introduced in Latvia starting from 2008, and it is implemented in accordance with Concept on Implementation of Strategic Planning and Budget Planning in State Administration. Medium term budget planning implies approval of State budget law for one year, and determination of maximally allowable expenditure levels for the subsequent two years. Until 2012 main medium term budget planning document was Medium-term Macroeconomic development and Fiscal Policy Framework (hereinafter – the Framework), which included medium-term national macroeconomic analysis, government’s fiscal policy objectives for medium term, state budget revenue projections and state budget expenditure ceilings for each ministry and other central government institutions for medium term. This Framework was accepted by the Cabinet of Ministers.
Amendments to the Law on Budget and Financial Management, which entered into force on January 1, 2012, provided that Framework, approved by the Cabinet of Ministers, shall be developed in a form of a law as the Medium Term Budget Framework Law (hereinafter -Framework Law), to be approved by the Saeima, thus ensuring that financial indicators included in the Framework Law and to be achieved are legally binding and they should underpin the annual state budget law.
The first Framework Law was prepared in 2012 and was submitted to the Saeima in one legislative package with State budget law for 2013. Framework Law is linked to development planning documents, thus ensuring allocation of available financial resources in accordance with government policy priorities for the medium term.
Framework Law specifies medium-term budget objectives and priority development areas in accordance with the National Development Plan, as well as sets out fiscal policy objectives, gross domestic product forecasts, state budget revenue forecasts, state budget financial balance (maximum level of deficit and/or minimum level of surplus), maximum allowable expenditure levels for the whole budget and for particular ministries and other central state institutions. The first year of the Framework Law period is extended in detail in respective State Budget Law.
Explanations of the Framework Law contain information about the medium term forecasted macroeconomic development and it’s risk assessment, fiscal policy objectives and measures necessary for its implementation, tax and non-tax revenue forecasts, information on general government debt developments, fiscal indicator calculation methods and explanations, as well as other essential information.
Cabinet of Ministers annually approves schedule for preparation and submission of draft Framework Law and draft State Budget Law. According to this schedule, draft Framework Law is submitted to the Saeima in one legislative package with draft State budget law, after the European Commission has provided opinion on draft budgetary plan.
Medium term budget planning and financial management in Latvia is implemented in accordance with fiscal policy principles set out in Fiscal Discipline Law and in compliance with the EU provision to budgetary frameworks of Member States, ensuring transparent and responsible fiscal policy.
Find more details about budget procedures and medium term budget planning in our Stability programme.