The message from Washington, D.C. to Latvia is cut, cut, cut.

RIGA — Is Latvia doing enough to cut its budget deficit?

Austerity is never popular, especially in an election year. While the Dombrovskis government is promising no public sector wage cuts in the 2011 budget ahead of the vote this fall, the International Monetary Fund is adamant that the country needs additional fiscal consolidation.

Latvia was forced to take a three-year €7.5 billion bailout from the IMF and EU in 2008 after nationalizing the insolvent Parex Bank. Now the already stripped national budget faces a 400 million lats (€564 million) deficit reduction.

The IMF is asserting “that that considerable fiscal adjustment is still needed, especially on the expenditure side, to preserve debt sustainability.”

Latvia has pledged to cut its budget deficit from 8.5 percent of gross domestic product in 2010 to 6 percent in 2011 and 3 percent in 2012. As its economic recovery from one of deepest economic declines worldwide remains weak thus far, it’s unclear how much tax revenues will increase to bolster government coffers. Despite optimistic talk from Prime Minister Valdis Dombrovskis about the recovery, the country economy is predicted to be the worst-performing in the world this year after Haiti according to IMF predictions earlier this year.

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