Latvian Prime Minister Valdis Dombrovskis welcomed the IMF's decision. Photo by the Latvian State Chancellery.

RIGA — After the EU’s decision to disburse the next loan tranche to Latvia on Tuesday, the International Monetary Fund followed suit and will give Latvia €105 million.

The two disbursals are part of the deal the Latvia’s previous government made made with international lenders on a €7.5 billion bailout loan for the country in 2008. Very tough austerity measures were forced upon the country as part of the conditions for the loan. The government had to agree to more cuts to the budget and consolidation to the tune of 395–440 million lats (€564-629 million) in order to reach the prescribed target of a budget deficit of 8.5 percent of the country’s gross domestic product.

The IMF praised Latvia’s continued fiscal consolidation efforts, saying “have helped stabilize the economy, restore confidence, and limit spillovers from financial market turbulence elsewhere in Europe” in a statement to the press.

The IMF warned that it is too early for Latvia to steer from the path of austerity.

“Considerable fiscal adjustment is still needed to preserve debt sustainability and lower the deficit,” IMF Deputy Managing Director and Acting Chair Naoyuki Shinohara said in the statement.

Latvia has committed to reducing the 2011 national budget in the range of 395-440 million lats (€557-€620 million) to bring the deficit to below 6 percent of gross domestic product.

The Latvian government acknowledged that further financial consolidation measures will be difficult, but expressed determination to reduce the national deficit as agreed.

“Implementation of fiscal policy is aimed at budget deficit reduction to ensure fastest possible recovery of the economy and improvement of competitiveness in international markets. Despite the already reached achievements we have to continue targeted work to reduce excessive state budget deficit,” Minister of Finance Einars Repše said in a statement to the press.

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