Latvia’s parliament approved an amended budget proposal

Latvia’s parliament approved an amended budget proposal Thursday, passing a budget deficit of 9.2% of gross domestic product, nearly double the level agreed to with international lenders, the Baltic News Service reported.

The 100-member parliament approved the budget amendments in the first reading with 68 votes for and 10 votes against, and the proposal will now face a second reading June 17.

The preliminary approval by lawmakers comes amid increasing speculation that the recession-hit Baltic nation will need to break free from its currency peg to the euro and devalue the lat as debt soars. The economy is forecast to contract by 18% this year, the fastest rate in the European Union.

International lenders agreed to an International Monetary Fund-led EUR7.5 billion rescue package in December, conditional on limiting public-sector expenditure to 5% of GDP.

Prime Minister Valdis Dombrovskis said that adoption of the budget amendments in the first reading was only the first step, and the government would keep working in the proposals for further reduction of expenditures, BNS reported.

Earlier Thursday, a spokeswoman from the IMF said Latvia’s government is making progress in addressing its escalating budget deficit, but more steps must be taken.

“The government’s budget is a first step, and there is more work to be done,” said Caroline Atkinson, the IMF’s director of external relations.

The IMF and EU have missions in the country reviewing the economic program, and Dombrovskis has said the country needs the second portion of the loan by early next week.

Latvia’s central bank has said it will maintain the stability of the national currency until it can adopt the euro.