Latvia on Monday night agreed a raft of additional austerity measures to secure more aid from the International Monetary Fund as the Baltic country grapples with the deepest recession in the European Union.
The five parties in Latvia’s ruling coalition approved a deal struck with the IMF at the weekend to unlock €200m ($285m, £173m) of aid after weeks of difficult negotiations.
The fund had delayed release of the aid – part of a €7.5bn international rescue package granted last December – while it pressed Latvia for additional spending cuts and tax hikes.
Agreement with the IMF was seen as crucial to maintaining investor confidence in the country and attracting further international support, amid a projected 18 per cent shrinkage in gross domestic product this year.
Lithuania on Tuesday further exposed the economic turmoil sweeping the Baltic region by announcing a 22.4 per cent year-on-yearfall in GDP in the second quarter after a revised 13.3 percent drop in the first quarter. The figures made Lithuania the worst performing economy in the EU
Latvia’s deal with the IMF had been in doubt until late Monday as the People’s party, the largest coalition partner, stalled. But party leadership eventually gave its backing.
The breakthrough came as Latvia received its latest €1.2bn aid payment from the European Union, which accounts for the bulk of international support committed to the country. The IMF has taken a tougher stance towards Riga than the EU, which approved its latest instalment earlier this month even as the IMF delayed its next part of the emergency loan.
Latvia needs aid to cover its ballooning budget deficit and avoid a currency devaluation that would break its peg to the euro.
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