Latvia to fire more than 5 pct of state workforce

Latvian Prime Minister Ivars Godmanis said the government will fire more than 5 pct of its workforce as it makes “very painful” budget cuts in a bid to avoid a budget deficit this year and in 2009, Bloomberg writes.

“We have to be very, very tough,” Godmanis said in an interview in Bled, Slovenia, yesterday. “We lived for a long period in a boom phase when we joined the European Union, with double-digit economic growth, external sources of money and a pretty low tax rate. Now, when growth is not double digit it’s time to live on your own income.”

Latvia’s economy has faltered as real estate prices fall, consumer spending dips and credit becomes more expensive. Growth slowed to a preliminary 0.2 pct in the second quarter, compared with 10.3 pct last year. The depth of the slowdown has taken the government by surprise and brought the threat of a budget deficit this year and next.

Latvia may end this year with a budget deficit of 2 pct of gross domestic product and in 2009 will have a deficit of 2.5 pct of GDP, Standard & Poor’s said in a report on August 12.

State job cuts will be much more than 5 pct, he said. The government may close three so-called special assignment ministries, for integration, European Union funds and electronic government.

The government may freeze salaries in some areas or tie pay increases to productivity gains, the prime minister said.

The number of Latvian state employees was 326,797 in the first quarter, according to the Central Statistics Bureau. The number of private sector employees in the same period was 629,105.

Latvia’s Free Trade Union Confederation said on August 28 it may organize protests should demands for higher pay not be met to compensate for rising consumer prices.

“We will not change our position it doesn’t matter if they strike or not,” he said. “This is not possible anymore, we don’t have the resources.”