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Improving the functioning of public financial management in Latvia – Budget preparation and implementation

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Supporting reforms to ensure efficient and effective revenue administration and public financial management

Funding Programme
Year
  • 2021

Improving the functioning of public financial management in Latvia – Budget preparation and implementation

The project aimed to identify deficiencies and gaps in the existing framework and to develop recommendations for improving the legal and regulatory framework. It also focused on revising the institutional design and operational arrangements of the expenditure control framework. Finally, the project sought to identify the functional information and reporting requirements necessary to support the recommendations, considering the Ministry’s existing systems.

Context

The Latvian Ministry of Finance (MoF) asked to improve its budgeting processes to align with international standards for efficient financial management. The existing cash-based, fragmented system lacked a proper budgeting framework and mechanisms to align political priorities with medium-term resource allocation. The budget management framework law was outdated and required revision. Enhancing public sector efficiency was a key goal, and the authorities requested technical support to develop tailored recommendations for better budget planning and implementation. In recent years, repeated Country-Specific Recommendations for Latvia had highlighted the need to increase public sector efficiency through improved budgeting practices.

Support delivered

The project achieved its goals by delivering five key outputs. First, a technical note provided tailored advice to the Latvian Ministry of Finance to address identified weaknesses. Next, recommendations were made to revise the institutional design and operational arrangements for expenditure control, involving line ministries in the budget process. Functional information requirements for the budgetary framework were also proposed to update budget planning and execution systems. A legal framework proposal for public financial management was developed based on these outputs. Finally, capacity-building workshops with the State Treasury and line ministries ensured sustainable and effective implementation.

Results achieved

Latvia has made strong progress in budgetary governance but must address key fiscal challenges. Improvements include better expenditure baseline methods for realistic budgeting, increased flexibility in budget execution, and enhanced performance budgeting for accountability. 

Strengthening the Ministry of Finance’s capacity to manage public investments and improving data quality from the new CFMIS are essential. An independent review of public service payroll costs and introducing fiscal constraints in spending reviews are also needed. Legislative changes will support these reforms. Successfully tackling these issues is vital for implementing Latvia’s RRP, including the green transition and improvements in education, health, and social services.

More about the project

You can read the documents related to the project here: