RIGA, Sept 11 (LETA) - The Finance Ministry is forecasting that local governments' revenues will increase by more than EUR 150 million next year, the ministry informed LETA.

On Thursday, September 11, Finance Minister Arvils Aseradens (New Unity) met with representatives of the Latvian Association of Local and Regional Governments to discuss current work on the 2026 state budget, municipalities' financial situation this year, projected tax revenues for local governments in 2026 and in the medium term, local governments' borrowing capacity and opportunities, as well as pending changes to the system of equalization of local government finances in 2026.

Local governments' financial situation in 2025 was assessed as stable. Equalized revenues have increased by more than 10 percent, or EUR 228 million, with no municipality seeing growth of less than 7 percent.

In 2026, the state budget will fully compensate for the impact of the labor tax policy changes that came into force at the beginning of this year. Taking into account the spending cuts approved by the government on August 26, and assuming there are no major changes, municipal revenues in 2026 are forecast to rise by more than EUR 150 million, giving municipalities the opportunity to continue development and ensure services for residents, said the Finance Ministry.

Aseradens said at the meeting that the 2026 state budget was being drafted in difficult circumstances, as economic growth continues to be affected by external and internal risks - geopolitical tensions, trade tensions, inflation and others.

Although this year's deficit forecast is slightly more favorable than it was in the spring, it will grow in the coming years, since the state must significantly increase spending on defense and meet its obligations, the minister emphasized. This means that all levels of governance require a responsible approach and well thought out solutions to significantly improve efficiency of the public sector.

The meeting also analyzed local governments' borrowing opportunities. According to the Finance Ministry, in the first eight months of 2025 municipalities have borrowed more than EUR 300 million. However, local governments' investment rates have been insufficient during the period, said the finance minister, calling on municipalities work more actively on their investment projects, especially those with secured co-financing from the European Union.

The main priorities for next year will be investments in projects supported by the EU. If necessary, municipalities will also be able to borrow funds for construction of shelters, budget and financial management, provided that the local government approves a spending optimization plan, said the Finance Ministry.

The meeting also focused on the new financial equalization system. The Finance Ministry said that discussions on its impact and financial sustainability of municipalities would continue to ensure that both municipalities and residents benefit from the reform. The main goal of equalization of local government finances is to ensure that all local governments can perform their functions, and that every resident can receive quality services regardless of where they live.