The purpose of this public expenditurereview is 1) to present an overall diagnosis of publicexpenditure management, which the Government of Latvia canuse in their policy reviews and budget oversight andmanagement; and 2) to present a path for reforms in theshort and medium term that will help the authorities set atrack toward meeting some of the key long-term objectivesalready endorsed by the Government. The report is organizedas follows: After the Introduction, Chapter 2 assessesrecent macroeconomic developments and structural reforms inLatvia. The focus is on dynamic of growth, the fiscalstance, and the external accounts. Chapter 3 examines fiscalperformance within an aggregate budget constraint. It showsthat, in principle, Latvia has had an excellent record infiscal restraint, as measured by the progressive reductionin the fiscal deficit since 1994. However, this achievementhas required expenditure adjustments during the year, whichhas produced adverse effects on expenditure management.Chapter 4 reviews the budget process, highlighting weakplanning, poor policy formulation, incremental budgeting andcommitments, and unfunded policy proprosals that all lead toover-commitments and limit performance of programs. Chapter5 assesses the public expenditure performance based onavailable evidence and examples from the sector analysis.Chapter 6 examines the rules for improving transparency andaccountability. Lastly, Chapter 7 summarizes the report findings.
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