Latvia is on the brink of a financial crisis if the government continues to accumulate debt to fund increased military spending, according to Janis Endzins, Chairman of the Latvian Chamber of Commerce and Industry (LTPP). He cautioned that if current borrowing trends persist, the country could soon face staggering debt levels, with interest payments alone potentially reaching one billion euros.
Endzins’ warning comes in the wake of Finance Minister Arvils Asheradens’ announcement that Latvia must raise its defense spending to 4% of GDP by 2026, with plans to increase it further to 5% in subsequent years. Asheradens outlined three potential strategies for funding this increase: cutting government spending, raising taxes, or taking on additional loans. However, he stressed the importance of exercising caution regarding the latter option.
“We need to be careful about increasing the budget deficit, as Latvia’s is already quite significant,” Asheradens stated. Currently, interest payments on the national debt exceed 560 million euros, and he warned that accelerating borrowing could push that figure even higher—potentially reaching between 600 and 800 million euros.
Endzins echoed Asheradens’ concerns, emphasizing that additional military funding should not rely on loans. He described the situation as precarious, stating, “We are one step away from this manure pit. The national debt is already teetering on the edge of the Maastricht criteria. If we reach 60% of GDP in debt, our credit ratings will suffer. Presently, we are paying between 500 and 600 million euros just for debt servicing; soon, interest payments alone could approach a billion.”
The LTPP Chairman warned that if the government continues to escalate national debt levels, it will become increasingly challenging for Latvia to recover from this financial predicament. “If the government and politicians cannot demonstrate their ability to save budgetary resources now, we may find ourselves facing a very serious crisis in a few years,” Endzins concluded.
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