Page last updated at 13:35 GMT, Friday, 9 October 2009 14:35 UK

Latvia 'to find more budget cuts'

Latvian Prime Minister Valdis Dombrovskis

Latvia's prime minister has pledged to extend planned budget cuts in order to meet targets agreed with the European Union (EU) to secure rescue loans.

Valdis Dombrovskis said his coalition would meet on Monday to look at ways to extend the 325m lats ($677.5m; £423m) of cuts already agreed for 2010.

Latvia is under pressure to increase cuts for next year to 500m lats.

This is the level it agreed with the EU in exchange for 7.5bn euros ($11bn;£6.9bn) of emergency loans.

The country needed this financial support, which also includes contributions from the International Monetary Union and the Swedish government, because it has been hit hard by the global recession.

Its economy contracted at an annual rate of 18.7% from April to June, while its unemployment rate soared in August to 18.3%, the highest in the European Union after Spain.

'On track'

By Mark Sanders, Europe business correspondent

Latvia's economy is one of the sickest in Europe.

Its government is having to make deep cuts to public spending in order to qualify for international aid. Public services like the health care system are already being squeezed.

But under pressure, the government will meet next week to discuss further cuts. That's likely to mean more pain for many in Latvia.

There have already been disturbances in the country which brought down the previous government. And with the economic crisis weighing down so heavily on its people, the current government knows there could be a political price to pay.

"We are working on additional measures... so that we reach agreement with international loan providers," said Mr Dombrovskis.

"We are on track to meet our budget deficit target both this and next year."

He said the deficit would fall to 10% this year, and 8.5% in 2010.

Monday's cabinet meeting comes a day before the EU's European Monetary and Economic Affairs Commissioner Joaquin Almunia's is due to visit Riga to discuss the continuing impasse.

Mr Dombrovskis had earlier told BBC World that the worst of Latvia's recession is now over, and ruled out devaluing the currency.

Monday's meeting is also due to discuss the prime minister's controversial proposal that Latvian homeowners behind on their mortgages should only be liable for the value of their property rather than the level of their outstanding loan.

This proposal has angered the Swedish government, whose banks dominate the sector in Latvia.

While Mr Dombrovskis admitted that there remained "difficulties to overcome", he said the Latvian economy was now "stabilising".

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