By Patrick Lannin
RIGA, March 23 (Reuters) - Latvia could miss its euro adoption target of 2012 if, as the government wants, its budget deficit rises to 7 percent of gross domestic product (GDP) this year, the head of the central bank said on Monday.
The government, which took office this month after the previous coalition fell due to the economic crisis, has said it wants a deficit of 7 percent of GDP as the recession will be deeper than expected, with an expected 12 percent output drop.
"The bigger the budget deficit this year, the more difficult it is to fulfil the Maastricht criteria next year," central bank governor Ilmars Rimsevics told Reuters in an interview, referring to the EU limit of 3 percent of GDP.
Latvia agreed to a deficit of 5 percent of GDP this year when it took a 7.5 billion euro IMF-led bailout last year.
Rimsevics said 2011 was the year when Latvia would be measured for the Maastricht criteria and that 2010 data would be examined. "If we miss that, then we miss also 2012 as the euro introduction year," he added.
The Latvian currency is pegged to the euro and the central bank has pledged to maintain the rate until euro adoption.
The government is taking its proposal for a 7 percent deficit this year to the IMF during talks this week.
Rimsevics said cutting a deficit of 7 percent of GDP to the EU limit in time for 2012 would be hard.
"It is becoming more and more difficult, it becomes almost impossible," he added. This meant Latvia could aim for 2013 euro adoption, though he was against this.
"It is bad because we missed 2008, it will be five years later," he said, referring to the original euro adoption goal, which had to be dropped after inflation surged.
"Also inflation could revive, then again we will have additional challenges and we might miss also 2013," he said.
Rimsevics also said GDP could fall more than the 12 percent forecast by the Finance Ministry this year if the government failed to take measures to stimulate the economy. (Reporting by Patrick Lannin; Editing by Andy Bruce)