RIGA, Jan 8 (Reuters) - Latvia's budget deficit last year was higher than the 3 percent of gross domestic product (GDP) allowed under EU rules, the central bank said on Thursday, rejecting Finance Ministry calculations of a gap of 2.7 percent.
Latvia, forced to seek a 7.5 billion euro financial lifeline from the IMF and EU, now wants to adopt the euro in 2012.
The central bank said its 2008 deficit figures were based on the methodology used under the EU's Maastricht criteria and called on the government to start using these calculations.
"According to the methodology used to calculate the euro entry criteria, the 2008 budget deficit will be between 3 and 3.5 percent of GDP, that is, above the allowed limit," it said in a statement.
It said Latvia's main hurdle to being ready for the euro by 2012 would be the budget deficit, rather than inflation, which is falling after the economy went into recession.
"The date of 2012 given in the economic stabilisation plan to move to the euro is achievable if all financial decisions are henceforth taken in light of the euro context," the bank added.
Latvia expects an economic slump of 5 percent this year and a rise in the budget deficit to 4.9 percent of GDP.
The IMF and EU funds will be used to cover budget spending, but spending cuts and tax rises are aimed at eventually reducing the budget gap back to 2.8 percent of GDP by 2011.
An overheating economy and soaring inflation caused Latvia to miss an original euro adoption date of 2008. When the economy went into recession, budget revenues fell sharply and the government had to appeal for outside help to pay its bills. (Reporting by Patrick Lannin; Editing by Ron Askew)