RIGA, Dec 9 (Reuters) - Latvia is to pass 1 billion lats ($1.82 billion) worth of belt-tightening measures in its 2009 budget as part of its agreement to win a rescue loan from the IMF and the European Commission, a senior official said on Tuesday.
Latvian news agency LETA reported late on Monday that the government had agreed to raise the value added tax (VAT) to 21 percent from 18 percent. Latvia has been forced to seek help after sliding into recession and having to rescue its second-largest bank, Parex Bank.
"The total size of the measures is 1 billion lats in 2009. This includes cutting spending on the one hand and on the other raising revenues," Finance Ministry State Secretary Martins Bicevskis told LNT television.
He declined to give details of what was planned in the programme of measures for the International Monetary Fund.
LETA, quoting what it called unofficial information, said the VAT rise would also include an increase in discounted VAT rates from 5 percent to 10 percent. On the other hand, the income tax rate would be reduced from 25 percent, but it gave no figure for the new income tax level, it said.
Prime Minister Ivars Godmanis said on Monday Latvia had finished initial talks with the Fund and was set to sign a letter of intent with the lenders.
Under the IMF deal, Latvia has agreed to cap the 2009 budget deficit at 5 percent of gross domestic product.
Latvia expects the main assistance to come from the IMF and EU, with Sweden, whose banks are heavily invested in Latvia, also playing a role.
The IMF has said it was working on a sizable aid package for Latvia, which would include preserving the current exchange rate peg. Latvia has sought rescue funds as a financial crisis has fanned worries it might need to devalue its currency, the lat.
Swedish banks could face large loan losses in a devaluation as this would make it more difficult for people to repay their loans as their incomes in lats and many borrowings are in euros. (Reporting by Patrick Lannin; Editing by Tomasz Janowski)