Riga  - Latvia's prime minister-designate Valdis Dombrovskis announced on Wednesday that his centre-right coalition had agreed on its legislative programme, including big spending cuts.

Riga's government collapsed last month under the pressure of the economic meltdown.

The new government's priorities will include the promotion of entrepreneurship, a reduction in bureaucracy and the efficient use of EU funds - but also controversial cutbacks in public service salaries.

"This is the solution we have reached," said former finance minister Dombrovskis, who last month was called back to Latvia from Brussels, where he was a member of the European Parliament, in order to head a new government.

Following a series of meetings, he told reporters his administration would have to implement even tougher spending cuts than those planned by his predecessor, Ivars Godmanis, who resigned on February 20.

Budget expenditures will be reduced by an additional 250 million lats (450 million dollars) in an effort to limit Latvia's 2009 budget deficit to 7 per cent of GDP.

Among the most controversial plans agreed to by the prime minister-designate was a 20 per cent cut in teachers' wages.

Previously, teachers and nurses workers had been spared the swingeing cuts applied across the rest of the public sector.

Healthcare workers will see their salaries reduced by 10 per cent under the plans.

The Baltic state faces a financial crisis and has previously been described by Dombrovskis as being on the verge of bankruptcy.

National GDP is predicted to fall by 12 per cent during 2009, according to official estimates.

According to statistics released Wednesday, Latvia's GDP fell 4.6 per cent during the whole of 2008 and by 10.3 percent in the fourth quarter.

In December 2008, the Godmanis government secured a 7.5-billion- euro (9.5-billion-dollar) economic bailout package from the International Monetary Fund, World Bank, European Union and other international bodies.

But the economic situation in Latvia has deteriorated so quickly since then that Dombrovskis raised the possibility that new terms for the loan may need to be negotiated.

Outgoing finance minister Atis Slakteris broached the idea of a revised deal with representatives of the IMF, European Monetary and Economics Affairs Commissioner Joaquin Almunia and Nordic finance ministers on March 10.

"Further negotiations will be complex, and negotiators will need to have in-depth facts and figures available to demonstrate what is the right course for Latvia," Slakteris warned after the meeting.

Slakteris is due be replaced by former prime minister and central bank governor Einars Repse if the Latvian parliament approves Dombrovskis' plans in a vote that could be held as soon as Thursday. (dpa)