Latvia will be bankrupt in three months if it doesn't slash its budget in line with IMF conditions for the next instalment of bailout funds, the Premier-designate Valdis Dombrovskis says.

Latvia, which is experiencing a severe economic slowdown, was given a €7.5 billion bailout loan earlier this year after a GDP contraction of 10.5%.

"This is a desperate plea to the IMF that the package agreed on isn't viable," Lars Christensen, head of emerging markets research at Danske Bank A/S in Copenhagen, told Bloomberg. The warning of a June bankruptcy if the loan isn't continued is "realistic."

Dombrovskis wants the IMF to approve a deficit of 8% of GDP to avoid crippling the economy. Latvia must cut the budget to meet terms of the bailout or get a bigger loan from the IMF- led group and European Commission or it will run out of money, says Bloomberg.

If the state can divert 600 million lati of funds set aside to bail out the banks toward government spending instead, Latvia may not need a bigger IMF loan, provided the banks' situation doesn't deteriorate, Dombrovskis said.

"It's hardly possible" to keep to the earlier target, Dombrovskis said. "The previous memorandum of understanding was signed under the assumption of a 5% recession, meanwhile the forecast is for 12% and it may get worse."

Latvia faces a deepening contraction as its currency peg to the euro forces it to push through wage cuts to remain competitive, reports Bloomberg.

The economic collapse threatens to spread through the whole Baltic region, and there may be need for a broader bailout that includes Lithuania and Estonia, Dombrovskis said.

"In the Baltic region there is a fear of a domino effect, if one country would go, then probably the whole region will go," he said. Any plan "could talk about all three countries, with a focus on Latvia as its weakest link."