COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Latvia and delivering a Council opinion on the 2022 Stability Programme of Latvia
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Latvia, economic policy, economic recovery, economic reform, energy policy, financing, public finance, small and medium-sized enterprises, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 619 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Latvia and delivering a Council opinion on the 2022 Stability Programme of Latvia {COM(2022) 619 final} - {SWD(2022) 640 final}  
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Solid recovery hit by economic 
fallout from Russia’s invasion of 
Ukraine 

The Latvian economy has weathered well 
the COVID-19 crisis. While the impact of the 
Covid-19  crisis  on  the  Latvian  economy  was 
milder than in the EU on average, its recovery 
was  temporarily  hindered  by  low  vaccination 
rates  and  a  need  for  maintaining  restrictions 
to economic activity. However, the vaccination 
rates  improved  significantly  at  the  start  of 
2022  and  the  more  positive  epidemiological 
outlook  for  2022  was  expected  to  give  a 
substantial  boost  to  household  consumption 
and  exports  of  services,  which  had  not 
recovered to their pre-pandemic peak yet. As a 
result,  Latvia  entered  2022  with  solid  growth 
momentum, with consumption, investment and 
exports  set  for  a  strong  showing.  However, 
Russia’s  invasion  of  Ukraine  and  the  ensuing 
spike 
in  commodity  prices,  most  notably 
energy,  put  breaks  on  the  post-pandemic 
recovery prospects. The loss of export revenue 
and  high  price  growth  are  set  to  slow  real 
growth  to  2.0%  in  2022.  In  2023,  growth  is 
expected  to  pick  up  to  2.9%,  led  by  private 
consumption and exports.  

Latvia  has  close  trade  ties  with  Russia 
and  is  dependent  on  it  for  its  energy. 
Latvia’s relatively high exposure to trade  with 
Russia  is  set  to  lead  to  a  loss  of  export 
revenue  and  significantly  increase  prices  for 
wood  and  metal  raw  materials  that  Russia 
was  a  major  supplier  of.  The  economic  and 
financial  sanctions  imposed  on  Russia  and 
Belarus  are  expected  to  halt  trade  with  the 
two  countries 
in  everything  but  energy 
products.  Moreover,  with  Latvia’s  announced 
intention to cease Russian gas imports starting 
from 2023, all trade with Russia would cease 
by  next  year.  Latvia’s  total  exports  to  Russia 
and  Belarus  amounted  to  more  than  4%  of 

GDP in 2021, while imports amounted to more 
than 6% of GDP, including energy products.  

The  spike  in  energy  prices  and  supply 
chain  disruptions  are  spurring  high 
inflation.  Consumer  price  inflation  is  set  to 
reach 9.4% in 2022, driven by rapid growth in 
energy  and  food  prices.  While  global  energy 
commodity  price  growth  is  expected  to  relent 
in  spring  2023,  the  knock-on  effects  of  rapid 
price  growth  in  industry  and  construction  are 
expected to drive consumer price inflation over 
the  forecast  horizon.  While  Latvia’s  intention 
to  cease  importing  Russian  gas  from  2023  is 
expected to keep energy prices at a high level 
for  longer,  they  are  expected  to  decrease  in 
the  second  half  of  2023.  Nevertheless, 
combined  with  price  growth 
in  other 
components,  inflation  is  set  to  average  3.5% 
in 2023.   

has 

the 

support 

approved 

economic  and 

The  government  has  taken  measures  to 
counter 
social 
consequences  of  Russia’s  invasion  of 
Ukraine. To address surging energy prices, the 
government 
to 
households,  including  to  the  most  vulnerable, 
as  well  as  rebates  for  the  network  service 
In 
tariff 
response to the humanitarian crisis, a support 
package  for  the  people  fleeing  Ukraine  has 
been put in place and includes access to social 
protection,  healthcare,  education  and  housing 
services.  Additionally,  their  access  to  the 
labour  market  has  been  eased. 
The 
increase  the 
government  has  agreed  to 
defence budget to 2.5% of GDP by 2025. 

to  households  and  enterprises. 

Latvia’s  macroeconomic  fundamentals 
remain  sound  despite  the  significant 
increase in public debt in the wake of the 
COVID-19  pandemic.  Latvia  deployed  a 
sizeable fiscal support package in response to 
the  economic  contraction  caused  by  the 
pandemic.  The  measures  were  aimed  at 
preserving  jobs  and  supporting the  livelihoods 

2 

 
 
through 

recovery 

the  deficit 

of  the  households  most  severely  affected  by 
the crisis, helping businesses cover fixed costs 
during  closure  and  facilitating  a  faster 
economic 
increased 
investments.  As  a  result,  the  government 
deficit  increased  considerably  from  0.6%  of 
GDP  in  2019  to  4.5%  of  GDP  in  2020  and 
7.3% of GDP in 2021. Fiscal policy is expected 
to  continue  playing  a  supporting  role  to  the 
economy in 2022 as the government deficit is 
expected  to  remain  elevated  at  7.2%  of  GDP 
despite substantial reduction of the COVID-19 
support  measures.  The  2022  budget  includes 
pay  rise  to  healthcare,  education  and  other 
public  sector  employees.  Moreover,  it  includes 
a number of temporary measures, like support 
to mitigate surge in energy prices, purchase of 
energy  security  reserves, as  well  as  increased 
spending on defence and support to the people 
fleeing  Ukraine. 
is 
In  2023, 
projected to decrease to 3.0% of GDP as most 
of 
the  2022  expenditure  measures  are 
expected to expire by end of the year, allowing 
public  debt  to  stabilise  at  46.5%  of  GDP. 
However, the adequacy of financing for certain 
public  services  –  healthcare  and  social 
protection, 
in  particular  –  presents  a 
formidable challenge due to the relatively low 
revenue  of  the  Latvian  tax  system (1).  The 
large  informal  economy  also  reduces  the 
government’s 
Broader 
macroeconomic  indicators  point  to  limited 
risks  to  stability  as  the  current  account 
fluctuates  mildly  around  balance,  private 
indebtedness  is  low  and  house  price  growth, 
although  rapid,  has  not  exceeded  income 
growth  over  the  medium  term.  Low  private 
debt, however, partially reflects subdued credit 
growth  over  the  past  decade.  Difficulties  in 
access to credit, faced by small and medium-
sized  firms  in  particular,  raise  concerns  about 
stifling 
future 
investment  and,  hence, 
productivity growth (see Annex 10). 

revenue. 

Although  its  income  level  remains  below 
the  EU  average,  Latvia  continues  on  a 
solid  convergence  path.  In  2020,  Latvia’s 
level  stood  at  70%  of  the  EU 
income 

(1)  In 2020, Latvia’s tax revenue amounted to 31.5% of 
GDP, 6th lowest in the EU. On the expenditure side, 
spending on health and social protection stand out, 
lagging the EU average 3.2 and 8.5 pps of GDP, 
respectively.  

average (2).  Over the past 5 years, the growth 
of  Latvia’s  GDP  per  capita  was  markedly 
higher  than  the  EU’s  –  2.95%  vs.  1.0%  on 
average  from  2016  to  2021 (3).  However, 
Latvia’s  GDP  per  capita growth  rate  has  been 
below  that  of  Lithuania  and  Estonia,  which 
achieved 4.1% and 3.7% average growth over 
the  same  period,  respectively  (see  Annex  18). 
The main risks to continued convergence stem 
from  demographic  challenges,  which  lead  to 
labour  and  skills  shortages,  the  shrinking  of 
the  domestic  market  and  rising  per  capita 
infrastructure  and  public  service  costs.  The 
demographic  challenges  of  both  rapid  ageing 
and  the  decline  of  the  overall  population 
underpin  Latvia’s  key  sectoral  challenges  like 
regional  disparities  in  income  and  access  to 
including  in 
services,  subdued 
housing,  and 
in  the  public 
inefficiencies 
administration (see Annex 11). 

investment, 

in 

Ensuring  an  inclusive  and  socially  fair 
recovery remains a challenge in Latvia as 
the  Social  Scoreboard 
reflected 
accompanying  the  European  Pillar  of 
Social  Rights  (see  Annex  12).  Growth  has 
not been fully inclusive as income inequality is 
in  the  EU,  regional 
among  the  highest 
disparities  persist,  and  poverty  risks  remain 
significant.  While  Latvia’s  labour  market  is 
recovering,  there  are  notable  disparities  in 
employment  across  regions  and  skills  levels. 
Equipping  the  workforce  with  labour  market 
relevant  skills,  including  basic  and  advanced 
digital  skills,  remains  a  challenge  to  both 
labour market performance and inequality. The 
risk  of  poverty  and  social  exclusion  remains 
high,  particularly  among  older  people,  while 
the  poverty 
impact  of  social 
transfers is low (see Annex 12). Limited access 
to  services  and 
low  adequacy  of  social 
assistance for vulnerable groups (older people, 
persons  with  disabilities,  the  unemployed)  - 
including  long-term  care,  social  housing  and 
individual  needs-based  social  services 
- 
further  hinders  social  inclusion.  Low  funding 
limits  the  provision  of  accessible  and  timely 
health  services  (see  Annex  14).  Shortages  of 
health  professionals  coupled  with  uneven 
regional  distribution  create  further  barriers  in 

reduction 

(2)  Expressed in Purchasing Power Standards 

(3)  GDP per capita for 2021 is a forecast 

3 

 
                                                 
                                                 
to 

of 

reform 

is  ongoing,  which 

healthcare. 
the 

the 
While 
access 
administrative 
implementation 
territorial 
is 
examining  the  significant  regional  economic 
and  social  disparities,  there  is  scope  for 
accompanying  reforms  and  investments  to 
ensure  equal  access  to  quality  public  services 
and  boost  the  economic  potential  of  Latvia’s 
peripheral regions. 

to 

and 

climate 

buildings, 

consumption 

energy 
and 

increasing  due 
in 

in 
Reducing 
transport 
boosting 
renewable  energy  capacity,  delivering  on 
the  circular  economy  and 
improving 
protection of biodiversity are Latvia’s key 
policy 
environmental 
challenges.    While  its  share  of  renewable 
energy is among the highest in the EU (coming 
mainly  from  woody  biomass)  Latvia  faces 
its  non-Emissions 
major  challenges  over 
Trading  System  (ETS)  emissions,  which  have 
been 
rising  energy 
consumption 
transport  and  buildings. 
Tapping the potential of wind and solar power 
offer  the  most  viable  long-term  solution  to 
increase the share of renewables. The success 
of these energy policies may also contribute to 
the wider goal of reducing energy dependence 
of  Latvia  (see  Annex  6).  Moreover,  with  a 
downward  trend  in  the  transition  to  a  circular 
economy,  Latvia  is  far  from  reaching  its 
targets  in  terms  of  resource  efficiency  and 
material  circularity  (see  Annex  7).  Protecting 
biodiversity 
significant 
challenges,  with 
less  than  10%  of  the 
protected  habitats  in  favourable  conservation 
status.  Forest  management  also  remains 
underdeveloped:  90%  of  the  assessments  of 
protected forests and grasslands show bad-to-
poor  status  and  emission  absorption  from 
forests is declining. 

presents 

also 

in rural areas (4). Despite extensive investment 
in  middle-mile  connections  in  rural  regions, 
there  has  been  no  private  investment  in  last-
mile  connections  due to  a  lack  of  commercial 
viability. The digital provision of public services 
is  strong,  but  the  share  of  highly  digitalised 
companies  is  lagging  behind.  Moreover,  the 
low level  of digital skills, including the lack of 
information  and  communications  technology 
(ICT)  specialists,  is  a  key  obstacle  to  more 
widespread  use  of  digital  solutions  by  the 
private sector (see Annex 8).  

fairness, 

Latvia  is  progressing  well  towards  the 
Sustainable  Development  Goals  (SDGs) 
and  the  four  dimensions  of  competitive 
in 
slowly 
sustainability,  but  more 
improving 
innovation  and 
circular material use (see Annex 1). Latvia 
performs  very  well  on  several  SDG  indicators 
related  to  environmental  sustainability  with 
among  the  highest  shares  of  renewable 
energy  of  all  EU  countries  (SDG  7),  but  it  still 
needs to catch up on circular material use rate 
(SDG 12). Latvia lags behind the EU average in 
several areas related to fairness (SDG 1, 3, 4, 
5,  8).  Despite  some  positive  developments 
over the years, income inequality is high (SDG 
10),  which  is  closely  linked  to  poor  health 
outcomes (SDG 3) and limited impact of social 
transfers  in  reducing  poverty  (SDG  1).  The 
performance  on  SDG  indicators  related  to 
productivity  (SDG  4,  8,  9)  is  impacted  by  the 
lower than EU average digital skills and gross 
domestic expenditure on R&D. Latvia performs 
well on macroeconomic stability (SDG 8). 

While  Latvia  is  performing  well  in  terms 
of 
connectivity  and  digital  public 
services,  the  shortage  of  digital  skills 
hampers the digital transformation. It is a 
front-runner in broadband coverage and take-
up  and  was  well  prepared  for  the  5G  rollout. 
However, the digital divide is present and there 
are  gaps  in  connectivity,  with  lower  coverage 

(4)  Perpiña Castillo C., Sulis P., Velasco Leon J.M. & Lavalle 

C. (2021). Broadband accessibility and quality 
connection in Europe by urban-rural typology including 
remoteness. Policy Brief. European Commission – Joint 
Research Centre, JRC124456 

4 

 
                                                 
RECOVERY AND RESILIENCE PLAN 
RECOVERY AND RESILIENCE PLAN 

the 

The Latvian plan is ambitious in its effort 
long-term 
to  address  the  country’s 
challenges. It is supported by an EU grant of 
EUR 1.8 billion, representing approximately 6% 
of  Latvia’s  2019  GDP;  37.6%  of  the  plan  will 
support  climate  objectives  and  21%  will 
support  the  digital  transition  (see  Annex  2). 
Latvia’s  plan  is  expected  to  contribute  to 
effectively  addressing  a  significant  subset  of 
challenges  identified  in  the  country-specific 
recommendations  (see  Annex  4).  The  plan’s 
most  ambitious  reforms  are  related  to  the 
governance  and  financing of  higher  education 
institutions, 
a 
comprehensive  human  resources  strategy  in 
healthcare  and  the  introduction  of  indexation 
thereby 
for  minimum 
contributing  to  implement  the  European  Pillar 
of  Social  Rights.  Sizeable  investments  include 
the  greening  of  the  Riga  metropolitan  area 
transport  system  thanks  among  other  things 
to the acquisition of clean public vehicles and 
the  energy  renovation  of  both  private  and 
public  buildings  and  businesses.  Significant 
to  promote 
is  also  planned 
investment 
improving 
regional  development: 
school 
equipment  and 
infrastructure,  creation  of 
industrial  parks  and  more  affordable  housing 
and modernising hospitals. 

income  benefits, 

implementation 

of 

transport  system  and 

The  Latvian  recovery  and  resilience  plan 
(RRP)  will  contribute  to  the  green 
transition (see Annexes 5 and 6). The RRP 
generally  addresses  the  trend  of  growing 
energy consumption in transport and buildings 
notably  by  greening  the  Riga  metropolitan 
area 
in 
sustainable public transport. The RRP will  also 
support  decarbonisation  through  significant 
investments  in  energy  efficient  renovation  (in 
businesses,  multi-apartment 
public 
buildings  alike),  support  for  renewables,  the 
modernisation of the grid network and climate 
adaptation  measures.  By  the  end  of  2023, 
Latvia  aims 
implemented  a 
coordinated  approach  for  passenger  transport 

to  have 

investing 

and 

to 

increase 

planning,  ordering  and  organisation  of  the 
the  share  of 
area.  Efforts 
renewable  energy  and  modernise  energy 
networks  will  also  start  soon  as  the  first 
modernisation  contracts  will  be  awarded  by 
2023.  Support  schemes  for  large investments 
in  energy  efficient  renovation  have  also 
started to enter into force this year. 

of 

low 

poor 

level 

investment 

to  address 

Concerning  the  digital  transition, the  key 
priorities addressed by the RRP will be on 
measures 
skills, 
insufficient last-mile and 5G connectivity, 
and 
business 
digitalisation (5).  Latvia’s  RRP  supports  the 
digital  transition  thanks  to 
in 
digitalising  public  administration  and  public 
services, support for the digital transformation 
of  businesses,  and 
creating  a  better 
environment  for  research  and  innovation  with 
measures  to  improve  the  digitalisation  of 
small  and  medium-sized  firms.  The  plan  also 
includes  measures 
to  deploy  high-speed 
broadband  that  should  help  further  improve 
digital infrastructure and reforms in favour of 
digital upskilling, such as a new adult learning 
framework,  improving  basic  and  advanced 
digital  skills  for  individuals,  businesses  and 
summer, 
public  administration.  By 
measures to support the digital transformation 
of public administration will have entered into 
force. By the end of 2023, 26 000 computers 
are  expected  to  be  made  available  in  digital 
libraries  for  pupils  and  teachers.  Support 
measures  to  help  businesses  (in  particular 
small  and  medium-sized  firms)  develop  the 
skills  of  their  employees  are  also  planned  to 
be effective by the end of 2023.  

this 

The  RRP  aims  to  improve  digital  skills 
across  sectors  and  population  groups. 
Only 51% of the population has at least basic 

(5)  The digital dimension of the resilience dashboards also 
indicates that Latvia displays higher vulnerabilities as 
regards ’digital for personal space’, as well as lower 
capacities in ’digital for industry’, compared to EU27. 

5 

 
 
                                                 
 
Box 1: 

Key deliverables expected under the Recovery and Resilience Plan in 2022/23 

  Greening of Riga metropolitan area thanks to a coordinated approach for passenger transport 

planning, ordering and organisation  

 

 

Entry into force of the new ’Law on Municipalities which will review the functions and tasks of 
local governments  

Setting up a financing fund to build low-rent housing  

  Adoption of a digital health strategy  

  Modernisation of electricity transmission and distribution networks 

  Creation of five innovation clusters  

  Adoption of a plan to modernise public administration 

 

Entry  into  force  of  changes  to  minimum  income  legislation,  introducing  an  indexation 
mechanism and a minimum threshold  

digital skills, which is below the EU average in 
2021. As the demand for basic digital skills in 
the  labour  market  increases,  their  scarcity 
creates  a  digital  divide,  leading  to  higher 
unemployment  and  social  exclusion  risks.  The 
RRP  aims  to  close  part  of  gaps:  it  aims  to 
reach  a  share  of  54%  of  the  population  with 
at  least  basic  digital  skills  by  Q3-2026,  while 
the EU average is at 54% already in 2021 (see 
Annex 8).  

– 

In the health care area, the RRP will also 
address  challenges  in  resilience,  access, 
integration  across  care 
quality  and 
levels. The health component of the RRP aims 
to  improve  the  resilience,  accessibility  and 
quality  of  healthcare  through  two  reform 
priorities 
integrated  healthcare  and 
strengthening the health workforce, notably by 
developing  a  health  workforce  strategy  with 
better  planning,  improved  training  and  a  new 
remuneration  model  for  health  professionals. 
The  RRP  also  provides  for  investments  in 
public 
health 
the 
regional 
infrastructure  of  university  and 
hospitals  and  the  health  infrastructure  of 
secondary  outpatient  service  providers.  A 
digital  health  strategy  is  expected  to  be 
adopted this autumn by the Ministry of Health. 
The  Latvian  authorities  are  also  expected  to 
adopt  a  comprehensive  health  workforce 
strategy  by  mid-2023  and  introduce  a  new 
remuneration  model  for  healthcare  staff  by 
mid-2024.  

research, 

health 

with 

income 

in  2023.  This 
investments 

Challenges  linked  to  poverty  reduction 
and  social  inclusion  will  also  be  tackled 
by  the  RRP,  starting  this  year.  The  RRP 
provides  for  the  introduction  of  an  annual 
indexation mechanism to the minimum income 
and setting the minimum income level at 20% 
is 
of  median 
complemented 
in 
accessibility  and  rehabilitation  infrastructure 
reduced  mobility  and 
for  persons  with 
disabilities, as well long-term care investments 
for older people. Digital tools to better assess 
the  skills  of  jobseekers  and  unemployed  will 
be  implemented  by  2023 (6).  By  the  end  of 
2023, work contracts to adapt the dwellings of 
more  than  200  persons  with  disabilities  will 
legislative 
have 
amendments to improve the minimum income 
support system will have entered into force. 

concluded 

been 

and 

Latvia’s  RRP  is  also  taking  steps  to 
improve the country’s affordable housing 
offer. The plan reinforces economic and social 
resilience  with 
in  affordable 
investment 
housing,  which  should  also  help  promote 
labour  mobility  as  Latvians  are  often 
hampered  by  a  lack  of  low-rent  housing 
opportunities 
the  best 
employment  opportunities.  The  challenge  will 
be  tackled  by  amending  rental  legislation  and 
developing a low-rent housing fund backed by 

in  areas  with 

(6)  Available tools in Latvian already include 

https://mydigiskills.eu/ and https://digital-skills-
jobs.europa.eu/en/digital-skills-assessment . 

6 

 
                                                 
 
systems 

between 

information 

It  will  do 

exchange 
the 

the  anti-money 
this  by 

laundering 
implementing 
reforming 
strategy. 
and 
cooperation, 
training 
law 
enforcement  agencies  involved  in  identifying, 
investigating  and  trying  economic  crimes.  At 
the  same 
it  will  strengthen  their 
technical  capacity  and  boost  the  capacity  of 
civil society organisations. Further work on the 
implementation  of  the  anti-money  laundering 
strategy has also started. 

time, 

the  RRP,  together  with  an  affordable  housing 
strategy.  By  2026,  300  low-rent  zero-energy 
apartments will be built and delivered.  

Latvia  has  also  started  tackling  the 
insufficient  quality  and  efficiency  of  the 
education system, as set out in their RRP. 
A higher education reform will aim to improve 
governance,  the  accreditation  mechanism  and 
funding  principles  for  the  higher  education 
sector. 
In  parallel,  the  RRP  provides  for 
investment  to  increase  highly  skilled  human 
resources  in  R&D  and  increase  the  share  of 
innovative  businesses  in  the  economy.  The 
reform  of  governance  for  higher  education 
institutions is expected by the end of this year 
and  contracts  will  be  signed  by  2023  to 
develop innovation clusters that would develop 
R&D  capacity  in  businesses.  By  this  summer, 
decisions  to  reorganise  at  least  20  general 
(mergers, 
secondary  education 
change  of  education  level)  will  have  been 
taken (see Annexes 9 and 13). 

institutions 

An  administrative  territorial  reform  has 
also  been  kicked  off  under  the  RRP.  In 
2021,  the  administrative  territorial  reform, 
reducing  the  number  of  local  government 
administrations  from  119  to  42,  came  into 
force.  The  RRP  includes  a  new  ‘Law  on 
the 
Municipalities’  aimed  at 
local 
tasks  of 
functions  and 
administrations 
improved 
and 
governance: it is planned to enter into force by 
the end of 2023.  

reviewing 
the  new 

ensuring 

Within  the  RRP,  fiscal  challenges  are 
being tackled. The component on rule of law 
provides  for  the  adoption  of  a  National 
Institutions  Work  Plan  for  Restraining  the 
Shadow Economy for 2021-2022. This will set 
out  measures  to  address  unregistered  and 
illegal 
undeclared 
employment,  tax  fraud  and  the  like.  Other 
investments will strengthen analytics and data 
management in the field of tax administration 
and customs. The implementation of the work 
plan,  however,  remains  outside  the  scope  of 
the RRP. 

economic 

activity, 

Latvia  continues  to  strengthen  the  anti-
money  laundering  framework.  Under  the 
RRP, Latvia is expected to continue to work on 

7 

 
 
KEY REMAINING CHALLENGES 
KEY REMAINING CHALLENGES 

Beyond  the  challenges  addressed  by  the 
RRP,  as  outlined  above,  Latvia  faces 
additional  challenges  not  sufficiently 
covered in the plan. While the RRP measures 
have a strong focus on digital skills and adult 
learning, albeit not targeting the low-skilled, it 
alone is not sufficient to address the emerging 
skills 
The 
shortages  and  mismatches. 
challenges in Latvia’s health sector go beyond 
those  linked  to  human  resources.  Inadequate 
financing  has  consequences  on  most  parts  of 
the system, but the performance of long-term 
care  is  particularly  weak.  Moreover,  while 
Latvia’s  RRP  includes  a  minimum  income 
reform  improving  the  income  of  the  poorest 
10% 
overall 
redistributive  effectiveness  of  the  tax-benefit 
system remains weak, with inequality in Latvia 
being  among  the  highest  in  the  EU.  The  low 
funding levels for health and social systems is 
closely linked to Latvia’s low tax revenue as a 
share of GDP. Addressing these challenges will 
also  help  make  further  progress  in  achieving 
the  SDGs  related  to  healthcare,  poverty  and 
inequality.  

population, 

the 

the 

of 

Improving the quality and  
composition of public finances 

Low  tax  revenues  limit  Latvia’s  capacity 
to  improve  its  health  and  social  services 
which  require  higher  funding  for  a 
sustainable  improvement.  The  pandemic 
and recent energy price rises have highlighted 
issues 
in  sectors  already  suffering  from 
inadequate  financing,  namely  healthcare  and 
social  protection  (Graph  3.1).  The  government 
has  provided  sizeable  temporary  COVID-19 
related  support  to  the  healthcare  sector  as 
well 
interim 
measures  to  compensate  for  energy  price 
hikes for households and businesses. However, 
a  longer-term  plan  to  sustainably  increase 

implementing 

several 

as 

financing 
beneficial. 

for  public  services  would  be 

Graph 3.1: General government expenditure by 
function in 2020, % of GDP 

Source: Eurostat 

into 

Public  spending  in  healthcare  and  social 
protection  sectors  has  been  consistently 
low not only against the EU average, but 
also  in  comparison  to  Baltic  peers.  In 
healthcare,  the  low  financing  has  resulted  in 
limited  access  to 
poor  health  outcomes, 
services  and  human  resources  shortages. 
Equally,  low  funding  for  social  protection 
translates 
income 
relatively 
inequality  and  risks  of  poverty  and  social 
exclusion.  Although  recent  annual  budgets 
have focused on support for health and social 
care and social protection, as well as reducing 
income  inequality  through  adjustments  in  tax 
policy (7),  this  process  has  been  somewhat 
fragmented  and  insufficiently  targeted.  It  has 
varied according to political priorities, and still 
falls  short  of  filling  the  gaps  accrued  during 
several decades of under-financing.  

high 

Low  tax  revenue  is  among  the  chief 
obstacles 
to  effectively  addressing 
Latvia’s health and social challenges. The 
gradually 
tax-revenue-to-GDP 

ratio 

has 

(7)  According to priorities defined in the 2022 Medium 

Term Budget Framework Laws. 

8 

0,05,010,015,020,0LatviaEU27EstoniaLithuania 
 
  
                                                 
 
increased  since  Latvia  joined  the  EU,  from 
27.6%  in  2004  to  31.5%  in  2020,  yet  it 
remains  one  of  the  lowest  in  the  EU  (EU 
average:  40.2%)  (see  Annex  17).  The  annual 
budget  preparation  and  execution  process 
indicates  that  there  is  a  significant  lack  of 
budget resources to meet the needs of public 
services.  During  budget  preparation  this  is 
testified  by  the  substantial  gap  between  the 
total  new  budgetary 
the 
ministries  and  the  fiscal  space  allocated  to 
new policy initiatives (8).  It is further indicated 
fiscal  slippages  during  budget 
by 
execution, usually resulting in higher structural 
deficits  than  allowed  by  the  national  fiscal 
framework,  as  noted  by  the  Fiscal  Discipline 
Council in multiple non-conformity reports. 

requests  from 

the 

in 

increases 

inequality: 

Measures  aimed  at  reducing  inequality 
could be better targeted. The 2022 budget 
includes  some  measures  designed  to  reduce 
the 
income 
(i) 
differentiated  non-taxable  minimum 
for 
personal  income  tax,  (ii)  the  income  tax 
allowance  for  pensioners,  and  (iii)  family 
benefits.  However, 
analysis 
indicates  that,  although  these  measures  have 
the  desired  effect  of  raising  disposable 
income,  the  poorest  20%  of  households  are 
weakly  targeted  and  the  groups  expected  to 
gain  most  are  those  at  the  middle-income 
level  (European  Commission,  Joint  Research 
Centre,  calculation  based  on  the  European 
Patent Office (EUROMOD) model I4.0+) (Graph 
3.2).  

preliminary 

(8)  According to the Ministry of Finance of Latvia, during 

preparation of Budget 2022, requests by line ministries 
constituted EUR 1.68 billion for 2022, EUR 2.06 billion 
for 2023 and EUR 2.46 billion for 2024, whereas the 
attributed fiscal space for current expenditure in 2022 
was around EUR 311 million. 

9 

Graph 3.2: Effect on income distribution after 
2022/23 policy changes (% change to the 
2021 baseline) 

Source: European Commission, EUROMOD 

The share of tax revenue could be raised 
by 
increasing  tax  progressivity  and 
taxation  in  fields  less  detrimental  to 
growth, in particular capital and property. 
Historically,  the  main  sources  of  revenue  for 
the  Latvian  government  are 
labour  and 
consumption  taxes,  whereas  the  share  of 
capital taxes – low compared to other Member 
States – was further reduced by the corporate 
tax reform in 2017. Latvia collects the lowest 
revenue  from  corporate  income  taxes  in  the 
EU (0.7% of GDP in 2020), while revenue from 
property taxes is 1.0% of GDP compared with 
the EU average of 2.3% of GDP. The property 
taxation system in Latvia would be well suited 
to  supporting  social  care  needs,  mainly 
because  the  property  tax  is  collected  and 
administered  at  local  government  level,  so 
higher  tax  revenue  would  go  directly  to 
municipalities,  which  are  the  point  of  first 
access  for  citizens  with  social  needs.  The 
cadastral  and 
rebate  system  could  be 
reformed  to  correctly  reflect  property  market 
values while adjusting the rebate system to be 
economically justified (to attract companies to 
less developed regions) and socially motivated 
(e.g. to protect low earners historically living in 
houses  located  in  the  Riga  agglomeration). 
labour  are 
Moreover,  while  tax  rates  on 

012345% of disposable income in deciledecile of equivalised disposable incomeB Min income 2023A.3 Family/child benefitA.2 Differentiated non-taxable minimum, JulyA.1 Non-taxable income for pensioners, JulyAll policy changes 
                                                 
  
relatively  high,  there  is  considerable  scope  to 
increase revenue from labour taxation through 
better collection and higher progressivity (9).   

The informal economy remains prevalent, 
reducing  tax  revenue  and  hindering 
income  redistribution.  Based  on  surveys  of 
company  owners  and  managers,  Latvia’s 
shadow  economy  was  estimated  at  25.5%  of 
GDP  in  2020,  which  is  the  highest  observed 
level  since  2011.  The  shadow  economy  has 
been  on  an  increasing  path,  as  demonstrated 
by  an  estimated  growth  rate  differential  of 
4.8% in the 5 years from 2016 to 2020 and is 
considerably above other Baltic peers, namely 
Lithuania (20.4% of GDP in 2020) and Estonia 
(16.5%) (10).  Undeclared  (‘envelope’)  wages 
(estimated at 47% of the shadow economy in 
Latvia) account for most of the difference with 
other 
sectors, 
construction  (29%)  and  wholesale  (25%)  had 
the highest estimated share of shadow activity 
in 2016-2020 on average. On the other hand, 
Latvia’s  VAT  gap  has  declined  substantially in 
recent  years  and  now  sits  below  the  EU 
median. Measures under the RRP, like updating 
the  risk  assessment  system,  adjusting  the 
audit  and  control  practices  and  improving  the 
analytical capacity of responsible authorities - 
are  expected  to  improve  the  tax  revenue 
service’s  capacity  to  reduce  the  share  of 
undeclared  income,  and  prevent  or  uncover 
fraud.  However, 
efforts  at 
implementation  will  be  required  to  achieve 
material gains in additional revenues.  

continuous 

Among 

states. 

Baltic 

(9)  Tax wedge on labour is about EU average for average 
wage earners and above EU average for low wage 
earners. At the same time, implicit tax rate on labour, 
which takes the actual revenue collected into account, 
is among the lowest in the EU 

(10)  Sauka A., Putnins T. (2021) Shadow Economy Index for 
the Baltic Countries, Stockholm School of Economics in 
Riga (sseriga.edu).  Alternative assessment of the 
shadow economy developments in the OECD countries 
(Schneider F. (2021), Development of the Shadow 
Economy of 36 OECD Countries over 2003 - 2021) 
indicates that Latvia has the lowest level of shadow 
economy among Baltic states. Meanwhile, shadow 
economy in Latvia still remains relatively elevated (LV 
20.22% vs 17.42% EU28 in 2021) and reduction 
between 2018 and 2021 has been negligible. 

Using energy and natural  
resources more efficiently and  
decreasing dependence on fossil  
fuels, including from Russia  

The  vast  majority  of  Latvia’s  energy 
imports  directly  or  indirectly  come  from 
Russia,  but  alternative  sources  of  supply 
exist.  While  Latvia’s  share  of  renewable 
energy  at  44.1%  is  among  the  highest  in  the 
EU, the remaining part is made up of oil (34% 
of  the  energy  mix)  and  natural  gas  (22%) 
which  were  mostly  imported  from  Russia (11). 
Thanks  to  easier  transportation,  oil  products 
pose a significantly lower risk than natural gas 
in terms of security of supply. For natural gas, 
Latvia  is  connected  to  Russia  through  several 
pipelines  and  has historically bought  all  of  its 
supply from Russia (12). However, thanks to its 
gas connection with Lithuania, it has access to 
an  alternative  supply  source  through  the 
Klaipeda LNG terminal. In order to ensure gas 
flows  at  maximum  capacity,  an  upgrade  of 
interconnectors with  neighbouring  countries  is 
needed.  A  further  interconnection  between 
Lithuania and Poland became operational on 1 
May  2022  connecting  the  Baltic  market  with 
Poland (13). Finally, the region is served by the 
for 
Incukalns  gas 
smoothing  the  seasonal  mismatches  between 
gas  supply  and  demand.  Recent  energy 
solidarity  agreements  with  Estonia  and 
Lithuania  provide  a  mechanism  of  ensuring 
gas  supplies  between  the Baltics in  case  of  a 
supply shortage. 

storage (14),  allowing 

reducing 

importantly, 

energy 
Most 
dependence  requires  boosting  the  share 
of  renewables  in  the  energy  mix  and 
improving energy efficiency. In its national 

(11)  Based on 2021 data. Latvia’s oil product imports come 
from Lithuania (roughly 70%) and Finland (roughly 
30%). The refineries in these countries get their crude 
oil from Russia. However, they are now looking to buy 
from other sources. 

(12)  Eurostat (2020), share of Russian imports over total 
imports of natural gas. For LV, total imports include 
intra-EU trade.  

(13)  The connector’s capacity is around 60 GWh/day 

(14)  Total capacity of 24 TWh 

10 

 
                                                 
 
                                                 
energy  and  climate  plan  (NECP),  Latvia  has 
committed to increasing the renewables share 
in  gross  final  energy  consumption  to  50%  by 
2030. This target would most likely have to be 
increased to achieve the higher EU  renewable 
targets  for  2030  proposed  in  the  Fit  for  55 
package.  In  this  regard,  Latvia  is  expected  to 
benefit  from  removing  existing  regulatory 
barriers  to  the  development  of  onshore  wind 
energy, as foreseen in its RRP. The government 
recently  announced  its  intention  to  explore 
opportunities  for  building  wind  parks  in  state 
forests.  Additionally,  Latvia  could  accelerate 
the  deployment  of  offshore  wind  parks, 
including  jointly  with  neighbouring  Member 
States.  To  diversify  the  energy  mix,  currently 
unexploited  alternative  energy  sources  are 
being  considered  by  Latvia 
(e.g.  nuclear 
power). Completing the synchronisation of the 
electricity  grid  would  also  be  beneficial  to 
secure  networks  and  supply.  Furthermore, 
energy 
be 
reinforced,  in  particular  in  buildings,  transport 
and  industry,  which  are  among  the  largest 
contributors  to  the  rising  energy  consumption 
(see  Annex  5).  Such  measures  would,  in  turn, 
reduce  energy  consumption  and  thus  energy 
dependence.  Finally,  sustainable  mobility 
measures, as also included in Latvia’s RRP, can 
further reduce energy dependence on oil. 

efficiency  measures 

could 

Improving access to finance for 
small and medium businesses  

Latvia’s  banking  sector  has  remained 
sound  throughout  the  crisis,  but  long-
standing  issues  throttle  credit  growth. 
The  COVID-19  crisis  has  not  had  a  significant 
impact  on  the  banking  sector’s  stability  with 
all key financial soundness indicators - capital 
adequacy, liquidity coverage and profitability – 
performing  above  the  EU  average  (see  Annex 
16).  After  having  picked  up  in  2019,  credit 
growth  turned  negative  again  in  2020  mostly 
due  to  uncertainty  caused  by  the  pandemic, 
which  led  to  the  postponement  of  some 
investment  projects  and  increased  caution 
with borrowing overall. Credit growth resumed 
with  vigour  in  2021,  with  annual  growth 
reaching  8.9%  in  the  third  quarter  of  2021, 
with  mortgage  lending  showing  particularly 

strong  growth.  However,  overall  credit  growth 
has  been  disappointing  over  a 
long-time 
horizon  – the credit flow to the private sector 
has  been  negative  for  the  better  part  of  the 
last decade. It turned positive in 2016 but the 
growth rate of credit still remained below the 
growth rate of GDP, leading to sizeable private 
sector  deleveraging.  In  2020,  private  sector 
debt  stood  at  66.5%  of  GDP  compared  with 
78.3% of GDP 5 years earlier. 

Graph 3.3: Private sector credit flow, % of GDP 

Source: Eurostat 

(bad 

income 

corporate 

unverifiable 

Slow credit growth is due to both demand 
and  supply  factors.  Banks  cite  high  credit 
records,  weak  borrower 
risk 
track 
the  shadow 
collateral  and  equity)  and 
economy  (unreliable  accounting  records  of 
companies, 
for 
households) as the most important constraints 
lending.  Moreover,  banks’ 
on 
standards  for  lending  to  small  and  medium-
sized  firms  are  tighter  in  Latvia  than  in  other 
euro-area  countries.  Furthermore,  the  cost  of 
credit to corporations is among the highest in 
the  EU.  While  some  of  that  is  due  to  higher 
credit  risk,  part  of  the  pricing  gap  remains 
unexplained  and  could  be  due  to  limited 
competition  in  the  banking  sector  (Bank  of 
Latvia,  2021).  Even  though  the  availability  of 
bank  loans  for  large  corporates  with  sound 
financial  indicators  is  good,  their  demand  is 
low  due  to  preference  for  other  sources  of 
financing.  Credit  demand  by  small  and 
medium-sized businesses is small due to strict 
collateral requirements, the high price of loans 
or  burdensome  paperwork. (15)  Further  on  the 
in  real  estate, 
investment 
demand  side, 

(15)  European Commission, Analysis of the recovery and 

resilience plan of Latvia, 2021 

11 

-10-8-6-4-20246820102011201220132014201520162017201820192020Private sector credit flow, % of GDPEstoniaLatviaLithuania 
  
                                                 
 
businesses 

Furthermore, 

regions  find 

in  peripheral 

typically a major demand factor for corporate 
lending,  has  been  lacklustre  over  the  past 
and 
decade. 
households 
it 
particularly  difficult  to  have  their  assets 
accepted  for  collateral  due  to  their  poor 
liquidity.  This  presents  a  significant  barrier  to 
both  mortgage  lending  and  corporate  lending 
in the peripheral regions. According to Bank of 
Latvia  study,  almost  90%  of  all  new 
mortgages are lent out in Riga region  

Easing  the  credit  supply  constraints 
requires  both  general  improvements  to 
the  business  environment  as  well  as 
targeted  policy  measures.  Continued 
reduction of the shadow economy could make 
the average business more likely to get credit 
through 
improved  transparency  and  trust. 
Moreover, there is room for increasing the loan 
recovery rates, which could be facilitated by a 
more  efficient  legal  system.  Targeted  loan 
guarantee  schemes  could  help  lower  the 
liquidity risks for collateral faced by the banks. 
In  addition,  targeted  public  lending  schemes 
for  strategically  important  investments,  like 
the green transition and regional development, 
could fill a market gap where bank financing is 
either not available or too expensive.  

Bridging the skills gap  

across 

regions 

Latvia  is  faced  with  the  restructuring  of 
its  labour market  as skills  shortages  are 
increasing.  The reduced labour supply due to 
the  demographic  decline  leads  to  increasing 
labour shortages, further exacerbated by such 
structural issues as differences in employment 
conditions 
skills 
mismatches.  In  the  short  and  medium  term, 
there  are  shortages  of  high  and  medium 
skilled  labour  that  restrict  economic  growth, 
particularly  in  such  sectors  as  science  and 
technology,  construction, 
information  and 
communication  services,  manufacturing  and 
healthcare.  At  the  same  time,  there  is  a 
surplus of low-skilled workers, also among the 
young. (16) Efforts are being made to equip the 

and 

(16)  Ministry of Economics (2021), Latvian Economic 

Development Report 

12 

workforce  with  labour-market-relevant  skills, 
especially  for  the  unemployed,  but  increasing 
the  participation  of  the  low-skilled  in  learning 
and active labour market policies is an ongoing 
challenge.  

over 

ongoing 

challenge  with 

Timely  up-  and  re-skilling  could  help 
alleviate  labour  shortages  and  promote 
equal  opportunities  and  active  inclusion. 
Only  8.6%  of  adults  in  Latvia  took  part  in 
learning  activities  in  2021,  well  below  the  EU 
average  of  10.8%.  Encouraging  older  workers 
(50+)  with  outdated  medium  level  skills  and 
the  low-skilled  to  participate  in  adult  learning 
is 
little 
an 
improvement 
addition, 
participation  by  the  unemployed  in  active 
labour  market  measures 
low. 
Measures  that  can  be  effective  in  addressing 
these 
include 
labour  market  challenges 
strengthening  the  capacity  of  the  Public 
Employment  Service  to  target  the  low-skilled 
and the increasing share of unemployed aged 
in 
50+,  and 
forecasting skills needs and designing training 
programmes.  These  would  also  contribute  to 
the  achievement  of  the  2030  EU  headline 
targets on employment and adult learning.  

social  partners 

involving 

remains 

time. 

In 

Tackling social and regional 
inequalities and including  
the most vulnerable 

income 

in  2020)  and 

Poverty  risks  and 
inequality 
remain  among  the  highest  in  the  EU. 
Income  distribution  is  more  unequal  in  Latvia 
little 
in  the  EU  on  average,  with 
than 
improvement  over  time.  Due  to  the 
low 
spending  on  social  protection  (13.5%  of  GDP 
low 
vs  22.0%  EU 
redistributive  effectiveness  of  the  tax-benefit 
system,  the  impact  of  social  transfers  (other 
than  pensions)  on  poverty  reduction  remains 
limited.  The  situation  is  particularly  poor  for 
older  people,  the  unemployed  and  persons 
with  disabilities.  Despite  the  increases,  the 
income  of  the  recipients  of  the  minimum 
income support, pensions and disability benefit 
falls  well  below  the  poverty  line  (see  Annex 
12). Significant efforts are therefore needed to 

the 

 
 
                                                 
improve  social  assistance  and  services  for 
vulnerable  groups,  including  long-term  care, 
social  housing  and  individual  needs-based 
social services.   

Weaknesses  in  the  provision  of  social 
assistance and services limit their impact 
on addressing social exclusion. Delivery of 
social  assistance  and  services  to  vulnerable 
groups  is  hindered  by  shortages  of  social 
workers and differences in types of assistance 
across  municipalities,  often  not  targeted  to 
those  most  in  need (17).  Meanwhile,  a  reform 
to  provide  a  standard  basket  of  minimum 
social services in every municipality is planned 
to  be  introduced  by  2027.  The  degree  of 
integration  and  inter-institutional  cooperation 
between social and health services, the Public 
Employment  Service, 
child 
protection services is low. Meanwhile, demand 
for social assistance and services is increasing, 
in part due to the ageing population. (18) 

police 

and 

The  need  for  long-term  care  is  high  and 
increasing. The share of people aged over 65 
with  long-term  care  needs  is  higher  in  Latvia 
than  in  other  EU  countries,  and  these  needs 
are  primarily  met  by  informal  carers.  Public 
spending  on  long-term  care  is  below  the  EU 
average  (0.5%  vs  1.7%  EU  in  2019),  with 
significantly  higher  spending  on  institutional 
care  than  home  care  or  cash  benefits.  The 
formal  care  system  is  underdeveloped,  with 
long  waiting  times.  The  supply  of  home  and 
community-based  services,  while  increasing, 
remains limited (see Annex 12). The pandemic 
exposed some of the structural weaknesses of 
institutional  care,  especially  fragmentation. 
Access,  affordability  and  quality  of  care 
services  vary  across  municipalities  and  target 
groups,  while  the  integration  of  social  and 
health  services  remains  in  its  initial  stages. 
The  2022  pay 
in 
residential care institutions aim to address the 
high  staff  turnover  and  shortages,  but  the 

increases  for  workers 

needs  of  informal  carers  are  not  addressed. 
With the support of EU funds, Latvia began the 
transition  from  institutional  to  community-
based  care  in  2015,  which  is  to  be  continued 
in  the  2021-2027  period  and  complemented 
by  an  RRP  investment  in  community-based 
housing  and  care  services  for  older  people. 
However,  more  integrated  efforts  are  needed 
to develop the long-term care system, starting 
with a comprehensive long-term care strategy.  

Latvia’s  health  system  is  underfunded, 
which limits access to quality and timely 
care.  Despite  the  recent  temporary  increases 
in  health  expenditure  per  capita,  and  the 
additional  government  funding 
(EUR  290 
million  committed  in  2020 (19))  to  urgently 
support  the  health  system  during  the  COVID-
19  pandemic,  Latvia’s  health  system  remains 
underfunded (20). In 2019, only 61% of health 
expenditure  was  publicly  funded,  and  the 
share  of  out-of-pocket  spending  was  among 
the  highest  in  the  EU  (see  Annex  14).  Low 
financial  resources  for  health  limit  access  to 
healthcare  as  the  quotas  for  provision  of 
services 
times. 
Underfunding  also  limits  the  implementation 
of  the  public  health  policies  developed  by  the 
government,  for  example  to  improve  cancer 
screening  rates,  which  remain  low  compared 
to 
the 
the  EU  average.  Consequently, 
underfunding of the health system contributes 
to  high  avoidable  mortality.  Overall,  the 
situation  calls  for  a  new  financing  model  to 
provide  a  long-term  sustainable  solution  for 
the health system. The government is working 
on  a  mandatory  health  insurance  scheme  to 
be presented in October 2022.  

to  high  waiting 

lead 

a 

is 

of 

health 
shortage 
There 
professionals 
in  particular 
in  Latvia, 
nurses,  which  hinders  the  provision  of 
healthcare and poses risks to the success 
of health reforms. The number of nurses per 
1 000 inhabitants in 2019 was about half the 
EU  average  and  one  of  the  lowest  in  the  EU. 

(17)  State Audit Office of Latvia Report: Does the national 
social inclusion policy achieve its poverty reduction 
targets? 2020.  

(18)  According to the 2021 Ageing Report, a further 
considerable drop in the country’s population is 
projected between 2019 and 2070 (-38%), while the 
share of population aged 65+ is increasing and is now 
among the highest in the EU (20.8% ). 

(19)  OECD/European Observatory on Health Systems and 
Policies (2021), Latvia: Country Health Profile 2021, 
State of Health in the EU, OECD Publishing,  
Paris/European Observatory on Health Systems and 
Policies, Brussels. 

(20)  In 2020, Latvia’s public expenditure on healthcare was 

4.8% of GDP, the lowest in the EU 

13 

 
                                                 
                                                 
of 

health 

professionals, 

Furthermore,  rural  areas  are  in  a  particular 
lack 
creating 
additional barriers to healthcare access. There 
is  a  need  for  further  efforts  to  increase  the 
number  of  nursing  graduates  as  well  as  to 
improve 
retention  and 
recruitment, 
geographical  balance  of  health  professionals, 
to  effectively  reduce  the  persistent  shortages 
in the health workforce. 

the 

Ensuring  access  to  decent  social  housing 
for  vulnerable  groups  requires  further 
efforts.  The  share  of  people  facing  severe 
housing  deprivation  (11.5%  in  2020)  and 
overcrowding (16.5% in 2020) are among the 
highest  in  the  EU.  Access  to  social  housing  is 
limited  as  Latvia  has  one  of  the  smallest 
social  housing  stocks  in  OECD  countries  (2%), 
and  these  are  often  not  fit  for  habitation (21). 
The  provisional 
from  European 
funding 
Structural  and Investment Funds (ESIF)  2021-
27  for  social  housing  is  welcome,  although 
needs are estimated to be much higher (22). In 
2021,  rules  for  receiving  housing  benefits 
were  harmonised  and  targeted  more  towards 
the  most  vulnerable,  improving  equal  access 
across municipalities. However, the duration of 
the  benefit  is  limited  and  coverage  in  2021 
improved  significantly (23).  Social 
had  not 
housing,  homelessness  and  housing  exclusion 
for  vulnerable  groups  should  be  addressed  to 
avoid deepening housing deprivation.   

Regional  economic  and  social  disparities 
remain among the widest in the EU. There 
are  significant  economic  differences  between 
the  capital  and  other  regions.  The  Riga  region 
has  nearly  three  times  the  GDP  per  capita 
(118%  of  the  EU  average)  of  the  region  of 
Latgale  (33%)  or  Zemgale  (40%) (24).  The 

(21)  OECD (2020): Policy Actions for Affordable Housing in 

Latvia 

(22)  According to the Ministry of Economics, social housing 
investment needs are estimated at EUR 290 million. 
Provisional ESIF funding of EUR 51 million is planned.  
According to Latvia’s National Development Plan, by 
2027 still 5700 people will be waiting for social 
housing, a reduction of 21% compared to 2018. 

(23)  According to monthly statistics from the Ministry of 

Welfare, from January to December 2021, the share of 
housing benefit recipients among the population 
decreased from 1.1% to 0.87%. 

(24)  European Commission (2021): Regional fact sheets, 

Selected indicators by NUTS-3 region, Latvia 

the 

time, 

average  monthly  income  (2020)  in  Riga  was 
EUR 751, while in Latgale it was only EUR 445. 
Shortages of qualified workers limit growth. At 
the  same 
job 
opportunities  contributes  to  depopulation  of 
limited 
the  poorest 
regions,  along  with 
affordable  housing  options.  The 
range, 
coverage  and  quality  of  public  services  also 
varies  considerably  among  Latvian  regions 
(see Annex 15). 

lack  of  good 

need 

local 

centres. 

capacity 

Continuing 

services.  Newly 

The 
public 
of 
administrations  is  key  for  the  effective 
formed 
delivery  of 
municipalities  will 
complementary 
reforms and investment to ensure that quality 
public  services  are  accessible  to  all,  including 
living  further  away  from  the  new 
those 
administrative 
the 
implementation of the administrative capacity 
building roadmap would help the reforms and 
investments 
and 
implemented  effectively.  Raising  the  capacity 
of  beneficiaries  and  intermediate  bodies  to 
prepare and implement projects, increasing the 
partnership  capacity  of  social  partners  and  of 
civil society organisations and improved public 
procurement  performance  could  contribute  to 
addressing  the  persistent  regional  disparity 
challenge (25).  

administered 

be 

to 

Tackling Latvia’s circular economy 
backlog  

Regarding the circular economy, Latvia is 
increasingly  underperforming  and  could 
tackle  the  issue  actively.  Despite  recent 
positive  developments  towards  a  circular 
economy,  Latvia’s  circular  material  use  rate 
shows  a  downward  trend  and  in  2020  was 
three  times lower  than  the  EU  average  (4.2% 
against  the  European  average  of  12.8%  in 
2020)  (see  Annex  7).  In  2016  Latvia  had  a 
circularity  rate  of  6.5%,  but  it  has  been 
steadily declining since then (26). 

(25)  European Commission,  Country Report Latvia 2019  

(26)  Eurostat 2020. 

14 

 
                                                 
                                                 
Latvia is also failing to reach its targets 
on municipal waste. It has missed the 2020 
municipal  waste  recycling  target  of  50%  and 
increased  effort  and  investment  is  necessary 
to  meet  the  55%  recycling  target  for  2025. 
The  landfill  tax  has  been  rising  steadily. 
However,  municipalities  have  not  ensured 
sufficient  investment  in  separate  collection 
infrastructure.  This  may  be  linked  to  the  fact 
in  charge  of 
that  municipalities  are  not 
targets. 
reaching 
Infrastructure 
is 
particularly  poor  in  the  capital,  Riga,  where 
around  half  of 
is 
generated.  The  administrative  and  territorial 
reform, the reform of the waste management 
regions  and  implementation  of  the  State 
Waste  Management  Plan  for  2021-2028 
incorporating  the  new  EU  waste  targets  and 
requirements  are  an  opportunity  to  draw 
municipalities  more  closely  into  sound  waste 
administration (27). 

recycling 
for  separate  collection 

the  country’s  waste 

national 

The  circular  economy  action  plan  2020-
2027,  adopted  in  September  2020,  could 
help  Latvia  bring  about  the  necessary 
systemic  change  and  identify  specific 
needs  for  strategic  investment  in  the 
circular economy in the country. The action 
plan  sets  out  ambitious  targets  in  terms  of 
resource  productivity  and  increased  circularity 
of materials and its implementation should be 
the  main  focus.  The  deposit  system  for 
beverage  bottles  and  cans 
in 
February 2021 is a tangible result of the new 
plan.  Other  positive  developments  include  the 
increase in green public procurement that has 
reached 27% in financial terms and 15.4% by 
number  of  all  public  purchases  in  2020.  This 
can  help  drive  demand  for  sustainable 
products  and  make  a  significant  contribution 
to sustainable consumption and production. 

launched 

(27)  The review aims to expand the system for the separate 
collection of waste, develop the institutional framework 
for waste management, create stronger waste 
management regions and implement the principles of 
the circular economy to substantially increase waste 
recycling and reduce landfilled waste.  

15 

 
 
 
                                                 
for 

businesses 

requirements 
and 
introducing  public  lending  programmes  for 
strategically 
investments, 
important 
including the green transition;  

  By building on the RRP measures and pilot 
projects,  boosting  the  efforts  to  address 
the  skills  shortages  and  mismatches  to 
equip  the  workforce,  in  particular  the  low-
skilled,  with  up  to  date  and  labour  market 
relevant skills;  

  Strengthening 

social 

assistance 

and 
services  to  vulnerable  groups,  including 
access  to  adequate  and  affordable  long-
term  care,  social  housing  and  individual 
needs-based services; 

  With  the  administrative  territorial  reform, 
as  described  in  the  RRP,  in  place,  ensuring 
equal  access  to  quality  public  services  and 
boost  the  economic  potential  of  Latvia’s 
peripheral  regions  to  increase  social  and 
regional cohesion and develop new sources 
of growth; 

  Enhancing resource efficiency and material 
circularity  by  implementing  the  national 
circular economy action plan 2020-2027;  

renewable 

  Diversifying  the  energy  mix  in  particular 
towards 
sources,  ensuring 
capacity, 
interconnection 
sufficient 
diversifying energy supplies and routes and 
consumption 
reducing  overall 
through 
efficiency 
measures. 

ambitious 

energy 

energy 

KEY FINDINGS 
KEY FINDINGS 

Latvia’s  recovery  and  resilience  plan 
includes measures to address a series of 
its structural challenges through: 

  Improving  sustainable  mobility,  energy 
efficiency  of  buildings  and  businesses, 
promoting  the  transition  to  renewable 
energy and climate adaptation;  

  Digitalising  the  public  sector  and  Latvian 
companies,  improvements  in  basic  and 
advanced digital skills, and connectivity; 

  Strengthening 

safety  net, 
the  social 
increasing  affordable  housing  provision, 
and  improving  the  school  network  and 
regional roads in order to reduce social and 
regional 
the 
resilience,  accessibility  and  quality  of 
healthcare; 

inequalities; 

Improving 

  Reforming 

research 

innovation 
governance  and  funding,  and  boosting  the 
quality and efficiency of higher education;  

and 

  Reforms  improving  the  efficiency  of  public 
administration, 
shadow 
reducing 
economy,  improving  the  efficiency  of  the 
judicial  system  and  the  fight  against 
corruption. 

the 

Beyond  the  reforms  and  investments  in 
the RRP, Latvia would benefit from: 

including  by  broadening 

  Increasing  the  low  tax  revenue  as  a  share 
the 
of  GDP, 
taxation  of  property  and  capital,  to  allow 
adequate  financing  for  healthcare  and 
social protection; 

  Removing  barriers  for  Latvian  businesses, 
in  particular  for  small  and  medium-sized 
firms,  to  accessing  finance  by  facilitating 
transparency  and  trust  in  the  business 
environment, 
targeted 
to  ease  collateral 
guarantee  schemes 

developing 

16 

 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience plan - implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Resource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic stability 

Annex 16: Key financial sector developments 

Annex 17: Taxation 

Annex 18: Key economic and financial indicators 

Annex 19: Debt sustainability analysis 

LIST OF TABLES 

Table A2.1: 
Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 
Table A9.1: 
Table A10.1: 

Key elements of the Latvian RRP 
Summary table on 2019, 2020 and 2021 CSRs 
Indicators underpinning progress on the EU Green Deal, from a macroeconomic perspective 
Selected resource efficiency indicators 
Key Digital Economy and Society Index indicators 
Key research, development and innovation indicators 
Key Single Market and Industry indicators 

19 

21 

21 

23 

24 

27 

30 

30 

33 

35 

35 

37 

39 

41 

45 

47 

47 

49 

51 

53 

55 

55 

56 

58 

59 

23 
28 
32 
36 
38 
40 
43 

 
 
 
Table A11.1: 
Table A12.1: 
Table A13.1: 
Table A14.1: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A19.2: 

Public administration indicators – Latvia 
Social Scoreboard for Latvia 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
Selected indicators at regional level - Latvia 
Financial soundness indicators 
Indicators on taxation 
Key economic and financial indicators 
Debt sustainability analysis for Latvia 
Heat map of fiscal sustainability risks for Latvia 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Latvia in the last five years 

Graph A2.1: 

Share of RRF funds contributing to each policy pillar 

Graph A3.1: 

2014-2020 European Structural and Investment Funds total budget by fund 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Latvia’s progress on the 2019-2020 CSRs (2022 European Semester cycle) 

Graph A5.1: 

Fiscal aspects of the green transition 

Graph A5.2: 

Thematic – Energy  Share in energy mix (solids, oil, gas, nuclear, renewables) 

Graph A5.3: 

Thematic – Biodiversity  Terrestrial protected areas and organic farming 

Graph A5.4: 

Thematic – Mobility  Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A7.1: 

Municipal waste treatment 

Graph A11.1: 

Open data maturity 

Graph A13.1: 

Rural-city gap in students' socio-economic status. PISA 2018 

Graph A14.1: 

Life expectancy at birth, years 

Graph A14.2: 

Projected increase in public expenditure on health care over 2019-2070 (reference scenario) 

Graph A15.1: 

Social indicators by degree of urbanisation in Latvia 

Graph A15.2: 

CO2 emissions from fossil fuels per head, 2018 

Graph A15.3: 

Territories most affected by climate transition in Latvia 

Graph A17.1: 

Tax wedge (%) 

46 
47 
50 
52 
54 
55 
57 
58 
59 
60 

22 

23 

24 

25 

27 

30 

30 

31 

31 

34 

34 

36 

45 

49 

51 

51 

53 

54 

54 

57 

20 

 
 
 
 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

inclusion in Latvia. Component 4 ‘Healthcare’ aims 
to  contribute  to  the  accessibility,  efficiency  and 
resilience of Latvia’s health system. 

Latvia performs very well or is improving on 
SDG  indicators  related  to  productivity  (SDG 
4,  8,  9).  In  Latvia,  the  share  of  households  with 
high-speed  internet  connections  at  91%  in  2021  
is significantly above the EU average (70%). Latvia 
has  low,  albeit  slowly  increasing  gross  domestic 
expenditure  on  R&D  (0.71%  of  GDP  in  2020). 
Strengthening digital skills remains a challenge as 
only  about  half  of  people  have  at  least  basic 
in  2021).  Reforms  and 
digital  skills 
‘Digital 
component 
investment 
Transformation’  of  the  RRP  focus  on  further 
developing 
and 
equipment and improving digital skills at all levels. 

(51% 
under 

infrastructure 

digital 

the 

2 

the  quality  of 

Latvia performs very well on one of the SDG 
indicators related to macroeconomic stability 
(SDG  8)  and  is  improving  on  the  other  (SDG 
16).  Latvia  performs  well  on  SDG  8  and  notably 
increased its investment-to–GDP ratio from 21.9% 
in 2015 to 24.5% in 2020 (EU:  22.33% in 2020). 
Latvia’s  performance  on 
its 
institutions, including trust in institutions, is below 
the  EU  average,  but  improving  (SDG  16).  The 
percentage  of  the  population 
in  Latvia  with 
confidence  in  the  European  Parliament  increased 
from  44%  in  2016  to  60%  in  2021  (EU:  50%  in 
2021).  The  measures  included  in  component  5 
’Rule of law’ aim to increase the transparency and 
integrity  of  public  administration  through  training 
for  such  general  skills  like  ethics,  integrity  and 
anti-corruption. 

of 

four 

dimensions 

This Annex assesses Latvia’s progress on the 
Sustainable Development Goals (SDGs) along 
the 
competitive 
sustainability.  The  17  SDGs  and  their  related 
indicators  provide  a  policy  framework  under  the 
UN’s  2030  Agenda  for  Sustainable  Development. 
The  aim  is  to  end  all  forms  of  poverty,  fight 
inequalities  and  tackle  climate  change,  while 
ensuring that no one is left behind. The EU and its 
Member  States  are  committed  to  this  historic 
global  framework  agreement  and  to  playing  an 
active  role  in  maximising  progress  on  the  SDGs. 
The graph below is based on the EU SDG indicator 
set  developed  to  monitor  progress  on  SDGs  in  an 
EU context. 

SDG 

related 

indicators 

While  Latvia  performs  very  well  or  well  on 
several 
to 
environmental sustainability (SDG 2, 6, 7, 13, 
15)  and  is  improving  on  others  (9,  11,  12). 
Notably,  addressing  ‘Affordable  and  clean  energy’ 
(SDG  7),  Latvia  has  achieved  significant  progress 
in regards to its share of renewable energy in total 
energy consumption, which increased from 37.5% 
in 2015 to 42.1% in 2020, and ranges well above 
by  the  EU  average  in  this  indicator  (22.09%  in 
2020). 
‘Circular  material  use  rate’,  however, 
worsened from 5.3% in 2014 to 4.2% in 2020 and 
ranges  significantly  below  the  EU  average  of 
in  component  1 
included 
12.8%.  Measures 
‘Climate Change and Environmental Sustainability’ 
of  the  RRP  aim  to  further  increase  Latvia’s 
performance. 

Latvia  is  improving  on  most  SDG  indicators 
related to fairness (SDG 1, 3, 4, 5, 8), while it 
still needs to catch up on a few others (SDG 
2, 10). Latvia lags behind the EU average in most 
indicators  related  to  poverty  (SDGs  1);  however, 
there have been some positive developments over 
the years. Latvia has reduced the risk of poverty or 
social  exclusion  from  30%  in  2015  to  25.1%  in 
2020,  while  it  remains  above  the  EU  average  of 
21.9%. Unmet health needs have reduced over the 
years,  even  if  they  are  still  high  (5.3%  in  2020) 
and above the EU average (1.8% in 2020). At the 
same  time,  unhealthy  life  choices  lead  to  higher 
obesity,  which  increased  from  21.3%  in  2014  to 
23.0% of adults in 2019, above the EU average of 
16.5%  in  2019.  RRP  component  3  ’Reducing 
inequalities’  includes  measures  aiming  to  reduce 
regional  disparities  as  well  as  improve  the  social 
safety  net  and  encourage  social  integration  and 

21 

 
 
 
 
Graph A1.1: Progress towards SDGs in Latvia in the last five years 

For detailed datasets on the various SDGs see the annual EUROSTAT report ‘Sustainable development in the European Union’, 
https://ec.europa.eu/eurostat/product?code=KS-09-22-019; Extensive country specific data on the short-term progress of Member 
States can be found here: Key findings - Sustainable development indicators - Eurostat (europa.eu). 
Source: Eurostat, latest update of 28 April 2022. Data mainly refer to 2015-2020 and 2016-2021. 

22 

 
 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 

Table A2.1: Key elements of the Latvian RRP 

(1) See Pfeiffer P., Varga J. and in ’t Veld J. (2021), 
“Quantifying Spillovers of NGEU investment”, European 
Economy Discussion Papers, No. 144 and Afman et al. (2021), 
“An overview of the economics of the Recovery and Resilience 
Facility”, Quarterly Report on the Euro Area (QREA), Vol. 20, 
No. 3 pp. 7-16.   
Source: European Commission, 2022 

its 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece  of  the  EU’s  efforts  to 
support  its  recovery  from  the  COVID-19 
pandemic,  fast  forward  the  twin  transition 
and  strengthen  resilience  against  future 
shocks.  Latvia  submitted 
recovery  and 
resilience  plan  (RRP)  on  30  April  2021.  The 
Commission’s  positive  assessment  on  22  June 
2021 and the Council’s approval on 13 July 2021 
paved  the  way  for  disbursing  EUR  1.8  billion  in 
grants  under  the  Recovery  and  Resilience  Facility 
over  2021-2026.  The  financing  agreement  and 
operational  agreement  were  signed  on  3 
September  2021  and  16  February  2022 
respectively. The key elements of the Latvian RRP 
are set out in Table A2.1 

The  share  of  funds  contributing  to  each  of  the 
RRF’s  six  policy  pillars  is  outlined  in  the  graph 
below. 

The progress made by Latvia in implementing 
its  plan  is  published  in  the  Recovery  and 
Resilience  Scoreboard.  The  Scoreboard  also 
gives a clear overview of progress in implementing 
of the RRF as a whole. 

Graph A2.1: Share of RRF funds contributing to each policy pillar 

(1) Each measure contributes towards two policy areas of the six pillars, therefore the total contribution to all pillars displayed on 
this chart amounts to 200% of the estimated cost of the RRP. The bottom part represents the amount of the primary pillar, the 
top part the amount of the secondary pillar. 
Source: RRF Scoreboard https://ec.europa.eu/economy_finance/recovery-and-resilience-scoreboard/country_overview.html  

23 

Total allocation EUR 1.8 billion in grants (6% of 2019 GDP) Investments and Reforms 61 investments and 24 reforms Total number of Milestones and Targets214Estimated macroeconomic impact (1) Raise GDP by 1.3%-2.0% by 2026 (0.5% in spillover effects)Pre-financing disbursed EUR 237 million (September 2021)First instalment Latvia has not yet submitted a first payment request0%10%20%30%40%50%60%Green transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic,social andinstitutionalresiliencePolicies for thenext generation 
 
 
 
 
   
 
 
 
   
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The EU’s budget of more than EUR 1.2 trillion 
for  2021-2027  is  the  investment  lever  to 
help  implement  EU  priorities.  Underpinned  by 
an  additional  amount  of  about  EUR  800  billion 
largest 
through  NextGenerationEU  and 
instrument, the Recovery and Resilience Facility, it 
represents  significant  firepower  to  support  the 
recovery and sustainable growth. 

its 

Graph A3.1: 2014-2020 European Structural and 
Investment Funds total budget by fund 

(1) EUR billion in current prices,% of total, includes both EU 
and national co-financing. The data for the EAFRD and REACT-
EU refer to the period 2014-2022. 
Source: European Commission, Cohesion Open Data 

funds 

support 

In  2021-2027,  EU  cohesion  policy  funds (28) 
will 
development 
long-term 
objectives  in  Latvia  by  investing  EUR  4.80 
billion (29)  including  EUR  191.6  million  from  the 
Just  Transition  Fund  to  alleviate  the  socio-
economic  impacts  of  the  green  transition  in  the 
most vulnerable regions. The 2021-2027 cohesion 
policy 
and 
programmes  take  into  account  the  2019-2020 
country-specific recommendations and investment 
guidance  provided  as  part  of  the  European 
and 
Semester, 
complementarities  with  other  EU  funding. 
In 
addition,  Latvia  will  benefit  from  EUR  2.4  billion 
support for the 2023-27 period from the Common 
Agricultural 
social, 
environmental,  and  economic  sustainability  and 

Policy,  which 

agreements 

Partnership 

synergies 

supports 

ensuring 

in  agriculture  and 

innovation 
rural  areas, 
contributing  to  the  European  Green  Deal,  and 
ensuring long-term food security. 

In  2014-2020,  the  European  Structural  and 
Investment Funds (ESIF) for Latvia allocated 
EUR  6.18  billion (30)  from  the  EU  budget  and 
another  EUR  1.44  billion  from  national 
financing  (Graph  3.1),  representing  around 
4%  of  GDP  for  2014-2020  and  65.0%  of 
public  investment (31).  By  31 December  2021, 
97%  of  the  total  had  been  allocated  to  projects 
and 65% was reported as spent, leaving EUR 2.67 
billion  to  be  spent  by  the  end  of  2023 (32).  ERDF 
and  Cohesion  Fund  play  essential  roles  in  many 
parts of the Latvian economy and society, notably 
competitiveness of small and medium-sized firms, 
transport  and  energy 
infrastructure  networks, 
environmental  protection,  resource  efficiency  and 
low-carbon  economy,  social  inclusion,  education 
and  vocational  training.  By  the  end  of  the 
programming  period,  4 495  firms  will  have  been 
created,  58 726 
supported,  368 
start-ups 
additional 
improved 
wastewater  treatment,  14 286  households  given 
improved  energy  consumption  classifications,  and 
the  annual  primary  energy  consumption  of  public 
buildings will have decreased by 50 gWh/year. 

connected 

people 

to 

young 

people, 

inclusion  measures 

Active 
labour  market  policy  measures 
totalling  EUR  255  million  (including  those 
long-term 
targeting 
unemployed  and  persons  with  disabilities), 
and  social 
feature 
prominently  in  the  2014-2020  ESF  support 
package  for  Latvia.  EUR 50.5  million  was 
allocated  to  community-based  social  services  for 
persons  with  disabilities  and  children  in  out-of-
family  care.  Nearly  600  persons  with  mental 
disabilities  and  2 300  children  with  functional 
impairments 
for 
in  the  community.  About 
independent 

received 

support 

living 

have 

(30)  ESIF includes cohesion policy funds (ERDF, ESF+, CF, Interreg) 

the European Agricultural Fund for Rural Development 
(EAFRD) and the European Maritime and Fisheries Fund 
(EMFF). According to the ‘N+3 rule’, the funds committed for 
2014-2020 must be spent by 2023 at the latest (by 2025 
for EAFRD). Data source: Cohesion Open data, cut-off date 
31.12.2021 for ERDF, ESF+, CF, Interreg; cut-off date 
31.12.2020 for EAFRD and EMFF. 

(28)  European Regional Development Fund (ERDF), European 

(31)  Public investment is gross fixed capital formation plus 

Social Fund+ (ESF+), Cohesion Fund (CF), Just Transition Fund 
(JTF), Interreg. 

(29)  Current prices, source: Cohesion Open Data  

capital transfers, general government. 

(32)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/LV 

24 

1.4719%2.0027%0.183%3.1241%0.7910%CFEAFRDEMFFERDFESF 
 
   
                                                 
                                                 
 
Graph A3.2: Cohesion policy contribution to the SDGs (EUR billion) 

Source: European Commission, DG REGIO 

15 000  young  people  who  had  previously  been 
neither  in  employed  nor  in  education  or  training 
left  a  Youth  guarantee  project  continuing  in 
education  or 
training,  and  had  gained  a 
qualification  or  were  employed  (including  self-
the  end  of  2020,  ESF 
employment).  By 
investments  supported  more 
than  340 000 
participants in funded projects of which more than 
21 000 obtained a qualification.  

Cohesion  policy  funds  already  substantially 
contribute  to  the  Sustainable  Development 
Goals  (SDGs).  In  Latvia,  cohesion  policy  funds 
support 10 of the 17 SDGs with up to 95% of the 
expenditure  contributing  to  the  attainment  of  the 
goals. 

provided 

The  Coronavirus  Response 
Investment 
Initiative (33) 
EU 
the 
initial 
emergency  support  to  Latvia  for  the  COVID-
19  pandemic.  Its  flexibility  enabled  Latvia  to  re-
allocate  resources  for  immediate  public  health 
needs and support to business. For instance, Latvia 
has  allocated  EUR 30  million  to  strengthening 
health services incl. renovating hospitals and hiring 
additional  medical  staff,  EUR 35  million  for 
support  small  and  medium-sized  firms  via 
financial 
instruments  and  EUR 29  million  for 
employment  measures.  Latvia  is  also  investing 
EUR  35  million  in  remote  learning,  expanded 
broadband  access  for  schools  in  rural  areas,  in-
company training and export activities. 

cohesion 

(Recovery 

Assistance 

2014-2020 

the  REACT-EU 
Under  NextGenerationEU, 
instrument 
for 
Cohesion  and  the  Territories  of  Europe) 
added  EUR  239.8  million  of  funding  to 
Latvia’s 
policy 
allocations to ensure a balanced recovery, boost 
convergence  and  provide  vital  support  to  regions 
following  the  coronavirus  outbreak.  REACT-EU 
provided  support  for  buying  vaccines,  contributed 
to  short-time  work  schemes,  improved  primary 
healthcare,  strengthened  education,  training  and 
skills  development,  promoted  energy  efficiency 
and  reduced material  deprivation  with  direct  food 
delivery. 

for 

risks 

temporary 

unemployment 

support 
in 

Latvia  received  support  under  the  European 
to 
instrument 
mitigate 
an 
emergency  (SURE)  to  finance  short-time 
work  schemes,  similar  measures  and  as  an 
ancillary, 
health-related  measures. The 
Council granted financial assistance under SURE to 
Latvia  in  September  2020  and  top-up  support  in 
April  2021  for  a  maximum  of  EUR 305  million, 
which  was  disbursed  by  25 May  2021.  SURE  is 
estimated to have supported approximately 5% of 
workers and firms for at least one month in 2020 
and  10%  of  workers  and firms  in  2021, primarily 
in  accommodation  and  food  services,  wholesale 
and  retail  trade,  and  arts,  entertainment  and 

(33)  Re-allocating ESIF resources according to Regulation (EU) 

2020/460 of the European Parliament and of the Council of 
30 March 2020, and Regulation (EU) 2020/558 of the 
European Parliament and of the Council of 23 April 2020. 

25 

0.070.070.140.200.260.400.510.510.562.210.00.51.01.52.02.5SDG 12 Responsible consumption and productionSDG 13 Climate actionSDG 6 Clean water and sanitationSDG 1 No povertySDG 15 Life on landSDG 3 Good health and well beingSDG 8 Decent work and economic growthSDG 7 Affordable and clean energySDG 4 Quality educationSDG 9 Industry, innovation, infrastructure 
                                                 
   
recreation.  Latvia  is  estimated  to  have  saved  a 
total  of  EUR  5  million  on  interest  payments  as  a 
result of SURE’s lower interest rates (34).  

via 

the 

provides 

Technical 

Commission 

in  2021  aimed,  for  example, 

The 
tailor-made 
Support 
expertise 
Instrument  to  help  Latvia  design  and  implement 
growth-enhancing  reforms,  including  for  its  RRP. 
received  assistance 
Since  2016,  Latvia  has 
through  60  technical  support  projects.  Projects 
delivered 
to 
strengthen  the  authorities’  capacities  to  tackle 
money  laundering,  improve  risk  management  in 
the  financial  sector  and  address  shortcomings 
identified  in  debt  restructuring.  The  Commission 
also  helps  Latvia  implement  specific  reforms  and 
investment under the RRP, for example, by helping 
employers  promote  skills  development  and  help 
with  designing  and 
implementing  a  health 
workforce strategy. In 2022, new projects will start 
to  support  the  further  development  of  public 
sector innovation in Latvia.  

include,  such  as 

Latvia  also  benefits 
from  other  EU 
the 
programmes.  These 
Connecting  Europe  Facility,  which  allocated  EU 
funding  worth  EUR 413.0  million  to  specific 
projects  on  strategic  transport  networks,  and 
Horizon 2020, which allocated  EU funding worth 
EUR 116.4 million. 

(34)  Quarterly Report on the Euro Area (QREA), Vol. 20, No. 2 

(2021) | European Commission (europa.eu). 

26 

 
 
                                                 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 
RECOMMENDATIONS 

Graph A4.1: Latvia’s progress on the 2019-2020 
CSRs (2022 European Semester cycle) 

The  Commission  assessed  the  2019-2021 
country-specific  recommendations  (CSRs) (35) 
addressed  to  Latvia  in  the  context  of  the 
European  Semester.  The  assessment  takes  into 
account  the  policy  action  taken  by  Latvia  to 
date (36),  as  well  as  the  commitments  in  the 
Recovery  and  Resilience  Plan  (RRP) (37).  At  this 
early  stage  of  the  RRP  implementation,  overall 
75%  of  the  CSRs  focusing  on  structural  issues  in 
2019  and  2020  have  recorded  at  least  “some 
progress”, while 25% recorded “limited” (see Graph 
in 
A4.1).  Considerable  additional  progress 
addressing structural CSRs is expected in the years 
to  come  with  the  further  implementation  of  the 
RRP.  

Source: European Commission 

(35)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32021H0729%2814%29&qi
d=1627675454457  
2020 CSRs: EUR-Lex - 32020H0826(14) - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(14) - EN - EUR-Lex 
(europa.eu) 

(36)  Incl. policy action reported in the National Reform 

Programme, as well as in the RRF reporting (bi-annual 
reporting on the progress with implementation of milestones 
and targets and resulting from the payment request 
assessment). 

(37)  Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here takes into 
account the degree of implementation of the measures 
included in the RRP and of those done outside of the RRP at 
the time of assessment.  Measures foreseen in the annex of 
the adopted Council Implementing Decision on the approval 
of the assessment of the RRP which are not yet adopted nor 
implemented but considered as credibly announced, in line 
with the CSR assessment methodology, warrant “limited 
progress”. Once implemented, these measures can lead to 
“some/substantial progress” or “full implementation”, 
depending on their relevance. 

27 

Limited Progress25%Some Progress67%Substantial Progress8% 
 
                                                 
   
 
 
Table A4.1: Summary table on 2019, 2020 and 2021 CSRs 

(Continued on the next page) 

28 

LatviaAssessment in May 2022*RRP coverage of CSRs until 20262019 CSR1Some ProgressEnsure that the nominal growth rate of net primary government expenditure does not exceed 3,5 % in 2020, corresponding to an annual structural adjustment of 0,5 % of GDP.Not relevant anymoreNot applicableReducetaxationforlow-incomeearnersbyshiftingittoothersources,particularlycapitalandproperty,andbyimprovingtaxcompliance. Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2026.Ensure effective supervision and the enforcement of the anti-money laundering framework.Substantial ProgressRelevant RRP measures planned as of 2021, 2022, 2024 and 2025.2019 CSR 2Some ProgressAddress social exclusion notably by improving the adequacy of minimum income benefits, minimum old-age pensions and income support for people with disabilities.Some ProgressRelevant RRP measures planned as of 2021 and 2022.Increase the quality and efficiency of education and training in particular of low-skilled workers and jobseekers, including by strengthening the participation in vocational education and training and adult learning.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023,  2024 and 2026.Increase the accessibility, quality and cost-effectiveness of the healthcare system.Limited ProgressRelevant RRP measures planned as of 2022, 2023 and 2024.2019 CSR 3Some ProgressFocus investment-related economic policy on innovation, Limited ProgressRelevant RRP measures planned as of 2022, 2023 and 2024.the provision of affordable housing,Limited ProgressRelevant RRP measure planned as of 2021.transport, in particular on its sustainability,Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2026.resource efficiency  and energy efficiency, energy interconnectionsSome ProgressRelevant RRP measures planned as of 2022 and 2023.and  digital infrastructure, taking into account regional disparities.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024, 2025 and 2026.2019 CSR4Some ProgressStrengthen the accountability and efficiency of the public sector, in particular with regard to local authorities and State-owned and municipal enterprises and the conflict of interest regime.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024, 2025 and 2026.2020 CSR1Limited ProgressTakeallnecessarymeasures,inlinewiththegeneralescapeclauseoftheStabilityandGrowthPact,toeffectivelyaddresstheCOVID-19pandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuring debt sustainability, while enhancing investment. Not relevant anymoreNot applicableStrengthentheresilienceandaccessibilityofthehealthsystemincluding by providing additional human and financial resources.Limited ProgressRelevant RRP measures planned as of  2022, 2023 and 2024.2020 CSR2Some ProgressProvide adequate income support to the groups most affected by the crisis Some ProgressRelevant RRP measure planned as of  2021.and strengthen the social safety net. Some ProgressRelevant RRP measures planned as of  2021 and 2022.Mitigate the employment impact of the crisis, including through flexible working arrangements,Some Progress active labour market measures and skills. Some ProgressRelevant RRP measures planned as of  2021, 2022, 2023, 2024 and 2026. 
 
 
     
 
Table (continued) 

* See footnote (37).   

Source: European Commission 

29 

2020 CSR 3Some ProgressEnsure access to liquidity support by firms and in particular small and medium-sized enterprises. Some ProgressFront-load mature public investment projects Some ProgressRelevant RRP measure planned as of 2022.and promote private investment to foster the economic recovery.Some ProgressRelevant RRP measures planned as of  2022, 2023 and 2024.Focusinvestmentonthegreenanddigitaltransition,inparticularonresearch and innovation, Limited ProgressRelevant RRP measures planned as of   2022, 2023 and 2026.clean and efficient production and use of energy, Some ProgressRelevant RRP measures planned as of 2022 and 2023.sustainable transport Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2026.and digital infrastructures.Some ProgressRelevant RRP measures planned as of  2021, 2022, 2023, 2024, 2025 and 2026.2020 CSR 4Substantial ProgressContinue progress on the anti-money-laundering framework. Substantial ProgressRelevant RRP measures planned as of  2021, 2022, 2023, 2024 and 2025.2021 CSR1Substantial ProgressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationallyfinancedinvestment.Keepthegrowthofnationallyfinanced current expenditure under control. Full ImplementationNot applicableWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Substantial ProgressNot applicableAtthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasures,inordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Substantial ProgressNot applicableGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacy,andsustainabilityofhealthand social protection systems for all.Limited ProgressNot applicable 
 
 
     
 
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

intends 

The  European  Green  Deal 
to 
transform the  EU  into a  fair and prosperous 
society,  with  a  modern,  resource-efficient 
and competitive economy where there are no 
net  emissions  of  greenhouse  gases  in  2050 
and  where  economic  growth  is  decoupled 
from resource use. This Annex offers a snapshot 
of  the  most  significant  and  economically  relevant 
developments  in  Latvia  in  the  respective  building 
blocks  of 
is 
complemented by Annex 6 on the employment and 
social impact of the green transition and Annex 7 
for circular economy aspects of the Green Deal. 

the  European  Green  Deal. 

It 

as 

road 

buildings, 

By  2020,  Latvia’s  total  greenhouse  gas 
significantly 
emissions  have  decreased 
compared  to  1990,  and 
in  sectors  not 
covered by the EU Emissions Trading System 
transport, 
(such 
agriculture and waste) Latvia reached the EU 
2020  target.  The  government  has  committed  to 
reaching  climate  neutrality  by  2050  and  in  its 
national  energy  and  climate  plan  (NECP),  Latvia 
intends  to  achieve  its  current  target  under  the 
Effort Sharing Regulation of -6% for 2030.  Latvia 
has  targeted  additional  climate  mitigation  and 
adaptation measures but there is no certainty that 
they  are  sufficient  to  reach  the  agreed  2030 
target  for  sectors  not  covered  by  the  Emissions 
Trading System (ETS). The integrated NECP largely 
develops  the  approach  for  mitigating  greenhouse 
emissions  and  adapting  to  a  changing  climate. 
However,  under  its  current  land  management 
practices, Latvia is projected to see increasing net 
emissions  in  the  land  use  sector  by  2030.  In  its 
recovery and resilience plan (RRP), Latvia allocates 
37,6%  of  the  plan  to  climate  objectives  and 
outlines crucial reforms and investments to further 
the  transition  to  a  more  sustainable,  low-carbon 
and climate-resilient economy (38). 

transport 

taxes.  Environmental 

especially for energy taxes, which are driving total 
environmental  taxes  and  contribute  to  one  of  the 
highest revenues in the EU, as well as, to a smaller 
tax 
extent, 
revenues  as  share  of  GDP  are  decreasing  over 
time.  At  the  same  time,  the  Latvian  government 
spends  a  smaller  share  of  its  expenditure  on 
environmental  protection  than  in  the  EU  overall. 
Budgetary  exposure 
is 
considered low. 

to  climate  hazards 

Graph A5.1: Fiscal aspects of the green transition 

Source: Eurostat 

Latvia  was  one  of  the  Member  States  with 
the highest share of renewable energy in its 
energy mix (44%) in 2020. However, Latvia still 
depends  largely  on  imported  fossil  fuels,  such  as 
natural gas and oil. In view of the clean transition, 
Latvia  needs  to  significantly  invest  in  additional 
renewable energy capacities and energy efficiency 
solutions,  notably  in  transport  and  buildings,  to 
achieve more ambitious targets for 2030. 

Graph A5.2: Thematic – Energy  
Share in energy mix (solids, oil, gas, nuclear, 
renewables) 

is  below  average 

Latvia  is  amongst  the  countries  collecting 
the  most  revenue  from  environmental  taxes 
but 
in  government 
expenditure  on  environmental  protection. 
Latvia’s environmental tax revenues as a share of 
total tax revenues, as well as in terms of GDP, are 
in  the  EU.  This  holds 
amongst  the  highest 

(1)  The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste 
Source: Eurostat 

(38)  The share of financial allocation contributing to climate 

objectives has been calculated using Annex VI of the RRF 
Regulation. 

The  protection  of  biodiversity 
in  Latvia 
presents  significant  challenges,  with  less 

30 

0.02.04.06.08.010.012.0Environmental taxes (%of GDP)Environmental taxes (%of total taxation)Government expenditureon environmentalprotection (% of totalexpenditure)LV (2020)EU27 (2020)020406080100200520102015201820192020LVSolid fossil fuels, peat and oil shaleOilGasNuclearRenewables 
 
 
                                                 
  
  
 
 
Graph A5.4: Thematic – Mobility  
Share of zero emission vehicles (% of new 
registrations) 

comprehensive  approach 

than  10%  of  protected  habitats  having  a 
favourable  conservation  status.  Latvia  needs 
to  develop  a 
to 
ecosystem  services  and  incorporate  the  goals  of 
biodiversity  conservation and  sustainable  use into 
other  sectors,  notably  forestry  and  agriculture, 
since  90%  of  the  assessments  of  protected 
forests and grasslands show a bad to poor status. 
With  18%  of  total  land  designated  as  terrestrial 
protected  areas,  the  country  is  below  the  EU 
average,  though  with  15%  of  its  land  area  under 
organic farming Latvia ranks sixth in the EU. 

(1)  Zero emission vehicles include battery and fuel cell 
electric vehicles (BEV, FCEV). 
Source: European Alternative Fuels Observatory.  

In  terms  of  pollution,  air  quality  in  Latvia  is 
generally good with exceptions. While Latvia is 
projected 
reduction 
commitments  for  most  air  pollutants  for  the 
period  2020  to  2029,  it  will  likely  not  meet  its 
commitments for ammonia. 

emission 

reach 

to 

As regards nitrate pollution in ground water, 
the groundwater quality is generally good. At 
the  same  time,  a  high  number  of  surface  waters 
are  eutrophic.  It  is  a  problem  Latvia  shares  with 
other  countries  around  the  Baltic  Sea,  with 
extremely  high  levels  of  waters  in  the  region 
assessed to be below good eutrophication status. 

The market for zero-emission passenger cars 
is  slowly  developing.  The  share  of  new 
registrations  of  zero-emission  vehicles  remains 
much  lower  than  the  EU  average.  Latvia’s  RRP 
contains  a  measure  to  support  connection  points 
for  electric  vehicles.  However,  it  is  worth  noting 
that  the  electrification  of  the  railway  network  is 
comparatively low. 

Graph A5.3: Thematic – Biodiversity  
Terrestrial protected areas and organic farming 

(1)  For terrestrial protected areas, data for 2018 and data for 
the EU average (2016, 2017) is lacking.  
Source: European Environment Agency (EEA) (terrestrial 
protected areas) and Eurostat (organic farming) 

31 

0510152025302016201720192020LVTerrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0.02.04.06.08.010.0201620172018201920202021% of new registrationsBEEU27 
  
 
  
 
Table A5.1: Indicators underpinning progress on the EU Green Deal, from a macroeconomic perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The FF55 targets are based on the COM proposal to 
increase EU's climate ambition by 2030. Renewables and Energy Efficiency targets and national contributions under the 
Governance Regulation (Regulation (EU) 2018/1999). (2) Distance to target is the gap between Member States’ 2030 target under 
the Effort Sharing Regulation and projected emissions, with existing measures (WEM) and with additional measures (WAM) 
respectively, as a percentage of 2005 base year emissions. (3) Percentage of total revenues from taxes and social contributions 
(excluding imputed social contributions). Revenues from the ETS are included in environmental tax revenues (in 2017 they 
amounted to 1.5% of total environmental tax revenues at the EU level). (4) Covers expenditure on gross fixed capital formation to 
be used for the production of environmental protection services (i.e. abatement and prevention of pollution) covering all sectors, 
i.e. government, industry and specialised providers. (5) The climate protection gap indicator is part of the European adaptation 
strategy (February 2021), and is defined as the share of non-insured economic losses caused by climate-related disasters. 
(6) Sulphur oxides (SO2 equivalent), Ammonia, Particulates < 10µm, Nitrogen oxides in total economy (divided by GDP). 
(7) Transportation and storage (NACE Section H). (8) Zero emission vehicles include battery electric vehicles (BEV) and fuel cell 
electric vehicles (FCEV). (9) European Commission Report (2019) 'Benchmarking smart metering deployment in the EU-28'. 
(10) European Commission (2021). Each year the DESI is re-calculated for all countries for previous years to reflect any possible 
change in the choice of indicators and corrections to the underlying data. Country scores and rankings may thus differ compared 
with previous publications.  

Source: Eurostat, JRC, European Commission, EEA, EAFO. 

32 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (2)8.61%-1%-6%-24-17%-13-7200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%32%37%39%40%41%42%50%Energy efficiency: primary energy consumption (1)Mtoe4.54.34.54.74.64.34.1Energy efficiency: final energy consumption (1)Mtoe4.03.84.04.24.13.93.6201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP3.53.63.53.42.93.12.42.42.2Environmental taxes (% of total taxation)% of taxation (3)11.811.711.210.99.69.86.05.95.6Government expenditure on environmental protection% of total exp.1.701.421.401.471.511.321.661.701.61Investment in environmental protection% of GDP (4) 0.620.280.270.27--0.420.380.41Fossil fuel subsidiesEUR2020bn0.240.230.700.130.13-56.8755.70-Climate protection gap (5)score 1-4Net GHG emissions1990 = 100434343434541797669GHG emissions intensity of the economykg/EUR'100.580.570.560.560.550.520.320.310.30Energy intensity of the economykgoe/EUR'100.210.200.200.200.190.190.120.110.11Final energy consumption (FEC)2015=100100.0100.9106.0110.3107.7101.8103.5102.994.6FEC in residential building sector2015=100100.0103.4108.1111.3107.5100.9101.9101.3101.3FEC in services building sector2015=100100.0101.1103.5101.097.093.9102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)2.992.762.652.562.53-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.8868798921101924-863762-Years of life lost due to air pollution by NO2per 100.000 inh.70342242< 1-12099-Nitrate in ground watermg NO3/litre4.24.35.93.94.7-21.720.7-Terrestrial protected areas% of total-11.418.1-18.218.2-25.725.7Marine protected areas% of total-15.8--15.8--10.7-Organic farming% of total utilised agricultural area12.313.413.914.514.814.88.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'101.381.291.311.291.321.290.890.870.83Share of zero emission vehicles (8)% in new registrations0.10.20.40.80.62.11.01.95.44462338812Share of electrified railways%13.413.513.513.513.5-55.656.0-21.620.621.819.820.3-28.928.8-YearLVEUShare of smart meters in total metering points (9) - electricity% of total201836.335.8Share of smart meters in total metering points (9) - gas% of total20180.013.1ICT used for environmental sustainability (10)%202165.465.9Progress to policy targetsNational contribution to 2030 EU targetLATVIAEU'Fit for 55'DistanceDistanceDigitalFiscal and financialindicators0.9 out of 4 (slight decrease from historical level of 1.3). This is a low risk category (4 being a high risk).ClimateEnergyPollutionBiodiversity2000-20062006-20122012-20181.54.12.1MobilityNumber of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver) 
 
  
 
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social dimension.  While measures in this regard 
include the opportunity for sustainable growth and 
job creation, it must also be ensured that no one is 
left  behind  and  all groups  in  society  benefit  from 
the  transition.  Latvia’s  green  transition  provides 
potential  for  job  creation,  though  employment  in 
the  sector  of  peat  extraction  as  well  as  lower-
income  groups  are  likely  to  face  challenges  from 
the transition. 

also 

support 

in  the  regions  to 

Latvia’s  recovery  and  resilience  plan  (RRP) 
outlines  some  investment  contributing  to  a 
fair  green  transition.  The  plan 
includes 
investment  in  the  energy  efficiency  of  public  and 
residential  buildings,  as  well  as  in  electric  school 
buses 
improve  access  to 
education  for  all  children,  while  contributing  to 
greening the municipal transport stock. Altogether, 
37.6%  of  RRP  investment  is  dedicated  to  green 
measures,  which  will 
the 
implementation  of  Latvia’s  national  energy  and 
climate  plan  (NECP)  of  3 February  2020. 
In 
synergy  with  the  Recovery  and  Resilience  Facility, 
the  European  Social  Fund  Plus  (ESF+)  will  help 
unlock  the  potential  of  more  jobs  through  active 
labour  market  policies;  and  the  Just  Transition 
Fund (EUR 191.6 million in current prices) will help 
mitigate  the  social  impact  of  the  transition  in 
eligible  Latvian  regions  (see  Annex  3).  The  NECP 
takes  into  account  the  impact  of  the  green 
transition  on  employment  and  energy  poverty  to 
some  extent  and  aims  to  keep  energy  poverty 
below 7.5% by 2030. EU support for Latvia’s Just 
Transition  Plan  will  help  the  country  reduce 
greenhouse gas emissions in the peat sector while 
supporting  economic  restructuring  and  mitigating 
the  social  impact  in  the  most  affected  regions, 
notably  by  re-skilling  and  upskilling  the  affected 
workers. 

reduced 

its  carbon 
The  economy  has 
footprint  and  the  green  economy  provides 
potential  for  job  creation,  although  energy-
remain  sizeable.  The 
intensive  sectors 
greenhouse gas emissions intensity of the Latvian 
economy  decreased  slightly  between  2015  and 
2020  (in  terms  of  gross  value  added)  and  stands 
significantly  over  the  EU  average,  whereas  the 
average  carbon  footprint  per  worker  is  at  11.3 
tonnes  of  greenhouse  gas  emissions  (against 
13.61 in the EU) (see Figure 1). In Latvia, the peat 
identified  as  a 
extraction  industry  has  been 

33 

the 

potential 

sector  with 

declining 
for 
into  a  more  environmentally 
transformation 
sustainable,  climate  friendly  and  carbon  neutral 
industry.  This  is  likely  to  determine  the  need  for 
job  transitions  in  the  affected  regions,  for  which 
up-  and  re-skilling  will  be  particularly  important 
(see  Annex  15).  Latvia’s  energy-intensive  industry 
(EII),  including  metals,  chemicals  and  paper (39), 
has  very  slightly  increased  and  provides  jobs  to 
1.9% of  the  total  employed  workforce,  while  the 
environmental  goods  and services  sector provides 
jobs  to  a  3.0%  share  of  the  employed  population 
in  the  EU) (40).  Labour  shortages  are 
(2.2% 
emerging  in  greening  sectors  such  as  agriculture 
and 
technical 
activities (41).  

professional, 

scientific 

and 

As  for  the  social  dimension  of  the  green 
transition,  ensuring  access  to  essential 
transport  and 
services  poses 
energy 
challenges  for  Latvia.  The  share  of  the  rural 
population  at  risk  of  poverty  decreased  to  25.5% 
in  2020,  remaining  above  the  EU  average  of 
18.7% (42). A significant decrease took place in the 
share of the population being unable to keep their 
homes  adequately  warm,  falling  from  14.5%  in 
2015  to  6%  in  2020,  which  is  below  the  EU 
average (8.2%). However, lower-income groups are 
affected  by  energy  poverty  to  a  greater  extent 
(see  Figure  2).  Consumption  patterns  vary  across 
the population: the average carbon footprint of the 
top 10% of emitters is about 5.8 times higher than 
that  of  the  bottom  50%  of  the  population 
(compared to 5.3 times in the EU). 

Tax  systems  are  key  to  ensuring  a  fair 
transition  towards  climate  neutrality (43). 
Since 2015, Latvia’s revenues from environmental 
taxes  have  fallen  from  3.5%  of  GDP  in  2015  to 

(39)  2020 European Semester: Overview of Investment Guidance 
on the Just Transition Fund 2021-2027 per Member State 
(Annex D) 

(40)  There is currently no common EU-wide definition of green 

jobs. The environmental goods and services sector accounts 
only report on an economic sector that generates 
environmental products, i.e. goods and services produced for 
environmental protection or resource management. 

(41)  Eurofound (2021), Tackling labour shortages in EU Member 

States, Publications Office of the European Union, 
Luxembourg. 

(42)  Based on COM(2021) 568 final (Annex I) as a proxy for 

potential transport challenges in the context of the green 
transition (e.g. due to vulnerability to fuel prices). 

(43)  COM(2021) 801 final. 

 
 
                                                 
 
3.0%  in  2019,  and  slightly  increased  to  3.1%  in 
2020  (against  2.2%  in  the  EU).  Although  the 
labour  tax  wedge  for  low-income  earners (44) 
decreased from 40.8% in 2015 to 35.3% in 2021, 
it  remains  above  the  EU  average  of  31.9%  (see 
Annex 17). Reducing the tax wedge on low-income 
earners by shifting it to other sources (2019 CSR) 
requires  more  focused  efforts  from  Latvia  to 
ensure a socially fair green transition. 

Graph A6.1: Fair green transition challenges 

Numbers are the normalised indicator performance, signifying 
factors relative to the EU27 average.  
Carbon inequality: average emissions per capita top 10% vs 
bottom 50% (2019).  
Source: Eurostat, World Inequality Database 

Graph A6.2: Energy poverty by income decile 

HH050: Ability to keep home adequately warm. 
HY020: Total disposable household income  
Source: Eurostat EU-SILC survey (2020) 

(44)  Tax wedge for a single earner at 50% of the national 
average wage (Tax and benefits database, European 
Commission/OECD). 

34 

0.000.501.001.502.002.50GHG tonnes per Euroof gross added value(MS/EU)GHG tonnes perworker (MS/EU)Employment share inenergy-intensiveindustries (MS/EU)Share of population inrural areas at risk ofpoverty (MS/EU)Energy poverty(MS/EU)Carbon inequality(MS/EU)LatviaEU 2020Latvia 20150%5%10%15%20%25%12345678910Unable to keep home adequately warm (per income decile)Income decileLatviaEuropean Union 
  
 
   
                                                 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 

while 

minimising 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
industry 
clean 
creating  markets 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chains  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics,  helping  create  sustainable, 
local and well-paid jobs across Europe. 

for 

by 

Latvia  has  a  worrying  trend  for  circular 
material  usage.  The  circular  (secondary)  use  of 
material  in  Latvia  dropped  from  5.3%  in  2014  to 
4.2%  in  2020,  well  below  the  EU  average  of 
12.8%  and  showing  a  clear  deterioration  in  the 
indicator’s performance over time. 

Latvian  resource  productivity  is  well  below 
the EU average. Resource productivity expresses 
how  efficiently 
the  economy  uses  material 
resources  to  produce  wealth.  Improving  resource 
productivity  can  help  minimise  negative  impacts 
on  the  environment  and  reduce  dependence  on 
volatile raw material markets. With 1.6 purchasing 
power standard (PPS) generated per kg of material 
consumed in 2020, resource productivity in Latvia 
is  well  below  the  EU  average  of  2.2  PPS  per  kg. 
Material intensity is about 15% higher than the EU 
average.   

Latvia  falls  behind  its  re-use  and  recycling 
targets.  Latvia  improved  its  municipal  waste 
recycling  rate  from  25.2%  in  2018  to  39.6%  in 
2020,  but  nevertheless  falls  behind  EU  2020 
target  of  recycling  50%  of  municipal  waste,  as  a 
lack  of  incentives  for  municipalities  holds  back 
investment in separate collection. Furthermore, the 
amount  of  municipal  waste  generated  increased 
from  407  kg/capita  in  2018  to  478  kg/capita  in 
2020,  indicating  that  Latvia’s  economic  growth  is 
not  yet  decoupled  from  its  generation  of  waste. 
With a reform of waste management regions and 
the  introduction  of  the  deposit  system  for  plastic 
and glass bottles Latvia is taking steps in the right 
direction.  However,  there  is  room  for  further 
improvement in waste management, recycling and 
the quality of data on waste collection. 

Competitiveness  and  innovation  in  green 
technology  is  hampered  by  low  levels  of 
making 
private 

investment. 

Despite 

improvements, Latvia scores below average on the 
2021  Eco-Innovation  Index.  This  can  partly  be 
explained  by  low  environmental  expenditure  by 
Latvian  businesses  as  well  as  little  investment  in 
R&D, which has one of the lowest rates in the EU. 
While  investment  in  environmental  protection  has 
increased  year  on  year  for  the  past  5  years, 
private investment has been growing more slowly 
than  public  expenditure  despite  accounting  for 
roughly  37%  of  the  investment  in  2020 (45).  The 
value  added  by  circular  economy  goods  and 
services  relative  to  GDP  is  on  par  with  the  EU 
average (0.97%).  

(45)  Latvia Central Statistic Office, 2020 

35 

 
 
 
                                                 
 
 
Graph A7.1: Municipal waste treatment 

Source: Eurostat 

Table A7.1: Selected resource efficiency indicators 

Source: Eurostat 

36 

4044104114074394780100200300400500600201520162017201820192020Kg per capita Material recyclingComposting and digestionTotal incineration (including energy recovery)Landfill/disposalDifference waste generated/treatmentEU 27SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)1.41.61.51.41.51.42.22020Material Intensity (kg/EUR)0.70.60.70.70.70.70.42020Circular Material Use Rate (%)5.36.55.44.74.34.212.82020Material footprint (Tones/capita)15.814.616.517.918.0-14.62019Waste Waste generation (kg/capita, total waste)-975-920--52342018Landfilling (% of total waste treated)-20.3-26.9--38.52018Recycling rate (% of municipal waste)28.725.224.825.241.039.647.82020Hazardous waste (% of municipal waste)-3.50-4.40--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)2.82.72.82.42.6-2.32019Private investment in circular economy (% of GDP)0.30.30.40.2--0.12018Latest year EU 27 
 
   
 
   
 
Latvia  performs  well 
in  digital  public 
services.  Latvia  scores  above  the  EU  average  in 
all categories. Its share of e-government users far 
exceeds the EU average.. Latvia keeps scoring well 
above the EU average in digital public services for 
citizens  and  slightly  above  the  average  for 
businesses.  Digital  skills  among  public  employees 
and  availability  of  ICT  tools  remain  essential  to 
delivering high-quality digital public administration 
services. 

ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The  areas  of  human  capital,  digital  connectivity, 
the 
technologies  by 
businesses  and  digital  public  services  reflect  the 
Digital  Decade’s  four  cardinal  points (46).  This 
Annex describes Latvia’s DESI performance.  

integration  of  digital 

The  Latvian  recovery  and  resilience  plan 
allocates  21%  of  its  budget  to  address 
Latvia’s  main  digital  challenges.  Its  main 
objectives  are  tackling  the  digital  skills  gap  and 
boosting  digital  transformation  and  innovation  of 
businesses as well as maintaining its front-runner 
position 
the  modernisation  and  digital 
transformation  of  public  services.  Investments  in 
5G  backhaul  and  last-mile  connectivity  are  also 
planned. 

in 

Although  it shows a good gender balance  on 
this  issue,  tackling  the  digital  skills  gap 
remains  one  of  Latvia’s  main  digital 
challenges.  Latvia  is  below  the  EU  average  in 
its 
basic  digital  skills  with  almost  half  of 
population  still  lacking  basic  digital  skills.  The 
country’s  performance  is  above  average  when  it 
comes to ICT graduates and female ICT specialists 
but the shortage of digital skills and ICT specialists 
is a key obstacle to more widespread use of digital 
solutions by the private sector in Latvia.  

Despite  its  excellent  performance  in  very 
high capacity network coverage, Latvia needs 
to  boost  5G  deployment.    Latvia  performs 
above  the  EU  average  on  very  high  capacity 
network  coverage  and  has  already  allocated  a 
radio  spectrum  for  5G  but  limited  commercial  5G 
services  are  available 
to  businesses  and 
individuals (47).  

Digitalisation  of  businesses 
remains  a 
pending  issue  for  Latvia.  Latvia  is  well  below 
the  EU  average  in  all  categories.  Slightly  over  a 
third  of  small  and  medium-sized  firms  have  at 
least basic digital intensity, and Latvian firms have 
difficulties  filling  vacancies  for  digital  specialists. 
The use of big data is stagnating and the take-up 
of AI and cloud services is below the EU average.  

(46)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM (2021) 118 final 

(47)  There have been deployments since the data was collected. 

In 2021 

37 

 
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A8.1: Key Digital Economy and Society Index indicators 

(*) The 5G coverage indicator does not measure users’ experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 

38 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA51%54%79%% individuals202120212021ICT specialists3.0%3.6%3.8%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists24%23%23%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage88%88%91%70%100%% households201920202021202120215G coverage (*)NA0%0%66%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA38%55%86%% SMEs202120212021Big data8%9%9%14%31%% enterprises20182020202020202020CloudNANA22%34%69%% enterprises202120212021Artificial IntelligenceNANA4%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA8775100Score (0 to 100)202120212021Digital public services for businessesNANA8682100Latvia 
 
  
 
ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

is  an  emerging 

This  Annex  provides  a  general  overview  of 
Latvia’s  research  and  innovation  system. 
Latvia 
innovation  performer 
according  to  the  2021  edition  of  the  European 
Innovation  Scoreboard (48),  but  its  corresponding 
score  deteriorated 
in  2020  after  a  steady 
improvement  in  2014-2019.  The  increase  in  the 
Latvian  research  and  innovation  (R&I)  intensity  is 
slow with the total gross domestic expenditure on 
R&D  remaining  below  0.71%  of  the  GDP,  one  of 
the lowest in the EU.  

Latvia  outlines  ambitious 
reforms  and 
investment  to  improve  its  R&I  governance 
and  the  innovation  environment  in  their 
recovery and resilience plan. However, there is 
a need to ensure the sustainability of the funding 
after  2026.  Latvia  should  provide  access  to 
alternative  financing,  such  as  joint  investment  to 
de-risk  projects.  It  should  also  utilise  financial 
support,  such  as  tax  incentives  or  government 
subsidies,  to  stimulate  R&D  investment  in  the 
private sector. 

as 

as  well 

graduates 

Latvia  faces  a  shortage  of  highly  skilled 
workers  due  to  the  decreasing  number  of 
STEM 
the 
unattractiveness  of  academic  careers.  The 
lack of researchers and PhD students is one of the 
main  barriers  to  strengthening  the  Latvian  R&I 
system  especially  in  the  private  sector.  This  skills 
shortage  is  further  hindered  by  the  decreasing 
in  science  and 
number  of  new  graduates 
engineering from 13.1 per thousand of population 
in  2010  to  8.8  in  2019  (see  also  Annex  13).  The 
Latvian  recovery  and  resilience  plan  introduces 
various  reforms  of  the  higher  education  system 
that aim to align university courses with industrial 
needs and improve  the attractiveness of research 
careers.  

Most  R&D  activities  are  performed  in  public 
research  institutes  and  small/medium  sized 
Latvian firms have limited access to finance 
during their scale-up stage. There has been an 
overall  decrease  in  venture  capital  investment  in 
Latvia in the last 5 years from 0.022% of GDP in 
2015 to only 0.012% in 2020  (the EU  average in 
2020  was  0.054%).  This  has  impacted  innovative 
small/medium  firms  whose  employment  share 
decreased  from  5.2%  in  2015  to  4.6%  in  2020. 
Moreover,  private  Latvian  R&D  investment  is 
stagnating  in  2020  it  was  0.22%  of  GDP,  about 
the  same  as  it  had  been  10  years  earlier.  This  is 
well below the  EU  average  of  1.53%  of GDP.  The 
low  level  of  business  R&D  activities  is  driven  by 
factors  such  as  the  shortage  of  highly  skilled 
workers  and  very  low  level  of  public  support  for 
private  R&D  investment  (0.028%  of  GDP  in  2019 
compared to the EU average of 0.196%). 

(48) 2021 European Innovation Scoreboard, Country profile: 

Latvia 
https://ec.europa.eu/docsroom/documents/45922/attachment
s/1/translations/en/renditions/native  

39 

 
 
                                                 
 
Table A9.1: Key research, development and innovation indicators 

Source: DG Research and Innovation - Common R&I Strategy and Foresight Service - Chief Economist Unit 
Data: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and European Patent Office (EPO’s) Patent Statistical database), 
Invest Europe 

40 

CompoundEUannual growthaverage2010-20R&D Intensity (GERD as % of GDP)0.610.620.640.640.711.62.32Public expenditure on R&D as % of GDP0.380.470.480.470.492.50.78Business enterprise expenditure on R&D (BERD) as % of GDP0.220.150.160.170.22-0.31.53Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 1.54.34.7::15.39.9PCT patent applications per billion GDP (in PPS)1.10.80.8::-3.43.5Public-private scientific co-publications as % of total publications4.96.46.16.66.93.49.05New graduates in science & engineering per thousand pop. aged 25-3413.19.78.88.8:-4.916.3Total public sector support for BERD as % of GDP:0.0670.0270.028:5.60.196R&D tax incentives: foregone revenues as % of GDP0.00.0020.00.0::0.100Share of environment-related patents in total patent applications filed under PCT (%)0.00.03.0:::12.8Venture Capital (market statistics) as % of GDP0.0160.0220.0150.0120.012-2.40.054Employment in fast-growing enterprises in 50% most innovative sectors3.25.25.04.6:4.05.52020Latvia2010201520182019Finance for innovation and Economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation  
 
     
 
ANNEX 10: INDUSTRY AND SINGLE MARKET 
ANNEX 10: INDUSTRY AND SINGLE MARKET 

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence  over  the  long  run (49).  A  major 
source  of  productivity  for  the  EU  economy  is  a 
well-functioning  single  market,  where  fair  and 
effective  competition  and  a  business-friendly 
environment  are  ensured,  in  which  small  and 
medium  enterprises  (SMEs)  can  operate  and 
innovate  without  difficulty.  Businesses  and 
industry  rely  heavily  on  robust  supply  chains  and 
are facing bottlenecks that bear a negative impact 
on firms’ productivity levels, employment, turnover 
and  entry/exit  rates.  This  may  impact  Latvia’s 
capacity  to  deliver  on  Europe’s  green  and  digital 
transformation.  

in  the 

last  20  years, 

Latvia’s  labour  productivity  level  still  lags 
the  EU  average  and  shows  significant 
considerable 
regional  differences.  Despite 
improvements 
labour 
productivity still stands at 60% of the EU average, 
roughly  10%  points  behind  its  Baltic  neighbours 
(see  Annex  18).  It  is  highest  in  the  capital  Riga 
(81%  of  the  EU  average)  and  the  surrounding 
region  of  Pieriga  (77%),  followed  by  Kurzeme 
(53%),  Zemgale 
(47%)  and 
Latgale (37%) (50).  

(50%),  Vidzeme 

firms. 

private 

longer  term.  The 

Private  investment  as  a  share  of  GDP  is 
below the EU average, which is partially due 
to  poor  access  to  finance,  in  particular  for 
sector 
Although 
smaller 
investment came close to the EU average in 2020 
(when  it  stood  at  18.8%  of  GDP),  it  had  been 
consistently  below  the  EU  average  since  2016, 
raising  concern  about  Latvia’s  convergence 
prospects  over  the 
largest 
shortfall  compared  to  the  EU  average  is  in 
investment  in  housing  and  intellectual  property. 
Low  investment  is  partially  due  to  obstacles  in 
access  to  finance.  Despite  improvements,  loan 
rejection  rates in  Latvia  for  small/mid-sized  firms 
are  still  roughly  4%  pps  above  the  EU  average. 
Latvian  firms  of  this  size  face  relatively  higher 
barriers to getting credit than peers in most other 
EU  countries.  Only  41%  of  small/mid-sized  firms 
feel  confident  in  talks  with  banks  (the  lowest 
proportion in the EU) and only 16% expect a loan 
application 
obstacles. 
Moreover, Latvian companies are more dissatisfied 

proceed  without 

to 

than  other  EU  companies  with  the  collateral 
requirements  (29%  vs  6%),  the  cost  of  finance 
(21% vs  5%), and banks’ credit standards, which 
are  stricter  in  Latvia  than  in  other  euro  area 
countries.  The  high  cost  of  traditional  finance 
means  that  around  25%  of  firms  report  having 
invested too little over the last 3 years, above the 
14%  EU  average. (51)  The  share  of  smaller  firms 
who  experience  late  payments  is  below  the  EU 
in 
average.  However,  business 
investment  protection  before  the  courts,  in  case 
something goes wrong, is one of the lowest in the 
EU  (34%  vs  56%  EU  average).  Furthermore, 
alternative  sources  of  finance  such  as  venture 
capital  and  crowdfunding  are  underdeveloped  in 
Latvia and constitute a tiny share of financing for 
small and medium-sized firms.  

confidence 

for 

remain 

Although  Latvia  has  initiated  a  number  of 
reforms,  barriers 
several 
regulated  professions  in  Latvia.  Regulatory 
restrictiveness  in  Latvia  is  higher  than  the  EU 
average for architects, lawyers, civil engineers and 
patent agents. No related measures are planned in 
the  recovery  and  resilience  plan  (RRP).  Latvia  still 
has  a  fragmented  system  when  it  comes  to  civil 
engineers  and  architects  whereby  multiple 
certification  requirements  remain  for  different 
categories  of  professions  in  the  same  area  of 
activity.   

strides 
improved 

has  made 
It  has 

public 
in 
Latvia 
procurement. 
its  public 
procurement  performance  and,  notwithstanding 
poor  performance  in  the  proportion  of  contracts 
awarded  where  there  was  just  a  single  bidder, 
Latvia finds itself among the top EU performers in 
the  participation  rate  in  public  bids  and  contracts 
by small and medium-sized firms. The Latvian RRP 
contains a number of measures that aim to invest 
in  public  procurement  structures  that  will  further 
benefit SMEs.  

During  the  Covid-19  pandemic  (2021-21), 
Latvia  has  been  less  badly  affected  by 
supply chain disruptions due to its industry’s 
comparatively  low  reliance  on  the  supplies 
facing  global  shortages.  Businesses  have 
reported  fewer  manufacturing  shortages  than  on 
average  across  the  EU  with  material  shortages 
nearly 10 percentage points below the EU average. 
Latvia’s  concentration  of  raw  materials  is  on  par 

(49)  Annual Sustainable Growth Survey 

(50)  European Commission (2021): Regional fact sheets, Selected 

indicators by NUTS-3 region, Latvia 

(51)  European Investment Bank Survey, 2021.  

41 

 
 
                                                 
                                                 
 
with the EU average (0.16 vs EU average of 0.17). 
Latvian  industry’s  dependence  on  domestic inputs 
is  about  the  same  as  EU  average,  but  imports 
from  within  the  EU  play  a  greater  role  in  Latvia 
than  they  do  for  other  EU  Member  States. 
However,  unprovoked  aggression  of  Russian 
Federation 
in  Ukraine  will  pose  significant 
challenges for existing supply chains, in particular 
raw  materials  necessary  for  manufacturing  and 
construction 

42 

 
Table A10.1: Key Single Market and Industry indicators 

(Continued on the next page) 

43 

SUB-POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average*Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]62.762.6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]22.3719.7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]14.917.6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]114.597.8105.199.193.222.9%127.3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]5.8%5.4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0.160.160.170.190.160%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]57.2057.3057.0056.401%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]0.30.6-1-2.2-113.6%2.6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]1.61.11.70.6167%0.4%HEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependenciesInvestment dynamics 
 
 
 
  
 
Table (continued) 

(*) latest available 
Source: See above in the table the respective source for each indicator in the column “description”. 

44 

Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]2.422.272.242.052.286%1.59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])3   1200%3.37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]n.a.45%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]On averageAboveAbove averageAbove averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]On averageOn averageOn averageAbove averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]3456%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.70.1 (2020)Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.105.6Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]36.536.556.5n.a.n.a.-35%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.20.420.220.21-4.7%0.56 (2020)EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.140.160.140.1213.6%0.18 (2020)% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]16.34227.516.90n.a.12.4%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]9291906933.3%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]9291866835%70.8%Business demographyAccess to financeBUSINESS ENVIRONMENT - SMEsPublic procurement SINGLE MARKETCompliance - cooperation EC and MS 
 
  
 
ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress,  and 
fairness. Public administrations at all government 
levels deliver crisis response, ensure the provision 
of  public  services  and  contribute  to  building  the 
resilience needed for the sustainable development 
of the EU economy.  

in  Latvia 
Overall,  public  administration 
demonstrates  effectiveness  around 
the 
average in the EU-27 (52). Coordination between 
levels  of  government  remains  a  challenge,  while 
policy  design  and  implementation  capacity  varies 
at  central  and  local  level.  Initiatives  on  better 
regulation  and  zero  bureaucracy  included  in  the 
2020  Reform  Agenda  require  follow-up  action. 
Latvia has a structured and systematic process for 
public consultations, but scores below the average 
on  the  index  for  ex  post  evaluations.  While 
evidence-based  policymaking  has  seen  recent 
improvements  through  the  introduction  of  an  ex 
ante  evaluation  manual,  expost  evaluation 
remains limited.  

Graph A11.1: Open data maturity 

Source: Open Data Maturity | data.europa.eu 

Latvia is advanced in the digitalisation of its 
public  administration  and  the  delivery  of 
digital  services.  84%  of  individuals  use  the 
internet  to  interact  with  the  public  authorities 
(compared to 71% for EU as a whole). Latvia’s e-
government  benchmark  score  is  above  the  EU 
average and the country is in the top third for the 
user-centricity  of  its  government  digital  services. 

of 

the 

address 

challenge 

To 
system 
interoperability, the State Chancellery has set up a 
unified  platform 
for  webpages  of  public 
administration institutions and local municipalities. 
In  addition,  the  RRP  aims  to  promote  the  digital 
transformation  of  public  administration  and 
modernize  its  functions.  The  centralisation  of 
support functions is expected to improve efficiency 
and  investment  in  training  civil  servants  should 
improve  capacity.  The  measures  are  part  of  a 
broader  reform  that  aims  for  a  more  efficient, 
better motivated, innovative and competent public 
administration. 

Overall,  the  justice  system  is  functioning 
efficiently.  The  length  of  proceedings  remained 
stable  in  2020,  with  a  slight  increase  in  civil, 
criminal and administrative cases at all instances, 
and  somewhat  decreased  for  administrative  case 
in first instance.  The overall quality of the justice 
system is good and is being further improved. The 
level of digitalisation of courts and the prosecution 
services  is  high.  However,  the  Judicial  Council 
operates with a shortage of resources. On judicial 
independence, no systemic deficiencies have been 
reported. (53)  

Latvia’s  overall  performance 
in  selected 
human  resource  management  indicators  is 
above  the  EU  average.  Latvia  scores  above 
average  in  participation  by  public  administration 
employees in adult training.  Public administration 
institutions  have  proven  attractive  to  young 
employees,  particularly  due  to  the  social  benefits 
provided,  moreover  the  share  of  civil  servants 
aged over 55 stood at 18.3% (vs. 21.3% in the EU 
average).   

It 

has  made 

Latvia  has  made  significant  progress  in 
an 
public  procurement. 
improvement  on  nearly  all  public  procurement 
indicators  and  scores  above  its  Baltic  neighbours. 
Latvia scores poorly in the proportion of contracts 
awarded  where  there  was  just  a  single  bidder 
(25%)  and  has  average  performance  for  the 
proportion of procurement procedures where there 
were  no  calls  for  bids  (8%).  The  RRP  contains  a 
number of measures to bolster public procurement 
performance. 

(52)  Worldwide Governance Indicators, 2020. Latvia scores 0.98 

on a scale from -2.5 to 2.5; the EU average is 1.05. 

(53)  For more detailed analysis of the performance by the justice 
system in Latvia, see the 2022 EU Justice Scoreboard 
(forthcoming) and the country chapter for Latvia in the 
Commission’s 2022 Rule of Law Report (forthcoming). 

45 

00.10.20.30.40.50.60.70.80.9LVEU27 averageOpen Data PolicyOpen Data QualityOpen Data PortalOpen Data Impact 
 
  
                                                 
                                                 
 
Table A11.1: Public administration indicators – Latvia 

(1) High values stand for good performance barring indicators # 7 and 8. 
(2) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. 
(3) Break in the series in 2021. 
(4) Defined as the absolute value of the difference between the share of men and women in senior civil service positions.  
Source:  ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); OECD Indicators of Regulatory Policy and Governance (# 12). 

46 

LV20172018201920202021EU27183.078.080.085.084.070.82nananana80.270.93nananana76.781.1445.052.552.552.5na56.8569.670.171.973.075.255.3615.214.316.812.519.818.676.64.83.48.210.021.8817.519.420.221.218.321.390.750.880.880.88na0.72101.31.31.31.3na1.5113.01.05.04.7na-0.7121.36nana1.79na1.7Index of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and ex post evaluation of legislation Educational attainment level, adult learning, gender parity and ageingOpen government and independent fiscal institutionsParticipation rate of public administration employees in adult learning (3)Gender parity in senior civil service positions (4)Share of public sector workers between 55 and 74 years (3)E-government Public Financial Management Evidence-based policy makingIndicator (1)Medium term budgetary framework indexStrength of fiscal rules indexPublic procurement composite indicatorShare of individuals who used internet within the last year to interact with public authorities (%)2021 e-government benchmark´s overall score (2) 2021 open data maturity indexScope Index of Fiscal InstitutionsShare of public administration employees with tertiary education, levels 5-8  (3) 
 
  
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The European Pillar of Social Rights provides 
for  upward  convergence 
the  compass 
towards better working and living conditions 
in the EU. The implementation of its 20 principles 
on  equal  opportunities  and  access  to  the  labour 
market,  fair  working  conditions,  social  protection 
and inclusion, supported by the 2030  EU headline 
targets  on  employment,  skills  and  poverty 
reduction, will strengthen the EU’s drive towards a 
digital,  green  and  fair  transition.  This  Annex 
provides  an  overview  of  Latvia's  progress  in 
achieving  the  goals  under  the  European  Pillar  of 
Social Rights. 

Table A12.1: Social Scoreboard for Latvia 

(1) Update of 29 April 2022. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2022. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income.  
Source: European Commission 

While  employment  is  recovering  from  the 
COVID-19  crisis,  it  is  not  yet  back  to  pre-
crisis 
in 
relation  to  labour  market  outcomes  for  the 

levels,  and  challenges  remain 

47 

training 

low-skilled.  Following  an  increase  to  8.1%  in 
2020,  unemployment  dropped  again  to  7.6%  in 
2021.  However,  the  rate  of  young  people  not  in 
employment,  education  or 
(NEETs) 
increased from 10.3% in 2019 to 12.1% in 2021, 
reversing  the  positive  pre-pandemic  trend.  In 
addition, the low-skilled have unemployment rates 
that are respectively 1.5 and 2.8 times higher than 
for the medium- and the high-skilled. At the same 
time,  labour  shortages  were  already  sizeable 
before the pandemic, and are expected to increase 
further  in  science  and  technology,  construction, 
information  and  communication  services  and 
manufacturing. Stronger social dialogue could also 
help  achieve  better  labour  market  outcomes. 
Furthermore, in 2020, Latvia, at 22.3%, registered 
the highest  gender pay gap  in the EU,  well above 
the EU average of 13%, this in the face of one of 
the  lowest  gender  employment  gaps  (4.8%  vs 
10.8%  for  the  EU27  in  2021).  The  RRP  and 
cohesion  policy  funds  will  help  tackle  these 
challenges  by  supporting  active  labour  market 
policies targeting the low-skilled.  

Latvia  faces  challenges  in  relation  to  adult 
learning  and  digital  skills.  The  share  of  adults 
(aged  25-64)  participating  in  learning  over  the 
past 4 weeks is well below the EU average (8.6% 
vs  10.8%  in  2021) (54).  Timely  re-  and  upskilling 
are  needed  to  combat  long-term  unemployment, 
which was slightly below the EU  average in 2021 
(2.3%  vs  an  EU  average  of  2.8%).  Although  51% 
of  Latvia’s    population  has  at  least  basic  digital 
skills  (EU  average  of  54%  in  2021),  reaching  the 
low-skilled (42%) and unemployed (46%) poses an 
additional    challenge (55).  In  this  context,  adult 
learning  is  key  to  address  the  significant  skills 
mismatches  in  the  labour  market  given  that  the 
job  vacancy  rate  in  Q4-2021  stood  at  3%,  same 
level as in Q4-2019. Strengthening the quality and 
is 
inclusiveness  of  education  and 
important  for Latvia  to  contribute  to  reaching  the 
2030 EU headline target on skills.  

training 

(54)  The indicator for adult learning participation over the 

previous 4 weeks is used in the country report, rather than 
the indicator for learning over the previous 12 months, 
because (i) Adult Education Survey (AES) data for the 12-
month indicator are currently only available for 2016 and (ii) 
the new Labour Force Survey (LFS) indicator agreed for use 
in the Social Scoreboard and as the 2030 headline target for 
skills will only be available in 2023. 

(55)  Eurostat [ISOC_SK_DSKL_I21}, data as of 2021. 

7.351.012.14.86.375.37.62.3120.525.119.723.416.74.826.35.3Critical situationTo watchWeak but improvingGood but to monitorOn averageEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24) (2021)Youth NEET(% of total population aged 15-29) (2021)Gender employment gap (percentage points) (2021)Income quintile ratio (S80/S20) (2020)Individuals' level of digital skills (% of population 16-74)(2021)Dynamic labour markets and fair working conditionsSocial protection and inclusionAt risk of poverty or social exclusion for children (in %) (2020)Disability employment gap (ratio) (2020)Better than averageAt risk of poverty or social exclusion (in %) (2020)Employment rate(% population aged 20-64) (2021)Unemployment rate(% population aged 15-74) (2021)Long term unemployment(% population aged 15-74) (2021)GDHI per capita growth (2008=100) (2020)Best performersImpact of social transfers (other than pensions) on poverty reduction (% reduction of AROP) (2020)Children aged less than 3 years in formal childcare (% of under 3-years-olds) (2020)Self-reported unmet need for medical care (% of population 16+) (2020)Housing cost overburden (% of population) (2020) 
 
 
 
  
 
                                                 
 
 
faces 

in  minimum 

Latvia 
significant  poverty  and 
inequality  challenges.  Although  severe material 
and social deprivation dropped and is now close to 
the EU average (7% vs 6.8% in the EU), the risk of 
poverty  or  social  exclusion  remains  high,  albeit  is 
falling  (25.1%  in  2020,  compared  to  an  EU 
average  of  21.9%).  The  depth  of  poverty  is 
increasing (from 24% in 2016 to 28.6% in 2020) 
to  one  of  the  highest  in  the  EU.  Poverty  or  social 
exclusion  risks  for  older  people  aged  65+  (at 
43.1%) and for persons with disabilities (at 39.3%) 
remain  among  the  highest  in  the  EU.  Recent 
income,  pensions  and 
increases 
disability benefits, and universal child benefits will 
provide  some  support  to  the  poorest  10%  of  the 
population.  However,  with  the  minimum  income 
amount set at EUR 109 in 2021, the net income of 
the  benefit  recipients  still  falls  well  below  the 
poverty  line  (EUR  444  in  2021)  and  the  national 
relative household expenditure (at EUR 362). Thus 
the  current  support  provided  is  not  expected  to 
significantly  alleviate  poverty  risks  even  after  the 
annual 
indexation  of  benefits  (scheduled  for 
2023).  The  minimum  threshold  20%  of  national 
median income in the 3 previous years will remain 
inadequate, 
income 
developments. Latvia’s housing deprivation (11.5% 
in  2020)  is  among  the  highest  in  the  EU  and  the 
social  housing  stock  is  low  (2%  versus  8%  in  the 
EU).  Long-term  care  is  underdeveloped  with  low 
public  spending  (0.5%  versus  1.7%  in  the  EU  in 
2019),  and  the  share  of  people  aged  65+  with 
long-term  care  needs  is  high  and  increasing 
(38.8%  of  the  population  reported  having  those 
needs,  compared  with  26.6%  in  the  EU  in  2019) 
(long-term  care  needs  are  defined  as  severe 
difficulties in personal care activities or household 
activities).  Care  is  mostly  provided  by  informal 
carers.  Latvia’s  RRP  will  invest  in  community-
for  older  people, 
care 
based 
complementing  European  Social  Fund  Plus  (ESF+) 
funding  for  long-term  care  services,  including 
home  care  for  older  people  and  palliative  care. 
Nevertheless,  there  remains  scope  for  more 
integrated  efforts  to  strengthen  the  social  safety 
net  to  address  the  country’s  poverty  challenges, 
thereby  contributing  to  achieving  the  2030  EU 
headline target on poverty reduction.  

residential 

compared 

overall 

to 

48 

 
 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

This  Annex  outlines  the  main  challenges  for 
Latvia’s  education  and  training  system  in 
light of the EU-level targets of the European 
Education  Area  strategic  framework  and 
other  contextual  indicators,  based  on  the 
analysis  from  the  2021  Education  and 
Training  Monitor.  Latvia  performs  above the  EU 
in  early  childhood 
average  on  participation 
education,  basic  skills,  early 
from 
leavers 
education and training, and tertiary education, but 
struggles with uneven access to quality education, 
a  low  proportion  of  STEM  graduates  and  a 
pervasive gender gap.  

Participation  in  early  childhood  education 
and  care  (ECEC)  is  almost  universal  for 
children  aged  between  3  and  the  start  of 
compulsory  education,  but  enrolment  of 
younger  children  is  lower.  94.1%  of  3-6  year-
olds  were  enrolled in  ECEC  in  2019,  slightly more 
than  the  EU  average,  and  not  far  below  the  new 
EU-Level  target  of  96%  by  2030.  The  share  of 
children  under  3  enrolled  in  childcare  services 
almost  doubled  between  2009  and  2019. 
However, it remains below both the EU average of 
35.3%  and  the  Barcelona  target  of  33%,  even 
though  Latvia’s  Education  Law  stipulates  that  all 
children  are  legally  entitled  to  a  place  in  ECEC 
from  the  age  of  18  months.  The  government’s 
Guidelines  on  the  Development  of  Education 
2021-27  set 
the 
proportion  of  children  aged  between  1  and  4 
enrolled in ECEC to 73% in 2027. 

target  of 

increasing 

the 

lower 

socio-economic 

addition,  rural  schools  tend  to  have  a  higher 
status 
proportion  of 
students, a lower share of resilient students (those 
with  disadvantaged  backgrounds  but  high 
academic  performance),  and  a  higher  rate  of 
grade  repetition.  These  challenges  persist  into 
adulthood,  as  adults  in  rural  areas  are  twice  as 
likely not to hold an upper secondary qualification 
and less likely to participate in adult learning. The 
causes  of  these  inequalities  are  complex,  ranging 
from  structural  challenges  such  as  demographic 
change  and  socio-economic  distribution, 
to 
educational  challenges  such  as  school  size, 
teacher salaries and quality of teachers. While it is 
too early to evaluate the impact of the COVID-19 
pandemic  on  regional  disparities,  it  is  likely  that 
learning  has  exacerbated  existing 
distance 
inequalities. 

of 

STEM 

share 

graduates 

Tertiary  educational  attainment  is  high  but 
is 
the 
comparatively  low  and  the  gender  gap  is 
significant.  In  2021,  45.5%  of  Latvian  25-34 
year-olds  had  a  tertiary  qualification  (EU  average 
41.2%). Over half of Latvian women (55.4%) have 
a tertiary degree, while only slightly above a third 
of men do (36.2%). At 19.2 pps, the gender gap in 
tertiary-degree attainment is one of the widest in 
the  EU,  and  almost  twice the  EU  average  of  11.1 
pps. In 2019, 19.9% of all graduates had a STEM 
qualification, 1.4 pps fewer than in 2014 and well 
below  the  EU  average  of  26%.  The  share  was 
particularly low for women at 9.5% (also down by 
1.5 pps since 2014) compared to an EU average of 
14.7%.  

The  proportion  of  early 
leavers  from 
education  and  training  increased  by  0.1  pps 
from 2020 and is well below the EU average. 
Men  are  more  likely  than  women  to  be  early 
school leavers (8.9% against 5.6%), as are people 
in rural areas (10.1% against 6.1% in cities). 

Graph A13.1: Rural-city gap in students' socio-
economic status. PISA 2018 

Ensuring  education  of  equal  quality  across 
schools  and  regions  is  a  challenge.  Overall, 
Latvian  students  score  above  the  EU  average  in 
basic  skills  achievement  (PISA),  but  access  to 
quality education remains dependent on students’ 
place  of  residence.  Students  in  larger  urban 
schools 
educational 
outcomes  than  those  in  smaller  rural  schools. 
Urban  students  in  Latvia  outperformed  their  rural 
peers  by  52  points  in  reading  in  PISA  2018,  the 
equivalent of more than 1.5 years of schooling. In 

average 

higher 

have 

(1) The socio-economic status is measured by the PISA Index 
of Economic, Social and Cultural Status 
Source: OECD (2021), adapted from Figure 3.9.  

49 

-1.4-1.2-1-0.8-0.6-0.4-0.200.20.4ATCZDKEEELESFIFRHUIEITLTLVPLPTSESISKGapRural-city gap in socio-economic statusStandard error 
 
 
   
 
 
Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

(1) The 2018 EU average on PISA reading performance does not include Spain; u = low reliability, : = not available; data are not 
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering 
underachievement in digital skills, exposure of graduates from vocational education and training to work-based learning and 
participation of adults in learning. 
Source: Eurostat (UOE, LFS); OECD (PISA) 

50 

96%93.0%91.9%94.1%201992.8%2019Reading< 15%17.7% 20.4%22.4%201822.5%2018Mathematics< 15%21.4% 22.2%17.3%201822.9%2018Science< 15%17.2% 21.1%18.5%201822.3%2018< 9 %9.9%11.0%7.3%9.7%Men13.4%12.5%8.9%11.4%Women6.2%9.4%5.6% 7.9%Cities6.9%9.6%6.1% 8.7%Rural areas12.1%12.2%10.1%10.0%Native10.0%10.0%7.2%8.5%EU-born:u20.7%:u21.4%Non EU-born:u23.4%:u21.6%45%39.9%36.5%45.5%41.2%Men26.0%31.2%36.2%35.7%Women54.4%41.8%55.4%46.8%Cities49.6%46.2%56.5%51.4%Rural areas31.9%26.9%29.7%29.6%Native39.1%37.7%44.7%42.1%EU-born79.9%u32.7%:u40.7%Non EU-born55.8%27.0%65.8%34.7%45.4% 38.3%45.5%201938.9%2019Tertiary educational attainment (age 25-34)TotalBy genderBy degree of urbanisationBy country of birthShare of school teachers (ISCED 1-3) who are 50 years or overParticipation in early childhood education (age 3+)Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)TotalBy genderBy degree of urbanisationBy country of birth20152021IndicatorTargetLatviaEU27LatviaEU27 
 
  
 
Graph A14.2: Projected increase in public 
expenditure on health care over 2019-2070 
(reference scenario) 

ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Latvia.  

Life expectancy in Latvia remains among the 
lowest in the EU. Its growth trend was disrupted 
in 2020, when life expectancy dropped slightly due 
to  the  COVID-19  pandemic.  As  of  17  April  2022, 
Latvia reported 3.31 cumulative COVID-19 deaths 
per  1  000 
inhabitants  and  426  confirmed 
cumulative COVID-19 cases per 1 000 inhabitants. 
Latvia’s mortality rate from treatable causes is the 
third  highest  in  the  EU.  Cardiovascular  diseases 
are  the  leading  cause  of  death.  Cancer  screening 
in  a  higher  cancer 
rates  are 
mortality rate than the EU average.  

low,  reflected 

Graph A14.1: Life expectancy at birth, years 

Source: European Commission/EPC (2021) 

Latvia  faces  shortages  and  an  uneven 
distribution  of  health  workers.  This  creates 
further  barriers  to  accessing  healthcare  and 
contribute  to  long  waiting  times  for  publicly 
funded  services.  The  proportion  of  the  Latvian 
population  reporting  unmet  needs  for  medical 
treatment was among the highest in Europe, both 
before  and  during  the  COVID-19  pandemic  (see 
Annex 12). 

Through  its  recovery  and  resilience  plan, 
Latvia  plans  to  invest  EUR  181.5  million 
in  healthcare. 
(9.9%  of  the  total  RRP) 
Investments  mainly 
infrastructure 
in  university  hospitals,  regional 
improvements 
hospitals and secondary outpatient settings. Other 
actions aim at health workforce management and 
upskilling  and  developing  and  piloting  more 
efficient health service models.  

concern 

Source: Eurostat database 

Health  expenditure  in  Latvia  is  among  the 
lowest  in  the  EU  and  only  60.8%  of  it  is 
publicly  funded.  The  benefits  package 
is 
relatively  limited  and  the  services  and  goods 
covered  nearly  always  require  user  co-payments. 
Consequently, the share of out-of-pocket spending 
for healthcare is very high, more than twice the EU 
average. Public expenditure on health is projected 
to increase by 0.4 percentage points (pps) of GDP 
by  2070  (compared  to  0.9  pps  for  the  EU) (56). 
Population  ageing  in  Latvia  does  not  currently 
pose  significant  long  term  fiscal  sustainability 
concerns. 

(56)  ‘The 2021 Ageing Report: Economic and Budgetary 

Projections for the EU Member States (2019-2070)’, 
European Commission (ECFIN) and Ageing Working Group 
(EPC). 

51 

80.980.981.81.380.474.974.975.175.775.520162017201820192020EULatvia6.64.60.90.402468EULatvia% of GDP20192070increase 
 
     
                                                 
  
 
Table A14.1: Key health indicators 

(1) Doctors' density data refer to practising doctors in all countries except FI, EL, PT (licensed to practice) and SK (professionally 
active). Nurses' density data refer to practising nurses in all countries (imputation from year 2014 for FI) except IE, FR, PT, SK 
(professionally active) and EL (nurses working in hospitals only). More information: https://ec.europa.eu/health/state-health-
eu/country-health-profiles_en 
Source: Eurostat; except: * Eurostat Database and OECD, ** European Centre for Disease Prevention and Control 

52 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)203.2199.0196.4188.692.1 (2017)Cancer mortality per 100 000 population294.6297.9293.9292.6252.5 (2017)Current expenditure on health, % GDP :6.06.26.69.9 (2019)Public share of health expenditure, % of current health expenditure:57.359.960.879.5 (2018)Spending on prevention, % of current health expenditure 2.42.42.62.62.8 (2018)Acute care beds per 100 000 population341.0329.9321.6308.8387.4 (2019)Doctors per 1 000 population *3.23.23.33.33.8 (2018)Nurses per 1 000 population *4.64.64.44.48.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **11.112.111.512.010.314.5 (2020) 
 
   
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

all 

across 

is  an 

regions. 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  Member  States.  Taking  into 
account  this  dimension  enables  a  well-calibrated 
and targeted policy response that fosters cohesion 
and  ensures  sustainable  and  resilient  economic 
development 
Regional 
disparities in Latvia are characterised by a gap in 
social and economic indicators between the capital 
region  and  the  rest  of  the  country.  In  2019, 
Latvian  GDP  per  head  was  EUR 21 527.  This 
corresponds to 69% of the EU average (100). GDP 
per head peaks in Riga (118% of the EU average) 
but it is much lower in the other statistical NUTS3 
regions,  varying  from  33%  in  the  most  eastern 
region  of  Latgale  to  55%  in  the  Pierīga  region 
surrounding Riga. 

Graph A15.1: Social indicators by degree of 
urbanisation in Latvia 

low 

Labour  productivity,  while  generally  on  the 
in  Latvia.  Productivity, 
rise,  remains 
measured  as  gross  value  added  (pps)  per  worker, 
is  lower  than  the  EU  average  (100)  in  all  Latvian 
regions, varying between 37% in Latgale and 81% 
in  Riga.  High-quality  electronic  communications 
services  are  essential  for  regional  economic 
development,  but  few  ICT  providers  deploy  very 
high-capacity  communications  networks  in  rural 
areas. 

Large  disparities  between  urban  and  rural 
areas  persist  in  Latvia  in  terms  of  poverty 
and  social  exclusion.  With  68%  of 
the 
population  living  in  cities  and  32%  in  rural  areas, 
the  unemployment  rate  is  higher  in  rural  areas 
than in urban areas (9.1% compared to 7.7%), as 
is  the  case  for  young  people  not  in  employment, 
education  or  training  (15.6%  to  12.2%).  Rural 
areas in Latvia also include more people at risk of 
poverty  or  social  exclusion  (28.7%)  than  urban 
areas  (21.6%)  (Graph  A15.1).  Average  monthly 
income  (2020)  in  Riga  was  EUR 751,  while  in 
Latgale  it  was  only  EUR 445 (57).  Differences  in 
household  expenditure  for  costs  of  living  were 
small: EUR 1237 for a family with two children in 
Riga, compared to EUR 1257 in rural areas (due to 
higher transport costs) (58).  

Administrative  territorial  reform  aims  to 
address  the  challenges  of  depopulation  and 
regional  disparities.  By lowering  the  number  of 
municipalities  from  119  to  42,  Latvia  hopes  to 
create more economies of scale for municipalities, 
reducing  administrative  costs,  develop  business 
opportunities  and  improve  the  accessibility  and 
quality of public services.  

Source: Eurostat 

(57) Central Statistics Bureau, 2020 household incomes: 
https://admin.stat.gov.lv/system/files/publication/2022-
02/Nr_10_Majsaimniecibu_riciba_esosie_ienakumi_Latvija_
2020_gada_%2822_00%29_LV.pdf 

(58) https://www.lm.gov.lv/lv/jaunums/izstradats-jaunais-

majsaimniecibu-relativo-izdevumu-budzets  

53 

 
 
 
 
                                                 
 
Graph A15.2: CO2 emissions from fossil fuels per 
head, 2018 

wetlands  and  peat  extraction  are  the  biggest 
relevant  source  of  greenhouse  emissions  and  the 
European Commission identified in Annex D of the 
2020 Country report of Latvia that the two regions 
of  Latgale  and  Vidzeme  as  eligible  territories  for 
Just  Transition  Fund.  Meanwhile  discussions  on 
geographical  scope  of  eligible  territories  are  still 
ongoing. Greenhouse gas emissions from wetlands 
and  the  extraction  of  peat  for  energy  and 
total 
horticulture  constitute  around  13%  of 
emissions  (13,174.61  kt  CO2  equivalent incl.  land 
use,  land  use  change  and  forestry)  in  Latvia, 
from  organic  soils,  peat 
mainly  stemming 
extraction and deforestation.  

Source: European Commission 

Graph A15.3: Territories most affected by climate 
transition in Latvia 

Source: European Commission 

Greenhouse  gas  emissions  levels  per  capita 
are  below  the  EU  average.  Emissions  from 

Table A15.1: Selected indicators at regional level - Latvia 

Source: EUROSTAT, *Emissions Database for Global Atmospheric Research (EDGAR) 

54 

NUTS 3 RegionGDP per head (PPS)GDP (mln of PPS)Productivity (GVA (PPS) per person employed)Real productivity growthGDP growthGDP per head growthPopulation growthNet migrationEU27=100, 20192019EU27=100, 2018Avg % change on preceding year, 2010-2019Avg % change on preceding year, 2010-2019Avg % change on preceding year, 2010-2019Total % change, 2011-2019Total % change, 2011-2019European Union10013 963 897.261001.001.571.391.82.2Latvija6941 192.98672.182.123.28-8.1-4.6Kurzeme493 560.24532.250.562.19-12.5-8.4Latgale332 584.68371.55-0.121.81-16.2-8.7Rīga11822 640.7181-0.402.593.39-4.9-2.2Pierīga556 106.87777.123.754.110.71.0Vidzeme442 501.93472.271.293.00-13.3-8.7Zemgale402 794.18503.440.932.33-10.5-7.0 
 
 
 
 
  
 
MACROECONOMIC STABILITY 
MACROECONOMIC STABILITY 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

private  forbearance  measures  have  been  limiting 
growth  in  the  credit  risk  in  the  short  term. 
However,  a  more  recent  increase  in  forborne  and 
Stage 2 loans could point to a rise in riskiness.  

Mortgage  lending  expanded  in  2021.  House 
prices have been on a prolonged uptrend. For now, 
line  with 
these  dynamics  seem 
fundamentals  and  close  to  wage  growth.  The 
overall  household 
interest 
burden remain low and payment discipline has not 
deteriorated. 

indebtedness  and 

to  be 

in 

Latvia’s  financial  sector  is  shrinking  and 
refocusing  its  business  model  and  customer 
base  after  weaknesses  in  its  non-resident 
banking  segment  had  been  exposed.  Latvia 
has made significant progress in strengthening its 
rules  to  combat  money  laundering  and  terrorism 
financing in recent years. 

This  Annex  provides  an  overview  of  key 
developments in Latvia’s financial sector. The 
Latvian  financial  system  remains  stable  as  it 
entered  the  COVID-19  crisis  in  a  solid  position. 
Financial  soundness  indicators  are  strong,  with  a 
capital  adequacy  ratio  of  24.7%  and  a  liquidity 
coverage ratio of 332%, well above the minimum 
requirements.  The  extraordinary  liquidity  situation 
of  2021  is  mainly  driven  by  the  rapid  increase  in 
local  deposits, outpacing credit growth, as well as 
abundant  liquidity  coming  from  the  Central  Bank 
(6,5%  of  total  liabilities).  After  bolstering  them  in 
2020,  credit  institutions  started  to  reduce  their 
loan loss provisions in 2021, as the quality of the 
domestic  loan  portfolio  improved.  This  supported 
their profitability indicators. 

A  stable  deposit  base  reduces  reliance  on 
cross-border  parent  bank  funding  in  the 
mostly  foreign-owned  sector.  The  parent 
institutions  of  Latvia’s  banks  are  well  capitalised 
and have high credit ratings and good profits. This 
enhances  the  risk  absorption  capacity  of  the 
Latvian  banking  sector.  On  the  other  hand,  the 
financial  sector's  dependence  on  developments  in 
parent  banks  (mostly  located  in  Scandinavia)  and 
their  home 
the  macro-financial  situation 
countries 
structural 
implies 
vulnerability. 

potential 

in 

a 

Banks’  corporate  loan  portfolio  shrank  amid 
the  COVID-19  outbreak  and  a  decline  in 
economic  activity.  Government  support  and 

Table A16.1: Financial soundness indicators 

(1) Last data: Q3 2021. 
Source: European Central Bank, Eurostat, Refinitiv. 

55 

20172018201920202021Total assets of the banking sector (% of GDP)104.978.274.181.677.6Share (total assets) of the five largest bank (%)73.680.983.287.8-Share (total assets) of domestic credit institutions (%)148.432.933.934.234.0Financial soundness indicators:1- non-performing loans (% of total loans)5.65.33.94.64.3- capital adequacy ratio (%)20.622.323.426.824.7- return on equity (%)7.69.29.65.29.8NFC credit growth (year-on-year % change)2.13.6-0.6-1.0-1.1HH credit growth (year-on-year % change)0.60.70.90.56.5Cost-to-income ratio (%)158.461.362.464.559.2Loan-to-deposit ratio (%)160.670.770.763.568.0Central bank liquidity as % of liabilities1.00.20.16.26.1Private sector debt (% of GDP)75.669.766.266.5-Long-term interest rate spread versus Bund (basis points)51.750.659.544.837.1Market funding ratio (%)13.013.815.716.5-Green bond issuance (bn EUR)0.00.0--0.2 
 
 
 
 
 
   
 
31.8%,  though  that  average  is  inflated  by  very 
large values in a few Member States. In 2019, the 
VAT gap in Latvia fell below the EU median (from 
10.2% down to 8.3% of the total VAT liability). In 
2015-19,  the  improvement  in  VAT  compliance  in 
Latvia was one of the most pronounced in the EU. 
While  there  was  a  small  reduction  in  the  shadow 
economy in 2019 (down to 23.9% of GDP), recent 
data  show  that  the  overall  trend  persists,  and  in 
2020,  the  shadow  economy  in  Latvia  continued 
growing,  to  25.5%  of  GDP.  In  2020  ’envelope’ 
wages were the largest component accounting for 
46.9%  of  the  total  shadow  economy.  In  terms  of 
sectors, the highest share of the shadow economy 
in  Latvia  is  in  the  construction  sector  (in  2020: 
28.7%),  followed  by  wholesale  (25.3%),  services 
(23.9%)  and  manufacturing  
(24.9%), 
(23.0%). (61)  

retail 

ANNEX 17: TAXATION 
ANNEX 17: TAXATION 

This  Annex  provides  an 
indicator-based 
overview  of  Latvia’s  tax  system.  It  includes 
information  on  the  tax  structure,  i.e.  the  types  of 
tax that Latvia derives most revenue from, the tax 
burden  for  workers,  and  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
provides 
tax  collection  and 
compliance  and  on  the  risks  of  aggressive  tax 
planning activity.  

information  on 

Latvia’s  tax  revenues  in  relation  to  GDP  are 
below  the  EU  average.  Total  tax  revenue  was 
31.5%  in  2020  compared  to  an  EU  average  of 
40.2%.  Lower  revenue  from  labour,  property  and 
capital  taxes  explains  much  of  the  difference, 
while  consumption  taxes  generated  a  relatively 
high  revenue  (13.4%  of  GDP  in  Latvia  in  2020, 
compared  to  the  EU  average  of  10.8%).  The 
revenue  from  environmental  taxes  as  percentage 
of  GDP  also  exceeds  EU  average  and  is  the  5th 
highest in EU. 

A series of reforms have reduced the burden 
on  low  earnings, but  it is  still  comparatively 
high. The tax wedge (59) for workers earning 50% 
of  the  average  wage  was  reduced  from  a  high 
level  of  42.4%  in  2010  to  35.3%  in  2021,  still 
above  the  EU  average.  However,  the  implicit  tax 
rate (60)  on  labour is  among  the  lowest  in the  EU, 
pointing  to  weaknesses  in  collection  and  low  tax 
progressivity. The tax burden also fell for workers 
earning  the  average  wage  and  lies  slightly  above 
the EU average. In 2020, the ability of the tax and 
benefits  system  to  reduce  income  inequality  (as 
measured  by  the  GINI  coefficient)  was  below  the 
EU average. Further measures in the 2022 budget 
are  expected  to  raise  disposable  income,  but  do 
not contribute significantly to tax progressivity, as 
the measures  are  not  sufficiently targeted  on  the 
poorest 20% of households. 

is  doing  well 

Latvia 
in  terms  of  tax 
administration,  but  the  shadow  economy 
remains  large.  Outstanding  tax  arrears  have 
declined  by  2.4  pp.  to  8.8%  of  total  net  revenue. 
This  is  significantly  below  the  EU-27  average  of 

(59)  The tax wedge is a measure of the difference between the 
wage cost for employers and the net wage of employees. 

(60)  The implicit tax rates estimate the overall effective tax 
burden levied on a defined tax base (i.e. consumption or 
labour). The rate is calculated by aggregating all the 
corresponding tax revenues from a given tax base and 
dividing them by the tax base itself, which is estimated using 
macroeconomic data. 

(61)  A.Sauka, T.Putnins "Shadow Economy Index for the Baltic 
Countries 2009–2020". Alternative assessment of the 
shadow economy developments in the OECD countries 
(Schneider F. (2021), Development of the Shadow Economy 
of 36 OECD Countries over 2003 - 2021) indicates that 
shadow economy in Latvia still remains relatively elevated 
(LV 20.22% vs 17.42% EU28 in 2021) and reduction 
between 2018 and 2021 has been negligible. 

56 

 
 
                                                 
 
                                                 
 
Table A17.1: Indicators on taxation 

(1) Forward-looking effective tax rate (OECD). 
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission and OECD. 

Graph A17.1: Tax wedge (%) 

The second earner average tax wedge measures how much extra personal income tax plus employee and employer social security 
contributions the family will have to pay as a result of the second earner entering employment - as a proportion of the second 
earner’s gross earnings - plus the employer social security contributions due on the second earner’s income. For a more detailed 
discussion see OECD (2016), Taxing Wages 2016, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en 
(*) EU-27 simple average, as no aggregated EU-27 value 
Source: European Commission  

57 

35.337.940.542.637.9At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% of AverageWage (Two earner couple, 1st earner100% of AW) (1)LVEU-27 (*)2010201820192020202120102018201920202021Total taxes (including compulsory actual social contributions) (% of GDP)28.331.030.631.537.940.139.940.1Labour taxes (as % of GDP)14.314.415.015.720.020.720.721.5Consumption taxes (as % of GDP)11.213.513.213.410.811.111.110.8Capital taxes (as % of GDP)2.83.02.42.57.18.28.17.9Total property taxes (as % of GDP)1.01.01.01.01.92.22.22.3Recurrent taxes on immovable property (as % of GDP)0.70.80.70.81.11.21.21.2Environmental taxes as % of GDP3.03.42.93.12.42.42.42.2Tax wedge at 50% of Average Wage (Single person) (*)42.436.836.735.035.333.932.432.031.531.9Tax wedge at 100% of Average Wage (Single person) (*)44.042.642.542.340.541.040.240.139.939.7Corporate Income Tax - Effective Average Tax rates (1) (*)17.017.017.019.819.519.3Difference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)5.85.05.55.48.47.97.48.3Outstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)11.28.831.931.8VAT Gap (% of VTTL)10.28.311.210.5Dividends, Interests and Royalties (paid and received) as a share of GDP (%)4.93.92.210.710.5FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)0.00.00.047.846.236.7Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity RiskLatviaEU-27 
 
  
 
   
 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A18.1: Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches 
Source: Eurostat and ECB as of 2 May 2022, where available; European Commission for forecast figures (Spring forecast 2022) 

58 

2004-072008-122013-1820192020202120222023Real GDP (y-o-y)10.2-2.72.92.5-3.84.52.02.9Potential growth (y-o-y)7.3-0.42.13.22.22.62.12.0Private consumption (y-o-y)12.5-3.63.10.2-7.44.85.03.8Public consumption (y-o-y)3.8-2.72.53.42.64.41.10.7Gross fixed capital formation (y-o-y)21.4-6.90.56.90.22.91.32.8Exports of goods and services (y-o-y)14.54.54.12.1-2.26.21.34.1Imports of goods and services (y-o-y) 19.2-2.23.83.0-2.513.53.24.0Contribution to GDP growth:Domestic demand (y-o-y)14.8-5.02.42.3-3.74.33.33.0Inventories (y-o-y)0.3-1.00.40.8-0.24.40.00.0Net exports (y-o-y)-4.92.80.1-0.60.2-4.3-1.3-0.2Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.3-1.8-0.5-0.2-0.8-0.4-0.4-0.5Capital accumulation (y-o-y)3.81.30.81.10.90.90.90.9Total factor productivity (y-o-y)3.80.21.92.32.02.01.61.6Output gap5.9-5.01.22.6-3.4-1.6-1.7-0.9Unemployment rate8.815.39.86.38.17.67.37.1GDP deflator (y-o-y)12.62.11.92.6-0.16.87.25.1Harmonised index of consumer prices (HICP, y-o-y)7.44.61.12.70.13.29.43.5Nominal compensation per employee (y-o-y)24.41.57.47.85.511.05.66.0Labour productivity (real, hours worked, y-o-y)8.02.52.64.51.95.60.11.8Unit labour costs (ULC, whole economy, y-o-y)15.80.25.05.17.03.54.23.5Real unit labour costs (y-o-y)2.9-1.83.02.57.2-3.1-2.8-1.5Real effective exchange rate (ULC, y-o-y)11.1-1.93.91.8....Real effective exchange rate (HICP, y-o-y)2.01.11.20.11.90.5..Net savings rate of households (net saving as percentage of net disposable income)-7.6-2.4-6.20.19.1...Private credit flow, consolidated (% of GDP)27.7-2.2-0.21.1-1.8...Private sector debt, consolidated (% of GDP)89.9115.879.166.266.7...of which household debt, consolidated (% of GDP)31.542.324.420.220.9...of which non-financial corporate debt, consolidated (% of GDP)58.473.554.746.045.7...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).9.95.53.53.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)-9.45.13.6-0.51.60.3-0.1-0.4Corporations, gross operating surplus (% of GDP)31.029.527.923.520.923.425.726.9Households, net lending (+) or net borrowing (-) (% of GDP)-4.80.8-0.91.97.58.66.13.1Deflated house price index (y-o-y)17.0-11.34.55.82.7...Residential investment (% of GDP)4.52.92.32.73.02.3..Current account balance (% of GDP), balance of payments-16.4-2.0-0.4-0.72.9-2.9-6.1-5.2Trade balance (% of GDP), balance of payments-17.2-5.3-1.7-0.71.2-2.1..Terms of trade of goods and services (y-o-y)1.4-0.20.90.92.91.5-3.31.1Capital account balance (% of GDP)1.32.22.01.51.81.4..Net international investment position (% of GDP)-59.7-77.0-57.1-40.1-34.7-28.1..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-30.1-37.9-10.05.914.618.8..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)93.3132.8125.3103.5111.2100.2..Export performance vs. advanced countries (% change over 5 years)105.149.710.31.718.8...Export market share, goods and services (y-o-y)14.11.61.7-1.310.2-3.4-3.2-0.2Net FDI flows (% of GDP)-5.1-2.6-1.6-2.9-2.2-5.0..General government balance (% of GDP)-0.7-5.6-1.0-0.6-4.5-7.3-7.2-3.0Structural budget balance (% of GDP)..-1.4-1.5-3.3-6.9-6.6-2.7General government gross debt (% of GDP)11.238.139.236.743.344.847.046.5forecast 
 
 
 
 
  
 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 

‘adverse interest-growth rate’ scenario assumes a 
in  the 
less  favourable  snowball  effect  than 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022.  

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2  000  different  shocks  affecting  the 
government’s 
economic 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 
cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 
projected 
public 
expenditure  such  as  pensions,  health  care  and 

in  ageing-related 

change 

This  annex  assesses  fiscal  sustainability 
risks  for  Latvia  over  the  short,  medium  and 
long term. It follows the same multi-dimensional 
approach as the 2021 Fiscal Sustainability Report, 
updated  on  the  basis  of  the  Commission  2022 
spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
Next Generation EU.  

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 
balance (SPB) gradually returns to its past average 
level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 

Table A19.1: Debt sustainability analysis for Latvia 

Source: European Commission 

59 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)36.743.344.847.046.545.344.644.045.145.546.046.747.548.3Change in debt-0.46.61.52.2-0.4-1.2-0.8-0.51.10.40.50.70.80.8of whichPrimary deficit-0.13.86.86.72.41.71.51.42.12.02.02.02.01.9Snowball effect-1.12.1-4.0-3.3-2.9-2.9-2.3-2.0-0.9-1.7-1.5-1.3-1.2-1.1Stock-flow adjustment0.80.6-1.4-1.20.10.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)4.69.410.310.57.86.86.46.16.76.66.56.56.46.5S1S2Overall index (pps. of GDP)-0.51.3of whichInitial budgetary position0.62.3Debt requirement-1.0Ageing costs-0.2-1.0of whichPensions-0.5-1.3Health care0.20.2Long-term care0.10.1Others0.1-0.1                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators25303540455055606570752019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9025354555657520192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
   
 
long-term  care,  and 
requirement 
measures  the  additional  adjustment  needed  to 
reach the 60% of GDP debt target. 

the  debt 

risk 

sustainability 

Finally,  the  heat  map  presents  the  overall 
classification 
fiscal 
(Table A19.2).  The  short-term  risk  category  is 
based  on  the  S0  indicator,  an  early-detection 
indicator of fiscal stress in the upcoming year. The 
medium-term  risk  category  is  derived  from  the 
debt  sustainability  analysis  (DSA)  and  the  S1 
indicator.  The  DSA  assesses  risks to  sustainability 
based  on  several  criteria: the  projected  debt level 
in 10 years’ time, the debt trajectory (‘peak year’), 
the plausibility of fiscal assumptions and room for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA.  

simulations, confirms this risk assessment (Tables 
A19.1 and A19.2). Moreover, the sustainability gap 
indicator  S1  signals  low  risks  as  no  consolidation 
effort  would  be  needed to  bring  the  debt  ratio  to 
60%  of  GDP  in  15  years’  time  (Table 2).  Overall, 
the  low  risk  primarily  reflects  the  modest  debt 
ratio and the limited sensitivity to adverse shocks. 

Long-term  risks  to  fiscal  sustainability  are 
low.  Over  the  long  term,  both  the  sustainability 
gap indicator S2 (at 1.3 pps. of GDP) and the DSA 
point  to low  risks.  The  S2  indicator  suggests  that, 
to  stabilise  debt  over  the  long  term,  a  limited 
consolidation  effort  would  be  needed  due  to  the 
initial  budgetary  position,  while  the  total  ageing 
costs are projected to fall, in particular because of 
the  expected  decrease  of  pension  expenditure 
(Table 2). 

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection  indicator  (S0)  does  not  signal  major 
short-term fiscal risks (Table A19.2).  

risks 

to 

Medium-term  risks  to  fiscal  sustainability 
are  low.  Both  elements  of  the  Commission’s 
medium-term  analysis  lead  to  this  conclusion. 
First,  the  debt  sustainability  analysis  (DSA)  shows 
that  government  debt  would  rise  slightly,  from 
47%  of  GDP  in  2022  to  around  48%  in  2032  in 
the  baseline 
limited 
sensitivity  of  the  debt  path  to  possible  shocks  to 
fiscal,  macroeconomic  and  financial  variables,  as 
illustrated  by  alternative  scenarios  and  stochastic 

(Table 1).  The  overall 

Table A19.2: Heat map of fiscal sustainability risks for Latvia 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.  
Source: European Commission (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report). 

60 

 BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWMEDIUMLOWLOWLOWDebt level (2032), % GDP4845665249Debt peak year20322022203220322032Fiscal consolidation space77%69%90%77%77%Probability of debt ratio exceeding in 2026 its 2021 level50%Difference between 90th and 10th percentiles (pps. GDP)32Short termMedium termLong termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)S2Overall     (S2+DSA)OverallLOWLOWDeterministic scenariosStochastic projectionsLOWLOWLOWLOW