COMMISSION STAFF WORKING DOCUMENT 2023 Country Report – Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Latvia and delivering a Council opinion on the Stability Programme of Latvia
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Latvia, economic policy, economic recovery, economic reform, energy policy, fiscal policy, public finance, renewable energy, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 614 final  COMMISSION STAFF WORKING DOCUMENT 2023 Country Report – Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Latvia and delivering a Council opinion on the Stability Programme of Latvia {COM(2023) 614 final}  
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

employment  has  not  yet  recovered  to its  pre-
crisis  peak  since  the  recovery  in  construction 
and  trade  has  been  lagging  behind  other 
countries.  

inflation  peaked 

The  main  economic  impact  of  Russia’s 
unprovoked invasion of Ukraine has been 
rising  energy  prices  and,  as  a  result 
consumer  price  inflation  more  broadly. 
Latvia’s  energy  price  inflation  reached  48.8% 
and  consumer 
reached 
17.2%.  The  inflation  surge  has  substantially 
reduced household disposable income as wage 
growth  only  averaged  around  9%  in  2022. 
Latvia  has  also  borne  direct  fiscal  costs, 
related  to  helping  households  and  companies 
with higher energy prices, support to refugees 
or 
increased  defence  expenditure.  Goods 
exports  to  Russia  have  so  far  not  declined 
substantially;  however,  exports  of  services 
have declined significantly. 

The  energy  price  surge  has  hit  Latvia’s 
economy  harder  than  most  other  EU 
countries. This is due to Latvia’s high reliance 
on  natural  gas  for  electricity  generation  and 
heating  as  well  as  the  comparatively  low 
prices it paid for natural gas before the surge. 
Its  energy  inflation  at  48.8%,  significantly 
exceeded the 36.9% reached in the euro area. 
Furthermore,  with energy products  comprising 
a  larger  share  of Latvia’s consumer  spending, 
its  impact  on  consumer  price  inflation  was 
bigger  than  in  other  countries.  Besides  the 
energy  price  shock,  the  supply  of  metal  and 
timber  products  and  fertiliser,  which  were  - 
previously  imported  from  Russia  and  Belarus, 
was disrupted, leading to a spike in their prices 
and affecting the agriculture and construction 
sectors in particular. 

to  assess 

Latvia  has  been  selected  for  an  in-depth 
review 
to 
related 
competitiveness 
deteriorating 
linked  to  the  build-up  of  wage  and  price 
inflation  differentials  with  its  trading 

price 

risks 

Latvia’s economic resilience tested 
by Russia’s invasion of Ukraine 

driven 

growth 

strong  GDP 

In  2022,  economic  growth  was  caught  in 
the  crosswinds  of  post-COVID  recovery 
and  surging  inflation.  The  start  of  the  year 
by 
saw 
consumption.  However,  Russia’s  unprovoked 
invasion  of  Ukraine 
in  February  2022 
precipitated  a  surge  in  energy  prices  and 
broader  inflation  in  the  second  half  of  the 
year. The resulting fall in household disposable 
incomes  and  a  slowdown  in  real  consumption 
took  the  wind  out  of  the  economy’s  sails. 
Rising  prices  and  interest  rates  are  set  to 
shape  economic  growth.  In  2023,  GDP  is 
forecast to grow at a sluggish pace. A pick-up 
in EU-funded investment activity and a decline 
in inflation are expected to boost growth in the 
second  half  of  2023  and  lead  to  growth  at  a 
somewhat brisker pace in 2024. In addition to 
the  support  from  the  Recovery  and  Resilience 
Facility (see Section 2), Latvia benefits from a 
significant amount of EU cohesion funds from 
2021  to  2027  (EUR  4.2  billion,  representing 
around 1.4% of GDP annually on average). 

Structurally, the Latvian economy is on a 
sound  footing,  but  its  public  debt  has 
increased.  The  Latvian  economy  was  well 
prepared  to  withstand  the  shock  delivered  by 
COVID-19 crisis – its public finances were on a 
solid  footing  and  the  government  had  little 
difficulty  in  funding  the  COVID-19  related 
support  measures.  The  cost  of  this  has  been 
an  increase  in  public  debt  by  some  10 
percentage points (see Section 3). However, at 
40.8% of GDP, public debt remains among the 
lowest  in  the  EU.  Similarly,  apart  from  some 
temporary  disruptions  to  income,  businesses 
and  households  weathered  the  crisis  well  – 
there  wasn’t  a  noticeable 
in 
bankruptcies  or  late  loan  payments.  However, 

increase 

2 

 
 
partners,  strong  house  price  growth  as 
well  as  widening  of  the  current  account. 
(1) The gap between Latvia’s real wage growth 
and  productivity  growth  has  consistently 
expanded  over  the  past  decade,  resulting  in 
notable  divergence  between  real  wages  and 
productivity,  raising  concerns  about  its  cost 
competitiveness.  Moreover,  the  recent  energy 
price shock hit Latvia particularly hard, leading 
to a significant divergence in inflation with the 
euro  area  countries,  adding  further  concerns 
about its price competitiveness. While inflation 
is  expected  to  abate,  the  pressure  on  wages 
stemming  from  the  declining  labour  supply  is 
expected to persist over the medium term and 
would  need  to  be  matched  by  productivity 
gains to avoid a loss of price competitiveness. 
The  increase  of  the  current  account  deficit  in 
2021  and  2022  can  be  partially  attributed  to 
impact  of  rising  energy  prices  and 
the 
increased  government  borrowing. 
the 
medium term, however, the current account is 
expected  to  return  close  to  balance.  House 
price  growth,  which  has  been  broadly  in  line 
with incomes in the past decade, has picked up 
the pace recently. However, the acceleration in 
house  prices  is  expected  to  be  temporary  as 
rising interest rates and a fall in real incomes 
are  expected  to  sap  housing  demand.  Overall, 
Latvia does not appear to suffer from demand 
overheating.  The  structural  challenges  related 
to  the  declining  labour  supply  have  been 
identified  as 
to  price 
competitiveness  that  needs  to  be  monitored 
over the medium term.  

risk 

key 

the 

In 

Public support measures have 
helped to protect firms and 
households 

In  2022  and  2023,  the  government  took 
steps to counter the economic and social 
consequences  of  Russia’s  unprovoked 
invasion of Ukraine. The government quickly 
introduced  several  packages  of  measures  to 
counter the economic and social impact of the 

(1)  European  Commission  (2023),  In-Depth  Review  for 
document 

staff  working 

Latvia, 
Commission 
(COM(2023) 636 final). 

exceptional  increases  in  energy  prices.    These 
were  part  of  the  emergency  policy  to  protect 
households  and  exposed  companies,  limiting 
the  adverse  impact  of  energy  price  hikes  on 
incomes  and  production  costs. 
disposable 
While in 2022 social support measures helped 
increase the disposable income of the poorest 
20%  of  households  (see  Graph  1.1),  most  of 
the energy support measures in 2023 are only 
partially  targeted  to  the  most  vulnerable 
people (see Box 1). In addition, the government 
has  also  provided  crucial  support  (including 
access  to  social  benefits,  education,  housing 
and  language  training)  to  the  almost  33,000 
people  fleeing  the  war  in  Ukraine  that  are 
hosted by Latvia. 

Graph 1.1: Additional monthly benefits by 
target groups and types, 2022 social policy 
changes, by deciles (% change to the 
baseline) 

Source: European Commission, Joint Research Centre, 
calculation based on the EUROMOD model version I5.0+ 

Addressing the remaining socio-
economic and environmental 
challenges as a basis for 
sustainable growth 

Latvia’s  GDP  per  capita  is  significantly 
below  the  EU  average  and  the  pace  of 
convergence  is  slowing.  In  2021,  Latvia’s 
GDP  per  capita  was  72%  of  the  EU  average, 
which  is  6  pps  higher  than  5  years  before. 
However, its  income  is  significantly  below  the 
level  of  its  Baltic  peers  –  both  Estonia’s  and 
Lithuania’s 
income  was  89%  of  the  EU 
average in 2021 and they had improved by 12 

3 

01234567891012345678910All% of disposable income in decileDecile of equivalised disposable incomeVulnerable groupsPensioners, persons with disabilitiesVaccinated pensionersFamilies with childrenHousing benefitEarly indexation of pensions 
                                                 
  
and 13 pps, respectively compared to 2016 (2). 
Latvia’s productivity growth has been solid and 
firmly  above  the  EU  average  over  the  same 
period  (16.3%  vs  1.9%),  albeit  lower  than  in 
Estonia  and  Lithuania.  However,  the  share  of 
in  employment  has  been 
the  population 
declining  due 
this  has 
to  ageing  and 
dampened the impact of productivity gains on 
GDP  per  capita.  The  key  convergence 
challenges  for  Latvia  are  population  ageing, 
with  a  high  share  of  low-skilled  people,  poor 
innovation 
health 
disparities. 
performance 
Additionally, 
recent  years  Latvia  has 
endured  a  structural  decline  of  some  of  its 
major  export  industries:  financial  services  and 
transport.  

outcomes, 
and 

weak 
regional 

in 

remain 

The  labour  market  has  continued  to 
recover,  but  there  was  a  substantial  fall 
in  real  wages  in  2022.  The  unemployment 
rate  continued  to  fall  (6.9%  in  2022)  as  the 
employment rate (77% in 2022) has returned to 
its  pre-pandemic  level.  Overall,  the  labour 
market shows a solid performance (see Graph 
1.2),  but  challenges 
in  aligning 
employment 
conditions  across  different 
regions  and  skill  levels.  Unemployment  is 
higher  for  younger  people,  people  with  a  low 
level  of  skills  and  those  living  in  rural  areas. 
Despite the performance of the labour market 
and the increases in nominal pay (+9.0%), real 
wages  fell  substantially  in  2022  due  to  high 
inflation. On the other hand, the real minimum 
wage  slightly 
in  January  2023 
compared  to  January  2022  (+2.1%)  due  to  a 
24%  increase  in  the  nominal  minimum  wage. 
Scaling  up  adult  education  could  alleviate 
labour  shortages  and  encourage  more  people 
it  would 
into  employment. 
contribute  to  the  2030  national  target  of  at 
least 60% of all adults participating in training 
each year. 

In  addition, 

increased 

(2)  Expressed in Purchasing Power Standards 

4 

Graph 1.2: Selected labour market indicators 

Source: Eurostat, Labour market survey 

Inequality  and  poverty  remain  high, 
linked  to  a  poor  redistribution  of  income 
through  the  tax  and  benefit  system. 
Latvia’s  tax  revenue  as  a  share  of  GDP  is 
below  the  EU  average  and  further  declined  in 
2021.  Public  spending  on  social  protection 
remains  among  the  lowest  in  the  EU  and  is 
therefore  less  effective  at  reducing  poverty 
and inequality than in other EU countries (see 
Annex  14).  The  labour  tax  system  is  less 
progressive than the EU average, with median 
and  low-income  earners  exposed  to  a  higher 
tax  burden  than  the  EU  average  (see  Annex 
19).  Despite  some 
in  the 
adequacy  of  social  benefits,  social  transfers 
are  among  the  least  effective  in  reducing 
poverty  in  the  EU,  as  reflected  in  the  social 
scoreboard  accompanying  the  European  Pillar 
of Social Rights (see Annex 14).   

improvements 

The social protection and inclusion of the 
most vulnerable people is hindered by the 
limited  services  offered.  The  shortage  of 
social  workers  limits  the  provision  of  social 
services,  and  the  range  of  services  offered 
varies  between  municipalities.  The  proportion 
of  the  Latvian  population  reporting  unmet 
needs for medical care was among the highest 
in  the  EU,  both  before  and  during  the  COVID-
19  pandemic,  with  people  in  lower  income 
groups  disproportionately  affected.  Latvia’s 
long-term care system is underdeveloped, and 

12.516.27979.58080.58181.58282.58383.58484.50246810121416182019-Q12019-Q22019-Q32019-Q42020-Q12020-Q22020-Q32020-Q42021-Q12021-Q22021-Q32021-Q42022-Q12022-Q22022-Q3%%LVActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-29 (lhs) 
                                                 
  
progress  in  transitioning  from  institutional  to 
community-based care has been limited. There 
is  a  high  level  of  housing  deprivation  and 
overcrowding, while access to social housing is 
limited as the stock is small and often of poor 
quality.  

Latvia  has  succeeded 
in  diversifying 
away  from  fossil  fuels  imported  from 
Russia.  In  July  2022,  Latvia  banned  imports 
of  Russian  natural  gas  from  1 January  2023. 
Despite  Latvia’s  high  share  of  renewable 
energy, the potential  of wind and solar power 
is  underused  because  installed  generation 
capacities  lag  significantly  behind  its  Baltic 
neighbours.  The  government  has  removed 
some  of  the  barriers  to  the  development  of 
onshore  wind  power.  Further  efforts  could  be 
made  in  greening  electricity  generation  and 
heating.  The  grid  also  needs  to  be  further 
developed  to  enable  a  greater  uptake  of 
renewable energy. 

Latvia  is  showing  slow  progress  in  its 
position  on  the  Sustainable  Development 
Goals  (SDG)  scoreboard  (see  Annex  1). 
Latvia performs well on several SDG indicators 
on  environmental  sustainability.  The  share  of 
renewable  energy is  among  the  highest  of  all 
EU  countries,  but  it  still  needs  to  catch  up  on 
the  circular  material  use  rate  and  climate 
action.  The  score  for  climate  action  (SDG  13) 
has  worsened  because  of  the  considerable 
increase  in  emissions  from  land  use  and 
forestry  between  2016  and  2021.  Latvia  still 
lags  behind  the  EU  average  in  several  areas 
related to fairness (SDG 1, 3, 5, 8 and 16). The 
pandemic  and  energy  crises  have  also  had  a 
negative  effect  on  income  inequality,  which 
remains  higher  than  the  EU  average.  The 
outcome  has  worsened  as  a  result  of  the 
increased  gap  between  urban  and  rural  areas 
as  regards  the  risk  of  poverty  or  social 
exclusion.  This  is  also  closely  linked  to  poor 
health  outcomes  and  the  limited  impact  of 
social  transfers 
in  reducing  poverty.  The 
performance on SDG indicators on productivity 
(SDG  4,  8  and  9)  has  been  affected  by  the 
level  of  digital  skills,  which  is  lower  than  the 
EU average and gross domestic expenditure on 
R&D.  

5 

 
Box 1: 

Energy policy response in Latvia 

Latvia  has  adopted  several  support  measures  to  cushion  the  impact  of  energy  price 
inflation  on  households  and  businesses.  The  Commission’s  2023  Spring  Economic 
Forecast  projects  the  country’s  gross  budgetary  costs  to  amount  to  1.0%  of  GDP  in 
2023. Most measures do not fully preserve the price signal and only partially target the 
most vulnerable. These measures have been announced as temporary and are expected 
to expire after the first half of 2023. 

The  measures  include:  (i)  temporary  and  differentiated  cost  compensation  above  a 
certain price threshold for heating (based on the energy source used) and a fixed tariff 
for  households  for  the  first  100  kWh  of  electricity  per  month;  (ii)  two  measures 
providing  additional  monthly  benefits  to  vulnerable  households  e.g.  retired  people, 
persons with disabilities, survivors, people and families on a low-income, large families 
and  families  with  a  child  with  disabilities;  (iii)  suspension  of  the  electricity  system 
service  tariff  for  companies  and,  for  all  legal  persons,    reimbursement  of  50%  of  the 
cost of electricity above a certain price level. 

Latvia  has  reported  to  the  Commission  that  it  has  no  companies  that  fall  within  the 
scope  of  Chapter  III  of  Council  Regulation  (EU)  2022/1854  on  an  emergency 
intervention to address high energy prices.  

Latvenergo, the state-owned energy company, bought approximately 2 TWh of liquified 
natural  gas (3)  in  February  2022,  after  receiving  a  mandate  from  the  government. 
Following amendments to the Energy Law in April 2022, the reserves of natural gas to 
ensure  security  of  national  energy  supply  have  been  created 
in  amount  of 
approximately  2  TWh  in  the  second  half  of  the  year.  Latvia  also  launched  several 
energy  saving  measures,  targeting  the  public  sector  and  multi-apartment  buildings  in 
particular. 

(3)  Announcement on gas procurement and the impact of 

the current situation - Latvenergo 

6 

 
 
 
                                                 
 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

to 

and 

healthcare, 

Latvia’s  recovery  and  resilience  plan 
(RRP) aims to address the key challenges 
the  green  and  digital 
related 
transition, 
social 
regional 
inequalities, 
economic 
transformation and rule of law. It consists 
of  24  reforms  and  61  investments  that  are 
supported  by  EUR  1.8  billion 
in  grants, 
representing  5.58%  of  Latvia’s  GDP  in  2021 
(see  Annex  3 
for  more  details).  The 
Commission  disbursed  EUR  231  million  on  7 
October  2022,  based  on  the  satisfactory 
fulfilment  of  the  first  nine  milestones  of  the 
RRP.  The  second  payment  request  is  due  in 
2023  and  will  cover  49  milestones  and 
targets.  

The  implementation  of  Latvia’s  recovery 
and  resilience  plan  is  well  underway. 
Latvia  submitted  one  payment 
request, 
corresponding to 9 milestones in the plan and 
resulting  in  an  overall  disbursement  of  EUR 
201  million.  As  a 
result  of  objective 
circumstances  related  to  increases  in  the 
prices  of  energy  and  construction  materials, 
and  supply  chain  constraints  as  a  result  of 
Russia’s  aggression  against  Ukraine,  Latvia 
intends to submit modifications to the plan, as 
well as a REPowerEU chapter to accelerate the 
decarbonisation  of  the  economy  and  reduce 
dependence on fossil fuels.  

The  following,  more  detailed 
review  of 
measures being implemented under the RRP in 
no way implies formal Commission approval or 
rejection of any payment requests.  

7 

Supporting the green and digital 
transition 

On  the  green  transition,  Latvia  has 
adopted several regulations to contribute 
to  the  greening  of  the  Riga  Metropolitan 
Transport  System, 
in  particular  by 
electrifying  sections  of  the  railway  and 
by  developing  the  cycling  infrastructure. 
These  investments  are  to  be  completed  by 
2026.  In  2022,  Latvia  launched  a  series  of 
energy  efficiency  support  programmes  for 
businesses,  multi-apartment  buildings  and 
municipal  buildings  and  infrastructure.  The 
modernisation  of  the  electricity  transmission 
and  distribution  networks  is  also  underway, 
with notification to beneficiaries of the award 
of  contracts 
to 
contribute to climate change adaptation and a 
better  prevention  of 
the  Latvian 
government  has  approved  a  report  on  the 
implementation 
risk 
of 
management system. 

for  projects.  Moreover, 

disaster 

fires, 

its 

digital 

include 

technical 

Reforms  and  investments  that  support 
the 
the 
transition 
digitalisation  of  public  administration, 
basic  and  advanced  digital  skills,  the 
digital  transformation  of  businesses  and 
improving  broadband  infrastructure.  As 
part  of  the  first  payment  request,  procedures 
were  set  up  to  carry  out  remote  learning  in 
schools  and 
for 
connected  and  automated  driving  were 
adopted  to  further  develop  the  broadband 
infrastructure.  In  2022,  Latvia  established  a 
framework  for  the  unified  governance  of  ICT 
public 
development 
administration and has adopted regulations to 
support 
of 
processes  and 
the  public 
services 
administration.    National  higher  education 
standards have been amended to establish the 
results  that  must  be  achieved  in  acquiring 

transformation 

requirements 

activities 

digital 

the 

the 

in 

in 

 
 
 
the 

grants  to  higher  education  institutions,  which 
will  help 
improve  the  capacity  of  these 
institutions  by  concentrating  the  financial  and 
human  resources.  The  plan  also  provides  for 
pilot  projects  on  the  reform  of  doctoral 
programmes  and  academic  career  paths.  The 
reform  of  higher  education  is  planned  to  be 
innovation 
completed  by  2026.  On 
improve 
governance  side,  Latvia  aims  to 
collaboration  and  linkages  between  sectors 
and  better  integrate  the  entire  value  chain  of 
innovation. To achieve this, it will redefine the 
tasks  of  the  parties  concerned,  write  a  new 
innovation strategy and set objectives that the 
parties  will  have  to  achieve.  The  reform  is 
coupled  with  a  EUR  109  million  innovation 
fund  that  will  be  used  to  fund  businesses’ 
innovation  activities.  The  new 
innovation 
system is planned to begin operating in 2023.  

Improving the resilience, 
accessibility and quality of 
healthcare  

In the area of healthcare, the RRP aims to 
address  challenges  in  resilience,  access, 
quality  and  integration  across  different 
levels  of  care.  Since  2022,  reforms  have 
been  underway  in  several  directions,  such  as 
preparing  a  digital  health  strategy  and 
guidelines  for  integrated  healthcare  and  for 
epidemiological 
comprehensive 
safety.  A 
healthcare  workforce  strategy  is  expected  to 
be  adopted  in  2023  and  a  new  remuneration 
model  for  healthcare  staff  by  2024.  A  study 
on  the  quality  and  availability  of  non-hospital 
outpatient  care,  to  evaluate  and  improve  the 
system, is expected to begin in 2023. The RRP 
also  provides  for  investments  in  public  health 
of 
research, 
university  and  regional  hospitals  and  the 
infrastructure providing outpatient healthcare.  

infrastructure 

health 

the 

digital  skills.  Reforms  and  investments  that 
address  the  low  level  of  digital  skills  (see 
Annex  10)  are  set  out  in  the  Latvian  RRP, 
starting  with  the  development  of  a  common 
framework to assess basic digital skills.  

Improving social and territorial 
cohesion 

Latvia  has  made  progress  in  improving 
social  and 
territorial  cohesion.  The 
fulfilment  of  a  first  set  of  milestones  has 
helped Latvia to advance the reform that aims 
to  reduce  social  and  regional  inequalities,  as 
well  as  to  improve  the  quality  of  long-term 
care.  One  of  the  achievements  in  improving 
social  equality  has  been  the  adoption  of  the 
minimum income reform – a flagship measure 
in the Latvian RRP. This new reform will ensure 
that,  from  July  2023,  the  minimum  income 
threshold is not less than 20% of the median 
income  and  that  it  is  revised  annually.  A  new 
rental law balancing the rights of tenants and 
landlords  has  also  entered 
force. 
Additionally, Latvia has launched programmes 
to 
improve  accessibility  for  people  with 
disabilities  to  public  buildings,  social-care 
facilities  and  individual  homes.  In  2022,  to 
reduce  regional  disparities,  Latvia  adopted 
various 
the 
construction  of  low-rent  housing  and  the 
development  of  industrial  parks  and  enlisted 
at least 20 education institutions in improving 
the school network.  

programmes 

support 

into 

for 

Fostering research, development 
and innovation 

its 

In its RRP, Latvia has set out measures to 
boost 
innovation 
research  and 
potential by reforming its innovation and 
higher  education  systems.  The  reform  of 
higher education aims to improve governance, 
the  accreditation  mechanism  and  funding 
principles  for  the  sector.  In  2022,  Latvia 
adopted  legislative  changes  to  reform  the 
governance  of  higher  education.  In  2023, 
Latvia  has  announced  calls  for  consolidation 

8 

 
Box 1: 

Key deliverables under the recovery and resilience plan in 2023-2024: 

  Greening  of  the  Riga  metropolitan  area  thanks  to  a  coordinated  approach  on  passenger 

transport  

  Entry into force of the minimum income support system 

  Beginning of construction of low-rent housing 

  Adoption of a human resources development strategy in healthcare  

  Creation of five innovation clusters  

  Adoption of a plan to modernise public administration  

  Creating  a  methodology  to  reduce  the  shadow  economy  by  implementing  the  national 
research programme ‘Reducing the shadow economy to ensure the sustainable development 
of the country’ 

Increasing the effectiveness of 
public administration and the 
judicial system 

of  corruption  in  public  procurement  has  been 
adopted. Moreover, the quality of procurement 
has been further improved by adopting criteria 
for identifying risky market sectors.  

of 

The 

objectives 

In  the  area  of  rule  of  law,  the  RRP 
consists  of  four  subparts  that  address 
key  challenges  in  tax  compliance,  law 
enforcement  dealing  with  economic 
crime,  public  administration,  and  public 
procurement. 
this 
component  are  to:  (i)  reduce  the  shadow 
fairer  business 
foster  a 
economy  and 
environment,  (ii)  improve  the  quality  and 
efficiency of the judicial system, particularly in 
fighting  economic  crime;  (iii)  modernise  the 
public  administration;  (iv)  improve  the  quality, 
efficiency, and integrity of public procurement. 
In  2023, 
is  expected  that  a  plan  to 
modernise  the  public  administration  and  a 
concept  report  on  the  Single  Service  Centre, 
which  will  be 
central 
processing  and  execution  of  certain  functions 
human 
accounting 
e.g., 
resources, will be adopted. Both measures will 
provide  a  further  boost  to  increasing  the 
efficiency,  transparency,  and  accountability  of 
the public administration. 

responsible 

financial 

and 

for 

it 

Further  strides  have  been  taken  in  the 
area of public procurement. As part of the 
first  set  of  milestones  already  completed,  the 
regulatory 
the 
competition environment and reducing the risk 

framework 

improving 

for 

9 

 
 
FURTHER PRIORITIES AHEAD 

Beyond  those  tackled  in  the  RRP,  Latvia 
faces  additional  challenges.  Latvia’s  tax 
revenue  as  a  share  of  GDP  is  significantly 
below  the  EU  average.  Public  expenditure  on 
healthcare  and  social  protection  are 
low 
compared  to  the  EU  average,  hampering 
timely and equal access to healthcare and the 
provision of adequate social  assistance. While 
improvements have been made, limited access 
is  holding  back  growth  and 
to  finance 
innovation in SMEs. This is further exacerbated 
by  labour  shortages  and  skills  mismatches. 
Socio-economic disparities between urban and 
rural  areas  remain  significant.  In  the  current 
geopolitical  context, Latvia could  benefit from 
greater  efforts  to  use  energy  and  natural 
resources  more  efficiently  and  sustainably. 
Addressing  these  challenges  will  also  help  to 
make further progress in achieving those SDGs 
where Latvia currently shows room for further 
(SDG1), 
improvement,  namely  No  poverty 
Good  health  and  well-being  (SDG3),  Reduced 
inequalities 
(SDG10),  and  Climate  action 
(SDG13) (See Annex 1).  

Improving tax compliance to 
ensure more resources for 
underfunded public services  

Latvia’s  tax  revenue  as  a  share  of  GDP 
remains  significantly  below 
the  EU 
average,  limiting  the  funding  for  public 
services.  The  main  issues  in  the  area  of 
public  finances  remain  unchanged  and  have 
only been addressed to a limited extent by the 
2023  budget.  In  2021,  the  share  of  tax 
revenues  decreased  to  30.4%  of  GDP,  the 
lowest  level  in  the  last  three  years.  In  the 
taxation  fields  less  detrimental  to  growth,  in 
particular  capital  and  property,  Latvia  still 
the  EU 
revenues 
collects 

lower 

than 

is  still  pending.  Meanwhile, 

average (4).  In  addition,  cadastral  reform  for 
property  taxation  to  reflect  current  market 
values, 
the 
relatively  low  revenue  from  labour  taxation, 
despite relatively high tax rates, suggests that 
there  is  potential  to  increase  revenue  from 
labour  taxes  through  policy  measures  to 
ensure  better  tax  compliance.  The  budget  in 
2023,  and  those  of  previous  years,  have  to 
long-standing 
some  extent  addressed  the 
issue of the underfunding of public services, in 
particular  healthcare  and  social  care (5). 
However,  a  medium-term  approach 
to 
increasing  state  funding  is  needed  to  ensure 
tangible structural change in these areas. 

of 

the 

part 

A  public  spending  review  has  become  a 
systematic 
budget 
preparation process, but this has a rather 
limited  effect  on  government  finances. 
With the aim of improving the effectiveness of 
public spending, an annual expenditure  review 
has  been  carried  out  since  2016.    In  2017-
2023,  spending 
reviews  have  generated 
to  2.1% (6). 
annual 
However, the current practice is to return most 
savings  to  the  line  ministries  involved  in  the 
review  process,  to  finance  their 
internal 
priorities.  Therefore,  the  process  somewhat 
lacks  a  strategic  approach  with  an  impact  on 
government finances. A better approach would 
be  to  redirect  funding  to  a  limited  number  of 
public  services  that  have  been  systematically 
underfunded.  

savings  amounting 

(4)  In 2021 overall tax revenue from capital and in 

particular corporate income were the lowest in the EU.  

(5)  In 2023 Budget, 33% of available fiscal space 

(excluding fiscal space foreseen for external and 
internal security) was dedicated to healthcare and 
social care measures. Source : 
https://www.fm.gov.lv/lv/budzets2023#atbalstitie-
prioritarie-pasakumi; Commission calculations. 

(6)  The ratio of annual savings generated by the 

expenditure review to basic state budget expenditure 
(less EU funds), average of 2017-2023. 

10 

 
 
                                                 
The  new  government  has  committed  to 
carry  out  an  overarching  medium-term 
tax reform. In January 2023, the government 
held  the  first  round  of  discussions  with  social 
partners  on  the  proposals  for  the  new  tax 
policy  guidelines  for  2024-2027.  The  main 
aims  of  the  reform  are  to  strengthen  the 
competitiveness of Latvia’s economy, including 
improving  labour  taxation,  reducing  poverty 
and  income  inequality  and  helping  to  reduce 
the size of the shadow economy, while making 
the 
simpler  and  ensuring 
system 
government spending needs.  

tax 

While  data  from  surveys  show  that  the 
shadow economy is growing, indicators on 
indirect  tax  compliance  point  to  some 
improvements.  The  shadow  economy  was 
estimated  at  26.6%  of  GDP  in  2021 (7),  the 
highest  level  recorded  since  2012.  The  most 
important  component  of  Latvia’s  shadow 
economy 
in  2021  was  underreporting  of 
salaries,  accounting  for  46.2%  of  the  total 
shadow economy. The construction sector has 
the  highest  share  of  the  shadow  economy. 
Surveys  of  company  owners  and  managers 
indicate  that  efforts  to  reduce  the  shadow 
economy  are  stagnating.  However,  in  2021 
outstanding  tax  arrears  and  the  VAT  gap (8) 
remained  well  below 
the  EU  average. 
According  to  data  from  the  state  revenue 
service (9),  the  loss  of  personal  income  tax 
revenue and social security contributions from 
undeclared wages remains high, despite small 
annual  improvements,  including  during  the 
COVID-19  pandemic.  In  addition,  the  analysis 
of  state 
taxpayer 
revenue  service  on 
segmentation (10)  finds  that  there  is  potential 

(7)  Sauka & Putnins (2022). 

(8)  An estimate of the overall difference between the 
expected revenue from value added tax and the 
amount actually collected. 

(9)  State revenue service presentation on undeclared 

wages and tax gaps, August 2021 
https://www.vid.gov.lv/lv/media/2207/download?attach
ment. 

(10)  Methodology of grouping taxpayers in clusters based on 

their behavior models in the context of their tax 
compliance. Source: SRS unpublished documents, 
November 2022. 

11 

to improve tax compliance in Latvia, as around 
40%  of  taxpayers  are  assessed  as  having 
considerable tax compliance risks. 

Making the use of energy and 
natural resources more efficient 
and sustainable and reducing 
reliance on fossil fuels 

fossil 

following 

Latvia has ensured its independence from 
Russian 
the 
fuels 
parliament’s decision in July 2022 to ban 
Russian  natural  gas  from  1 January 
2023. Domestic gas suppliers have been able 
to  find  alternative  sources  of  natural  gas 
thanks to imports of liquified natural gas from 
the Lithuanian Klaipeda LNG terminal and the 
new  Finnish  LNG  terminal  in  Inkoo.  While 
energy  prices  have  decreased,  uncertainty 
remains  regarding  next  winter,  which  requires 
continued  efforts  to  structurally  reduce  gas 
demand.  Reducing  Latvia's  reliance  on  fossil 
fuels  is  an  essential  part  of  ensuring  security 
of supply. 

Latvia  has  had  a  slow  roll  out  of 
renewable  energy  sources  to  generate 
electricity.  Latvia  enjoys  one  of  the  highest 
shares of renewable energy in the EU  (42.1% 
in  2021).  However,  this  share  stagnated  from 
2020 
to  2021  and  hydropower  alone 
accounted  for  90%  of  all  renewable  installed 
electricity capacity in the country. Latvia would 
benefit  from  accelerating  its  efforts  in  the 
uptake  of  wind  and  solar  power,  which  is  the 
most viable and long-term solution to increase 
the  share  of  renewables.  The  Latvian  RRP 
already 
remove 
regulatory  barriers  to  the  deployment  of 
in  particular  by 
onshore  wind  energy, 
facilitating  the  administrative  procedures  for 
wind parks in state forests, which are expected 
to  be  constructed  by  2026.  At  the  end  of 
2022,  Latvia  put  in  place  simplified  rules  for 
creating  ‘green  corridors’  for  the  deployment 
of wind and solar farms The new rules shorten 
the 
assessment 
procedure  by  six  months  (see  Annex  7). 
However,  further  efforts  could  be  made  to 
speed up the deployment of renewable energy 

includes  measures 

environmental 

impact 

to 

 
                                                 
 
 
facilitating 

for  electricity  generation,  heating  and  cooling. 
This  could  involve  modernising  the  electricity 
grid, 
of 
the 
decentralised  renewable  electricity  generation 
and  establishing  a  framework  and  incentives 
to promote energy communities.  

integration 

in  completing 

Further  progress 
the 
synchronisation with European electricity 
networks  will  help  ensure  security  of 
supply. The Latvian energy network, like other 
Baltic states, remains exposed as its electricity 
grid is synchronised with the BRELL power grid 
(under the control of Russia and Belarus). Work 
to synchronise the electricity grids of the Baltic 
countries  with  the  EU  network,  to  secure 
networks  and  the  electricity  supply,  is  making 
progress  but 
to  be  completed. 
Completing  Latvia’s  grid  would  also  add 
transmission  capacity  so  that  an  increasing 
share  of  offshore  and  onshore  renewables 
could  be integrated into the  grid.  The  region’s 
energy  security  can  also  be  improved  by 
ensuring  that  energy  interconnections  have 
sufficient  capacity.  To  that  end,  cooperation 
with Lithuania and Estonia is necessary.  

remains 

Latvia  would  also  benefit  from  more 
ambitious  energy  efficiency  measures  to 
decarbonise its building stock, as well as 
transport  and  industry.  The  RRP  already 
contains  several  measures  supporting  energy 
efficiency  in  businesses  and  multi-apartment, 
municipal  and  public  buildings.  Achieving  the 
ambitious  targets  in  Latvia’s  2020  long-term 
renovation  strategy  will  be  key  to  improving 
the  energy  performance  of  the  national 
building  stock  and  thereby,  to  tapping  into  its 
great 
efficiency. 
Additional  measures,  including  financing  and 
support measures, could also be put in place.  

potential 

energy 

for 

Improving access to finance for 
SMEs 

Credit  growth  remains  subpar  and  rising 
interest  rates  are  expected  to  dampen  it 
further.  In  2022,  lending  to  companies  grew 
by 10.6% compared to close to zero growth in 
2021.  The  pick-up  in  lending  is  related  to  te-

12 

lines  to  energy 
the  extension  of  credit 
companies,  however  the  Bank  of  Latvia 
believes  that  the  acceleration  in  lending  will 
prove  temporary.  Lending to  households  grew 
by 4.8% in 2022, down from a 6.5% increase 
the year before and below the growth rate of 
nominal  GDP.  Credit  growth  is  expected  to 
slow  amid  tightening  lending  conditions,  as 
already  shown  by  the  falling  number  of  loan 
applications  at  the  end  of  2022.  The  vast 
majority of business and household borrowers 
pay  interest  at  a  variable  rate  on  existing 
loans,  which  means  that  rising  rates  will 
quickly translate into higher costs of servicing 
debt.  However,  according  to  the  Bank  of 
Latvia’s  analysis,  the  banks’  conservative 
lending  policies  have  ensured  that  business 
borrowers  are  generally  able  to  absorb  an 
increase 
rather 
comfortably. At the same time, around 12% of 
household  borrowers  could  suffer  financially 
strain because of the rising interest rates.  

payments 

interest 

in 

Several  structural 
issues  explain  the 
weak  growth  in  lending  over  the  long 
term.  SMEs  in  Latvia  find  it  more  difficult  to 
get  credit  than  those  in  other  euro  area 
countries. According to the banking sector, the 
main obstacles are their higher credit risk and 
prevalence  of  businesses  operating  in  the 
shadow  economy.  However,  surveys  of 
businesses  point  to  other  barriers  to  lending: 
burdensome  paperwork,  stringent  collateral 
requirements  and  the  high  cost  of  credit. 
Latvian  borrowers  pay  some  of  the  highest 
interest rates in the euro area (11). The banking 
sector  explains  that  this  is  due  to  the  high 
costs associated with low loan recovery rates, 
while  the  Bank  of  Latvia  suggests  that  high 
interest  rates  may  be  due  to  the  lack  of 
competition  in  the  banking  sector.  The  recent 
increase  in  interest  rates  has  widened  the 
Latvian  banks’  spread  between  lending  rates 
and deposit rates, with the latter having barely 
changed.  This  development  possibly  adds 
further  concern  about  the  lack  of  competition 
in Latvia’s banking sector.  

Easing  the  credit  supply  constraints 
requires  both  general  improvements  in 
the  business  environment  and  targeted 

(11)  Bank of Latvia, 2021 

 
                                                 
the 

Latvia 

it  has  been 

judges 
this, 

has  made 
policy  measures. 
substantial  efforts  to  improve  its  insolvency 
procedure through several reforms since 2018, 
including by setting up an economic court (the 
in  the 
RRP  finances  training  for 
economic  court).  Despite 
loan 
recovery rates remain low. Only a small share 
of  businesses  that  follow  an 
insolvency 
procedure  get  restructured (12).  Improving  the 
insolvency  process  to  achieve  a  high  rate  of 
business  restructuring  and,  eventually,  higher 
loan  recovery  rates,  would  reduce  banks’ 
perceived  risks  and  hence  encourage  lending. 
Although 
increasing,  private 
investment  is  still  lower  than  in  neighbouring 
countries.  Results 
the  2022  EIB 
from 
that  private 
Investment  Survey  suggest 
investment  is  negatively  affected  by  a  high 
degree  of  economic  uncertainty,  business 
regulations,  a  lack  of  skilled  staff  and  labour 
market regulations. In 2022, three quarters of 
Latvian  firms  perceived  business  regulations 
to  be  a  long-term  obstacle  to  investment, 
much  higher  than  their  Baltic  neighbours 
(Estonia, 34%; Lithuania, 47%) (see Annex 12). 
To ensure that financing is available for viable 
businesses, targeted state-sponsored loan and 
guarantee schemes for strategically important 
investments, linked to innovation or the green 
transition, could be considered. 

Improving access to education and 
training to address the needs of 
employers 

Latvia  faces  skills  mismatches  with 
shortages  of  medium-  and  high-level 
skills, against the backdrop of a declining 
labour supply. The working-age population is 
set to decline due to negative natural growth, 
resulting in labour shortages. The job vacancy 
rate increased on a year-on-year basis by 0.2 
percentage points to 2.8% in Q3-2022. This is 
coupled with uneven regional growth resulting 
in  a 
job 
opportunities 
in  the  centres  of  economic 
activity.  There  are  also  significant  disparities 
between the unemployment rates according to 

concentration  of 

jobs  and 

(12)  OECD, 2022 

13 

a  person’s  skill  level:  low-skilled  -  16.6%, 
medium-skilled - 7.4% and high-skilled – 4.5% 
in  Q3-2022  (see  Annex  14).  In  addition,  the 
youth unemployment rate (for those aged 15-
24)  is  2.3  times  higher  than  the  overall 
unemployment  rate  in  Latvia.  There  is  a  low 
rate  of  participation  in  active  labour  market 
policy  measures,  coupled  with 
insufficient 
training  opportunities  to  meet  the  needs  of 
employers. 

The  increasing  skills  shortages  could  be 
alleviated  by  upskilling  and  reskilling 
measures.  In  the  medium  to  long  term,  the 
demand for employees with medium-level and 
higher  education  qualifications 
in  science, 
technology,  engineering  and  mathematics  is 
set  to  increase,  while  the  demand  for  low-
skilled  workers  is  on  the  decline (13).  Adult 
learning  could  play  a  significant  role 
in 
upskilling  and  reskilling  to  reduce  the  skills 
mismatches.  However,  despite  some  increase, 
the participation rate remains low, in particular 
by people with low skill levels (see Annex 14).  

and 

relevant 

In  the  context  of  the  green  transition, 
labour  shortages  in  key  sectors  have 
increased in recent years, linked to a lack 
of 
creating 
skills 
bottlenecks in the transition to a net-zero 
economy.  In  2022,  labour  shortages  were 
in  25  occupations  that  required 
reported 
specific  skills  or  knowledge  for  the  green 
related 
transition, 
electricians,  mechanical 
and 
installers and repairers of power lines (14). The 
job vacancy rate increased in key sectors, such 
as construction (from 1.2% in 2015 to 3.5% in 

including  building  and 

engineers, 

(13)  Ministry of Economics (2022), Informative report on the 
mid-term and long-term forecasts on the labour market. 

(14)  Data on shortages is based on European Labour 

Authority (2023), EURES Report on labour shortages and 
surpluses 2022. National authorities report through a 
questionnaire, based on administrative data and other 
sources as submitted by the EURES National 
Coordination Offices (definitions of shortages differ, 
thus data is not comparable across countries and 
covers a wide variety of sectors). Skills and knowledge 
requirements are based on the ESCO (European Skills 
Competences and Occupations) taxonomy on skills for 
the green transition (for occupations at ISCO 4-digit 
level of which there are 436 in total). Examples are 
identified based on their ESCO “greenness” score and 
relevant sector. 

 
                                                 
                                                 
2021) and manufacturing (from 2.2% in 2015 
to  3.7%  in  2021),  with  only  manufacturing 
above the EU average of 1.9% in 2021 (15). In 
2022,  labour  shortages  were  reported  as  a 
factor  constraining  production  in  industry  (for 
by  22.6%  of  firms)  and  construction  (for 
28.7%  of  firms) (16).  Upskilling  and  reskilling 
for  the  green  transition,  including  for  the 
people most affected, and promoting inclusive 
labour  markets  are  essential  policies  to 
accelerate  the  transition  to  net  zero  and 
ensure its fairness (see Annex 8). 

Regional  inequality  in  access  to  quality 
education  remains  the  main  challenge  in 
Latvia’s  education  sector.  Since  the  school 
network  is  still  too  big  for  Latvia’s  small 
population  of  school-age  children,  many 
schools  struggle  to  hire  teachers  as  they 
cannot  offer  competitive  salaries  based  on  a 
teachers  are 
full-time  workload.  Latvia’s 
among  the  oldest  in  the  EU  and  it  is  proving 
difficult  to  renew  an 
increasingly  ageing 
teaching  workforce  (see  Annex  15).  Moreover, 
the  learning  outcomes  in  schools  in  small 
towns and in rural areas are on average lower 
than  in  Riga.  Similarly,  the  rate  of  students 
who leave school early is higher in rural areas.  

Tackling poverty and income 
inequality 

The  high  levels  of  poverty  and  income 
inequality  are  increasing  on  the  back  of 
challenges  brought  by  the  pandemic  and 
high  inflation.  Income  distribution  is  more 
unequal  in  Latvia  than  in  the  EU  on  average. 
The 
income  of  the  richest  20%  of  the 
population was more than 6 times higher than 
the  poorest  20%.  Latvia  had  one  of  the 
highest  percentages  of  people  at  risk  of 
poverty  and  social  exclusion  in  2021,  which 
stood at 26.1% compared to 21.7% in the EU. 
The  the  risk  of  poverty  for  people  aged  65+ 
was the highest in the EU (44.6%) (see Annex 
14).    Single-parent  households  and  persons 
with  disabilities  are  particularly  vulnerable  to 

(15)  Eurostat (JVS_A_RATE_R2). 

(16)  European Business and Consumer Survey. 

poverty.  The  risk  of  poverty  and  social 
exclusion  is  also  higher  in  rural  areas  than  in 
more  urbanised  areas  (see  Annex  17).  It  is 
important  to  further  accelerate  efforts  to 
improve  living  standards  in  the  regions  to 
bring them up to the same level as the capital.  

the  adequacy  of 

social 
Improving 
to  services 
assistance  and  access 
remains a challenge. The provision of social 
assistance and services for vulnerable groups, 
including  access  to  adequate  social  housing, 
impact  of  social 
poses  a  challenge.  The 
transfers  (excluding  pensions)  on  poverty  is 
substantially  less  than  the  EU  average  (see 
Annex  14).  Additionally,  pensions  are  among 
the  lowest  in  the  EU  compared  to  wages,  as 
the  aggregate  replacement  ratio  (the  pension 
as  a  proportion  of  income  from  employment) 
in 2021 was 0.42 in Latvia, compared to 0.58 
in  the  EU.  The  minimum  income  reform 
supported by the RRP has been a positive step 
in  improving  the  quality  of  life  of  the  most 
vulnerable people. However, other areas of the 
social  protection  system,  including  services, 
could also be improved, to reduce poverty and 
income inequality. 

Latvia’s housing stock is outdated and of 
poor  quality,  which  has  a  negative social 
impact.  The  share  of  people  living  in  in  an 
overcrowded household (41.3% vs 17% in the 
EU,  2021)  and  severe  housing  deprivation 
(11.5%  vs  4.3%  in  the  EU,  2020)  are  among 
the  highest  in  the  EU,  however  the  newly 
drafted  housing  strategy  does  not  address 
social  housing  and  homelessness.  The  arrival 
of  refugees  fleeing  Russian  aggression  in 
Ukraine  has  made  the  housing  situation  even 
more  challenging  as  local  authorities  struggle 
to  provide  adequate  housing  even 
for 
temporary  stays.  Increased  housing  benefits 
and  RRP  investments  in  low-rent  housing  will 
assist  low-income  households,  but  the  poor 
quality and limited availability in municipalities 
of  existing  social  housing  for  vulnerable 
groups  still  poses  a  challenge.  The  social 
housing stock in Latvia is one of the smallest 
among  OECD  countries  and  accounts  for  only 
2% of the total housing stock (17). Households 
across  all  income  levels  are  affected,  but  the 
problem  especially  affects  vulnerable  groups. 

(17)  OECD (2022): Social renting housing stock. 

14 

 
                                                 
                                                 
There  is  insufficient  long-term  funding  to 
address the problem of access to housing.  

Providing adequate resources for 
healthcare and long-term care 

A  substantial  share  of  the  Latvian 
population  cannot  access  the  healthcare 
they  need.  The  proportion  of  the  Latvian 
population reporting unmet needs for medical 
care  was  among  the  highest  in  the  EU,  both 
before  and  during  the  COVID-19  pandemic 
(4.0%  in  Latvia  in  2021  compared  to  2.0% 
across  the  EU),  with  lower  income  groups 
disproportionately affected (see Annex 14).  

in 

the 

from 

always 

Latvia 

covered 

system 

payment 

The  health 
is 
underfunded.  Health  expenditure  in  Latvia  is 
among the lowest in the EU and only 63.6% of 
it  was  publicly  funded  in  2020.  Inadequate 
financial resources for healthcare result in the 
annual  quota  system 
for  provision  of 
healthcare services, which in turn leads to long 
waiting times and a high level of unmet need 
lack  of  financial 
for  medical  care.  The 
resources also limits the range of care offered, 
and  the  publicly  funded  health  services  and 
require 
goods 
nearly 
user. 
additional 
Consequently,  the  share  of  out-of-pocket 
spending  on  healthcare  is  high  in  Latvia 
(31.9%  in  2020,  more  than  twice  the  overall 
level  in  the  EU  of  14.4%).  In  recent  years, 
public financing for health has been increasing 
and, according to the latest available data, the 
levels  of  unmet  need  for  healthcare  and  of 
out-of-pocket  spending  for  healthcare  have 
dropped  slightly.    However,  this  positive  trend 
is  at  risk  as  according  to  the  medium-term 
budgetary  plans (18)  the  public  spending  on 
healthcare as share of GDP is set to decrease. 
This is mainly due to the temporary COVID-19 
support  being  gradually  phased  out,  lower 
additional  allocations  compared  to  the  needs 
lack  of 
of 
sustainable financing plans.  

the  health  sector  and 

the 

obstacle 

The  persistent  shortages  of  health 
professionals  are  an 
to 
providing  healthcare.  The  number  of 
practising  doctors  per  1 000  inhabitants  is 
below  the  EU  average.  The  number  of 
practising nurses per 1 000 inhabitants is one 
of  the  lowest  in  the  EU  and  has  declined  in 
recent years. The shortages of health workers 
are  more  acute  in  areas  outside  Riga  (see 
Annex  16).  Scaling  up  measures  to  attract 
more students to pursue a career in the health 
sector  and  measures  to  foster  recruitment, 
retention and a geographical balance of health 
professionals are needed. 

relatively  weak 

The  ageing  of 
the  population  will 
generate increased demand for long-term 
care, emphasising the urgency to improve 
the 
long-term  care 
system.  It  is  estimated  that  the  share  of 
potentially dependent people of all ages in the 
total  population  will  increase  from  31.7%  in 
2019 to 41.2% in 2030 and to 56.7% in 2050. 
The  share  of  the  population  with  severe 
difficulties  in  personal  care  or  household 
activities  and  who  therefore  need  long-term 
care is above the EU average. Public spending 
on  long-term  care,  however,  is  among  the 
lowest in the EU (see Annex 14). This results in 
limited  access  to  long-term  care,  a  lack  of 
quality  assurance  and  understaffing.  The 
number  of  employees  in  formal  long-term 
care  is  insufficient,  with  the  majority  being 
women, facing difficult working conditions and 
low wages. For instance, in 2022, the average 
salary for social work amounted to 66% of the 
average  gross  earnings  in  the  country (19). 
Moreover,  the  responsibilities  for  long-term 
care  are  fragmented  between  the  health  and 
social  care  sectors.  Progress  in  the  transition 
from  institutional  to  community-based  care, 
despite  being  addressed  in  part  by  the  RRP 
and other EU funds, is limited. 

(18)  The 2023 Stability Programme of Latvia foresaw that 

at the no-policy change scenario government 
expenditure for health function would decline from 
5.6% of GDP in 2022 to 3.6% in 2026. 

(19)  Average monthly wages and salaries by kind of activity 

(in euro) | Official Statistics Portal of Latvia. 

15 

 
                                                 
 
                                                 
KEY FINDINGS 

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

energy 

launching 

  greening  the  Riga  Metropolitan  Transport 
efficiency 
System, 
support  programmes  for  the  renovation  of 
businesses  and  multi-apartment  and 
municipal  buildings,  modernising  electricity 
transmission  and  distribution  networks,  as 
well as climate change adaption;   

  digitalising 

the 

public 

and 
businesses,  improving  basic  and  advanced 
digital 
and 
connectivity, 
improving broadband infrastructure; 

sector 

skills 

and 

  reducing  social  and  regional 

inequality 
including  by  raising  the  minimum  income, 
the  provision  of  affordable 
increasing 
improving  accessibility  to 
housing  and 
public  buildings,  social-care  facilities  and 
individual  homes,  improving  the  school 
network and developing industrial parks; 

of 

  improving  the  resilience,  accessibility  and 
by 
healthcare, 
integrated  healthcare  and 
by 
epidemiological 
regional 

quality 
developing 
improving 
investing 
hospitals and outpatient clinics; 

in  university  and 

including 

safety 

  reforming  the  governance  and  funding  of 
research  and  innovation,  and  boosting  the 
quality  and  international  competitiveness 
of higher education;  

  improving  tax  compliance,  strengthening 
law  enforcement  dealing  with  economic 
crime, improving the efficiency of the public 
administration  and  the  quality  of  public 
procurement. 

should 

steady 
Latvia 
implementation  of  its  recovery  and  resilience 
plan  and  swiftly  finalise  the  REPowerEU 

continue 

the 

chapter  with  a  view  to  rapidly  starting  its 
implementation. 

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

  increasing the low level of tax revenue as a 
share  of  GDP,  including  by  broadening  the 
taxation of property and capital and further 
to  allow 
improving 
adequate financing of healthcare and social 
protection services; 

compliance, 

tax 

  reducing  poverty  and  income  inequality  by 
strengthening  social  assistance,  pensions 
and services to vulnerable groups, including 
access  to  social  housing  and  long-term 
care,  and  individual  needs-based  social 
services; 

  making it easier for SMEs to access finance 
by improving the business environment and 
developing targeted guarantee schemes for 
strategically  important  investments,  linked 
regional 
to 
development; 

transition  or 

the  green 

  boosting 

efforts 

to  address 

labour 
shortages  and  skills  mismatches  through 
upskilling and reskilling measures, including 
for people with a low level of skills, to meet 
employers’  needs,  and  promote  the  skills 
needed for the green transition;  

  reducing overall reliance on fossil fuels and 
diversifying the energy mix by accelerating 
the deployment of renewables, in particular 
onshore and offshore wind as well as solar 
energy; 
efficiency 
measures; improving the electricity grid, the 
interconnection capacity and continuing the 
timely 
the  EU 
electricity grid. 

synchronisation  with 

advancing 

energy 

16 

 
 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Cross-cutting indicators 

A1.  Sustainable Development Goals 

A2.  Progress in the implementation of country-specific recommendations 

A3.  Recovery and resilience plan - overview 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy security and affordability 

A8.  Fair transition to climate neutrality 

Productivity 

A9.  Resource productivity, efficiency and circularity 

A10.  Digital transformation 

A11.  Innovation 

A12.  Industry and single market 

A13.  Public administration 

Fairness 

A14.  Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

A15.  Education and training 

A16.  Health and health systems 

A17.  Economic and social performance at regional level 

Macroeconomic stability 

A18.  Key financial sector developments 

A19.  Taxation 

A20.  Table with economic and financial indicators 

A21.  Debt sustainability analysis 

A22.  Macroeconomic imbalance procedure assessment matrix 

19 

22 

22 

24 

27 

29 

31 

32 

32 

37 

42 

44 

44 

46 

48 

50 

54 

56 

56 

59 

61 

63 

65 

65 

67 

69 

70 

73 

 
 
 
LIST OF TABLES 

A2.1. 
Summary table on 2019-2022 CSRs 
A3.1. 
Key elements of Latvia's RRP 
A5.1. 
Resilience indices summarising the situation across RDB dimensions and areas 
A6.1. 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
A7.1. 
Key energy indicators 
A8.1. 
Key indicators for a fair transition in Latvia 
A9.1. 
Overall and systemic indicators on circularity 
A10.1.  Key Digital Decade targets monitored by DESI indicators 
A11.1.  Key innovation indicators 
A12.1. 
Industry and the Single Market 
A13.1.  Public administration indicators 
A14.1.  Social Scoreboard for Latvia 
A14.2.  Situation of Latvia on 2030 employment, skills and poverty reduction targets 
A15.1.  EU-level targets and other contextual indicators under the European Education Area strategic framework 
A16.1.  Key health indicators 
A17.1.  Latvia, selected indicators at regional level 
A18.1.  Financial soundness indicators 
A19.1.  Taxation indicators 
A20.1.  Key economic and financial indicators 
A21.1.  Debt sustainability analysis - Latvia 
A21.2.  Heat map of fiscal sustainability risks - Latvia 
A22.1.  Assessment of macroeconomic imbalances matrix 

LIST OF GRAPHS 

A1.1. 
Progress towards the SDGs in Latvia in the last 5 years 
A2.1. 
Latvia’s progress on the 2019-2022 CSRs (2023 European Semester) 
A3.2. 
Disbursement per pillar 
A3.1. 
Total grants disbursed under the RRF 
A3.3. 
Fulfilment status of milestones and targets 
A4.1. 
Cohesion policy funds 2021-2027 in Latvia: budget by fund 
A4.2. 
Synergy between Cohesion policy funds and RRF pillars in Latvia 
A4.3. 
Cohesion policy funds contribution to the SDGs in 2014-2020 and 2021-2027 in Latvia 
A6.1. 
Thematic – greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2021 
A6.2. 
Energy mix (top) and Electricity mix (bottom), 2021 
A6.3. 
Thematic – environmental investment needs and current investment, p.a. 2014-2020 
A7.1. 
Underground storage levels in Latvia 
A7.2. 
Share of gas consumption per sector, 2021 
A7.3. 
Latvia´s retail energy prices for industry (top) and households (bottom) 
A7.4. 
Patent families in Energy Union R&I priorities 
A8.1. 
Fair transition challenges in Latvia 
A8.2. 
Distributional impacts of energy prices due to rising energy expenditure (2021-2023) 
A9.1. 
Trend in material use 
A9.2. 
Treatment of municipal waste 
A11.1.  R&D intensity as % of GDP 2010-2022 
A12.1.  Hourly productivity in PPS (% of EU) 
A12.2.  Average net private investment as a % of GDP, 2018-22 
A12.3.  Business environment and productivity drivers 
A13.1.  Latvia. Open government data maturity indicator: 2022 scores (% of the total maximum score) (lhs); country ranking, 

overall score (rhs) 

A13.2.  Latvia. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post evaluation of legislation 
A15.1.  STEM tertiary graduates as a proportion of total graduates in 2015 and 2020 (%) 
A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2019-2070 
A19.1.  Tax wedge for single and second earners as a % of total labour costs, 2022 
A19.2.  Tax revenues from different tax types, % of total tax revenue 

20 

25 
27 
31 
36 
41 
42 
45 
47 
48 
51 
54 
56 
57 
60 
61 
63 
65 
67 
69 
70 
72 
73 

22 
24 
27 
27 
28 
29 
29 
30 
32 
33 
34 
37 
38 
38 
40 
42 
43 
44 
45 
48 
50 
51 
52 

54 
55 
60 
61 
61 
67 
68 

 
 
LIST OF MAPS 

A17.1.  GDP per head (in PPS) in Latvia, NUTS3, 2019 

63 

21 

 
 
 
 
 
CROSS-CUTTING INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

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  and  the 
environmental crisis, 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  the  SDGs  in  an 
EU context. 

While  Latvia  performs  well  (SDGs  7  and  14) 
or  is  improving  (SDGs  11)  on  several  SDG 
indicators 
environmental 
sustainability,  it  is  moving  away  from  SDGs 
12, 13 and 15. Addressing SDG 7 (Affordable and 

related 

to 

clean  energy)  in  particular,  Latvia  has  achieved 
progress on its share of renewable energy in total 
energy consumption, which increased from 37.1% 
in 2015 to 42.1% in 2020, and was well above the 
EU average (21.8% in 2021). However, from 2020 
to  2021  there  has  been  no  increase  in  electricity 
generation  capacity  from  renewable  sources  (for 
more  details,  see  Annexes  6  and  7).  Addressing 
SDG 12 (Responsible consumption and production), 
the Circular material use rate worsened from 6.5% 
in 2016 to 6.2% in 2021 and is significantly below 
the  EU  average  of  11.7%.  Latvia’s  recovery  and 
resilience plan (RRP) includes measures to address 
some of the energy-related challenges, namely in 
Component  1  (Climate  change  and  environmental 
sustainability).  While 
towards 
achieving  SDG  11 
(Sustainable  cities  and 
communities),  Latvia  needs  to  catch  up  with  the 
EU  average  in  particular  on  the  recycling  rate  of 
municipal  waste44.1%  compared  to  the  EU 
average  of49.6%  in  2021)  and  on  reducing  road 
traffic  deaths  (7.8%  compared  with  the  EU 

progressing 

Graph A1.1: Progress towards the SDGs in Latvia in the last 5 years 

For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable development in the European Union’; for 
details on extensive country-specific data on the short-term progress of Member States: Key findings – Sustainable development 
indicators – Eurostat (europa.eu). The status of each SDG in a country is the aggregation of all indicators for the specific goal 
compared to the EU average. A high status does not mean that a country is close to reaching a specific SDG, but signals that it is 
doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5 
years. The calculation does not take into account any target values as most EU policy targets are only valid for the aggregate EU 
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country. 
Source: Eurostat,  latest update of early April 2023, except for the EU Labour Force Survey (LFS) indicators released on 27 April 
2023. Data mainly refer to 2016-2021 or 2017-2022. 

22 

 
 
 
 
 
 
average  of  4.5%  in  2021).  On  achieving  SDG  12 
(Responsible  consumption  and  production),  Latvia 
is moving away from the SDG, for instance, the per 
capita generation of waste has increased between 
2016 and 2020 (from 975 to 1501 kg) and needs 
to  catch  up  with  the  EU  average  in  particular  on 
the  circular  material  use  rate  (6.2%  compared  to 
the EU average of 11.7% in 2021). While there is 
no  progress  on  SDG  14,  the  indicators  do  better 
than the EU average. For instance, the percentage 
of the marine protected areas was 15.8% in 2021 
as compared to the EU average of 12.1%. 

While  Latvia  is  improving  on  several  SDG 
indicators related to fairness (SDGs 1, 3, 4, 5, 
7,  8),  it  still  needs  to  catch  up  with  the  EU 
average  and  is  moving  away  from  SDG  10 
(Reduced  inequalities)  and  2  (Zero  hunger). 
Latvia is still underperforming compared to the EU 
average  on  some  indicators  related  to  poverty 
(SDG  1).  This  concerns  in  particular  the  severe 
housing  deprivation  rate  (11.5%  compared  with 
the  EU  average  of  4.3%  in  2020)  and  people  at 
risk  of  income  poverty  after  social  transfers 
(23.4% compared with the EU average of 16.8% in 
2021).  However,  there  have  been  some  positive 
developments  in  recent  years.  Latvia  reduced  the 
risk  of  poverty  or  social  exclusion  from  28.2%  in 
2016 to 26.1% in 2021, but it remains above the 
EU  average  of  21.7%.  Unmet  health  needs  have 
reduced over the years, even if they are still high 
(4.0% in 2021) and above the EU average (2.0% in 
2021).  Similarly,  for  indicators  related  to  zero 
hunger  (SDG  2),  Latvia  is  also  underperforming. 
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%. 
Latvia is still underperforming compared to the EU 
average  on  SDG  10  (Reduced  inequalities):  the 
urban-rural  gap  for  risk  of  poverty  or  social 
exclusion  accounts  for  9.2%  compared  to  the  EU 
average of 0.6% in 2021, while purchasing power 
adjusted  GDP  per  capita  was  74%  in  2022 
compared  to  the  EU  index  =  100.  At  the  same 
time,  Latvia  has  improved  on  several  fairness-
related 
long-term 
unemployment rate (SDG 8; 2% in 2022 compared 
to  3.6%  in  2017  and  the  EU  average  of  2.4%  in 
2022)  and  early  leavers  from  education  and 
training  (SDG  4;  6.7% in 2022  compared  to  8.6% 
in 2017 and the EU average of 9.6% in 2022). RRP 
includes 
Component  3 
measures to reduce regional disparities as well as 
improve the social safety net and encourage social 
integration  and  inclusion  in  Latvia.  Component  4 

inequalities) 

indicators 

such  as 

(Reducing 

the 

(Healthcare) aims to contribute to the accessibility, 
efficiency and resilience of Latvia’s health system.  

Latvia performs well or is improving on SDG 
indicators related to productivity (SDGs 4, 8, 
9) but needs to catch up with EU average on 
SDG 9. The share of households with a high-speed 
internet  connection  was  90.7%  in  2021,  which  is 
significantly above the EU average (70.2%). Latvia 
has  low,  albeit  slowly  increasing  gross  domestic 
expenditure  on  R&D  (0.69%  of  GDP  in  2021 
compared 
the  EU  average  of  2.26%). 
Strengthening digital skills remains a challenge as 
only  around  half  of  people  have  at  least  basic 
digital  skills  (50.8%  in  2021  compared  to  the  EU 
average of 53.9%). Reforms and investment under 
RRP  Component  2  (Digital  transformation)  focus 
on  further  developing  digital  infrastructure  and 
equipment and improving digital skills at all levels. 

to 

Latvia  is  improving  on  the  SDG  indicators 
related  to  macroeconomic  stability  (SDGs  8, 
16  and  17).  It  has  improved  on  SDG  8  (Decent 
work  and  economic  growth)  and  SDG  16  (Peace, 
justice  and  strong  institutions).  In  recent  years, 
Latvia’s  real  GDP  per  capita  increased  from 
EUR  11 590 in 2017 to EUR 13 320 in 2022 (EU 
average EUR 28 820 in 2022). It had a very similar 
investment  share  of  GDP  compared  to  the  EU 
average  (22.3%  of  GDP  compared  to  22.4%  for 
the  EU  in  2021).  Latvia’s  performance  on  the 
in 
quality  of 
institutions, is below the EU average but improving 
(SDG  16).  The  percentage  of  the  population  with 
confidence  in  the  European  Parliament  remained 
the  same  in  2022  as  in  2017  (47%  against  EU 
50% 
in 
Component  5  (Rule  of  law)  aim  to  increase  the 
transparency and integrity of public administration 
through  training  on  general  skills  like  ethics, 
integrity and anti-corruption.  

in  2022).  The  measures 

including  trust 

institutions, 

included 

its 

As the SDGs form an overarching framework, any 
links  to  relevant  SDGs  are  either  explained  or 
depicted with icons in the other Annexes. 

23 

 
 
ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 

Graph A2.1: Latvia’s progress on the 2019-2022 
CSRs (2023 European Semester) 

The Commission has assessed the 2019-2022 
country-specific  recommendations  (CSRs) (38) 
addressed to Latvia as part of the European 
Semester.  These  recommendations  concern  a 
wide  range  of  policy  areas  that  are  related  to  14 
of  the  17  Sustainable  Development  Goals  (see 
Annexes  1  and  3). The  assessment  considers  the 
policy  action  taken  by  Latvia  to  date (39)  and  the 
commitments  in  its  recovery  and  resilience  plan 
(RRP) (40).  At  this  stage  of  RRP  implementation, 
72%  of  the  CSRs  focusing  on  structural  issues 
from  2019-2022  have  recorded  at  least  ‘some 
progress’,  while  23%  recorded  ‘limited  progress’ 
(see  Graph  A2.1).  As  the  RRP  is  implemented 
further,  considerable  progress 
in  addressing 
structural CSRs is expected in the years to come. 

Source: European Commission. 

(38)  2022 CSRs: EUR-Lex - 32022H0901(14) - EN - EUR-Lex 

(europa.eu) 
2021 CSRs: EUR-Lex - 32021H0729(14) - EN - EUR-Lex 
(europa.eu) 
2020 CSRs: EUR-Lex - 32020H0826(14) - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(14) - EN - EUR-Lex 
(europa.eu) 

(39)  Including policy action reported in the national reform 

programme and in Recovery and Resilience Facility (RRF) 
reporting (twice a year reporting on progress in implementing 
milestones and targets and resulting from the payment 
requests assessment). 

(40)  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 considers the 
degree of implementation of the measures included in the 
RRP and of those carried out outside of the RRP at the time 
of assessment. Measures laid down in the Annex of the 
adopted Council Implementing Decision on approving the 
assessment of the RRP, which are not yet adopted or 
implemented but considered 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. 

24 

No Progress5%Limited Progress23%Some Progress54%Substantial Progress18% 
 
                                                 
 
     
 
 
 
 
 
Table A2.1: Summary table on 2019-2022 CSRs 

(Continued on the next page) 

25 

LatviaAssessment in May 2023RRP coverage of CSRs until 2026**Relevant SDGs2019 CSR 1Some 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.No longer relevantNot applicableSDG 8, 16Reducetaxationforlow-incomeearnersbyshiftingittoothersources,particularlycapitalandproperty,andbyimprovingtaxcompliance. Some progressRelevant RRP measures being planned as of 2022, 2023 and 2026.SDG 8, 10, 12, 16Ensure effective supervision and the enforcement of the anti-money laundering framework.Substantial progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2024 and 2025.SDG 8, 162019 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 implemented as of 2021. Relevant RRP measures being planned as of 2022.SDG 1, 2, 8, 10Increase 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 implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024 and 2026.SDG 4Increase the accessibility, quality and cost-effectiveness of the healthcare system.Limited progressRelevant RRP measures being planned as of 2022, 2023 and 2024.SDG 32019 CSR 3Some progressFocus investment-related economic policy on innovation, Limited progressRelevant RRP measures being planned as of 2022, 2023 and 2024.SDG 9, 10, 11the provision of affordable housing,Limited progressRelevant RRP measures implemented as of 2021.SDG 1, 2, 8, 10, 11transport, in particular on its sustainability,Some progressRelevant RRP measures being planned as of 2022, 2023 and 2026.SDG 10, 11resource efficiency  and energy efficiency, energy interconnectionsSome progressRelevant RRP measures being planned as of 2022 and 2023.SDG 6, 7, 9, 10, 11, 12, 13and  digital infrastructure, taking into account regional disparities.Some progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024, 2025 and 2026.SDG 9, 10, 112019 CSR 4Some 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 implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024, 2025 and 2026.SDG 9, 162020 CSR 1Limited progressTakeallnecessarymeasures,inlinewiththegeneralescapeclauseoftheStabilityandGrowthPact,toeffectivelyaddresstheCOVID-19pandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuring debt sustainability, while enhancing investment. Not relevant anymoreNot applicableSDG 8, 16Strengthentheresilienceandaccessibilityofthehealthsystemincluding by providing additional human and financial resources.Limited progressRelevant RRP measures being planned as of 2022, 2023 and 2024.SDG 32020 CSR 2Some progressProvide adequate income support to the groups most affected by the crisis Some progressRelevant RRP measures implemented as of 2021.SDG 1, 2, 10and strengthen the social safety net. Some progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022.SDG 1, 2, 10Mitigate the employment impact of the crisis, including through flexible working arrangements,Some progressSDG 8 active labour market measures and skills. Some progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024 and 2026.SDG 4, 82020 CSR 3Some progressEnsure access to liquidity support by firms and in particular small and medium-sized enterprisesSubstantial progressSDG 8, 9Front-load mature public investment projects Some progressRelevant RRP measure being planned as of 2022.SDG 8, 16and promote private investment to foster the economic recovery.Some progressRelevant RRP measures being planned as of 2022, 2023 and 2024.SDG 8, 9Focusinvestmentonthegreenanddigitaltransition,inparticularonresearch and innovation, Limited progressRelevant RRP measures being planned as of 2022, 2023 and 2026.SDG 9clean and efficient production and use of energy, Some progressRelevant RRP measures being planned as of 2022 and 2023.SDG 7, 9, 13sustainable transport Some progressRelevant RRP measures being planned as of 2022, 2023 and 2026.SDG 11and digital infrastructures.Some progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024, 2025 and 2026.SDG 9 
 
 
 
  
 
Table (continued) 

Note: 
* See footnote (39). 
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the 
RRP are necessary to fully implement CSRs and address their underlying challenges. Measures indicated as 'being implemented' 
are only those included in the RRF payment requests submitted and positively assessed by the European Commission.  
Source: European Commission 

26 

2020 CSR 4Substantial progressContinue progress on the anti-money-laundering framework. Substantial progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 8, 162021 CSR 1Some progressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationallyfinancedinvestment.Keepthegrowthofnationallyfinanced current expenditure under control. Some progressNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Substantial progressNot applicableSDG 8, 16Atthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasures,inordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Substantial progressNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacy,andsustainabilityofhealthand social protection systems for all.Limited progressNot applicableSDG 8, 162022 CSR 1Some progressIn 2023, ensure that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Stand ready to adjust current spending to the evolving situation.No progressNot applicableSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Substantial progressNot applicableSDG 8, 16Pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositions.Substantial progressNot applicableSDG 8, 16Broaden taxation, including of property and capital,No progressSDG 8, 10, 12and strengthen the adequacy of healthcareLimited progressRelevant RRP measures planned as of 2022, 2023 and 2024.SDG 3and social protection to reduce inequality.Some progressRelevant RRP measures implemented as of 2021. Relevant RRP measures being planned as of 2022, 2023, 2024, 2025.SDG 1, 2, 102022 CSR 2Proceed with the implementation of its recovery and resilience plan, in line with the milestones and targets included in the Council Implementing Decision of 13 July 2021.Submit the 2021–2027 cohesion policy programming documents with a view to finalising their negotiations with the Commission and subsequently starting their implementation.2022 CSR 3Limited progressImprove access to finance for small and medium-sized enterprises through public lending and guarantee schemes aimed at facilitating investments of strategic importance, in particular the green transition and regional development.Limited progressSDG 8, 92022 CSR 4Some progressReduce overall reliance on fossil fuels and diversify imports of fossil fuelsSome progressRelevant RRP measures being planned as of 2022, 2023, 2024, 2026.SDG 7, 9, 13by accelerating the deployment of renewables,Some progressRelevant RRP measures being planned as of 2022, 2024.SDG 7, 9, 13ensuring sufficient interconnection capacity, diversifying energy supplies and routesSome progressSDG 7, 9, 13and reducing overall energy consumption through ambitious energy efficiency measures.Limited progressRelevant RRP measures being planned as of 2022, 2023, 2024, 2026.SDG 7RRP implementation is monitored by assessing RRP payment requests and analysing reports published twice a year on the achievement of the milestones and targets. These are to be reflected in the country reports. Progress on the cohesion policy programming documents is monitored under the EU cohesion policy.  
 
  
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN - OVERVIEW 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the centrepiece of the EU’s efforts to help it 
recover  from  the  COVID-19  pandemic,  speed 
up  the  twin  transition  and  strengthen 
resilience  against  future  shocks.  The  RRF 
also  contributes  to  implementation  of  the 
SDGs  and  helps  to  address  the  Country 
Specific  Recommendations 
(see  Annex 2). 
recovery  and 
Latvia  submitted 
resilience  plan  (RRP)  on  30  April  2021.  The 
Commission’s  positive  assessment  on  22  June 
2021  and  Council’s  approval  on  13  July  2021 
paved  the  way  for  disbursing  EUR  1.8  billion  in 
grants under the RRF over the 2021-2026 period.   

its  current 

Table A3.1: Key elements of Latvia's RRP 

Source: RRF Scoreboard 

Since  the  entry 
into  force  of  the  RRF 
Regulation  and  the  assessment  of  the 
national  recovery  and  resilience  plans, 
geopolitical  and  economic  developments 
have caused major disruptions across the EU. 
In  order  to  effectively  address  these  disruptions, 
the  (adjusted)  RRF  Regulation  allows  Member 
States to amend their recovery and resilience plan 
for  a  variety  of  reasons.  In  line  with  article  11(2) 
of the RRF, the maximum financial contribution for 
Latvia was moreover updated on 30 June 2022 to 
an amount of EUR 1.8 billion in grants. No revision 
of  the  plan  was  submitted  at  the  time  of 
publication of this country report. 

Graph A3.1: Total grants disbursed under the RRF 

Note: This graph displays the amount of grants disbursed so 
far under the RRF. Grants are non-repayable financial 
contributions. The total amount of grants given to each 
Member State is determined by an allocation key and the 
total estimated cost of the respective RRP. 
Source: RRF Scoreboard 

Latvia’s progress in implementing its plan is 
published  in  the  Recovery  and  Resilience 
Scoreboard (23).  The  Scoreboard  also  gives  an 
overview  of  the  progress  made  in  implementing 
the RRF as a whole, in a transparent manner. The 
graphs in this Annex show the current state of play 
of  the  milestones  and  targets  to  be  reached  by 
Latvia and subsequently assessed as satisfactorily 
fulfilled by the Commission. 

EUR  438.4 million  has so  far  been disbursed 
to  Latvia  under  the  RRF.  The  Commission 
disbursed  EUR 237.4  million  to  Latvia  in  pre-
financing  on  9  October  2021,  equivalent  to  13% 
of  the  initial  financial  allocation.  Latvia’s  first 
payment  request  was  positively  assessed  by  the 
Commission, taking into account the opinion of the 
Economic and Financial Committee, leading to EUR 
201  million  being  disbursed  in  financial  support 
(net  of  pre-financing)  on  7 October 2022.  The 
related  9  milestones  cover  reforms  in  minimum 
income  support  system,  broadband  infrastructure, 
educational institutions' infrastructure and remote 
covered  are  public 
learning.  Other  areas 
procurement,  the  prevention  of  money  laundering 
and terrorist financing, as well as the construction 
of low-rent dwellings. 

(23)  https://ec.europa.eu/economy_finance/recovery-and-

resilience-scoreboard/country_overview.html 

27 

Current RRPScope Initial planCID adoption date (date of submission)13 July 2021Total allocation EUR 1.8 billion in grants (5.6% of 2021 GDP) and EUR 0 billion in loansInvestments and reforms 61 investments and 24 reforms Total number of milestones and targets214€ 438.35million 
 
 
      
 
      
                                                 
Graph A3.2: Disbursement per pillar 

Note:  Each disbursement reflects progress in the implementation of the RRF, across the six policy pillars. This graph displays how 
disbursements under the RRF (excluding pre-financing) relate to the pillars. The amounts were calculated by linking the milestones 
and targets covered by a given disbursement to the pillar tagging (primary and secondary) of their respective measures. 
Source:  RRF Scoreboard 

Graph A3.3: Fulfilment status of milestones and 
targets 

Note: This graph displays the share of satisfactorily fulfilled 
milestones and targets. A milestone or target is satisfactorily 
fulfilled once a Member State has provided evidence to the 
Commission that it has reached the milestone or target and 
the Commission has assessed it positively in an implementing 
decision. 
Source: RRF Scoreboard 

28 

Satisfactorily fulfilledNot fulfilled0 m10 m20 m30 m40 m50 m60 mGreen transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic, socialand institutionalresiliencePolicies for thenext generation 
 
 
 
   
 
   
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The  EU  budget  of  over  EUR  1.2  trillion  for 
2021-2027  is  geared  towards  implementing 
the  EU’s  main  priorities.  Cohesion  policy 
investment amounts to EUR 392 billion across the 
EU and represents almost a third of the overall EU 
budget, including around EUR 48 billion invested in 
line with REPowerEU objectives. 

Graph A4.1: Cohesion policy funds 2021-2027 in 
Latvia: budget by fund 

(1) million EUR in current prices, % of total; (total amount 
including EU and national co-financing) 
Source: European Commission, Cohesion Open Data 

In  2021-2027,  in  Latvia,  cohesion  policy 
funds (24)  will  invest  EUR  2.5  billion  in  the 
green  transition  and  EUR  323  million  in  the 
digital  transformation  as  part  of  the 
country’s total allocation of EUR 5 billion. In 
particular,  almost  EUR  1  billion  of  European 
Regional  Development  Fund  (ERDF) funding  will 
boost  R&D,  innovation  and  digitalisation,  in  line 
with  regional  smart  strategies.  Support  (grants, 
financial  instruments  and  non-financial  support) 
will  be  provided  to  more  than  3 700  companies, 
with a focus on ecosystems. As decreasing energy 
consumption  is  a  priority  in  2021-2027,  nearly 
EUR  466  million  will  be  allocated  to  energy 
efficiency 
to  a 
minimum  of  30%  of  primary  energy  savings.  The 
Cohesion Fund is expected to support a major shift 
to  green  and  sustainable 
transport.  A  key 
challenge  is  to  ensure  sustainable  and  long 
performing  investments  that  are  energy  and  cost 
efficient. The Just Transition Fund (JTF) will enable 
further  economic  diversification, help  create  jobs 
in  the  areas  most  affected  by  the  energy 
transition,  and  support  the  up-  and  reskilling  of 
workers.  Latvia  plans  to  support 3 950 workers 

investment  projects leading 

(24)  European Regional Development Fund (ERDF), Cohesion Fund 
(CF), European Social Fund+ (ESF+), Just Transition Fund 
(JTF), excluding Interreg programmes. The total amount 
includes national and EU contributions. Data source: 
Cohesion Open Data. 

and to secure more than EUR 41 million in private 
investment  to  supplement  JTF  funding.  Under  the 
European Social Fund Plus (ESF+), Latvia allocates 
almost EUR 250 million to education and skills, of 
which nearly EUR 52 million was dedicated to up- 
and  reskilling  adults.  Latvia  will  also  pilot  skills 
funds  to  leverage  private  sustainable  investment 
in  adult  learning.  More  than  EUR  360  million  will 
used  for  improving  access  to  employment  and 
social services, with a focus on vulnerable groups. 

Of  the  investments  mentioned  above,  EUR 
518  million  will  be  invested  in  line  with 
REPowerEU objectives. This is on top of the EUR 
487  million  dedicated  to  REPowerEU  under  the 
2014-2020 budget. EUR 473 million (2021-2027) 
and EUR 391 million (2014-2020) is for improving 
energy efficiency; and EUR 45 million (2021-2027) 
and EUR 95 million (2014-2020) is for renewable 
energy and low-carbon R&I. 

Graph A4.2: Synergy between Cohesion policy 
funds and RRF pillars in Latvia 

(1) million EUR in current prices (total amount, including EU 
and national co-financing)   
Source: European Commission  

In  2014-2020,  cohesion  policy  funds  made 
EUR 4.6 billion available to Latvia (25), with an 
absorption 
national 
financing,  the  total  investment  amounted  to  EUR 
5.4 billion - around 2.8% of GDP for 2014-2020.  

of  76% (26). 

Including 

Latvia  continues  to  benefit  from  cohesion 
policy 
support  economic 
to 
recovery,  step  up  convergence  and  provide 
vital support to regions following the COVID-

flexibility 

(25)  Cohesion policy funds include the ERDF, ESF, CF and the 
Youth Employment Initiative (YEI). ETC programmes are 
excluded here. According to the ‘N+3 rule’, the funds 
committed for 2014-2020 must be spent by 2023. REACT-
EU is included in all figures. Total amount including EU and 
national co-financing. Data source: Cohesion Open Data. 

(26)  2014-2020 Cohesion policy EU payments by MS is updated 

daily on Cohesion Open Data.   

29 

1.12822%3.01558%84616%2254%CFERDFESF+JTF2.5572101.0468011582002.460323905621456513050010001500200025003000Green transitionDigitaltransformationSmart, sustainableand inclusivegrowthSocial and territorialcohesionHealth, economic,social andinstitutionalresiliencePolicies for the nextgenerationEU CP 2014-2020 (million EUR)EU CP 2021-2027 (million EUR) 
 
  
                                                 
  
                                                 
 
 
19  pandemic.  The  Recovery  Assistance  for 
Cohesion and the Territories of Europe instrument 
(REACT-EU) (27)  under  NextGenerationEU  provides 
EUR  230  million  on  top  of  the  2014-2020 
cohesion  policy  allocation  for  Latvia.  REACT-EU 
supported  the  sectors  most  affected  by  the 
COVID-19  pandemic,  providing  health  equipment 
and  infrastructure  and  creating  454  additional 
beds for patients, and providing IT equipment and 
remote  solutions  for  474  educational  institutions. 
In addition, almost EUR 8 million was allocated to 
the  operational  programme  of  the  Fund  for 
European Aid to the Most Deprived (FEAMD).  With 
SAFE  (Supporting  Affordable  Energy),  the  2014-
2020 cohesion policy funds may also be mobilised 
to  support  vulnerable  households, 
jobs  and 
companies  particularly  affected  by  high  energy 
prices. 

Graph A4.3: Cohesion policy funds contribution to 
the SDGs in 2014-2020 and 2021-2027 in Latvia 

(1) 5 largest contributions to SDGs in million (EUR) current 
prices 
Source: European Commission  

In both 2014-2020 and 2021-2027, cohesion 
policy  funds  have  contributed  substantially 
the  Sustainable  Development  Goals 
to 
(SDGs). In 2021-2027, these funds support 11 of 
the  17  SDGs,  notably  SDG  9  ‘Industry,  innovation 
and  infrastructure’  and  SDG  7  ‘Affordable  and 
clean energy’ (28). 

Other  EU  funds  make  significant  resources 
available  for  Latvia.  The  common  agricultural 
policy  (CAP)  made  EUR  3.4  billion  available  in 
2014-2022  and  will  continue  to  support  Latvia 

(27)  REACT-EU allocation on Cohesion Open Data. 

(28)  Other EU funds contribute to the implementation of the 
SDGs, in 2014-2022 this includes both the European 
Agricultural Fund for Rural Development (EARDF) and the 
European Maritime and Fisheries Fund (EMFF).  

for 

Fund 

Agricultural 

with  EUR  2.4  billion  in  2023-2027.  The  two  CAP 
Funds  (European  Agricultural  Guarantee  Fund  and 
European 
Rural 
Development),  contribute  to  the  European  Green 
Deal  while ensuring long-term food security. They 
promote  social,  environmental  and  economic 
sustainability  and  innovation  in  agriculture  and 
rural  areas,  in  coordination  with  other  EU  funds. 
The  European  Maritime  and  Fisheries  Fund  made 
EUR 140 million available to Latvia in 2014-2020 
and 
the  European  Maritime,  Fisheries  and 
Aquaculture  Fund  allocates  EUR  139  million  in 
2021-2027.  

Latvia  also  benefits 
from  other  EU 
programmes,  notably  the  Connecting  Europe 
Facility,  which  under  CEF  2  (2021-2027)  has  so 
far  allocated  EU  funding  of  EUR  144.1  million  to 
four  specific  projects  on  strategic 
transport 
networks.  Similarly,  Horizon  Europe  has  so  far 
allocated nearly EUR 23 million to Latvian R&I on 
top  of  the  EUR  117  million  earmarked  under  the 
previous  programme  (Horizon  2020).  The  Public 
Sector  Loan  Facility  set  up  under  the  Just 
Transition  Mechanism  makes  EUR  14.5  million  of 
grant  support  from  the  Commission  available  for 
projects  located  in  Latvia  for  2021-2027,  which 
will  be  combined  with  loans  from  the  EIB  to 
support  investments  by  public  sector  entities  in 
just transition regions. 

for 

risks 

temporary 

unemployment 

support 
in 

Latvia  received  support  under  the  European 
to 
instrument 
mitigate 
an 
emergency  (SURE)  to  finance  short-time  work 
schemes  and  other  similar  measures,  including 
ancillary  health-related  measures,  to  mitigate  the 
impact of COVID-19. The Council granted financial 
assistance  to  Latvia  of  EUR  472  million  in  loans, 
which supported around 6% of workers and 7% of 
firms  in  2020,  and  around  9%  of  workers  and 
12% of firms in 2021. 

Latvia 

Instrument 
designing 

(TSI) 
The  Technical  Support 
and 
supports 
in 
implementing  growth-enhancing 
reforms, 
including  those  set  out  in  its  recovery  and 
resilience  plan  (RRP).  Latvia  has  received 
significant  support  since  2017.  Examples (29) 
include support to strengthen access to justice, to 
improve the academic careers model and to foster 
coordination in cancer care and screening. 

(29)  Country factsheets on reform support are available here. 

30 

2.1775746205791961.77578155951938705001.0001.5002.0002.500SDG 9 Industry,innovation andinfrastructureSDG 7 Affordableand clean energySDG 8 Decent workand economicgrowthSDG 4 QualityeducationSDG 1 No povertyEU CP 2014-2020 (millions EUR)EU CP 2021-2027 (millions EUR) 
  
                                                 
                                                 
ANNEX 5: RESILIENCE 

This  Annex 
illustrates  Latvia’s  relative 
resilience capacities and vulnerabilities using 
the  Commission’s 
resilience  dashboards 
(RDB) (30).  Comprising  a  set  of  124  quantitative 
indicators,  the  RDB  provide  broad  indications  of 
Member  States’  ability  to  make  progress  across 
four interrelated dimensions: social and economic, 
green, digital, and geopolitical. The indicators show 
vulnerabilities (31)  and  capacities (32)  that  can 
become  increasingly  relevant,  both  to  navigate 
ongoing  transitions  and  to  cope  with  potential 
future shocks. To this end, the RDB help to identify 
areas  that  need  further  efforts  to  build  stronger 
and  more  resilient  economies  and  societies.  They 
in  Table  A5.1  as  synthetic 
are  summarised 
resilience 
illustrate  the  overall 
relative  situation  for  each  of  the  four  dimensions 
and their underlying areas for Latvia and the EU-
27 (33). 

indices,  which 

the  digital,  green  and  geopolitical  dimensions. 
Latvia  shows  stronger  capacities  than  the  EU 
average  in  the  areas  ‘raw  material  and  energy 
supply’ and ‘value chains and trade’. There is room 
for improving capacities compared to the EU in all 
areas  of  the  social  and  economic  dimension 
(particularly,  in  the  area  ‘health,  education  and 
work’  regarding  standardised  preventable  and 
treatable  mortality,  and  healthy  life  years  in 
absolute value at birth), ‘climate change mitigation 
and  adaptation’,  ‘sustainable  use  of  resources’, 
industry  digitalisation,  ‘financial  globalisation’  and 
‘security and demography’.  

Table A5.1: Resilience indices summarising the 
situation across RDB dimensions and areas 

According  to  the  set  of  resilience  indicators 
under  the  RDB,  Latvia  generally  displays  a 
similar  level  of  vulnerabilities  compared  to 
the  EU  average.  Latvia  shows  medium-low 
vulnerabilities  in  the  social  and  economic,  green 
and  digital  dimensions  of  the  RDB,  and  medium-
high vulnerabilities in the geopolitical dimension. It 
has  higher  vulnerabilities  then  the  EU  average  in 
the areas of digitalisation of personal  space, 'raw 
‘financial 
material  and  energy  supply’  and 
globalisation’. 
low 
Latvia 
vulnerabilities  in  relation  to  ‘sustainable  use  of 
and 
‘ecosystems, 
resources’, 
sustainable 
and 
agriculture’, 
‘industry and public space digitalisation’. 

biodiversity 
‘cybersecurity’, 

relatively 

has 

Data are for 2021, and EU-27 refers to the value for the EU 
as a whole. Data underlying EU-27 vulnerabilities in the area 
‘value chains and trade’ are not available as they comprise 
partner concentration measures that are not comparable with 
Member States’ level values. 
Source: JRC Resilience Dashboards - European Commission 

Compared  to  the  EU  average,  Latvia  shows 
an overall lower level of capacities across all 
RDB  indicators.  It  has  medium-low  resilience 
the  social  and  economic 
capacities  across 
dimension  of  the  RDB  and  medium  capacities  in 

(30)  For details see https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en; see also 2020 Strategic 
Foresight Report (COM(2020) 493). 

(31)  Vulnerabilities describe features that can exacerbate the 

negative impact of crises and transitions, or obstacles that 
may hinder the achievement of long-term strategic goals. 

(32)  Capacities refer to enablers or abilities to cope with crises 
and structural changes and to manage the transitions.  

(33)  This Annex is linked to Annex 1 on SDGs, Annex 6 on the 
green deal, Annex 8 on the fair transition to climate 
neutrality, Annex 9 on resource productivity, efficiency and 
circularity, Annex 10 on the digital transition and Annex 14 
on the European pillar of social rights. 

31 

LVEU-27LVEU-27Vulnerabilities IndexHighMedium-highMediumMedium-lowLowNot availableCapacities IndexHighMedium-highMediumMedium-lowLowNot availableDimension/AreaVulnerabilitiesCapacitiesSocial and economicHealth, education and workInequalities and social impact of the transitionsGreenEconomic & financial stability and sustainabilitySustainable use of resourcesClimate change mitigation & adaptationDigitalEcosystems, biodiversity, sustainable agricultureDigital for industryDigital for personal spaceCybersecurityDigital for public spaceRaw material and energy supplyGeopoliticalValue chains and tradeFinancial globalisationSecurity and demography 
 
                                                 
 
  
 
 
 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

Latvia’s  green  transition  requires  continued 
action on several aspects including deploying 
and  integrating  renewable  energy  sources, 
and 
energy 
sustainable  transport.  Implementation  of  the 
European  Green  Deal  is  underway  in  Latvia;  this 
Annex  provides  a  snapshot  of  the  key  areas 
involved (34). 

efficiency 

buildings, 

in 

less  than 

Latvia  has  not  yet  defined  all  the  climate 
policy  measures  it  needs  to  reach  its  new 
2030  climate  target  for  the  effort  sharing 
sectors (35).  Data  for  2021  on  greenhouse  gas 
emissions  in  these  sectors  are  expected  to  show 
its  annual 
that  Latvia  generated 
emission  allocations (36).  Current  policies  in  Latvia 
are  projected  to  reduce  these  emissions  by  10% 
relative to 2005 levels in 2030. This is more than 
sufficient to reach the effort sharing target before 
the  target  was  raised  to  meet  the  EU’s  55% 
objective.  The  additional  measures  tabled  would 
bring  a  sharper  reduction  in  emissions,  by  15%, 
but  this  would  not  be  sufficient to  reach  the  new 
target, 17% (37). In its recovery and resilience plan 
(RRP), Latvia has allocated 37.6 % of its Recovery 
and Resilience Facility (RRF) grants to key reforms 

(34)  The overview in this Annex is complemented by the 

information provided in Annex 7 on energy security and 
affordability, Annex 8 on the fair transition to climate 
neutrality and environmental sustainability, Annex 9 on 
resource productivity, efficiency and circularity, Annex 11 on 
innovation, and Annex 19 on taxation. 

(35)  Member States’ greenhouse gas emission targets for 2030 
(‘effort sharing targets’) were increased by Regulation (EU) 
2023/857 (the Effort Sharing Regulation) amending 
Regulation (EU) 2018/842, aligning the action in the 
concerned sectors with the objective to reach EU-level, 
economy-wide greenhouse gas emission reductions of at 
least 55% relative to 1990 levels. The Regulation sets 
national targets for sectors outside the current EU Emissions 
Trading System, notably: buildings (heating and cooling), road 
transport, agriculture, waste, and small industry. Emissions 
covered by the EU ETS and the Effort Sharing Regulation are 
complemented by net removals in the land use sector, 
regulated by Regulation (EU) 2018/841 (the Land Use, Land 
Use Change and Forestry (LULUCF) Regulation) amended by 
Regulation (EU) 2023/839. 

(36)  Latvia's annual emission allocations for 2021 were some 

10.7 Mt CO2eq, and its approximated 2021 emissions were 
at 8.6 Mt (see European Commission, Accelerating the 
transition to climate neutrality for Europe’s security and 
prosperity: EU Climate Action Progress Report 2022, 
SWD(2022)343). 

(37)  See the information on the distance to the 2030 climate 

policy target in Table A6.1. Existing and additional measures 
as of 15 March 2022. 

and  investments  to  attain  climate  objectives. 
Investments are allocated to sustainable transport, 
energy  efficiency  in  public  and  private  buildings, 
renewable  energy,  modernisation  of  the  grid 
network and climate adaptation measures (38). 

Graph A6.1: Thematic – greenhouse gas emissions 
from the effort sharing sectors in Mt CO2eq, 
2005-2021 

Source: European Environmental Agency. 

(LULUCF)  sector  had 

since  2017.  Greenhouse 

The  capacity  of  Latvia’s  land  use  sector  for 
net carbon removals remains low. Latvia’s net 
removals  from  its  land  use,  land  use  change  and 
forestry 
large  annual 
gas 
fluctuations 
emissions in the land use sector are comparatively 
high from cropland and grassland, indicating large 
emissions from soils with high organic content as 
well as diminishing forest stocks. Latvia projects a 
trend towards net emissions instead of enhancing 
removals  from  the  land  use  sector  by  2030.  It's 
2030  target  for  the  LULUCF  sector  implies  to 
remove 644 kt CO2eq (see Table A6.1) (39). 

Imported  fossil  fuels  still  play  a  substantial 
role in Latvia’s energy mix. In 2021, renewable 
energy accounted  for 44% of Latvia’s energy mix 
while oil and oil products accounted for 34% (see 
Graph  A6.2).  The  share  of  natural  gas  in  the 
energy mix in 2021 was 22%. In 2021, renewable 
energy  sources  accounted  for  64%  of 
the 
electricity  mix.  Natural  gas  accounted  for  the 
remaining 36% of the electricity mix. 

(38)  For example, investments in clean transport in the Riga 

metropolitan area covering railways, trams, electric buses 
and cycling lanes, and in energy efficiency of private and 
public buildings and businesses.. 

(39)  This value is indicative and will be updated in 2025 (as 

mandated by Regulation (EU) 2023/839. 

32 

01234567891020052021Domestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
 
 
                                                 
     
                                                 
 
 
Graph A6.2: Energy mix (top) and Electricity mix 
(bottom), 2021 

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: Eurosta 
Source:  

to 

increase 

Increasing  the  pace  at  which  renewable 
energy is deployed is crucial to decarbonising 
Latvia’s  economy.  Latvia´s  NECP  sets  a  50% 
target  of  renewable  sources  in  gross  final  energy 
consumption  by  2030,  which  was  considered  as 
adequate.  Latvia  will  need 
its 
renewable  energy  target  in  the  updated  NECP,  to 
reflect the more ambitious EU climate and energy 
targets  in  the  Fit  for  55  Package  and  in  the 
REPowerEU  Plan.    However,  the  progress  has 
remained  stagnant 
renewables 
accounted  for  42.1%  of  gross  final  energy 
consumption,  the  same  as  in  2020.  Latvia  has 
great potential for decarbonising, particularly in its 
transport and building sectors and shifting towards 
renewable energy sources, notably by accelerating 
its  deployment  of  wind  and  solar  energy.  Latvia’s 
RRP  contains  investments and  reforms  to  support 
diversification away from fossil fuels. A significant 
share  of  the  investments  is  allocated  to  greening 

in  2021,  as 

Riga’s  metropolitan  area  transport  system  and  to 
sustainable public transport. The reforms included 
in  the  plan  aim  to 
improve  the  regulatory 
framework  to  enable  onshore  wind  energy  to  be 
deployed  and 
for 
investments.  The  Latvian  RRP  also  contains 
investments  related  to  modernising  electricity 
transmission  and  distribution  networks  that  will 
enable  the  uptake  of  renewables  in  Latvia’s 
electricity mix.  

legal  uncertainty 

reduce 

its  2020 

Latvia’s  energy  efficiency  targets  for  2030 
will  need  to  be  strengthened.  Latvia’s  NECP 
targets  for  primary  and  final  energy  consumption 
(PEC and FEC) were considered modest in ambition 
in  the  2020  Commission  assessment.  Based  on 
the energy consumption trajectory for 2018-2021, 
Latvia is expected to be on track to meet its 2030 
target  for  PEC  and  FEC,  as  these  were  notified  in 
its  NECP (40).  Latvia  needs  to  advance  in  energy 
efficiency  measures  in  building  and  transport 
sectors,  as  well  as 
industry.  Rapidly  aging 
residential building stock alone accounted for 30% 
of the final energy consumption in the country (41). 
long-term  renovation 
According  to 
strategy  (LTRS),  which 
indicative 
milestone for 2030, Latvia aims to renovate 30% 
of  multi-apartment  buildings  (8 100  buildings) 
with 4 860 buildings identified as a priority. Latvia 
also  aims  to  renovate  500 000  m²  of  public 
buildings  at  a  renovation rate  of  3%  per  year  for 
up to 2030 (42). The Latvian RRP includes concrete 
measures to improve the energy efficiency of the 
national building stock through specific renovation 
measures  for  public  and  private  buildings.  It  also 
to  stimulate  energy 
envisages 
efficiency 
industrial  sector.  But  for 
ambitious goals of the LTRS to be met, additional 
financing and support measures need to be put in 
place by Latvia. Also, incentives to facilitate energy 
performance  contracting  in  public  buildings  and 
expansion  of  the  energy  efficiency  obligation 
scheme in end-use sectors. 

investments 
the 
in 

includes  an 

In Latvia, green mobility shows potential for 
progress. 
zero-emission 
passenger  cars is  slowly  developing.  The  share  of 
registrations  of  zero-emission  vehicles 
new 

The  market 

for 

(40)  After the conclusion of the negotiations for a recast EED, the 
ambition of both the EU and national targets as well as of 
the national measures for energy efficiency to meet these 
targets is expected to increase. 

(41)  Latvia’s National Energy and Climate Action Plan 2021-2030 

(42)  Latvia´s Long-term strategy for the renovation of buildings. 

33 

36%64%GasRenewables22%34%44%GasOilRenewables 
  
 
                                                 
remains  much  lower  than  the  EU  average (43). 
Latvia’s RRP supports connection points for electric 
vehicles.  At  13.5 %,  the  electrification  of  the 
low (44). 
railway 
Individual 
seasonal 
problems  with  air  pollution,  leading  to  significant 
health and economic costs in the capital. 

comparatively 
exacerbates 

is 
transport 

network 

Graph A6.3: Thematic – environmental investment 
needs and current investment, p.a. 2014-2020 

Source: European Commission. 

notably 

investment 

protecting 

biodiversity 

Latvia  would  benefit  from  investing  more  in 
in 
environmental 
protection, 
measures 
and 
addressing  pollution.  Between  2014  and  2020, 
needs (45)  were 
environmental 
estimated  to  be  at  least  EUR  1.3  billion  while 
investment  stood  at  about  EUR  500  million, 
leaving a gap of at least EUR 800 million per year 
(see  Graph  A6.3) (46).  Latvia  has  not  designated 
enough  sites  for  inclusion  in  its  land-based  EU 
Natura 2000 network, currently covering 11.5% of 
its  territory (47).  It  performs  very  poorly  compared 

(43)  In 2022, the share of battery electric vehicles in Latvia was 
at 4.6%, against the EU average of 12%. Source: European 
Alternative Fuels Observatory. 

(44)  The EU average is 56.6 %. Source: EU Transport in Figures. 

Statistical Pocketbook 2022. 

(45)  Environmental objectives include pollution prevention and 

control, water management and industries, circular economy 
and waste, biodiversity and ecosystems (European 
Commission, 2022, Environmental Implementation Review, 
country report Latvia). 

(46)  When also accounting for needs estimated at EU level only 

(e.g., water protection, higher circularity, biodiversity 
strategy).  

(47)  In 2021, Latvia had 18.2% terrestrial protected areas 

(Natura 2000 and nationally designated areas), against the 

34 

to the rest of the EU in the conservation status of 
its  habitats  protected  under  EU  legislation;  less 
than  10%  have  a  favourable  status  (against  the 
EU  average  of  16%).  Around  90%  of  the  forests 
and  grasslands  protected  under  EU  legislation 
have  a  bad  or  poor  status:  A  comprehensive 
approach  to  ecosystem  services  is  yet  missing  in 
Latvia,  and  it  has  not  yet  dedicated  sufficient 
resources to protecting nature. 

sensitive 

increases 

rising  precipitation 

Climate  change  is  affecting  many  sectors  in 
Latvia (48),  with  adaptation 
challenges 
particularly  in  the  coastal  region.  Between 
1980  and  2020,  economic  losses  from  weather- 
and  climate-related  events  in  Latvia  amounted  to 
almost  EUR  1  billion (49).  Currently  some  sectors 
have  benefited  from  climate  change  (e.g.,  lower 
heating  costs,  extended  crop  growing  season). 
However, 
flood 
hazards.  Extreme  weather  events  like  heatwaves 
are  projected  to  occur  more  often.  The  most 
climate 
agriculture, 
sectors 
infrastructure,  energy,  and  transport.  The  decline 
of  biodiversity  and  ecosystem  services  due  to 
climate change poses a threat to the preservation 
and  sustainable  development  of  Latvia’s  natural 
capital,  although  data  are  often 
insufficient. 
Shifting  away  from  monocultures  in  forestry  and 
agriculture,  and  monitoring  invasive  species  and 
pests is key to protecting Latvia’s ecosystems (50). 
Latvia’s  national  plan  for  climate  adaptation  until 
2030 was adopted in 2018. It aims at integrating 
climate  resilience  goals  into  all  sectors  of  the 
economy (51).  Progress is  planned  to  be  evaluated 
periodically.  Latvia’s  RRP  includes  a  pillar  on 
climate  adaptation,  consisting  of  fire  and  flood 
prevention measures (52).  

are 

Latvia  provides  fossil  fuel  and  other 
environmentally harmful subsidies that could 
be  considered  for  reform,  while  ensuring 
food  and  energy  security  and  mitigating 

EU average of 26.4% (European Environment Agency, 2023, 
Natura 2000 Barometer). 

(48)  European Environmental Agency, Advancing towards climate 

resilience in Europe, forthcoming. 

(49)  European Environmental Agency, Economic losses from 
climate-related extremes in Europe, published on 
3 February 2022. 

(50)  Source: European Environmental Agency, Climate-Adapt, 

overview of climate pressures Latvia. 

(51)  Latvia’s national plan for climate adaptation 2030. 

(52)  Latvia’s recovery and resilience plan. 

6714810110242156193116747440.0100.0200.0300.0400.0500.0600.0700.0800.0Pollutionprevention andcontrolWater (industries,excl. protection)Circular economy(incl. waste)Biodiversity andecosystemsR&I&D and otherEUR million (at current prices)Current investmentTotal need 
      
                                                 
                                                                              
social effects. Environmentally harmful subsidies 
have  been  identified,  via  an  initial  assessment,  in 
the  agriculture,  forestry  and  fishing,  electricity, 
gas, steam and air conditioning, transportation and 
storage, manufacturing and other services sectors. 
Examples of such subsidies include the excise duty 
exemptions on diesel used for agricultural, fishing, 
aquaculture  and  navigation 
the 
reimbursement  of  excise  duty  on  diesel  used  in 
freight  and  other  categories  of  passenger 
transport  or  the  refund  scheme  for  energy-
intensive industry under conditions (53). A mapping 
of all environmentally harmful subsidies by Latvia 
would help prioritise candidates for reform. 

purposes, 

(53)  Fossil fuel figures in EUR of 2021 from the 2022 State of 

the Energy Union report. Initial assessment of 
environmentally harmful subsidies done by the Commission 
in the 2022 toolbox for reforming environmentally harmful 
subsidies in Europe, using OECD definitions, and based on the 
following datasets: OECD Agriculture Policy Monitoring and 
Evaluations; OECD Policy Instruments for the Environment 
(PINE) Database; OECD Statistical Database for Fossil Fuels 
Support; IMF country-level energy subsidy estimates. Annex 4 
of the toolbox contains detailed examples of subsidies on 
the candidates for reform. 

35 

 
                                                 
Table A6.1: Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Sources: (1) Historical and projected emissions, as well as Member States’ climate policy targets and 2005 base year emissions 
under the Effort Sharing Decision (for 2020) are measured in global warming potential (GWP) values from the 4th Assessment 
Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ climate policy targets and 2005 base 
year emissions under the Effort Sharing Regulation (for 2030) are in GWP values from the 5th Assessment Report (AR5). The 
table above shows the base year emissions 2005 under the Effort Sharing Decision, using AR4 GWP values. Emissions for 2017-
2021 are expressed in percentage change from 2005 base year emissions, with AR4 GWP values. 2021 data are preliminary. The 
table shows the 2030 target under Regulation (EU) 2023/857 that aligns it with the EU’s 55% objective, in percentage change 
from 2005 base year emissions (AR5 GWP). Distance to target is the gap between Member States’ 2030 target (with AR5 GWP 
values) and projected emissions with existing measures (WEM) and with additional measures (WAM) (with AR4 GWP values), in 
percentage change from the 2005 base year emissions. Due to the difference in global warming potential values, the distance to 
target is only illustrative. The measures included reflect the state of play as of 2022.  
(2) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2023 
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839 
amending Regulation (EU) 2018/841 (LULUCF Regulation) – Annex IIa, kilotons of CO2 equivalent, based on 2020 submissions. 
(3) Renewable energy and energy efficiency targets and national contributions are in line with the methodology established under 
Regulation (EU) 2018/1999 (Governance Regulation).  
(4) Percentage of total revenue from taxes and social contributions (excluding imputed social contributions). Revenue from the EU 
Emissions Trading System is included in environmental tax revenue.  
(5) Expenditure on gross fixed capital formation for the production of environmental protection services (abatement and 
prevention of pollution) covering government, industry, and specialised providers.  
(6) European Commission, Study on energy subsidies and other government interventions in the European Union, 2022 edition.  
(7) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters. This 
indicator is based on modelling of the current risk from floods, wildfires and windstorms as well as earthquakes, and an 
estimation of the current insurance penetration rate. The indicator does not provide information on the split between the 
private/public costs of climate-related disasters. A score of 0 means no protection gap, while a score of 4 corresponds to a very 
high gap (EIOPA, 2022).  
(8) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided by GDP).  
(9) Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV). 

36 

2030200520172018201920202021target/valueWEMWAMGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq; %; pp8.58%7%1%-1%--17.0%-7-2Net carbon removals from LULUCF (2)kt CO2eq-5,965-3,110-614-2,2938012,394-644n/an/a200520172018201920202021Share of energy from renewable sources in gross final consumption of energy (3)%32%39%40%41%42%42%50%Energy efficiency: primary energy consumption (3)Mtoe4.54.54.74.64.34.54.1Energy efficiency: final energy consumption (3)Mtoe4.04.04.24.13.94.13.6201620172018201920202021201920202021Environmental taxes (% of GDP)% of GDP3.63.53.42.93.02.72.42.22.2Environmental taxes (% of total taxation) (4)% of taxation 11.711.210.99.69.89.05.95.65.5Government expenditure on environmental protection% of total exp.1.41.41.51.51.31.31.71.61.6Investment in environmental protection (5) % of GDP0.30.30.30.4--0.40.40.4Fossil fuel subsidies (6)EUR2021bn0.20.20.10.10.1-53.050.0-Climate protection gap (7) score 1-40.91.41.5Net greenhouse gas emissions1990 = 10043.043.043.045.041.042.076.069.072.0Greenhouse gas emission intensity of the economykg/EUR'100.570.560.560.550.52-0.310.300.26Energy intensity of the economykgoe/EUR'100.200.200.200.19--0.110.11-Final energy consumption (FEC)2015=100100.9106.0110.3107.7101.8107.1102.994.6-FEC in residential building sector2015=100103.4108.1111.3107.5100.9108.8101.3101.3106.8FEC in services building sector2015=100101.1103.5101.097.093.9102.5100.194.4100.7Smog-precursor emission intensity (to GDP) (8)tonne/EUR'102.72.62.52.52.3-0.90.9-Years of life lost due to air pollution by PM2.5per 100.000 inh.728.9525.6846.0594.5479.1-581.6544.5-Years of life lost due to air pollution by NO2per 100.000 inh.117.998.2119.577.459.4309.6218.8-Nitrates in ground watermg NO3/litre------21.020.8-Land protected areas% of total11.418.1-18.218.218.226.226.426.4Marine protected areas% of total15.8--15.8-15.810.7-12.1Organic farming% of total utilised agricultural area13.413.914.514.814.815.38.59.1-201720182019202020212022202020212022Share of zero-emission vehicles (9)% in new registrations0.40.80.62.12.94.55.48.910.7Number of AC/DC recharging points (AFIR categorisation)---384480609188626330028432518Share of electrified railways%13.513.513.513.513.513.556.6n/a56.6Hours of congestion per commuting driver per year21.819.820.320.3n/an/a28.7n/an/aMobility'Fit for 55'DistanceProgress to policy targetsNational contribution to 2030 EU targetLatviaEUFiscal and financialindicatorsEnergyPollutionBiodiversityClimate 
 
     
 
ANNEX 7: ENERGY SECURITY AND AFFORDABILITY 

In  2022,  Latvia  succeeded  in  diversifying 
away  from  Russian  gas,  which  in  the  past 
served  as  the  single  gas  suppliers  to  the 
country.  Latvia  has  demonstrated  a  slow 
from 
uptake  of  electricity  generation 
renewable sources, requiring it to step up its 
clean energy transition. This Annex (54) sets out 
actions  carried  out  by  Latvia  to  achieve  the 
the 
REPowerEU  objectives, 
implementation of its recovery and resilience plan, 
in  order 
improve  energy  security  and 
affordability  while  accelerating  the  clean  energy 
transition,  and  contributing  to  enhancing  the  EU’s 
competitiveness in the clean energy sector (55).  

including 

through 

to 

in  the  port  of 

A  strategic  decision  adopted  by  the  Latvian 
Parliament in July 2022 to ban purchases of 
Russian  natural  gas  as  of  January  2023 
prompted  domestic  gas  suppliers  to  find 
alternative  sources  of  natural  gas  supply. 
Latvia does not own an LNG facility, but it imports 
natural  gas  from  the  Lithuanian  Klaipeda  LNG 
terminal and can access the Finnish LNG terminal 
Inkoo,  which  started 
located 
operations  in  January  2023.  The  completion  of 
several  gas interconnections  in  the  context  of  the 
implementation  of  the  Baltic  Energy  Market 
Interconnection  Plan  (BEMIP)  have  helped  to 
ensure  market 
integration  and  decreased 
dependence on Russian gas in a region historically 
dependent  on  a  single  supplier.  Those  are  the 
enhancements  of  the  gas  interconnections  with 
Estonia  and  Lithuania,  in  conjunction  with  other 
key  Projects  of  Common  Interest  (PCIs)  in  the 
region  such  as  the  Gas  Interconnection  between 
Poland  and  Lithuania,  the  Baltic  Pipe  between 
Denmark and Poland, the Balticconnector between 
Finland and Estonia, the Klaipeda LNG terminal  in 
Lithuania  and  the  Świnoujście  LNG  terminal  in 
Poland. The Inčukalns underground storage facility 
(24.1  TWh)  is  undergoing  enhancement  works 
expected  to  be  completed  by  2025.  It  is  the  only 
such  facility in the  Baltic countries  and  has  a  key 

role in ensuring its security of supply. Latvia’s gas 
storage  capacity  greatly  exceeds  its  national 
consumption.  For  that  reason,  based  on  the  Gas 
Storage  Regulation (56),  Latvia’s  filling  target  and 
intermediate  targets  shall  be  reduced  to  35%  of 
its  average  annual  gas  consumption  over  the 
previous  5  years.  Latvia.  Latvia  fulfilled  its  gas 
storage obligations last winter, reaching 57.7% by 
1  November  2022  (around  38  percentage  points 
above its legal  obligation), and ended  the heating 
season  with  a  filling  gas storage  at  35.3%  by  15 
April 2023 (see Graph A7.1) (57). 

Graph A7.1: Underground storage levels in Latvia 

Source: JRC calculation based on AGSI+ Transparency 
Platform, 2022 (Last update 1 May 20232 

gas-fired 

information, 

The security of supply of the gas system and 
electricity  system  are  closely  interlinked.  In 
2021,  electricity  generated  from  natural  gas 
accounted  for  more  than  a  third  of  the  electricity 
mix  (see  Annex  6).  According  to  preliminary 
Eurostat 
electricity 
generation  in  Latvia  fell  by  857  GWh,  or  42%,  in 
2022 compared to 2021 (58). This was a key driver 
behind  the  observed  gas  demand  reduction  in 
Latvia.  Over  the  period  August  2022  –  March 
2023, gas consumption has been reduced by 30%, 
compared  to  the  previous  5-years  average.  In 
effort to ensure energy savings, Latvia has rolled-
out  programmes  to  increase  energy  efficiency  in 
buildings, including in combination with small scale 
renewable  installations  such  as  heat  pumps  and 

(54)  It is complemented by Annex 6 as the European Green Deal 
focuses on the clean energy transition, by Annex 8 on the 
actions taken to mitigate energy poverty and protect the 
most vulnerable ones, by Annex 9 as the transition to a 
circular economy will unlock significant energy and resource 
savings, further strengthening energy security and 
affordability, and by Annex 12 on industry and single market 
complementing ongoing efforts under the European Green 
Deal and REPowerEU. 

(55)  in line with the Green Deal Industrial Plan COM(2023) 62 
final, and the proposed Net-Zero Industry Act COM(2023) 
161 final 

(56)  Regulation (EU) 2022/1032 of the European Parliament and 
of the Council of 29 June 2022 amending Regulations (EU) 
2017/1938 and (EC) No 715/2009 with regard to gas 
storage. 

(57)  Commission Implementing Regulation (EU) 2022/2301 of 23 

November 2022 setting the filling trajectory with 
intermediary targets for 2023 for each Member State with 
underground gas storage facilities on its territory and directly 
interconnected to its market area. 

(58)  EUROSTAT: Net electricity generation by type of fuel - 

monthly data (nrg_cb_pem) 

37 

 
 
                                                 
 
                                                 
 
 
certificates 

establishing 
in 

for  bio-methane  production, 
system 
a 
by 
line  with 

solar  panels.  The  government  has  also  set  out  a 
plan  to  incentivise  the  switch  from  fossil  fuels  to 
biogas or biomethane from the agricultural waste. 
However,  Latvia  still  needs  to  create  the  legal 
in 
framework 
of 
particular 
sustainability 
the 
requirements  of  the  Renewable  Energy  Directive, 
including  for  connecting  the  producers  to  the 
natural  gas  grid.  Additional  efforts  of  Latvia  in 
energy  efficiency  would  also  contribute to  further 
reduce the country’s dependency from fossil fuels. 
Latvia  is  carrying  out  a  low  number  of  checks  on 
products  covered  by  ecodesing  and  energy 
labelling.  This  generates  concerns  with  respect  to 
the  level  playing  field  among  economic  operators 
and uncertainty as to the compliance levels of the 
concerned products, and therefore possible missed 
energy and CO2 savings (59). 

several 

investments 

the  broader 

the  Baltic  states’  electricity  grid  with 
the 
continental  European  network  is  well  advanced.  It 
includes 
and 
new 
reinforcements that increase the security of supply 
for 
region  and  add  additional 
transmission  capacity  so  that  an  increasing  share 
of  offshore  and  onshore  renewables  can  be 
integrated  into  the  grid.  However,  the  Latvian 
energy  network,  like  other  Baltic  states,  remains 
exposed as its electricity grid is synchronised with 
the BRELL power grid (Belarus and Russia).  

Graph A7.3: Latvia´s retail energy prices for 
industry (top) and households (bottom) 

Graph A7.2: Share of gas consumption per sector, 
2021 

Source: Eurostat 

To  accommodate  the  higher  uptake  of 
renewable electricity, further investments to 
modernise  the  electricity  grid  are  required, 
as well as investments in flexibility services, 
such  as  demand  response  and  energy 
storage.  As  part  of  its  recovery  and  resilience 
in 
plan,  Latvia  will  carry  out 
modernising its distribution grids to enable uptake 
of  decentralised  renewable  energy  (see  Annex  6). 
Significant  progress  has  been  made  in  terms  of 
regional market integration between the Baltic and 
Nordic  electricity  markets  in  the  framework  of 
BEMIP,  with  commissioning  of  the  electricity  PCIs 
between  Latvia,  Estonia  and  Lithuania  and  their 
Nordic  neighbours.  The  project  of  synchronising 

investments 

(59)  The internet-supported information and communication 
system for the pan-European market surveillance 

(1) On electricity, the band consumption is DC for households 
and ID for industry 
(2) On gas, the band consumption is D2 for households and I4 
for industry 
Source: Eurostat 

Despite the measures introduced by Latvia to 
mitigate  the  impact  of  the  energy  crisis, 
Latvian  households,  small  and  medium-sized 
enterprises  and  industries  are  still  affected 
by  high  energy  prices.  The  mandatory 
procurement  component  of  the  electricity  bill  (a 
form  of  support  to  electricity  producers  that 
renewable  energy 
from 
produce  electricity 
sources)  was  abolished 
for  all  electricity 
consumers  from  1  October  2022,  until  30  April 
2023.  In  addition,  to  shield  households  from 
soaring  prices,  the  government  decided  to  cap 
electricity  and  gas  prices  as  well  as  to  support 
households by covering some part of the costs for 
heating,  while  for  certain  legal  entities,  the  costs 

38 

63.5%11.4%0.1%12.2%12.0%0.8%EnergyIndustryTransportServices and public sectorHouseholdsAgriculture, forestry andfishery050100150200250300€/MWhGas LatviaGas EUElectricity LatviaElectricity EU050100150200250300350€/MWhGas LatviaGas EUElectricity LatviaElectricity EU 
     
                                                 
   
of  electricity  distribution  and  transmission  tariff 
are  compensated  from  the  state  budget.  Latvian 
industry,  which  accounted  for  11.4%  of  the 
country's  gas  consumption  in  2021,  was  also  hit. 
Among the different sectors, the largest industrial 
consumers  of  natural  gas  are  the  food  and 
beverages sector and non-metallic minerals sector 
(see Annex 12). 

in 

despite 

generation 

from 
significant 

Latvia  has  demonstrated  a  slow  uptake  of 
renewable 
electricity 
sources, 
untapped 
potential  for  wind  energy  generation.  After  a 
three-year  long  period  (from  2019  to  2021)  of 
stagnation during which Latvia did not register an 
increase 
installed  capacity  for  electricity 
generation from renewable sources, an increase of 
142 MW was observed in 2022. The increase was 
driven  mainly  by  the  rise  in  deployment  of  solar 
(49 MW) and onshore wind energy (59 MW) (60). In 
September 2022, the Parliament adopted the Law 
on  Simplified  Procedure  for  the  Construction  of 
Energy  Supply  Structures.  This  will  accelerate  the 
pace  of  development  of 
renewable  energy 
projects,  including  wind  farms  with  a  capacity  of 
more than 50 MW and solar farms with a capacity 
of more than 10 MW. In addition, amendments to 
the  Law  on  Environmental  Impact  Assessment 
were  also  adopted.  The  new  legal  framework 
enables  the  creation  of  a  green  corridor  for  wind 
farm 
the 
in  Latvia  by 
environmental impact assessment procedure by 6 
months.  Moreover,  it  allows  the  government  to 
grant the status of national interest to wind farm 
facilities. This would allow it to override objections 
from  municipalities  and  local  communities,  which 
has  been  one  of  the  main  reasons  for  the  slow 
uptake of onshore wind farms. Additionally, Latvia 
is  currently  implementing  a  joint  hybrid  offshore 
wind  grid  project  with  the  capacity  of  1  GW, 
together with Estonia. in January 2023, under the 
framework  of  BEMIP,  the  Baltic  Sea  member 
states, 
common 
including  Latvia,  endorsed 
offshore  renewable  energy  goals  for  the  Baltic 
Sea: 23 GW for 2030, 35 GW for 2040 and 47 GW 
for  2050  (out  of  these,  Latvia  has  committed  to 
0.4 GW for 2030, with goals still to be updated for 
lacks  specific 
2040  and  2050).   Latvia  still 
measures to facilitate integration of decentralised 
RES  production  and  empower  customers 
to 
participate  in  electricity  market  via  balancing  and 
flexibility services including demand response and 
storage in line with Electricity Market Directive. The 

reducing 

facilities 

the  uptake  of  decentralised 

legal  framework  for  energy  communities  only 
currently being developed would greatly contribute 
to 
renewable 
deployment.  Furthermore,  in  its  National  Energy 
and Climate Plan, Latvia made pledges to upgrade 
the  existing  district  heating  infrastructure  for  the 
use of cooling in buildings, and increase the share 
of  renewables  in  district  heating  and  transport 
sectors.  Latvia  could  benefit 
linking 
renovation  programmes  with  the  assessment  for 
modernising  district  heating  networks  based  on 
RES. 

from 

innovation 

research  and 

Latvia  experienced  a  downward  trend  in 
private 
(R&I) 
investment  and  in  the  number  of  patent 
families in Energy Union priorities. Private R&I 
investment in Energy Union priorities fell from EUR 
16.4  million  in  2014  (0.07%  of  GDP)  to  EUR 6.2 
million  in  2019  (0.02%  of  GDP).  The  number  of 
patent  families  in  Energy  Union  priorities  also 
decreased  from  11.4  per  million  inhabitants  in 
2013  to  2.8  per  million  inhabitants  in  2019.  On 
the clean energy value chain, Latvia is among the 
10  Member  States  where  40%  of  renewable 
energy  jobs  are  in  the  manufacturing  sector.  For 
the  period  2019-2021,  Latvia  leads  the  way  on 
solid bioenergy carriers and feedstock with around 
EUR 1.5 billion followed by Germany with EUR 1.3 
billion.  It  mainly  delivers  to  other  Member  States. 
In total the EU has 1.24 million jobs in RES sector 
in  2022 (61)  which  in  relation  to  total  working 
population  in  the  EU (62)  means  an  average  of 
0.67%  of  all  jobs  are  in  the  RES  sector  while  in 
2021  Latvia  had  a  total  of  16  900 (63)  people 
working  in  the  renewable  energy  sector,  which 
represents 1.9% of all jobs (64) and is thus 2 times 
higher than EU average. Most of these jobs are in 
Solid Biomass (10 600 or 63%) (65). As mentioned 
earlier,  Latvia  has  significant  wind  energy 
potential. However, a transition to clean energy is 
mineral  intensive  and  will  require  a  substantial 
supply of many critical minerals (see Annex 5). 

(61)  https://www.irena.org/Publications/2022/Sep/Renewable-

Energy-and-Jobs-Annual-Review-2022 

(62)  189 Million in 2021. 

(63)  https://www.irena.org/Data/View-data-by-

topic/Benefits/Renewable-Energy-Employment-by-Country 

(64)  There are 2 Million people living in Latvia (as of 2021), and 

0,86 Million people were employed. 

(65)  https://www.irena.org/Publications/2022/Sep/Renewable-

(60)  IRENA, Renewable capacity statistics 2023 

Energy-and-Jobs-Annual-Review-2022 

39 

 
                                                 
                                                 
Graph A7.4: Patent families in Energy Union R&I 
priorities 

Source: JRC SETIS (2022) 

40 

54%29%56%5%32%7%19%9%63%19%201020142019[% per priority]CCUSNuclear safetySustainable transportEfficient systemsSmart systemRenewables675Total 
   
 
Table A7.1: Key energy indicators 

(1) The ranking of the main suppliers is based on the latest available figures (for 2021) 
(2) FSRU included 
(3) Venture Capital investments include Venture Capital deals (all stages) and Private Equity Growth/Expansion deals (for 
companies that have previously been part of the portfolio of a VC investment firm). 

Source: Source: Eurostat, Gas Infrastructure Europe (Storage and LNG Transparency Platform), JRC SETIS (2022), JRC elaboration 
based on PitchBook data (06/2022) 

41 

EU20182019202020212018201920202021Import Dependency [%] 44%44%45%38%58%61%57%56%of Solid fossil fuels 91%111%90%93%44%44%36%37%of Oil and petroleum products 98%100%106%94%95%97%97%92%of Natural Gas 99%100%100%100%83%90%84%83%Dependency from Russian Fossil Fuels [%]of Hard Coal 95%80%97%40%40%44%49%47%of Crude Oil0%0%0%0%30%27%26%25%of Natural Gas 100%100%100%100%40%40%38%41%20152016201720182019202020212022Gross Electricity Production (GWh)5,5336,4247,5316,7256,4385,7255,846-Combustible Fuels3,5263,7673,0004,1704,1742,9402,990-Nuclear0000000-Hydro1,8602,5304,3812,4322,1082,6032,708-Wind147128150122154177141-Solar 0001357-Geothermal 0000000-Other Sources0000000-Net Imports of Electricity (GWh)1,8211,033-649091,1181,6261,773-   As a % of electricity available for final consumption 28%16%-1%14%17%24%26% -Electricity Interconnection (%)--45.30%46.13%53.9%42.1%47.2%82.4%20152016201720182019202020212022Gas Consumption (in bcm)1.331.371.301.421.341.101.200.84Gas Imports - by type (in bcm)1.311.131.241.421.361.121.19-Gas imports - pipeline1.311.131.241.411.351.111.19-Gas imports - LNG0.000.000.000.000.000.010.01-Gas Imports - by main source supplier (in bcm) (1)Russia1.311.131.241.421.361.121.19-2019202020212022LNG TerminalsNumber of LNG Terminals (2)0000LNG Storage capacity (m3 LNG)0000Underground StorageNumber of storage facilities1111Operational Storage Capacity (bcm)2.52.22.22.52019202020212022VC investments in climate tech start-ups and scale-ups (EUR Mln) (3)as a % of total VC investments in Latvian.a.n.a.n.a.n.a.Research & Innovation spending in Energy Union R&i prioritesPublic R&I (EUR mln)n.a.n.a.n.a.n.a.Public R&I (% GDP)n.a.n.a.n.a.n.a.Private R&I (EUR mln)6.3n.a.n.a.n.a.Private R&I (% GDP)0.02%n.a.n.a.n.a.CLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIESELECTRICITYLATVIAENERGY DEPENDENCE 
 
 
 
  
 
 
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

This  Annex  monitors  Latvia’s  progress  in 
ensuring  a  fair  transition  towards  climate 
neutrality  and  environmental  sustainability, 
notably  for  workers  and  households 
in 
vulnerable situations. The number of jobs in the 
green  economy  has  not  risen  in  Latvia.  Upskilling 
and  reskilling  measures  will  promote  smooth 
labour  market  transitions,  ensure  a  fair  green 
Council 
transition 
Recommendation (66),  and  the  implementation  of 
REPowerEU.  Latvia’s  recovery  and  resilience  plan 
(RRP)  envisages 
the  energy 
investment 
efficiency  of  public  and  residential  buildings. (67), 
complementing  the  territorial  just  transition  plan 
and  action  supported  by  the  wider  reskilling  and 
upskilling  actions  supported  by  the  European 
Social Fund Plus (ESF+)”. 

with 

line 

the 

in 

in 

Employment  in  Latvia’s  sectors  that  are 
most  affected  by  the  green  transition 
remains low but stable, while employment in 
the  green  economy  is  not  expanding.  The 
greenhouse  gas  (GHG)  emissions  intensity  of 
Latvia’s  workforce  declined  slightly  from  11.5  to 
11.2  tonnes  per  worker  between  2015  and  2021, 
and  is  below  the  EU  average  of  13.7  tonnes  (see 
Graph A8.1  and  Table A8.1).  Overall,  employment 
(EII) 
in  Latvia’s  energy-intensive 
represented  a  stable  share  of  1.7%  of  total 
employment  in  2020  (same  value  as  in  2015)  vs 
3.0%  in  the  EU.  Nonetheless,  employment  in 
mining  and  quarrying  decreased  by  7.2%  since 
2015 (to around 3 000 workers). In addition, total 
jobs  in  the  environmental  goods  and  services 
sector  also  shrank  by  1.3%  (to  26 933)  during 
(EU:  8.3%),  reaching  3%  of  total 
2015-19 
employment, close to the EU average (see Annex 9 
for  circular  jobs  specifically).  The  overall  job 
vacancy  rate  is  at  2.8%,  and  at  3.2%  in  the 
construction  sector  (vs  4.0%  in  EU) (68),  which  is 
key for the green transition. 

industries 

The  green  transition  requires  upskilling  and 
in  declining  and  transforming 
reskilling 
sectors.  Skills  are  key  for  smooth  labour  market 
transitions  and  preserving  jobs  in  transforming 
sectors. In Latvia, 37% of citizens believe they do 

not  have  the  necessary  skills  to  contribute  to  the 
green  transition  (EU:  38%) (69).  To  address  this 
challenge, the ESF+ will invest in developing more 
structural upskilling and reskilling ecosystems and 
flexible  learning  pathways  in  Latvia,  with  an 
indicative  amount  of  EUR  4.8  million  to  support 
green skills training specifically. A further EUR 9.8 
million  will  be  invested  in  educational  system  to 
improve  green  skills  and  the  green  economy. 
Additionally,  to  mitigate  the  social  impact  of  the 
peat sector’s transition in the most affected areas, 
the  Just  Transition  Fund  will  contribute  EUR  16.9 
million  EUR  for  reskilling  and  upskilling  affected 
workers.  This  investment  will  help  equip  workers 
with skills that correspond to labour market needs. 
It  will  also  develop  a  sustainable  and  socially 
responsible  support  framework  for  adult  learning 
and  support  the  acquisition  of  advanced  digital 
skills. 

Graph A8.1: Fair transition challenges in Latvia 

Source: Eurostat, EMPL-JRC GD-AMEDI/AMEDI+ projects and 
World Inequality Database (see Table A8.1). 

Energy  poverty 
indicators  have  been 
improving  and  remain  below  the  EU  average 
in  the  recent  years,  but  the  spike  in  energy 
prices can aggravate  the  situation.  The  share 
of  the  population  unable  to  keep  their  homes 
adequately  warm  declined  from  14.5%  (in  2015) 
to  4.9%  in  2021 (70).  In  particular,  12.4%  of  the 
population at risk of poverty (EU: 16.4%) and 4.5% 
of  lower  middle-income  households  (in  income 
deciles  4-5)  were  affected  in  2021  (EU:  8.2%  in 
2021).  Before  energy  price  hikes,  an  estimated 
45.1%  of  the  total  population  and  82%  of  the 

(66)  Council Recommendation of 16 June 2022 on ensuring a fair 
transition towards climate neutrality (2022/C 243/04) covers 
employment, skills, tax-benefit and social protection 
systems, essential services and housing. 

(67)  See 2022 Country Report (Annex 6) 

(68)  Eurostat (JVS_A_RATE_R2) 

(69)  Special Eurobarometer 527. Fairness perceptions of the 

green transition (May – June 2022). 

(70)  Energy poverty is a multi-dimensional concept. The indicator 
used focuses on an outcome of energy poverty. Further 
indicators are available at the Energy Poverty Advisory Hub.   

42 

00.511.522.5GHG per workerEmployment EIIEnergy povertyTransportpoverty(proxy)CarboninequalityEU LatestLV Latest (vs EU Latest)LV 2015 (vs EU Latest) 
 
                                                 
  
                                                 
 
Table A8.1: Key indicators for a fair transition in Latvia 

Source: Eurostat (env_ac_ainah_r2, nama_10_a64_e, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-
JRC GD-AMEDI/AMEDI+ projects and World Inequality Database (WID). 

at-risk-of-poverty 

(AROP) 
(expenditure-based) 
population  had 
expenditure  on 
residential 
electricity,  gas,  and  other  fuels (71)  above  10%  of 
their  household  budget  (estimated  EU  average  of 
26.9% and 48.2%, respectively). 

Graph A8.2: Distributional impacts of energy prices 
due to rising energy expenditure (2021-2023) 

Mean change of energy expenditure as a percentage (%) of 
total expenditure per income decile (D) due to observed price 
changes (August 2021 – January 2023 relative to the 18 
months prior), excl. policy support and behavioural responses. 
Source: EMPL-JRC GD-AMEDI/AMEDI+ projects, based on 
Household Budget Survey 2015 and Eurostat inflation data 
for CP0451 and CP0452. 

The  increased  energy  prices  in  2021-2023 
negatively  affect  households’  budgets,  in 
particular  for  low-income  groups.  As  a  result 
of energy price changes during the August 2021 to 
January  2023  period  relative  to  the  18  months 
prior (cf. Annex 7), in the absence of policy support 
share  of 
responses, 
and  behavioural 
individuals living in households which spend more 
than  10%  of  their  budget  on  energy  would  have 
increased  by  22.3  pps  for  the  whole  population 
and  by  12.5 pps  among  the  (expenditure-based) 
AROP  population,  while  the  EU-level  would  have 
increased 
19.1 pps, 
16.4 pps 
respectively (72).  Expenditure  shares  on  energy  of 

and 

the 

by 

(71)  Products defined according to the European Classification of 

Individual Consumption according to Purpose (ECOICOP): CP045. 

(72)  EMPL-JRC GD-AMEDI/AMEDI+ ; see details in the related 

technical brief.  

43 

low  and  lower-middle  income  groups  would  have 
increased  the  most  in  line  with  EU  patterns,  as 
shown  in  Graph A8.2.  Among  the  (expenditure-
based)  AROP  population,  the  share  of  individuals 
living in households with budget shares for private 
fuels (73)  above  6%  would  have 
transport 
increased less than the EU average (0.6 pps vs 5.3 
pps), reaching 10.8% in January 2023 (well below 
the  EU  average  of  37.1%)  due  to  the  increase  in 
transport fuel prices.  

Access to public transport displays an urban-
rural  divide. Citizens perceive public transport to 
be  relatively  available  (64%  vs  55%  in  the  EU), 
affordable  (61%  vs  54%)  and  of  good  quality 
(69% vs 60%). As regards these perceptions, rural 
areas in Latvia perform worse than urban areas in 
all three indicators, yet still better when compared 
to  rural  areas  in  the  EU  overall (74).  The  average 
carbon  footprint  of  the  top  10%  of  emitters 
among the population in Latvia is about 5.8 times 
higher  than  that  of  the  bottom  50%  (see  Graph 
A8.1),  i.e.  slightly  more  pronounced  than  the  EU 
average  (5.0  times).  In  Latvia,  the  average  levels 
of  air  pollution  in  2020  stood  below  the  EU 
average  (9.1  vs  11.2  µg/m  PM2.5),  with  31%  of 
the population living in regions exposed to critical 
levels  of  air  pollution (75)leading  to  significant 
health impacts, in particular on vulnerable groups, 
and 833 premature deaths annually (76).  

(73)  ECOICOP: CP0722. 

(74)  EU (rural): 46%, 48% and 56% respectively. Special 

Eurobarometer 527. 

(75)  Two times higher than the recommendations in the WHO Air 

Quality Guidelines (annual exposure of 5µg/m3) 

(76)  EEA- Air Quality Health Risk Assessment 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%ElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasD1D2D3D4D5D6D7D8D9D10LV GasLV ElectricityEU GasEU ElectricityIndicatorDescriptionLV 2015LV LatestEU LatestGHG per workerGreenhouse gas emissions per worker - CO2 equivalent tonnes11.511.2 (2021)13.7 (2021)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24), automotive (C29) - %1.71.7 (2020)3 (2020)Energy povertyShare of the total population living in a household unable to keep its home adequately warm - %14.54.9 (2021)6.9 (2021)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport - %10.110.8 (2023)37.1 (2023)Carbon inequalityAverage emissions per capita of top 10% of emitters vs bottom 50% of emitters6.15.8 (2020)5 (2020) 
  
                                                 
                                                 
 
  
 
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The  circular  economy  transition  is  key  to 
climate  and 
delivering  on 
the  EU’s 
environmental  goals  and  provides 
large 
socio-economic  benefits. It  spurs  job  growth, 
innovation  and  competitiveness  and 
fosters 
resilience  and  resource  security.  The  circularity 
transition  of  industry,  the  built  environment  and 
agri-food  can  generate  significant  environmental 
improvements (see Annex 6), as they rank among 
the most resource-intensive systems. 

transition 

Latvia’s  circular  economy 
is 
insufficient  and  needs  accelerating  to  meet 
the  EU’s  circular  economy  goals.  The  EU’s 
2020 circular economy action plan (CEAP) aims at 
doubling  the  circular  material  use  rate  between 
2020  and  2030.  Latvia  is  still  very  far  from 
reaching this goal, since in 2021 its circular use of 
material  was  6.2%,  or  around  half  of  the  EU-27 
average  of  11.7%.  This  is  explained  by  the  fact 
that  products  that  could  be  recycled  are  not 
produced  in  Latvia.  The  CEAP  also  aims  to 
significantly  decrease  the  EU’s  material  footprint. 
Latvia’s  material  footprint  is  considerably  above 
the  EU  average  and  is  increasing.  The  labour 
market  benefits  of  the  circular  transition  are  not 
exploited,  with  reduced  employment  in  direct 
circular jobs compared to 2016. As regards health 
and safety in circular jobs, fatal accidents in waste 
management  and  materials  recovery  are  above 
the average of all economic sectors in Latvia  and 
above the EU average (77). 

implementation. 

Latvia  has  adopted  a  national  circular 
economy  action  plan,  but  it  lacks  targeted 
actions,  funding  and 
In 
September  2020,  Latvia  adopted  a  circular 
economy action plan for 2021-2027 that is rather 
general  and  could  be  strengthened  with  more 
detailed  and 
targeted  actions,  funding  and 
implementation.  Latvia  is  doing  well  with  green 
public  procurement,  as  this  constituted  26.7%  of 
all  public  procurement  in 2021  in  financial  terms. 
Green  public  procurement  can  help  drive  the 
demand  for  sustainable  products  that  meet 
reparability and recyclability standards.  

Moving  towards  a  circular  economy  requires 
further improvements in waste management. 

(77)  Eurostat [HSW_N2_02] for NACE Rev. 2 sector E38; 7.02 

fatal accidents p. 100 000 employed in 2018-2020 vs 2.84 
for all sectors in LV; 6.33 in the EU-27 for sector E38 

recycling 

Latvia’s  municipal  waste 
rate 
significantly  increased  from  25.2%  in  2016  to 
44.1%  in  2021,  mainly  due  to  the  inclusion  of 
waste  exported  for  recycling  in  the  statistics  for 
recycled  waste.  Latvia  missed  the  EU  target  for 
recycling 50% of municipal waste by 2020 and is 
assessed  to  be  at  risk  of  missing  the  EU’s  55% 
recycling  target  by  2025.  Although  the  landfilling 
rate  decreased  from  64.3%  in  2016  to  52.5%  in 
2021,  Latvia  continues 
rely  heavily  on 
landfilling,  with  a  rate  which  is  more  than  double 
its  waste 
the  EU  average 
management  reform  and 
introduction  of  the 
deposit  system  for  plastic  and  glass  bottles  in 
2022  should  increase  its  recycling  performance, 
further  improvements  in  separate  collection,  in 
particular  from  apartment  buildings  and  for 
biowaste, are needed for the country’s economy to 
become more circular. 

(23%).  While 

to 

Graph A9.1: Trend in material use 

Source: Eurostat 

The industrial system is increasingly circular. 
The  economy,  including  industry,  is  twice  less 
efficient  at  using  materials  than  the  EU  average, 
with  a  resource  productivity  of  1.6  purchasing 
power standard per kilogramme vs 2.3 for the EU 
(see  Annex  5).  Latvia’s  resource  productivity  is  at 
the  same  level  as  in  2016,  indicating  significant 
potential  to  boost  the  use  of  secondary  raw 
materials.  Latvia’s  material  import  dependency 
was  over  33%  in  2021.  According  to  Latvia's 
2020-2027  action  plan  for  transition  to  the 
circular economy, one of the key obstacles for the 
development  of  the  circular  economy  in  Latvia  is 
the 
lack  of  cross-sectoral  coordination  and 
insufficient promotion of circular economy ideas. 

44 

0.050.0100.0150.0200.0250.0300.0350.0400.00.02.04.06.08.010.012.014.016.018.020.0201620172018201920202021kg/capitatonnes/capitaMaterial footprint Latvia (tonnes/capita)Material footprint EU-27 (tonnes/capita)Trade in recyclable raw materials Latvia (imports extra EU, kg/capita)Trade in recyclable raw materials EU-27 (imports extra EU, kg/capita) 
 
 
                                                 
            
 
Graph A9.2: Treatment of municipal waste 

materials used in construction.  

The  agri-food  system  could  accelerate  its 
shift  towards  circularity.  Latvia’s  composting 
and  anaerobic  digestion  per  head  has  decreased 
since 2016 and stood at 37 kg per head in 2021, 
which is below the EU average of 83 kg per head. 
With  Getliņi  anaerobic  digestion  tunnels  operating 
it 
is  possible 
since  2022, 
considerably. There remains scope for using more 
efficient  farming  techniques  and  spreading  good 
practices  to  enable  the  shift  towards  circularity 
national  waste 
Latvia’s 
(see 
management  plan  for  2021-2028  includes  end-
of-waste  criteria  for  biodegradable  waste  and 
waste oils. 

Annex  6). 

increase 

to 

it 

Source: Eurostat 

The  built  environment  system  has  scope  for 
renovation  and  wider  use  of  secondary  raw 
materials.  The  recovery  rate  of  construction  and 
demolition  waste  has  increased  and  is  above  the 
EU average (99% vs 89%). Latvia’s national waste 
management  plan  for  2021-2028  includes  end-
of-waste  criteria  for  construction  and  demolition 
waste. Soil sealing progressed between 2016 and 
2018 at a faster rate than the EU average. There 
is scope for increasing the share of secondary raw 

There remains a financing gap in the circular 
economy, 
including  waste  management. 
Additional investments will be required to address 
growing  needs.  The  financing  gap  was  estimated 
at  EUR  15  million  per  year  between  2014  and 
2020.  Over  this  period,  investment  needs  were 
estimated to be at least EUR 116 million per year 
while  investment  baselines  were  EUR  101  million 
per year (see Annex  6). Investment areas such as 
eco-design,  repair,  reuse  and  remanufacturing  as 
well as the uptake of new business models will be 
necessary  to  reach  the  EU’s  circularity  objectives. 
Latvia  is  already  using  funds  from  the  ERDF,  but 
further investments are needed. 

Table A9.1: Overall and systemic indicators on circularity 

(1) Persons employed in the circular economy only tracks direct jobs in selected sub-sectors of NACE codes E, C, G and S; (2) the 
circular material use rate measures the share of material recovered and fed back into the economy in overall material use; (3) the 
recovery rate of construction and demolition waste includes waste which is prepared for reuse, recycled or subject to material 
recovery, including through backfilling operations; (4) soil sealing: 2016 column refers to 2015 data; (5) food waste includes 
primary production, processing and manufacturing, retail and distribution, restaurants and food services, and households.  
Source: Eurostat, European Environment Agency 

45 

410411407439478461-1000100200300400500600201620172018201920202021Kg per capita Difference waste generated/treatmentLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27AREA201620172018201920202021EU-27 Latest year EU-27Overall state of the circular economyMaterial footprint (tonnes/capita)14.416.217.517.818.0-13.72020YoY growth in persons employed in the circular economy (%)11.0-2.4-5.7-4.1--2.92019Water exploitation index plus (WEI+) (%)0.30.20.30.4--3.62019IndustryResource productivity (purchasing power standard (PPS) per kilogram)1.61.51.41.51.51.62.32021Circular material use rate (%)26.55.44.74.35.16.211.72021Recycling rate (% of municipal waste)25.224.825.241.039.744.149.62021Built environmentRecovery rate from construction and demolition waste (%)398.0-97.0-99.0-89.02020Soil sealing index (base year = 2006)4103.3-109.5---108.32018Agri-foodFood waste (kg per capita)5----145.0-131.02020Composting and digestion (kg per capita)42.029.025.022.035.037.0100.02021 
 
           
 
       
 
ANNEX 10: DIGITAL TRANSFORMATION 

transformation  by  2030, 

Digital  transformation  is  key  to  ensuring  a 
resilient and competitive economy. In line with 
the  Digital  Decade  Policy  Programme,  and  in 
particular  with  the  targets  in  that  Programme  for 
digital 
this  Annex 
describes  Latvia’s  performance  on  digital  skills, 
digital 
the 
digitalisation  of  businesses  and  public  services. 
Where relevant, it makes reference to progress on 
implementing  the  Recovery  and  Resilience  Plan 
(RRP). Latvia allocates 21% of its total RRP budget 
to digital (EUR 0.4 billion) (78). 

infrastructure/connectivity 

and 

The  Digital  Decade  Policy  Programme  sets 
out a pathway for Europe’s successful digital 
transformation  by  2030.  The  Programme 
provides  a  framework  for  assessing  the  EU’s  and 
Member States’ digital transformation, notably via 
the  Digital  Economy  and  Society  Index  (DESI).  It 
also  provides  a  way  for  the  EU  and  its  Member 
States  to  work  together,  including  via  multi-
country  projects,  to  accelerate  progress  towards 
the  Digital  Decade  digital  targets  and  general 
objectives (79).  More  generally,  several  aspects  of 
digital  transformation  are  particularly  relevant  in 
the current context. In 2023, the European Year of 
Skills, building the appropriate skillset to make full 
use of the opportunities that digital transformation 
offers  is  a  priority.  A  digitally  skilled  population 
increases the development and adoption of digital 
technologies  and  leads  to  productivity  gains (80). 
Digital  technologies,  infrastructure  and  tools  all 
play  a  role  in  the  fundamental  transformation 
needed to adapt the energy system to the current 
structural challenges (81). 

Tackling the digital skills gap remains one of 
Latvia’s key digital challenges. Latvia is below 
the  EU  average  in  basic  digital  skills,  with  almost 
half  of  its  population  still  lacking  basic  digital 

(78)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII of the RRF 
Regulation. 

(79)  The Digital Decade targets as measured by DESI indicators 
and complementary data sources are integrated to the 
extent currently available and/or considered particularly 
relevant in the MS-specific context.  

(80)  See for example OECD (2019): OECD Economic Outlook, 

Digitalisation and productivity: A story of complementarities, 
OECD Economic Outlook, Volume 2019 Issue 1 | OECD 
iLibrary (oecd-ilibrary.org). 

(81)  The need and possible actions for a digitalisation of the 
energy system are laid out in the Communication 
‘Digitalisation the energy system – EU action plan’ 
(COM(2022)552. 

skills. The country is above the EU 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.  In  2022, 
59.2% of companies in Latvia reported hard-to-fill 
vacancies for jobs requiring ICT skills.    

services  are  available 

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 
(VHCN)  coverage  and  has  already 
network 
allocated  a  radio  spectrum  for  5G,  but  limited 
commercial  5G 
to 
businesses  and  individuals (82).  As  of  mid-2022, 
5G coverage has reached 42% of populated areas 
in Latvia, which is considerably lower than the EU 
average of 81%. The 3.4-3.8 GHz  spectrum band, 
which is crucial for enabling advanced applications 
large  bandwidth,  has  reached  21% 
requiring 
coverage  in  Latvia  by  mid-202.  As  first  steps  in 
implementing  its  RRF  measures  on  broadband 
infrastructure  development,  Latvia  has  adopted  a 
and 
technical 
automated  driving  and  a  common  model  for  the 
development  of  last-mile  connectivity.  Several 
other  activities  are  ongoing  to  support  the 
innovative 
industrial 
development 
applications of 5G technologies. 

requirement 

connected 

and 

for 

of 

Digitalisation of businesses remains an issue 
for Latvia. Latvia is well below the EU average in 
all  categories.  Around  half  of  small  and  medium-
sized  firms  have  at  least  basic  digital  intensity, 
compared to  an  EU  average  of  69%.  The  take  up 
of  big  data,  AI  and  cloud  services  remain  well 
below the EU average.  

Latvia  performs  well  on  digital  public 
services.  Latvia  scores  above  the  EU  average  as 
far  as  digital  public  services  for  citizens  are 
concerned, and close to the EU average for digital 
public  services  for  businesses.  Its  share  of  e-
government  users  exceeds  moreover  the  EU 
average.  The  Latvian  RRP  includes  measures  that 
are  expected 
the 
digitalisation  of  public  processes  and  services, 
among others in view of the 2030 Digital Decade 
targets.  Regarding  online  access  to  medical 
records  Latvia  scores  78  out  of  100,  above  EU 
average, and continues to take measures to  

further  contribute 

to 

to 

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

In 2021 

46 

 
 
                                                 
                                                 
 
Table A10.1: Key Digital Decade targets monitored by DESI indicators 

(1) The 20 million target represents about 10% of total employment. 
(2) The Fibre to the Premises coverage indicator is included separately as its evaluation will also be monitored separately and 
taken into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75 % of Union enterprises have taken up one or more of the following, in line with their business operations: (i) cloud 
computing services; (ii) big data; (iii) artificial intelligence.   

Source: Digital Economy and Society Index 

improve  services  in  this  area.  When  it  comes  to 
electronic identification (eID), Latvia has a scheme 
that  is  notified  under  the  eIDAS  Regulation  and 
already  available  to  39%  of  the  public.  It  is  also 
involved  in  various  cross  border  projects,  such  as 
the ‘Nordic-Baltic eID  Project’ (NOBID)  which aims 
to harmonise various eID solutions in eight Nordic 
and  Baltic  countries  in  order  to  ensure  cross-
border access to digital services in the region.   

47 

EUDigital Decade target by 2030 DESI 2021DESI 2022DESI 2023DESI 2023(EU)Digital skillsAt least basic digital skillsNA51%51%54%80%% individuals2021202120212030ICT specialists (1)3.6%3.8%3.8%4.5%20 million% individuals in employment aged 15-7420202021202120212030Digital infrastructure/connectivityFixed Very High Capacity Network (VHCN) coverage88%91%92%73%100%% households20202021202220222030Fibre to the Premises (FTTP) coverage (2)88%89%91%56%-% households20202021202220222030Overall 5G coverage0%0%42%81%100%% populated areas202020212022202220305G coverage on the 3.4-3.8 GHz spectrum bandNANA21%41%-% populated areas202220222030Digitalisation of businessesSMEs with at least a basic level of digital intensityNANA52%69%90%% SMEs202220222030Big data (3)9%9%9%14%75%% enterprises20202020202020202030Cloud (3)NA22%22%34%75%% enterprises2021202120212030Artificial Intelligence (3)NA4%4%8%75%% enterprises2021202120212030Digitalisation of public servicesDigital public services for citizensNA878777100Score (0 to 100)2021202220222030Digital public services for businessesNA868684100Score (0 to 100)2021202220222030Access to e-health recordsNANA7871100Score (0 to 100)202320232030Latvia 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
ANNEX 11: INNOVATION 

This  Annex  provides  a  general  overview  of 
the  performance  of  Latvia’s  research  and 
innovation  system,  which  is  essential  to  deliver 
the twin green and digital transition. 

Graph A11.1: R&D intensity as % of GDP 2010-
2022 

Source: Eurostat, 2022 

its  performance  dropped 

Latvia is an ‘emerging innovation performer’ 
and 
in  2021. 
According  to  the  2022  edition  of  the  European 
Innovation Scoreboard (83), the country’s improving 
trends  in  the  previous  years  have  reversed  and 
Latvia  is  falling  further  behind  the  European 
average.  The  main  reasons  for  the  deterioration 
are  a  decline  in  ‘firm  R&D  investment’  and 
‘government support for business innovation’. 

R&D  intensity (84)  grew  to  0.69% (85)  of  GDP 
in  2021  but  remains  significantly  below  the 
EU  average  of  2.26%.  Most  R&D  spending 
comes  from  public  sources  but  both  public  and 
business R&D expenditure remain very low (0.46% 
and 0.23% of GDP compared to the EU average of 
0.76%  and  1.49%  respectively) (86).  Notably,  with 
private  R&D  spending  at  less  than  20%  of  EU 
average,  Latvia  ranks  last  among  Member  states 
on  that  measure.  The  Latvian  recovery  and 
almost 
(RRP) 
resilience 

includes 

plan 

(83)  2022 European Innovation Scoreboard, Country profile, 

Latvia: https://ec.europa.eu/assets/rtd/eis/2022/ec_rtd_eis-
country-profile-lv.pdf. The EIS provides a comparative 
analysis of innovation performance in EU countries, including 
the relative strengths and weaknesses of their national 
innovation systems (also compared to the EU average). 

(84)  Defined as gross domestic expenditure on R&D as a 

percentage of GDP 

(85)  Source: Eurostat. 

(86)  EU average of business R&D expenditure in 2021 was 

1.53% of GDP (Source: Eurostat). 

48 

EUR 200 million  in  research  and  innovation  (R&I) 
investment  over  2022-2025,  which  will  support 
public  R&D  spending.  Among  others,  the  RRP 
investment will support public health research and 
the  creation  of  innovation  clusters.  Over  6 years, 
RRP  investments  will  add  around  0.1%  of  GDP  to 
Latvia’s  annual  R&D  spending (87).  In  its  cohesion 
programme,  Latvia  allocated  EUR 342 million  to 
R&I for the 2021-2027 period, corresponding to a 
further  0.1%  of  GDP  increase  in  annual  R&D 
expenditure.  Therefore,  a  significant  commitment 
from  the  national  budget  is  needed  to  achieve 
Latvia’s  target  for  R&D  spending  of  1.5%  of  GDP 
by 2027 (88). 

The  lack  of  human  capital  is  holding  back 
research  and  innovation  performance.  The 
number  of  doctoral  graduates (89)  and  of  science, 
technology,  engineering  and  mathematics  (STEM) 
graduates (90)  continues  to  fall.  This  hinders 
efforts to address the low number of researchers 
in  the  public  and  private  sector,  which  has  slowly 
been  increasing  but  which  remain  substantially 
below  the  EU  average (91).  These  indicators  are 
lagging  behind the targets  set  out  in  the  national 
development  plan (87).  The  higher  education 
reforms  set  out  in  the  Latvian  RRP  aim  to  make 
academic careers more attractive and increase the 
increased  financing  for 
talent  pool.  However, 
research  is  crucial  to  boosting  the  number  of 
doctoral  graduates  and  the  attractiveness  of 
research careers. 

The  quality  of  R&I  outputs  remains  low. 
Latvia performs below the EU average in the main 
indicators  for  the  quality of  the  R&I  system.  Only 
3.1%  of  publications  were  among  the  top  cited 
publications 
in  2019  and  only  51.3%  of 
publications  were  international  co-publications  in 
2021 (92).  Moreover,  Latvia’s  participation 
in 

(87)  EUR 200 million divided by 6 divided by EUR 33 696 million, 

Latvia’s 2021 GDP in current prices. 

(88)  National Development Plan of Latvia for 2021-2027: 

https://www.pkc.gov.lv/sites/default/files/inline-
files/NAP2027__ENG.pdf. 

(89)  120 doctoral graduates in 2020, source: OECD Economic 

Surveys: Latvia 2022 https://www.oecd-
ilibrary.org/economics/oecd-economic-surveys-latvia-
2022_c0113448-en. 

(90)  8.4 per thousand population, source Eurostat. 

(91)  0.9 and 3.5 researchers employed by business and the public 
sector per thousand population respectively. EU averages are 
4.0 and 5.31 - source: Eurostat. 

(92)  EU averages 9.8% and 55.4% respectively Source: Science-

Metrix. 

0.40.81.21.622.42010201520162017201820192020EULV 
 
 
   
                                                 
                                                 
 
Table A11.1: Key innovation indicators 

(1) EU average for the latest available year with the highest number of country data 
Source: Eurostat, OECD, DG JRC, Science Metrix (Scopus database and EPO's Patent Statistical database), Invest Europe 

Horizon (93)  calls  is  below  the  EU  average (94).  In 
the  underfunding  and 
lack  of 
addition 
to 
the  R&I 
fragmentation  of 
the 
researchers, 
ecosystem 
low 
the 
is  also  a  cause  of 
performance (95).  The  RRP  addresses  this  through 
R&I governance reform and investments. 

The  low  level  of  available  financing 
is 
holding  back  the  growth  of  innovative  small 
and  medium-sized  enterprises  (SMEs).  Bank 
loans  for  SMEs  have  tight  requirements  and 
venture  capital  investment  (0.02%  of  GDP  in 
2021) (96) is increasing only slowly, limiting options 

(93)  Horizon Europe and its predecessor Horizon 2020 are the 
EU’s main research and innovation funding programmes. 

(94)  Source: Horizon dashboard https://europa.eu/!CYQhfb. 

(95)  Policy Support Facility Report 2020 

https://europa.eu/!mHt4Fd. 

(96)  Source: Invest Europe May 2022. 

for financing deep tech innovation at the scale-up 
stage  (see  also  Annex  12).  This  has  resulted  in  a 
low  share  of  employment 
in  high-growth 
enterprises (13.23%) (97). The commercialisation of 
research  has  also  been  lagging  behind  with  just 
0.7  Patent  Cooperation  Treaty  patent  applications 
per billion GDP (98). As there are no RRP measures 
addressing 
additional 
measures  would  help  to  provide  alternative 
financing  tools  for  SMEs  and  revitalise  Latvia’s 
capital market.  

capital  market, 

the 

(97)  SEU average 15.90% - source: Eurostat. 

(98)  SEU average 3.3 – source: OECD. 

49 

EUaverage (1)R&D intensity (GERD as % of GDP)0.610.620.640.690.692.27Public expenditure on R&D as % of GDP0.380.470.470.470.460.76Business enterprise expenditure on R&D (BERD) as % of GDP0.220.150.170.210.231.49Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 1.653.703.08::9.79Patent Cooperation Treaty patent applications per billion GDP (in PPS)0.480.850.73::3.28Public-private scientific co-publications as % of total publications5.366.497.407.188.777.14Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0500.0510.030::0.054New graduates in science & engineering per thousand pop. aged 25-3413.19.78.88.4:16.0Total public sector support for BERD as % of GDP:0.070.03::0.19R&D tax incentives: foregone revenues as % of GDP0.0000.0020.000::0.10Share of environment-related patents in total patent applications filed under the Patent Cooperation Treaty (%)0.06.626.7::13.3Venture capital (market statistics) as % of GDP0.0160.0220.0120.0140.0200.074Employment in fast-growing enterprises in 50% most innovative sectors3.255.224.62::5.502021Finance 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 2020Latvia201020152019 
                                                 
                                                 
 
   
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

the  logistics,  transport,  and  wholesale  markets, 
which  had  initially  benefited  as  firms  began 
stockpiling  inputs.  The  number  of  firms  who 
reported materials shortages in industry grew by 2 
percentage points in 2022, but this was still below 
the EU average (23% compared to 47%). However, 
disruptions 
supply 
bottlenecks  and  pushed  up  prices  for  key  inputs 
and 
for 
agriculture,  wood,  iron  and  steel  for  construction 
and  manufacturing  and  gas  for  energy  intensive 
industries (see Annex 7).   

raw  materials,  such  as 

increased 

fertiliser 

imports 

to 

The  secondary 
impacts  on  demand  and 
energy prices are more pronounced.  Industrial 
production  has  steadily  declined  since  Russia’s 
invasion of Ukraine due to soaring producer prices, 
which have risen exponentially since 2021. By the 
end of 2022, industrial producer prices were 51% 
percent  higher  on  average  compared  to  the 
previous  year.  Although  inputs  may  be  acquired 
from  alternative  sources,  business  reorientation, 
coupled  with  historical  inflation  costs,  will  have  a 
significant  impact  on  output,  in  particular  in  the 
construction  and  manufacturing  sectors.  While 
specific  sectors  are  particularly  vulnerable  to 
supply side shocks caused by the Russian invasion, 
rising  energy  prices  have  affected  all  businesses. 
Despite  being  positive  in  early  2022  due  to 
Latvia’s  emergence  from  the  pandemic,  business 
sentiment declined by 11 percentage points by the 
end of 2022.   

Latvian  businesses  are  suffering 
from 
systematic  late  payment.  In  2022,  it  took 
businesses  an  average  of  55  days  to  receive 
payment  from  other  businesses  (B2B),  and  63 
days from the public sector. The gap between the 
terms  offered  to  businesses  and  the  actual 
payment  gap  is  one  of  the  largest  in  the  EU.  On 
average,  there  is  a  gap  of  16  days  for  B2B 
payments,  and  14  days  for  payments  from  the 
public  sector.  In  2019,  there  was  an  average  gap 
of only 2 days and 4 days respectively. Businesses 
fear  that  the  problem  of  late  payments  will 
increase;  62%  of  Latvian  respondents  are  more 
concerned than ever about debtor’s abilities to pay 
on  time  (up  from  57%  in  2021).  With  one  of  the 
highest  inflation  rates  in  the  euro  area,  late 
payments  degrade  Latvian  business  purchasing 
power,  exacerbating 
Improved 
sustainability  performance  was  the  most  cited 

the  problem. 

its 

converged  with 

Productivity  growth  in  Latvia  is  increasing 
but  a  gap  still  remains.  Over  the  past  two 
decades, productivity in Latvia grew rapidly as the 
economy 
European 
counterparts.  While  the  catch-up  is  still  ongoing, 
Latvia’s labour productivity rate has begun to slow 
down, maintaining a productivity gap with its Baltic 
peers  and  the  rest  of  the  EU  (Graph  A12.1).  In 
2021, Latvia’s labour productivity as a percentage 
of  the  EU  average  stood  at  73%,  trailing  both 
Estonia (84%)  and Lithuania (85%).  This could be 
partly attributable to its economic structure which 
is  dominated  by  low  and  medium-low  tech  firms 
(see below). Modernisation of export activities and 
boosting R&D  and innovation from their low base 
have been specifically highlighted as measures to 
close the productivity gap   (99).  

Graph A12.1: Hourly productivity in PPS (% of EU) 

Source: Eurostat 

Latvia’s positive start to the first half of the 
year  was  curtailed  by  Russia’s  war  of 
aggression  against  Ukraine,  impacting  trade 
links  and  business  operations.  Whilst  its  trade 
links  with  Russia  are more  than modest,  Latvia is 
well  integrated  into  the  Single  Market,  with  its 
average  total  of  trade  with  other  EU  countries 
accounting  for  almost  half  Latvia’s  GDP  in  2021. 
Before  the  invasion,  Russian  goods  accounted  for 
roughly 6% of total imports, with 13% of Latvian 
goods destined for Russia. Most exports  to Russia 
(approximately  60%)  included  agricultural  and 
food  products,  machinery  and  mechanical 
appliances and electrical equipment. As Russia was 
a large re-export market for goods, the impact on 
the  domestic  economy  was  most  directly  felt  by 

(99)  OECD Economic Surveys: Latvia 2022 

50 

010203040506070809010099010305070911131517192123% EUEstoniaLatviaLithuania 
 
     
                                                 
 
 
benefit 
respondents) (100).    

from 

faster 

payments 

(70% 

of 

While  improvements  have  been  made,  high 
barriers  to  finance  remain  a  challenge  for 
SMEs.   Despite  increasing  its  position  in  the  EIF 
Access to Finance Index from 26th place in 2020 to 
23rd  in  2021,  the  perception  of  financing  barriers 
among SMEs increased by 4.1%. Latvia’s improved 
score  can  be  attributed  to  an  increase  in  the 
percentage of SMEs applying for loans and a more 
than  twofold  increase  in  the  percentage  of  SMEs 
loans. 
using 
Nevertheless,  Latvia  ranks  third  in  the  share  of 
finance-constrained  firms  in  the  EU,  and  has  the 
highest  percentage  of  firms in  the  EU (30%)  who 
report  that  they  have  invested  too  little  over  the 
past three years (101). Factors that explain Latvia’s 
poor  access  to  finance  include  persistently  high 
interest  rates,  high  collateral  costs  and  the 
corporate credit gap, which has contracted by 20% 
over the past six years (see Annex 18) (102).   

subsidised 

grants 

bank 

or 

shows 

Skills shortages are a big constraint to long-
term  growth.  With  high  job  vacancy  rates  and 
unemployment  above  the  EU  average,  Latvia’s 
labour  market 
signs  of  potential 
mismatches  between  the  availability  of  skills  and 
those  sought  by  employers.  In  the  short  term, 
there  is  a  shortage  of  high-skilled  labour  coupled 
with  a  demographic  decrease  in  the  number  of 
individuals entering the labour market, declining by 
roughly  15,000  per  annum.  Firms  in  the  industry 
sector  report  below  average  shortages  in  labour 
compared  to  other  EU  member  states  (23%  vs 
28%).  Nevertheless,  according  to  the  2022  EIB 
investment  survey,  89%  of  Latvian  firms  cite  the 
lack  of  availability  of  skilled  staff  as  a  barrier  to 
investment.  Sectors with the highest vacancy rate 
(3.7%)  and 
in  2021 
construction 
imposes  prior 
checks  on  45  qualifications  for  temporary  and 
occasional  services  compared 
its  Baltic 
neighbours  (Estonia,  5;  Lithuania,  11) (104)  and 
despite  making 
improvements,  the  regulatory 
restrictiveness  for  civil  engineers  and  patent  and 
trade  mark  agents  remains  higher  than  the  EU 

include  manufacturing 
(3.5%) (103).  Latvia 

to 

(100) Intrum Report 2022 

(101) EIB Investment Survey 2022 

(102) IMF 2022  

(103) Central Statistic Bureau Latvia 

(104) SMET Report 2021 - 2022 

average (105).  This  increases  the  administrative 
burden for professionals and reduces the flexibility 
of the market.    

Productivity  among  SMEs  is  waning  and  the 
digital and green transitions are lagging. The 
bulk of the Latvian economy consists of SMEs who 
account for 69.7% of value added, well above the 
EU average (51.8%). When it comes to knowledge 
intensity,  67%  of  enterprises  are  involved  in  low-
tech  manufacturing  and  less  knowledge-intensive 
services. SME productivity is held back by Latvia’s 
low  investment  in  research  and  development  as 
reflected  by  its  consistently  low  score  in  the 
European  Innovation  Scoreboard  (see  Annex  9). 
Latvian  SMEs  lag  behind  their  counterparts  for  a 
basic  level  of  digital  intensity,  ranking  23rd,  with 
only 14% of SMEs selling online compared to 18% 
in the EU (see Annex 10). While the acceleration of 
the  green  transition  has  become  more  prominent 
since  Russia’s  invasion  of  Ukraine,  only  15%  of 
SMEs  indicate  that  they  have  a  concrete  strategy 
in  place  to  reduce  their  carbon  footprint  and 
become  climate  neutral  or  negative,  with  63%  of 
SMEs offering neither green products nor services 
(versus a 54% EU average) (106).    

Graph A12.2: Average net private investment as a 
% of GDP, 2018-22 

Source: AMECO 

Improving the business environment remains 
investment.  Total 
integral 

for  boosting 

(105) Communication on updating the reform recommendations 
for regulation in professional services, COM(2021)385 

(106) Flash Eurobarometer 2287 / FL498 SMEs, green markets and 

resource efficiency 

51 

-1%0%1%2%3%4%5%6%7%8%9%LatviaEuropeanUnionLithuaniaEstonia 
                                                 
  
                                                 
investment  as  a  percentage  of  GDP  has  hovered 
above  20%  since  2017,  accounting  for  22%  in 
2021  (compared  to  29%  in  Estonia  and  21%  in 
Lithuania).  Government  investment  has  been  well 
above the EU average, accounting for almost one-
fifth of total investment in the economy. Net levels 
of  public  investment  are  equal  to  1.3%  of  GDP 
over the past five years compared to 0.4% in the 
EU.  On  this,  public  procurement  can  be  improved, 
as  the  percentage  of  single  bids  has  increased 
significantly (from 25% in 2020 to 37% in 2022). 
However,  levels  of  net  private  investment  have 
consistently remained one of the lowest in the EU, 
amounting to -0.28% compared to an EU average 
of  3.7%  over  the  past  five  years  (Graph  A12.2). 
Although 
increasing,  private 
investment  is  still  lower  than  before  the  great 
financial  crisis.  Results  from  the  2022  EIB 
Survey 
Investment 
private 
investment 
is  negatively  affected  by  high 
uncertainty,  business  regulations,  availability  of 
skilled  staff  and  labour  market  regulations.  In 
2022,  75%  of  Latvian  firms  perceived  business 
regulations 
to 
their  Baltic 
investment,  much  higher 
neighbours  (Estonia,  34%;  Lithuania,  47%)  and 
one  of  the  highest  percentages  in  the  EU.  The 
Single  Market  Scoreboard  shows  that  the  burden 
of  government  regulation  and  administrative 
requirements  has  increased  by  almost  30%  since 
2018.   

long-term  obstacle 

it  has  been 

to  be  a 

suggest 

than 

that 

Graph A12.3: Business environment and 
productivity drivers 

1) % of GDP, 2021 Eurostat; 2) composite indicator, 2021 
European Investment Fund access to finance index; 3) 
average payment delay in number of days, 2022 Intrum; 4) % 
of firms in manufacturing facing constraints, 2022 European 
Commission business consumer survey; 5) proportion of 
contracts awarded with a single bidder, 2022 Single Market 
Scoreboard 
Source:  

52 

1) Businessinvestments2) EIF access tofinance index3) Payment gap- G2B3) Payment gap- B2B4) Materialshortage4) Labourshortage5) Single bidsEuropean UnionLatvia 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A12.1: Industry and the Single Market 

(*) Last available year 
Source: (1) AMECO, (2) Eurostat, (3) ECFIN BCS, (4) Eurostat, (5) COMEXT and Commission calculations, (6) Eurostat, (7) Eurostat, 
(8) OECD, (9) Single Market Scoreboard, (10) EIB survey, (11) Eurostat: (12) Intrum, (13) SAFE Survey, (14) EIF SME Access to 
Finance Index. 

53 

POLICY AREAINDICATOR NAME20182019202020212022EU27 average (*)Net private investment, level of private capital stock, net of depreciation, % GDP (1)-10.6-0.6-0.60.23.7Net public investment, level of public capital stock, net of depreciation, % GDP (1)1.71.11.51.50.70.4Real labour productivity per person in industry (% yoy)(2)-0.72.98.72.9-1.81.4Cost competitive-nessNominal unit labour cost in industry (% yoy)(2)9.54.9-5.87.210.92.9Material shortage (industry), firms facing constraints, % (3)1278162347Labour shortage using survey data (industry), firms facing constraints, % (3)202612212328Vacancy rate (business economy)(4)2.53.222.72.63.1Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials (5)0.190.170.160.160.170.18Installed renewables electricity capacity, % of total electricity produced (6)5757.357.257.3n.a.50.9Single Market integrationEU trade integration, % (7)42.242.041.846.353.545.8RestrictionsEEA Services Trade Restrictiveness Index (8)0.050.050.050.050.050.05Public procurement Single bids, % of total contractors (9)313225263729Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle (10)52.943.434.750.345.329.6Bankruptcies, Index (2015=100)(11)n.a.n.a.n.a.30.73786.8Business registrations, Index (2015=100) (11)n.a.n.a.n.a.43.942.2121.2Payment gap - corporates B2B, difference in days between offered and actual payment (12)-2216121613Payment gap - public sector, difference in days between offered and actual payment (12)-4419111415Share of SMEs experiencing late payments in past 6 months, % (13)n.a.56.536.536.538.143EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1 (14)0.220.390.170.4n.a.0.46EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 1 (14)0.140.160.140.14n.a.0.23BUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to financeHEADLINE INDICATORSEconomic StructureRESILIENCEShortagesStrategic dependenciesSINGLE MARKET 
 
 
     
 
ANNEX 13: PUBLIC ADMINISTRATION 

This  Annex  outlines  the  performance  of 
is 
Latvia’s  public  administration,  which 
essential for providing services and carrying 
out  reforms.  The  Latvian  public  administration 
ranks as less effective than the EU average, with a 
downward  trend  for  the  second  year  in  a  row, 
reaching  its  lowest  level  since  2013 (107).  This 
could  be  a  result  of  the  management  of  the 
COVID-19  pandemic  and  the  implementation  of 
major  governance  reforms  such  as  municipal 
amalgamation.  

Latvia’s  civil  service  is  relatively  young  and 
skilled.  The  ratio  of  staff  who  are  between  25 
and 49 to those aged 50 to 64 is well above the 
EU  average  and  makes  the  administration  one  of 
the youngest in the EU. Gender parity in the public 
administration  has  nearly  been  reached  at  the 
general  and  the  senior levels.  The  share  of  public 
administration employees with higher education is 
well above the EU average, as is the participation 
rate  of  employees  in  adult  learning.  Further 
is  planned  under  the 
investment 
in  training 
recovery  and  resilience  plan  to 
improve  the 
capacities of the public administration.   

Latvia outperforms the EU average in almost 
all digitalisation indicators. The overall level of 
digitalisation 
(Latvia: 84%, 
is  medium-high 
EU: 71%)  and  digital  services  offered  widespread 
(Latvia: 84%, EU: 68%). Latvia outperforms the EU 
average  in  the  provision  of  digital  services  for 
most  life  events  apart  from  a  few  domains  such 
as  the  user-friendliness  of  services  for  ‘studying’ 
and  ‘health’.  The  share  of  e-government  users  is 
higher  than  the  EU  average  but  has  remained 
stable since 2017 despite increasing digitalisation 
and  an  increase  in  the  number  and  types  of 
services  offered  digitally.  This  could,  in  part,  be 
explained  by  factors  such  as  a  lower  level  of 
digital skills (Latvia: 44%, EU: 48%) (108), which are 
high on the reform agenda and well represented in 
the digital transformation guidelines (109). 

The  justice  system  is  in  overall  functioning 
efficiently.  The  average  length  of  proceedings 
improved  in  2021,  with  a  notable 
generally 
decrease  at  first  instance  in  civil  and  commercial 

cases.  The  quality  of  the  justice  system  is  overall 
good  and  is  being  further  improved.  The  level  of 
digitalisation  of  courts  and 
the  prosecution 
services  is  high.  No  systemic  deficiency  has  been 
reported on judicial independency (110). 

Graph A13.1: Latvia. Open government data 
maturity indicator: 2022 scores (% of the total 
maximum score) (lhs); country ranking, overall 
score (rhs) 

(1) Right hand side chart: low values denote a good 
performance 
Source: Open Data Maturity | data.europa.eu  

in 

Latvia  is  performing  well  in  several  aspects 
of  policymaking.  It  performs  well  on  regulatory 
impact  assessments 
for  both  primary  and 
secondary  legislation,  despite  a  relatively  weak 
score  on  methodology.  It  ranks  above  the  EU 
the 
average  on  stakeholder  engagement 
development  of  new  laws  (Latvia: 2.28,  EU: 2.21). 
However,  Latvia  scores  poorly  on  ex  post 
evaluation,  which  is  due  to  a  relatively  poor 
performance  on  the  methodology,  oversight,  and 
transparency 
A13.2). 
Nevertheless,  Latvia’s  performance  on  the  OECD 
regulatory  governance  and  policy 
indicators 
improved in 2017-2021, mainly thanks to a more 
systematic  engagement  of  stakeholders  in  the 
process (111).  Further  improvements  are  planned 
under  the  recovery  and  resilience  plan,  such  as 
centralising  the  support  functions  in  the  public 

dimensions 

(Graph 

(107) Worldwide Governance Indicators, 2021.  

(108) E-government benchmark report, 2022. 

(109) Digital Transformation Guidelines for 2021-

2027 (https://www.varam.gov.lv/lv/digitalas-transformacijas-
pamatnostadnes-2021-2027gadam). 

(110) For more detailed analysis of the performance of the justice 
system in Latvia, see the 2023 EU Justice Scoreboard 
(forthcoming) and the country chapter for Latvia of the 2023 
Rule of Law Report (forthcoming). 

(111) OECD, iREG indicators, 2022. 

54 

0510152025300%10%20%30%40%50%60%70%80%90%PolicyQualityPortalImpactTotal20182019202020212022Open data 2022Open data rankingLV2022EU27LV2022 scoresCountryranking 
 
                                                 
  
                                                 
 
Table A13.1: Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2022 value. If not available, the 2021 value is shown. 
(3) 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. (4) Defined as the absolute value of the difference between the 
percentage of men and women in senior civil service positions. 
Flags: (b) break in time series; (d) definition differs; (u) low reliability. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Labour Force 
Survey, Eurostat (# 4, 5, 7), European Institute for Gender Equality (# 6); Fiscal Governance Database (# 8, 9); OECD Indicators of 
Regulatory Policy and Governance (# 10). 

administration,  and  the  public  modernisation  plan 
2023-2027. 

Latvia  is  relatively  less  advanced  in  the 
provision  of  open  data.  Over  the  past  3  years, 
Latvia’s  performance  has  fallen  behind  the  other 
EU-27  countries  (Graph  A13.1),  thus  reducing  the 
potential for publicly available information to hold 

institutions  accountable  to  citizens.  The  gap  is 
particularly  apparent  in  the  impact  dimension, 
which  evaluates  the  methods  used  by  Member 
States  to  map  datasets  that  are  reused,  and  the 
benefits  they  generate  for  government,  society, 
the environment, and the economy. 

Graph A13.2: Latvia. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post 
evaluation of legislation 

Source: Indicators of Regulatory Policy and Governance Surveys 2017 and 2021, (http://oe.cd/ireg). 

55 

LV201720182019202020212022EU-27(2)183.277.580.285.284.0n/a64.82n/an/an/a81.780.281.772.93n/a0.70.70.80.80.60.8469.670.171.973.075.2 (b)76.852.0513.913.515.811.818.3 (b)20.116.966.64.83.48.210.03.211.072.72.62.72.52.4 (b)2.61.580.80.80.80.90.9n/a0.791.21.21.21.21.2n/a1.5101.36n/an/an/a1.79n/a1.7Medium term budgetary framework indexIndicator (1)E-government and open government dataShare of individuals who used the internet within the last year to interact with public authorities (%)E-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education (levels 5-8, %)Participation rate of public administration employees in adult learning (%)Gender parity in senior civil service positions (4)Ratio of 25-49 to 50-64 year olds in NACE sector OPublic financial management Strength of fiscal rules indexEvidence-based policy makingRegulatory governance0.000.501.001.502.002.503.0000.511.522.53LV2017LV2021LV2017LV2021Primary lawsSecondary lawsb) Stakeholder engagement MethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53LV2017LV2021LV2017LV2021Primary lawsSecondary lawsc) Ex-postevaluation of legislationMethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53LV2017LV2021LV2017LV2021Primary lawsSecondary lawsa) Regulatory impact assessmentMethodologyOversightSystematic adoptionTransparencyEU-27 
 
 
   
 
   
FAIRNESS 
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
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.  This  Annex  provides  an  overview  of 
Latvia’s  progress  in  implementing  the  Pillar’s  20 
principles and EU headline and national targets for 
2030 on employment, skills and poverty reduction. 

Ongoing  inflation  and  wage  pressures  contribute 
to  labour  shortages  as  they  make  it  difficult  for 
employers to retain employees. 

Table A14.1: Social Scoreboard for Latvia 

In 2022, the Latvian labour market continued 
recovery  despite  economic  activity 
its 
slowing. The employment rate (20-64 age group) 
improved by 1.7 percentage points (pps) to 77.0% 
in 2022, reaching almost the same level as before 
the pandemic. Additionally, in 2022, Latvia had an 
activity  rate  of  82.7%,  which  was  higher  than  the 
EU  average  of  79.4%.  The  unemployment  rate 
decreased  from  7.6%  in  2021  to  6.9%  in  2022. 
Despite  the  progress  on  key  indicators,  the  active 
labour  market  policy  (ALMP)  system  suffers  from 
low  activation  support,  and  the  cooperation  and 
coordination  between  the  main  players  supplying 
effective  ALMP  support  remains  a  challenge.  The 
European  Social  Fund  Plus  (ESF+)  will  invest 
approximately  EUR 130  million  in  employment 
measures. An additional EUR 28.7 million from the 
Recovery  and  Resilience Facility  (RRF)  will  support 
ALMPs,  including  the  development  of  a  digital 
skills  assessment  tool.  The  rate  of  young  people 
not  in  employment,  education  or  training  (NEETs) 
remains  around  the  EU  average  (11.3%  in  2022). 
In  this  area, individualised  support  for  NEETs  was 
provided  under  the  European  Social  Fund  Youth 
2014-2020 
Guarantee 
programming  period.  The  ESF+  will  continue  to 
support  NEETs  through  mentorships,  municipal 
services  and training  opportunities. Overall, Latvia 
is  moving  in  the  right  direction  towards  the 
national target for 2030 of at least 80% of people 
aged 20-64 in employment. 

projects 

the 

in 

Labour  shortages  and  skills  mismatches  are 
on the rise again. The decline in the working-age 
population,  caused  by  an  ageing  population, 
continues to be a major challenge in Latvia. This is 
causing  labour  shortages  although  industry  and 
services  report  less  shortages  than  before.  The 
effect  of  ageing  is  particularly  felt  in  the  social, 
care, health, and agricultural sectors where wages 
are relatively low, which discourages new workers 
from  entering  the  labour  force.  For  instance,  the 
average  salary  for  social  work  activities  in  2022 
was 66% of the country’s average gross earnings. 

56 

Update of 27 April 2023. 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 2023; 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: Eurostat 

The  inflow  of  people  fleeing  Ukraine  has  had  a 
limited impact on the Latvian labour market; it has 
helped  meet  short-term  labour  shortages  in  low-
skilled  employment, but the  impact  in  the longer-
term  is  still  unclear.  The  unemployment  rates  of 
workers with different skill  levels indicate notable 
disparities:  low-skilled  –  14%,  medium-skilled  – 
7.6%  and  high-skilled  –  4.3%  in  Q4-2022.  In 
2021,  the  share  of  the  population  with  basic 
digital  skills  was  50.8%  compared  to  the  EU 
average  of  53.9%,  and  the  participation  rate  at 
reached  8.6%,  still 
adult 

learning  activities 

6.750.811.33.16.63776.92131.5926.120.123.5316.64.9314Critical 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, 2022)Youth NEET rate(% of population aged 15-29, 2022)Gender employment gap(percentage points, 2022)Income quintile ratio(S80/S20, 2021)Share of individuals who have basic or above basic overall digital skills (% of population aged 16-74, 2021)Dynamic labour markets and fair working conditionsSocial protection and inclusionBetter than averageAt risk of poverty or social exclusion rate                                            (% of total population, 2021)Employment rate(% of population aged 20-64, 2022)Unemployment rate(% of active population aged 15-74, 2022)Long term unemployment(% of active population aged 15-74, 2022)GDHI per capita growth                                                              (2008=100, 2021)Best performersImpact of social transfers (other than pensions) on poverty reduction (% reduction of AROP, 2021)Children aged less than 3 years in formal childcare(% of population under 3-years-old, 2021)Self-reported unmet need for medical care(% of population 16+, 2021)Housing cost overburden(% of total population, 2021)Poliy areaHeadline indicatorAt risk of poverty or social exclusion rate for children                       (% of population aged 0-17, 2021)Disability employment gap(percentage points, 2021) 
 
 
 
   
 
 
lower 

designing 

stakeholders 

remaining below EU average. The figures remained 
for  medium-skilled  and 
significantly 
unemployed  people  in  2021  at    10.7%  and  7.1% 
respectively..  Adequate  upskilling  and  reskilling 
measures,  while  including  social  partners  and 
training 
in 
other 
programmes,  must  be  taken  in  the  coming  years 
to  maintain  a  qualified  labour  force.  The  Latvian 
recovery  and 
for 
investment  to  support  this,  e.g.  a  pilot  project  on 
individual  learning  accounts  and  an  initiative  to 
provide  basic  digital  skills  to  at  least  50 000 
to 
people.  These 
contribute  to  achieving  the  national  target  for 
participation in adult training of at least 60.0% per 
year by 2030. 

investments  are  expected 

resilience  plan  provides 

lowest 

(60.3% 

to  work 

in  2021. 

Improving  the  adequacy  of  and  access  to 
social  assistance  and  services  remains  a 
challenge. In Latvia, the share of people at risk of 
poverty and social exclusion (AROPE) in 2021 was 
among the highest (26.1% compared to 21.7% in 
the  EU).  It  also  recorded  the  highest  at-risk-of-
poverty  rate  for those  aged  65  years  and  over in 
2021  (44.6%  compared  to  16.8%  in  the  EU). 
Pensions  are  among  the 
in  the  EU 
compared 
incomes.  Single-parent 
households  are  particularly  vulnerable  to  poverty, 
as shown by the rate rising from 30.6% in 2020 to 
37.5% 
In  addition,  single-female 
households  are  significantly  more  vulnerable  to 
than  single-male 
in  2021) 
poverty 
households  (39.9%  in  2021).  The  AROPE  rate  for 
persons with disabilities is also one of the highest 
in  the  EU  (41.2%  compared  to  29.7%  in  the  EU), 
and  the  available  support  for  persons  with 
disabilities shows low adequacy. Income inequality 
is  high  and  widening  (the  income  quintile  share 
ratio amounted to 6.63 in 2021 vs 4.97 in the EU). 
Latvia  will  raise  the  frequency  of  the  review  and 
indexation of key social  transfers from July  2023 
on.  This  measure  aims  to  provide  more  adequate 
assistance  in  response  to  the  quickly  changing 
socio-economic environment. The impact of social 
transfers  on  reducing  poverty  is  substantially 
below  the  EU  average.  Additionally,  the  social 
assistance  system  is  strained.  The  already  under-
increased 
resourced  sector  must  manage  an 
number  of  social  benefit  recipients  due  to  the 
current socio-economic pressures.  Latvia needs a 
long-term  strategy  to  tackle  the  social  workers 
shortage.  The  ESF+  will  support  approximately 
70 000  of  the  most  deprived  persons  (including 
displaced  people  from  Ukraine)  through  material 

assistance  and  food  support,  thus  contributing  to 
the 2030 national poverty reduction target. 

Table A14.2: Situation of Latvia on 2030 
employment, skills and poverty reduction targets 

(1) Adult Education Survey, adults in learning in the past 12 
months (2) Number of persons at risk of poverty or social 
exclusion (AROPE), reference year 2019 
Source: Eurostat, DG EMPL 

income  and 

Access  to  affordable  housing  for  vulnerable 
people  and  the  poor  quality  of  the  existing 
municipal  social  housing  stock  still  poses  a 
challenge.  Latvian  households  have  experienced 
a significant increase in energy costs (22.2 pps in 
November  2022  year-on-year)  and  an  overall 
increase in the cost of living. This has put a strain 
on  disposable 
living  standards, 
particularly in lower-income groups (see Annex 8). 
Temporary  support  measures  are  providing  some 
relief,  but  they  do  not  address  the  underlying 
issues,  such  as  insufficient  support  for  vulnerable 
people  to  access  affordable  housing  and  poor 
quality  of  the  existing  municipal  social  housing 
stock.  The  inflow  of  people  fleeing  Ukraine  has 
made  the  housing  situation  worse  as 
local 
authorities  struggle  to  provide  adequate  housing 
even  for  temporary  stays.  The  newly  drafted 
housing  strategy  does  not  address  social  housing 
and  homelessness,  and  RRF  investments  for  the 
low-rent  housing  will  cover  the  challenge  only 
partially. 

in 

long-term  care  system  remains 
Latvia’s 
underdeveloped,  and  progress 
the 
transition  from  institutional  to  community-
based  care  has  been  limited.  The  share  of 
potentially  dependent  people  of  all  age  groups  in 
the total population is estimated to increase from 
31.7% in 2019 to 41.2% in 2030 and to 56.7% in 
2050. Latvia had one of the lowest levels of public 
spending  on  long-term  care  in  the  EU  at  0.4%  of 
GDP  in  2020.  Despite  considerable  investments 
from  the  EU  Cohesion  policy  funds,  the  transition 
from  institutional  to  community-based  care  has 
been  slower  than  expected,  with  11 523  people 
still  living  in  long-term  care  institutions  in  2021. 
Significant out-of-pocket payments for healthcare 

57 

IndicatorsLatest dataTrend            (2015-2022)National target by 2030EU target by 203077.0(2022)39.0(2016)-18(2021)Adult learning1 (%)60.060Employment (%)80.078Poverty reduction2 (thousands)-95-15 000 
 
   
 
to 

foster 

cooperation  between 

(31.9%, compared to the EU  average of 14.4% in 
2020)  and  home  care  have  been  recorded.  Latvia 
needs 
the 
healthcare  and  social  care  sectors  in  long-term 
care policy setting and management and ensure a 
comprehensive  approach  for  integrated  long-term 
care,  including  the  transition  from  institutional  to 
community-based care. 

58 

 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  for 
Latvia’s  education  and  training  system  in  light  of 
the  EU-level 
targets  and  other  contextual 
indicators  under  the  European  Education  Area 
strategic framework, based on the 2022 Education 
and Training Monitor. 

system 

education 

Latvia's 
produces 
comparatively good results in terms of basic 
skills  and  is  broadly  equitable.  At  9.2%,  the 
proportion of young people simultaneously lacking 
sufficient  skills  in  reading,  maths  and  science,  as 
measured  by  the  Programme  for  International 
Student Assessment (PISA)  in 2018, is lower than 
the  EU  average  (13%).  Socio-economic  status 
exerts  a  comparatively 
influence  on 
educational performance: 15.2% of students from 
a 
are 
underperforming,  as  opposed  to  23.5%  in  the  EU 
as  a  whole.  The  gap  between  underperforming 
students  from  a  low  socio-economic  background 
and those from a high socio-economic background 
is  also  smaller  than  the  EU  average  (11.3  pps  vs 
19.3 pps), according to PISA 2018 

socio-economic 

background 

limited 

low 

system 

education  and  a 
remain 

Regional  inequalities  in  terms  of  access  to 
fragmented 
quality 
the  main 
education 
challenges in Latvia’s education sector. Since 
the school network is still too big for Latvia’s small 
population  of  school-age  children,  many  schools 
struggle  to  hire  teachers  as  they  cannot  offer  a 
full-time  workload.  Learning  outcomes  in  schools 
in  small  towns  and  in  rural  areas  are  on  average 
lower  than  in  Riga.  In  the  latest  round  of  PISA 
(2018), larger urban schools continued to perform 
much  better  than  smaller  rural  ones,  with  a 
difference  of  52  score  points  in  reading,  roughly 
equivalent to over a year of schooling. 

The  proportion  of  early 
leavers  from 
education  and  training  (ELET)  is  well  below 
the  EU  average  and  shows  a  marked 
reduction  in  gender  disparities.  In  2022,  the 
rate  of  18-24-olds  not  having  completed  upper 
secondary  education  and  not  being  anymore 
involved in education or training was 6.7%, below 
both  the  EU  average  of  9.6%  and  the  EU-level 
target  of  9%  by  2030.  Early  school  leaving  is 
considerably  higher  in  rural  areas  (10.1%  vs  EU 
10%)  than  in  cities  (6.1%  vs  EU  8.7%),  reflecting 
geographical disparities in learning outcomes. Men 
are  more  than  twice  as  likely  than  women  to  be 
early  school  leavers  (9.3%  as  compared  to  4%). 
The  resulting  gender  gap  is  considerably  higher 

59 

than  the  EU  average  (5.3  pps  and  3.1  pps 
respectively). 

Renewing  an  increasingly  ageing  teaching 
workforce is proving difficult. Latvia’s teachers 
are among the oldest in the EU. In 2020, over half 
(52.5%)  of  all  schoolteachers  were  50  or  older, 
and only 21.4% were under 40, as compared with 
EU  averages  of  39.2%  and  29.5%  respectively. 
Low  statutory  salaries  and  long  working  hours 
contribute  to  making  teaching  unattractive  to 
young 
those  with 
qualifications  in  science,  technology,  engineering 
and mathematics (STEM). Several measures aim at 
attracting  new  teachers,  such  as  the  new  teacher 
training  programme  ‘Teaching  force’  that  aims  to 
attract  professionals  from  other  fields  to  become 
teachers.  Their  long-term  success  will  depend  on 
the  system’s  capacity  to  retain  teachers  by 
increasing the attractiveness of the profession. 

particularly 

graduates, 

to  cooperate, 

The  government  continues  its  efforts  to 
consolidate  the  school  network.  To  encourage 
municipalities 
the  government 
approved  a  new  financing  principle  for  schools 
(based on the number of students per municipality, 
and no longer on the number of students in each 
given school), combined with new minimum quality 
criteria  for  schools  to  continue  to  receive  state 
funding.  The  quality  criteria 
include  school 
accreditation  (quality  assurance)  results  and  each 
school’s  centralised  testing  results,  calculated  as 
an index based on the number of students in each 
age  group  in  the  municipality.  This  is  expected  to 
encourage  municipalities, 
of 
educational  institutions,  to  optimise  the  school 
network and to improve teacher/student ratios. 

founders 

as 

Latvia’s  schools  welcomed  many  displaced 
children  and  teachers  from  Ukraine.  By  the 
end  of  the  2021/22  school  year,  Latvian  schools 
had  accommodated  more  than  4 000  Ukrainian 
children,  over  half  of  them  in  Riga.  Ukrainian 
teachers  with  appropriate  qualifications  were 
invited  to  apply  for  positions  to  teach  Ukrainian 
students.  Latvia’s  National  Education  Centre  has 
set up a database of Ukrainian teachers in Latvia.  

The  proportion  of  young  adults  with  a 
tertiary educational qualification is high and 
growing,  but  the  share  of  STEM  graduates 
remains comparatively low. In 2022, 45.9% of 
Latvian 25-34-year-olds had a tertiary educational 
qualification,  well  above  the  EU  average  of  42% 
and up from 45.4% in 2021. 

 
 
 
Graph A15.1: STEM tertiary graduates as a 
proportion of total graduates in 2015 and 2020 
(%) 

Source: Eurostat 

This  means  that  Latvia  has  already  reached  the 
EU-level target of 45% by 2030. In a less positive 
development,  only  19.3%  of  all  graduates  had  a 
STEM  qualification in  2020,  slightly  fewer than  in 
2015  (20.5%)  and  well  below  the  EU  average  of 
24.9%.  At  6%,  the  share  was  particularly  low  for 
women  (against  an  EU  average  of  just  over  8%). 
However,  though  the  share  of  ICT  graduates 
appears  to  be  stagnating,  Latvia  still  fares  better 
than  the  EU  average,  with  4.6%  against  3.9%.  Its 

share  of  female  ICT  specialists  stands  at  23%, 
against 19% at EU level (see Annex 10). In 2019, 
women  accounted  for  23%  of  new  entrants  to 
engineering,  manufacturing  and  construction  and 
90%  of  new  entrants  to  the  field  of  education,  a 
sector  traditionally  dominated  by  women  (OECD, 
2021). The government has been promoting STEM 
subjects by  gradually  increasing  the  proportion  of 
publicly  financed  study  places  in  STEM  fields  and 
reducing  it  in  social  sciences,  to  steer  demand 
towards  study  fields  linked  to  high  added-value 
economic sectors. 

Latvia  is  reforming  its  higher  education 
system to reduce fragmentation and improve 
quality  in  the  framework  of  its  national 
recovery  and  resilience  plan.  The  new 
governance model for higher education institutions 
introduced  in  2021,  which  includes  setting  up 
supervisory  boards,  is  being  implemented  with 
support  from  EU  structural  funds.  In  addition,  the 
Recovery  and  Resilience  Facility  will  be  used  to 
develop  higher  education  institutions’  research 
capacity  and  to  consolidate  the  higher  education 
sector. 

Table A15.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Source: (1,3,4,5,7,8,9,10,11) = Eurostat; 2 = OECD (PISA); 6 = European Commission (Joint Research Centre). Notes: Data is not 
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering 
underachievement in digital skills and participation of adults in learning. The equity indicator shows the gap in the share of 
underachievement in reading, mathematics and science (combined) among 15-year-olds between the lowest and highest quarters 
of socio-economic status. 

60 

0%5%10%15%20%25%30%LVEULVEU20152020Engineering, manufacturing and constructionICTNatural sciences, mathematics and statistics96%93.0%91.9%94.0%202093.0%2020Reading< 15%17.7% 20.0%22.4%201822.5%2018Mathematics< 15%21.4% 22.3%17.3%201822.9%2018Science< 15%17.2% 21.1%18.5%201822.3%2018< 9 %9.9%11.0%6.7% 9.6%Men13.4%12.5%9.3%11.1%Women6.2%9.4%4.0%u8.0%Cities6.9%9.6%:u8.6%Rural areas12.1%12.2%9.0%10.0%Native10.0%10.0%6.8%8.3%EU-born:u20.7%:u20.3%Non EU-born:u23.4%:u22.1%6Equity indicator (percentage points)::11.3201819.320187Exposure of VET graduates to work based learningTotal ≥ 60% (2025) : ::u60.1%45%39.9%36.5%45.9%42.0%Men26.0%31.2%35.2%36.5%Women54.4%41.8%57.1%47.6%Cities49.6%46.2%58.2%52.2%Rural areas31.9%26.9%33.5%30.2%Native39.1%37.7%44.8%43.0%EU-born79.9%u32.7%:u39.5%Non EU-born55.8%27.0%74.0%35.7%45.4% 38.3%52.5%202039.2%2020Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth11Share of school teachers (ISCED 1-3) who are 50 years or over1Participation in early childhood education (age 3+)2Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)3Total3By gender4By degree of urbanisation5By country of birth20152022IndicatorTargetLatviaEU27LatviaEU27 
  
 
  
 
ANNEX 16: HEALTH AND HEALTH SYSTEMS 

A  healthy  population  and  an  effective, 
accessible  and  resilient  health  system  are 
prerequisites  for  a sustainable  economy and 
society.  This  Annex  provides  a  snapshot  of 
population health and the health system in Latvia.  

Life expectancy in Latvia remains among the 
lowest in the EU, having dropped by 2.4 years 
in 2021 compared to 2020 due to the COVID-
19  pandemic.  This  reflects  the  much  higher 
COVID-19  mortality  in  2021,  which  increased  by 
almost  sixfold  compared  to  2020 (112).  Latvia’s 
mortality rate from treatable causes is the fourth 
highest  in  the  EU.  At  the  same  time,  mortality  in 
the  economically  active  age  groups  as  a  share  of 
total  mortality is  among  the  highest  in  the  EU.  In 
the  circulatory  system 
2020,  diseases  of 
(“cardiovascular  diseases”)  and  cancer  were  the 
leading  causes  of  death.  Cancer  screening  rates 
are low, reflected in a cancer mortality rate higher 
than the one across the EU. 

Graph A16.1: Life expectancy at birth, years 

Source: Eurostat 

In  2020, 

Health  expenditure  in  Latvia  is  among  the 
lowest  in  the  EU  and  only  63.6%  of  it  was 
publicly funded in 2020. Spending per capita is 
below  the  respective  EU  average  for  outpatient 
care,  inpatient  care,  pharmaceuticals  and  medical 
total  healthcare  spending 
devices. 
increased to 7.5% of GDP, up from 6.6% in 2019. 
This is in line with the upward trend in all Member 
States  in  2020.  In  Latvia,  this  increase  is  mainly 
to  higher  spending  per  capita. 
attributable 
However,  as  a  share  of  total  public  spending, 
health spending in 2020 remained relatively stable 
at around 11.2%. Based on the age profile of the 
Latvian population, 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  overall).  Currently,  population  ageing  in  Latvia 

does  not  pose  significant 
sustainability concerns.  

long-term 

fiscal 

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2019-2070 

AWG reference scenario 
Source: European Commission / EPC (2021) 

In  2020,  spending  on  prevention  in  Latvia 
amounted  to  3.1%  of  total  spending  on 
healthcare,  compared  to  3.4%  for  the  EU 
overall.  Between  2019  and  2020,  spending  on 
prevention  in  Latvia  increased  by  31%,  compared 
to  a  26%  increase  for  the  EU  overall.  Across  the 
EU, this increase was primarily driven by spending 
on  disease  detection,  surveillance,  control  and 
response programmes as part of the public health 
response  to  COVID-19.  In  2020,  Latvia  reported 
the  highest  proportional  increase  of  all  Member 
States in spending on healthy condition monitoring 
programmes.  

Latvia  faces  shortages  and  an  uneven 
distribution  of  health workers.  The  number  of 
practising  nurses  per  1 000  inhabitants  (4.2  in 
2020)  is  one  of  the  lowest  in  the  EU,  about  half 
the  EU  average,  and  has  even  declined  in  recent 
years  (down  from  4.6  in  2017).  Latvia’s  State 
Audit  Office  has  estimated  that  the  health  sector 
requires at least 3 500 additional nurses (113). The 
shortages of health workers are more pronounced 
in  areas  outside  Riga,  where,  for  example,  the 
density  of  practising  doctors  is  much  lower. 
Working  conditions  are  an  important  issue,  with 
low remuneration being a deterrent to entering the 
profession, in particular for nurses. To increase the 
capacity  of  the  health  workforce  during  the 
COVID-19  pandemic,  overtime  was  allowed  as  an 
exception and bonuses were introduced for health 
workers dealing with COVID-19.  

(112) Based on data provided directly by Member States to ECDC 
under the European Surveillance System (data current as of 
13 April 2023). 

(113) State Audit Office (2019). Human Resources in Healthcare. 
Summary available at: https://www.lrvk.gov.lv/en/audit-
summaries/audit-summaries/human-resources-in-healthcare. 

61 

74.974.975.175.775.573.180.980.981.081.380.480.1201620172018201920202021LatviaEU6.64.60.90.402468EULatvia% of GDP20192070increase 
 
          
                                                 
          
                                                 
 
Table A16.1: Key health indicators 

Note:  The EU average is weighted for all indicators, except for (*) and (**), for which the EU simple average is used. The simple 
average for (*) uses data for 2020 or most recent year if former not available. Doctors' density data refer to practising doctors in 
all countries except EL, PT (licensed to practice) and SK (professionally active). Nurses' density data refer to practising nurses in all 
countries except FR, PT, SK (professionally active) and EL (nurses working in hospitals only). 
Source: Eurostat; except: ** ECDC 

Through  its  recovery  and  resilience  plan 
(RRP),  Latvia  plans  to  invest  EUR  181.5 
million  (9.9%  of  the  RRP’s  total  value)  in 
healthcare.  The  RRP  includes  a  set  of  reforms 
and  investments  that  aim  to  strengthen  the 
resilience  and  accessibility  of  Latvia’s  health 
system. Work is under way on a number of reform 
aspects,  such  as  preparing  recommendations  for 
for  meeting 
of 
integration 
epidemiological 
introducing 
treatments  and  for 
guidelines  for  oncology 
developing 
infrastructure, 
piloting  more  efficient  health  service  models,  and 
strengthening  health  workforce  management  and 
upskilling.  The  investments  planned  in  the  RRP 
concern  mainly  infrastructure  improvements  in 
regional  hospitals  and 
university  hospitals, 
secondary 
provide 
integrated  health  services  and  reduce  the  spread 
of infectious diseases.  

care 
requirements, 

outpatient 

treatment 

settings, 

cancer 

and 

to 

62 

20172018201920202021EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)199.0196.4188.6185.5NA91.7 (2020)Cancer mortality per 100 000 population297.9293.9292.6296.5NA242.2 (2020)Current expenditure on health, % GDP 6.06.26.67.5NA10.9 (2020)Public share of health expenditure, % of current health expenditure57.359.960.163.6NA81.2 (2020)Spending on prevention, % of current health expenditure 2.42.62.63.1NA3.4 (2020)Acute care beds per 100 000 population330322309NANA387.4 (2019)Doctors per 1 000 population *3.23.33.33.3NA3.9 (2020)Nurses per 1 000 population *4.64.44.44.2NA8.3 (2020)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day (total consumption for CY and CZ) **12.111.512.010.010.214.5 (2021) 
 
 
 
   
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

The  annex  showcases  the  economic  and 
social  regional  dynamics  in  Latvia,  providing 
an update of the situation of economic, social and 
territorial  cohesion  in  Latvia  versus  EU  averages 
recovery 
and 
challenges. 

regional  economic 

the  main 

Latvia’s  regional  outlook  continues  to  be 
significant  disparities 
characterised  by 
between its capital region (Rīga) and the rest 
of  the  country.  In  2019,  GDP  per  head  (PPS)  of 
the Riga-capital area stood above the EU average 
at 111.7% while in the other NUTS 3 regions, GDP 
per  head  ranged  between  around  60%  in  Pierīga 
and 34% in Latgale in the east of the country (see 
Map A17.1). 

Map A17.1:  GDP per head (in PPS) in Latvia, 
NUTS3, 2019 

and 

growth 

productivity 

GDP 
are 
characterised  by  huge  regional  differences. 
Between 2011 and 2020, GDP per head in Pierīga 
and  Vidzeme  grew  annually  at  a  rate  of  3.98% 
and  3.45%,  respectively. 
In  Latgale,  average 
annual growth of GDP per head in the same period 
was 2.27%. Productivity, measured as gross value 
added  (pps)  per  worker,  is  lower  than  the  EU 
average  (100)  in  all  Latvian  regions  and  varies 
between 39 in Latgale and 77 in Riga. 

Table A17.1: Latvia, selected indicators at regional level 

Latvian  regions  undergo  rapid  depopulation, 
driven  by  emigration.  In  the  period  between 

Source: EUROSTAT, EDGAR Database 

63 

NUTS 3 RegionGDP per head (PPS)GDP (mln of PPS)Productivity (GVA (PPS) per person employed)Real productivity growthGDP growthGDP per head growthPopulation growthNet migrationTransport performance by carEU27=100, 2019-20202019-2020Index, EU27 = 100Average % change of the preceding years, 2011-2020Average % change of the preceding years, 2011-2020Average % change of the preceding years, 2011-2020Average annual change per 1000 residents, 2011 - 2020Average annual change per 1000 residents, 2011 - 2020% population within a 1h30 journey / population within 120 km radius, 2018European Union100.013394141.0100.00.01.01.02.02.081.5Latvija70.039922.068.01.92.33.3-9.2-4.966.6Kurzeme52.03874.057.02.61.12.6-13.9-8.645.7Latgale34.02754.039.01.90.42.3-18.8-9.161.4Rīga112.021908.077.0-1.12.63.2-7.0-3.780.5Pierīga60.06975.081.06.53.84.01.92.373.9Vidzeme47.02746.053.02.91.93.5-14.5-8.745.6Zemgale44.03198.056.02.91.22.4-11.5-7.062.5 
 
 
 
 
 
 
 
  
 
 
2010 and 2019, the Latvian population decreased 
with  -8.1%.  In  four  regions  (Kurzeme,  Vidzeme, 
Zemgale  and  Latgale),  the  population  fell  with 
>10% since 2011. The biggest loss was observed 
in  Latgale 
In  Riga  the  population 
decreased  with  -4.9%  whereas  the  population  in 
the  surrounding  region,  Pierīga,  slightly  increased 
with 0.5%. 

(-16.2%). 

differences 
socio-economic 
Significant 
persist  between  urban  and  rural  areas.  The 
unemployment  rate,  the  share  of  young  people 
neither in employment nor in education or training 
(NEET), the share of early school leavers, and risk 
of  poverty  or  social  exclusion  were  in  2021  all 
higher in rural areas than in more urbanised areas 
(cities,  towns  and  suburbs).  People  living  in  urban 
areas have also a higher educational attainment. 

Latvia continues to be characterised by large 
disparities between urban and rural areas in 
terms  of  poverty  and  social  exclusion.  In 
2021,  31.6%  (almost  3  percentage  points  up 
compared to 2020) of the rural population was at 
risk of poverty and social exclusion (AROPE), while 
the  rate  was  23.8%  in  towns  and  suburbs  and 
22.4% in cities. 

Regional  differences  are  equally  evident  in 
Latvia’s  transport  systems  performance.  The 
efficiency of the road network for a return trip in a 
single  day  (reference  year  2018)  is  high  in  the 
capital  region  (80.5%)  and  in  Pierīga  (73.9%)  as 
compared to the EU average, whereas it is lower in 
the  other  regions,  particularly  in  Kurzeme  and 
Vidzeme. 

64 

 
 
 
 
 
 
 
 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

Latvia’s  financial  sector  is  small  compared 
with  the  EU  average,  and  it  continues  to 
shrink.  Financial-institution  assets  are  equivalent 
to  73.6%  of  GDP.  Banks  servicing  non-residents 
have  substantially  downsized  their  operations 
following  the  introduction  of  stricter  anti-money 
laundering  rules.  This  has  led  them  to  transform 
their  business  models.  As  a  result,  their  business 
volumes and deposits shrunk notably. The financial 
market  in  Latvia  is  relatively  concentrated,  and 
there  is  evidence  of  market  segmentation  and 
relatively high borrowing costs. 

Latvia’s banking  sector  is  in  a  good  position 
to  weather  the  current  economic  slowdown. 
The  sector’s  resilience  is  bolstered  by  very  strong 
capitalisation  and  asset-quality  metrics,  with  a 
capital adequacy ratio of 26.7% (the highest in the 
EU,  where  the  average  is  18.6%)  and  a  non-
performing-loan  ratio  of  1.6%  as  of  Q3-2022. 
Profitability  remains  high  in  comparison  with 
banking  sectors  elsewhere  in  the  EU,  reflected  in 
an aggregate return-on-equity ratio of 9.1% as of 
Q3-2022,  above 
the  EU  average  of  6.1%. 
Favourable cost-to-income ratios relative to euro-
area  peers  and  rising  interest  rates  will  support 
profitability  over  the  medium  term,  despite  the 
deteriorating  economic  outlook.  Liquidity  risks  are 
low,  given  a  very  high  liquidity-coverage  ratio  of 
above  320%  in  Q3-2022.  The  leverage  ratio  in 
Q3-2022 of 9.5% was well above the 3% required 
by  Basel  III  standards.  Stress  tests  seem  to 
suggest  that  Latvian  banks  that  specialise  in 
serving domestic customers are able to withstand 
shocks.  The  parent  institutions  of  Latvian  banks 
are  well-capitalised  and  have  high  credit  ratings 
and good profits. This improves the risk-absorption 
capacity  of  the  Latvian  banking  sector.  However, 
Latvia’s banking sector is exposed to concentration 
and spill-over risks due to its integration with the 
Nordic and Baltic banking systems. 

Funding  risks  remain 
low  as  deposits 
materially  exceed  loans.  Funding  of  credit 
institutions  has  been  significantly  boosted  by:  (i) 
the  deposits  accrued  in  credit  institutions  during 
the  pandemic;  and  (ii)  the  ECB’s  targeted  longer-
term  refinancing  operations.  Thanks  to  the  strong 
and  stable  domestic  customer-deposit  base 
(around  three  quarters  of  total  funding),  credit 
institutions  do  not  need  to  draw  on  additional 
funding  from  financial  markets.  This  mitigates 
their  exposure  to  possible  global  financial  stress 

and  capital  flight  in  times  of  market  volatility.  It 
also reduces their reliance on cross-border parent 
banking  groups.  At  the  same  time,  Latvian  banks 
have  reduced  their  reliance  on  short-term  non-
resident  deposits  to  reduce  the  risk  of  money 
laundering in the Latvian banking sector. The share 
of  non-resident  deposits  stood  at  16.4%  of  total 
assets of in Q2-2022, down from more than 40% 
in 2018.  

Domestic lending has slightly improved but is 
generally still weak. Latvia’s decade-long credit-
less  recovery  has  been  unusually  protracted.  This 
reflects  not  only  low  demand  for  credit,  but  also 
obstacles  to  credit  supply  and  banks’  cautious 
lending  policies,  particularly  towards  small  and 
medium  enterprises.  As  a  result,  non-financial 
corporate debt is moderate, at 46% of GDP (37% 
when  considering  consolidated  data).  In  2022, 
lending  to  non-financial  corporations  picked  up 
significantly,  which  can  be  partly  explained  by 
credit  line  extension  to  energy  companies.  In 
particular,  Latvia  registered  annual  growth  of 
more  than  20%  in  bank  loans  collateralised  by 
commercial  real  estate.  While  the  annual  growth 
rate of bank lending to non-financial  corporations 
at  the  end  of  Q3-2022  was  8.7%,  the  year-on-
year  growth  of  lending  to  households  remained 
more  moderate  at  3.8%.  Interest  rates  in  Latvia 
are  still  much  higher  than  in  most  of  the  euro 
area, but since the end of 2020 there has been a 
slight  downward 
trend.  Overall  household 
indebtedness was equivalent to 18% of GDP as of 
Q2-2022, one of the lowest levels in the EU.  

Although  asset  quality  has  historically  been 
a  concern,  it  has  improved  in  recent  years 
thanks  to  proactive  non-performing  loans 
resolution and reforms to Latvia’s insolvency 
the  purchasing  power  of 
framework.  As 
borrowers  generally 
improved,  and  as  credit 
institutions  continued  to  gradually  write  off  bad 
debts  from  previous  periods,  the  share  of  non-
performing  loans  in  the  loan  portfolio  fell  from 
4.6% at the end of March 2021 to 3.7% at the end 
of  March  2022.  At  the  same  time,  the  share  of 
loans  that  are  more  than  90  days  past  due  has 
decreased  to  1.6%  (from  1.8%  a  year  before). 
Commercial  real  estate  accounts  for  more  than 
30%  of  total  banking  non-performing  loans  in 
Latvia,  partly  due  to  legacy  loans  left  over  from 
the financial crisis. 

65 

 
 
 
 
Table A18.1: Financial soundness indicators 

(1) Last data: Q3 2022. 
(2) Data is annualized. 
Source: ECB, Eurostat, S&P Global Capital IQ Pro. 

(ii)  high 

inflation;  and 

Geopolitical  and  inflationary  pressures  risk 
reducing  credit  volume,  asset  quality,  and 
the  profitability  of  financial  institutions.  The 
income  and  purchasing  power  of 
disposable 
(i)  falling 
households  are  being  eroded  by: 
demand; 
(iii)  market 
disruptions  reinforced  by  Russia’s  war  against 
Ukraine.  These  factors  also  reduce  company 
turn  weakens  companies’ 
in 
profits,  which 
repayment  capacity.  Debt-service 
ratios  will 
increase as a result of monetary-policy tightening. 
Moreover,  banks  anticipate  that  they  will  also 
tighten  their  credit  standards,  and  that  their 
lending  will  become  more  cautious.  Credit  risks 
could  emerge  due  to  the  very  high  share  of 
variable-interest  loans  to  both  households  and 
non-financial corporations. A majority of new loans 
have  variable-rate  terms.  To  face  the  greater 
credit  risk  that  this  creates,  banks  need  to  hold 
sufficient capital,  manage risk conservatively, and 
set aside sufficient provisions. 

is 

Activity  in  the  real-estate  market  remains 
elevated  and  house  prices  have  seen  a 
prolonged  uptrend.  Since  2015,  housing  prices 
have  increased  by  72%.  At  the  same  time,  the 
supply  of  new  housing 
insufficient  and 
decreasing. Further increases in construction costs 
and disruptions to the supply of building materials 
will  reduce  housing  supply  even  more,  and  will 
accelerate the already strong rates of house price 
growth.  This  will  also  hinder  the  completion  of 
commercial  properties  and  the  implementation  of 
new  projects,  and  drive  up  rents  in  newly  built 
commercial  properties.  Together  with  higher 

interest  rates,  this  may  reduce  the  income  of 
commercial  real-estate  companies  and  the  value 
of their properties, which in turn limits their ability 
to refinance existing debt and take out new loans. 
An  economic  downturn  may  put  additional  strain 
on the commercial real estate sector.  

to 

adding 

Close  monitoring  of  these  developments  is 
warranted,  so  that  macroprudential  policy 
can  be  re-calibrated  accordingly  and  in  a 
timely  manner. 
their 
After 
macroprudential  toolkit  in  mid-2020  with  several 
financial 
borrower-based  measures,  Latvia’s 
authorities broadened  the  scope  of these tools to 
cover  credit  institutions  of  other  EU  countries 
operating in Latvia with or without local branches. 
Moreover, to strengthen the resilience to shocks of 
the 
important 
institutions  (O-SIIs),  Latvijas  Banka  asked  five  O-
SIIs  to  build  additional  capital  buffers  (varying 
between  0.25%  for  BluOr  Bank  and  2.0%  for 
Swedbank)  that  would  help  to  cover  potential 
losses.  A  risk-weighting  measure  directly  tailored 
to  commercial  real  estate  related  vulnerabilities 
has been introduced via Article 124 of the Capital 
Requirements Regulation.  

so-called  other 

systemically 

Since  1 January 2023,  the  Financial  and 
Capital  Market  Commission  (FCMC)  has  been 
integrated  into  Latvijas  Banka.  In  accordance 
with  the  decision  adopted  by  Latvia’s  parliament 
Latvijas Banka has taken over all functions related 
to 
the 
the  supervision  and  promotion  of 
development  of  the  financial  and  capital  market 
and the functions of the resolution authority. 

66 

201720182019202020212022EUMedianTotal assets of the banking sector (% of GDP)104.978.274.179.573.671.0276.8207.9Share (total assets) of the five largest banks (%)73.680.983.287.887.4--68.7Share (total assets) of domestic credit institutions (%)148.432.933.934.215.215.2-60.2NFC credit growth (year-on-year % change)2.13.6-0.6-0.7-1.18.7-9.1HH credit growth (year-on-year % change)0.60.70.90.56.53.8-5.4Financial soundness indicators:1        - non-performing loans (% of total loans)5.65.33.94.62.11.61.81.8- capital adequacy ratio (%)20.622.323.426.829.726.718.619.8- return on equity (%)27.69.29.65.24.59.16.16.6Cost-to-income ratio (%)158.461.362.464.558.551.060.651.8Loan-to-deposit ratio (%)160.670.770.763.560.667.988.678.0Central bank liquidity as % of liabilities1.00.20.16.23.02.3-2.9Private sector debt (% of GDP)75.769.866.264.758.0--120.7Long-term interest rate spread versus Bund (basis points)51.750.659.544.837.1113.1-93.3Market funding ratio (%)13.013.815.716.621.3-50.840.0Green bonds issued to all bonds (%)0.20.20.20.21.31.83.92.31-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States. 
 
   
 
ANNEX 19: TAXATION  

This  Annex  provides  an 
indicator-based 
overview  of  Latvia’s  tax  system.  It  includes 
information on the tax  structure (the types of tax 
that Latvia derives most of its revenue from), the 
tax  burden  on  workers,  and  also  provides 
information on tax collection and compliance. 

Graph A19.1: Tax wedge for single and second 
earners as a % of total labour costs, 2022 

Latvia’s  tax  revenues  are  relatively  low  in 
relation  to  its  GDP.  Table  A19.1  shows  that 
Latvia’s tax revenues as a percentage of GDP were 
considerably  below  the  EU  aggregate  in  2021  (at 
about  30.4%  of  GDP  as  compared  with  40.6%  in 
the  EU).  The  revenues  from  labour  taxation  are 
below the EU aggregate, while the revenues from 
consumption 
lesser  extent 
environmental taxes exceed the EU aggregate as a 
share of GDP. Revenues from property taxes as a 
percentage of GDP were below the EU aggregate, 
but  they  were  higher  than  in  regional  peers 
Lithuania and Estonia. The fact that revenues from 
lower  than  the  EU 
capital  taxes  are  much 
aggregate  as  a  share  of  GDP  suggests  potential 
for additional tax revenue from this source. 

taxes  and 

to  a 

Second earner tax wedge assumes first earner at 100% of 
the average wage and no children. For the methodology of 
the tax wedge for second earners see OECD (2016) “Taxing 
Wages 2014-2015” 
Source: European Commission 

Latvia’s labour tax burden is still higher than 
the  EU  average  for  low  earners.  Graph  A19.1 
shows  that,  despite  recent  reforms  (including  the 
lowering  of  the  tax  burden  on  labour  and  the 
introduction  of  some  progressivity  for  personal 
income tax rates), the labour tax wedge for Latvia 
in 2022 was higher than the EU average for single 
people  earning  less  than  the  average  wage.  This 
means  that  labour  taxation  in  Latvia  is  less 
progressive than in the EU on average. The ability 
of  the  tax  and  benefits  system  to  reduce  income 
inequality  is  also  significantly  below  the  EU 

Table A19.1: Taxation indicators 

(1) Forward-looking effective tax rate (OECD). 
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average 
For more data on tax revenues as well as the methodology applied, see European Commission, Directorate-General for Taxation 
and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United Kingdom: 
2021 edition, Publications Office of the European Union, 2021, https://data.europa.eu/doi/10.2778/843047 and the Data on 
Taxation webpage, https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en. 
For more details on the VAT gap, see European Commission, Directorate-General for Taxation and Customs Union, VAT gap in the 
EU: report 2022, Publications Office of the European Union, 2022, https://data.europa.eu/doi/10.2778/109823.  
Source: European Commission, OECD 

67 

33.737.240.642.837.220253035404550100150Tax wedge, % of total labour costsEarnings in % of the average wageSingle earner - LVSingle earner - EU averageSecond earner -  LVSecond earner -  EU average2010201920202021202220102019202020212022Total taxes (including compulsory actual social contributions) (% of GDP)28.330.630.830.437.939.940.040.6Labour taxes (as % of GDP)14.315.015.315.120.020.721.320.9Consumption taxes (as % of GDP)11.213.213.112.710.811.110.711.2Capital taxes (as % of GDP)2.82.42.42.67.18.18.08.5Total property taxes (as % of GDP)1.01.01.01.01.92.22.22.2Recurrent taxes on immovable property (as % of GDP)0.70.70.70.71.11.21.21.1Environmental taxes as % of GDP3.02.93.02.72.42.42.22.2Tax wedge at 50% of average wage (Single person) (*)42.436.735.035.333.733.932.331.932.131.7Tax wedge at 100% of average wage (Single person) (*)44.042.542.340.540.641.040.139.939.639.7Corporate income tax - effective average tax rates (1) (*)17.017.017.019.519.419.1Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5.85.55.45.58.67.78.17.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)8.79.431.640.7VAT Gap (% of VAT total tax liability, VTTL)7.23.611.09.1LatviaEU-27Tax structureProgressivity & fairnessTax administration & compliance 
 
 
 
 
 
      
 
 
  
 
 
 
 
 
 
 
 
 
 
Graph A19.2: Tax revenues from different tax types, % of total tax revenue 

Source: European Commission 

average (Table A19.1).  

The  shadow  economy  remains  extensive. 
Surveys  of  company  owners  and  managers 
indicate  that Latvia’s  shadow  economy  accounted 
for  26.6%  of  its  GDP  in  2021,  somewhat  higher 
than  in  Latvia’s  Baltic  peers. (114)  The  biggest 
component of the shadow economy is undeclared 
(‘envelope’) wages (estimated at 46.2% of Latvia's 
shadow  economy).  The  construction  (31.2%)  and 
retail  (29.8%)  sectors  had  the  highest  estimated 
share  of  shadow  activity  in  2016-2021.  Tax 
arrears  increased  slightly  by  0.7  pps  to  9.4%  of 
total net revenue in 2020 but were still well below 
the EU-27 average of 40.7% (even though the EU 
average  is  distorted  by  very  high  values  in  some 
Member  States).  The  VAT  gap  (the  gap  between 
revenues actually collected and the theoretical tax 
liability) decreased significantly by half to 3.6% in 
2020,  below  the  EU-wide  gap  of  9.1%.  Latvia's 
RRP  includes  measures  to  reduce  the  shadow 
economy  and 
improve  the  capacity  to  fight 
economic crime as well as measures to strengthen 
tax  and  customs  administration.  Further  efforts 
are  also  needed  to  reduce  the  risks  of  corruption 
and  conflict  of  interest  in  the  Latvian  State 
Revenue Service.  

(114) Stockholm School of Economics Riga (2022): “Shadow 

Economy Index for the Baltic Countries”, URL: 
https://www.sseriga.edu/shadow-economy-index-baltic-
countries.  

68 

51.4327.5421.0149.7441.768.51Tax revenue shares in 2021, Latvia (outer ring) and the EU (inner ring)Taxes on labourTaxes on consumptionTaxes on capital7.344.321.201.000.440.192.212.640.922.750246810Latvia -environmentaltaxationEU -environmentaltaxationLatvia - propertytaxationEU - propertytaxationEnvironmental and property taxation as % of total tax revenue, Latvia and the EUEnergy taxesTransport taxesResource/pollution taxesRecurrent property taxesOther property taxes 
                                                 
  
 
 
 
 
     
 
ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS 

Table A20.1: Key economic and financial indicators 

(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
(2) Net international investment position (NIIP) excluding direct investment and portfolio equity shares.  
Source: Eurostat and ECB as of 2 May 2023, where available; European Commission for forecast figures (Spring forecast 2023). 

69 

2004-072008-122013-1920202021202220232024Real GDP (y-o-y)10.2-2.72.9-2.34.32.81.42.8Potential growth (y-o-y)7.3-0.32.32.63.01.71.92.1Private consumption (y-o-y)12.5-3.62.7-4.68.18.13.02.8Public consumption (y-o-y)3.8-2.72.72.44.42.80.91.3Gross fixed capital formation (y-o-y)21.4-6.91.4-2.62.90.71.74.0Exports of goods and services (y-o-y)14.54.53.8-0.35.99.12.42.5Imports of goods and services (y-o-y) 19.2-2.23.7-0.315.311.71.51.8Contribution to GDP growth:Domestic demand (y-o-y)14.8-5.02.4-2.86.25.42.42.8Inventories (y-o-y)0.3-1.00.40.53.5-0.6-1.2-0.1Net exports (y-o-y)-4.92.80.00.0-5.4-2.00.50.4Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.3-1.8-0.4-0.50.3-0.20.10.1Capital accumulation (y-o-y)3.81.30.80.80.90.80.80.9Total factor productivity (y-o-y)3.80.22.02.21.91.01.01.1Output gap6.0-5.21.3-2.8-1.6-0.5-1.0-0.3Unemployment rate8.815.39.38.17.66.96.86.5GDP deflator (y-o-y)12.62.12.01.06.513.18.92.7Harmonised index of consumer prices (HICP, y-o-y)7.44.61.30.13.217.29.31.7HICP excluding energy and unprocessed food (y-o-y)6.53.41.61.12.011.311.23.5Nominal compensation per employee (y-o-y)24.41.57.55.011.19.010.85.3Labour productivity (real, hours worked, y-o-y)8.02.52.93.55.4-2.00.80.6Unit labour costs (ULC, whole economy, y-o-y)15.80.25.04.93.89.09.44.1Real unit labour costs (y-o-y)2.9-1.82.93.9-2.6-3.60.51.3Real effective exchange rate (ULC, y-o-y)11.1-1.83.30.72.74.13.10.5Real effective exchange rate (HICP, y-o-y)2.91.90.60.40.26.4..Net savings rate of households (net saving as percentage of net disposable income)-7.7-2.4-5.26.35.9...Private credit flow, consolidated (% of GDP)27.7-2.20.0-1.90.9...Private sector debt, consolidated (% of GDP)89.9115.877.364.858.1...of which household debt, consolidated (% of GDP)31.542.323.820.319.4...of which non-financial corporate debt, consolidated (% of GDP)58.473.553.544.538.7...Gross non-performing debt (% of total debt instruments and total loans and advances) (1).9.95.23.61.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)-9.45.13.02.5-2.1-1.92.01.4Corporations, gross operating surplus (% of GDP)31.029.427.121.724.225.526.325.3Households, net lending (+) or net borrowing (-) (% of GDP)-4.90.8-0.56.16.31.40.30.6Deflated house price index (y-o-y)17.0-11.34.72.77.2-0.2..Residential investment (% of GDP)4.52.92.32.62.21.9..Current account balance (% of GDP), balance of payments-16.4-2.0-0.42.6-4.2-6.4-3.7-2.9Trade balance (% of GDP), balance of payments-17.2-5.3-1.51.0-3.4-5.8..Terms of trade of goods and services (y-o-y)1.4-0.20.92.81.6-0.42.00.3Capital account balance (% of GDP)1.32.22.01.71.41.1..Net international investment position (% of GDP)-59.7-77.0-54.8-34.2-27.5-27.0..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)-30.1-37.9-7.814.119.016.3..IIP liabilities excluding non-defaultable instruments (% of GDP) (2)93.3132.8122.1108.097.790.6..Export performance vs. advanced countries (% change over 5 years)102.749.79.920.418.5...Export market share, goods and services (y-o-y)14.11.61.311.8-1.85.0-0.2-1.2Net FDI flows (% of GDP)-5.1-2.6-1.8-2.1-2.5-3.3..General government balance (% of GDP)-0.7-5.6-0.9-4.4-7.1-4.4-3.8-2.7Structural budget balance (% of GDP)..-1.4-3.4-6.7-4.2-3.5-2.6General government gross debt (% of GDP)11.238.138.842.043.740.839.740.5forecast 
 
 
 
     
 
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  Annex  assesses  fiscal  sustainability 
risks  for  Latvia  over  the  short,  medium  and 
long term. It follows the same multi-dimensional 
approach  as  the  European  Commission’s  2022 
Debt Sustainability Monitor, updated based on the 
Commission 2023 spring forecast. 

1  -  Short-term  risks  to  fiscal  sustainability 
are 
low  overall.  The  Commission’s  early-
detection  indicator  (S0)  does  not  signal  major 
short-term  fiscal  risks  (Table  A21.2). (115)  Gross 
financing  needs  are  expected  to  remain  low  at 
around 5% of GDP in the short term (2023-2024), 
considerably below the recent peak in 2021 (Table 
1  of  Table  A21.1).  Financial  markets’  perceptions 
of sovereign risk are positive, as confirmed by the 
ratings of the main agencies. 

2 - Medium-term risks to fiscal sustainability 
are low overall.  

The  baseline  DSA  for  Latvia  shows  that  the 
government debt ratio is projected to remain 
at a low level over the medium term, despite 
an  increase  to  around  52%  of  GDP  in  2033, 
(Graph  1). (116) (117)  The  assumed  structural 
primary  balance  (a  deficit  of  1.8%  of  GDP) 
contributes  to  these  developments.  It  appears 

(115) The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of macro-financial and 
fiscal variables that have proven to perform well in the past 
in detecting situations of upcoming fiscal stress.  

(116) The assumptions underlying the Commission’s ‘no-fiscal 
policy change’ baseline notably comprise: (i) a structural 
primary deficit, before ageing costs, of 1.8% of GDP as of 
2024; (ii) inflation converging linearly towards the 10-year 
forward inflation-linked swap rate 10 years ahead (which 
refers to the 10-year inflation expectations 10 years from 
now); (iii) the nominal short- and long-term interest rates on 
new and rolled over debt converging linearly from current 
values to market-based forward nominal rates by T+10 (as 
for all Member States); (iv) real GDP growth rates from the 
Commission 2023 spring forecast until 2024, followed by 
EPC/OGWG ‘T+10 methodology projections between T+3 and 
T+10, i.e. for 2025-2033 (on average 1.5%); (v) ageing costs 
in line with the 2021 Ageing Report (European Commission, 
Institutional Paper 148, May 2021). For information on the 
methodology, see the 2022 Debt Sustainability Monitor 
(European Commission, Institutional Paper 199, April 2023). 

(117) Table 1 shows the baseline debt projections 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.  

plausible  compared  with  past  fiscal  performance, 
indicating  that  the  country  has  ample  room  for 
corrective  action.  At  the  same  time,  the  baseline 
projections  up  to  2033 benefit  from  a  favourable 
(although declining) snowball effect, also thanks to 
the  impact  of  Next  Generation  EU,  with  real  GDP 
growth  averaging  1.5%  in  2025-2033.  Gross 
financing  needs  are  expected  to  rise  over  the 
projection period, to around 7% of GDP in 2033. 

‘adverse 

The  baseline  projections  are  stress  tested 
against  four  alternative  scenarios  to  assess 
the  impact  of  changes  in  key  assumptions 
(Graph 1). For Latvia, reverting to historical fiscal 
trajectories under the ‘historical structural primary 
balance  (SPB)’  scenario  would  not  alter  the 
projected debt ratio significantly since the baseline 
SPB  is  close  to  the  historical  15-year  average 
deficit of 1.7% of GDP. A permanent worsening of 
the  macro-financial  conditions,  as  reflected  under 
interest-growth  rate  differential’ 
the 
scenario (i.e. 1 pp. higher than the baseline) would 
result  in  a  debt-to-GDP  ratio  about  4  pps.  higher 
than 
temporary 
worsening  of  financial  conditions,  as  captured  by 
the  ‘financial  stress’  scenario,  would  result  in  a 
debt  projection  similar  to  the  baseline.  The  ‘lower 
structural primary balance (SPB)’ scenario (i.e. SPB 
the 
level  permanently 
cumulative  forecast  change),  would  lead  to  a 
government  debt-to-GDP  ratio  that  is  about  10 
pps.  higher  by  2033  than  the  baseline,  breaching 
the 60% of GDP reference value.  

the  baseline  projection.  A 

reduced  by  half  of 

low  risks 

Additionally,  stochastic  debt  projections 
(Graph  2). (118)  These 
indicate 
stochastic  simulations  point  to  a  61%  probability 
of  the  debt  ratio  in  2027  being  greater  than  in 
2022,  entailing  low  risk  given  the  initial  low  debt 
level.  In  addition,  such  shocks  point  to  some 
uncertainty  (i.e.  the  difference  between  the  10th 
and 90th debt distribution percentiles) surrounding 
the government debt baseline projections. 

3  -  Long-term  risks  to  fiscal  sustainability 
are low overall. (119)  

(118) These projections show the impact on debt of 2000 different 

shocks affecting the government’s primary balance, 
economic growth, interest rates and exchange rates. The 
cone covers 80% of all simulated debt paths, therefore 
excluding tail events. 

(119) The S2 fiscal sustainability gap indicator measures the 

permanent fiscal effort (SPB adjustment) in 2024 that would 
be required to stabilise public debt over the long term. It is 

70 

 
 
 
 
                                                 
                                                 
 
 
Finally,  several  additional  risk  factors  need 
to  be  considered  in  the  assessment.  On  the 
one hand, risk-increasing factors include the recent 
increase in interest rates, the relatively large share 
of  public  debt  held  by  non-residents  and  the 
negative  net international  investment  position. On 
the other hand, risk-mitigating factors include the 
fact that debt is fully denominated in euro and the 
low  share  of  short-term  debt  in  total  debt.  In 
addition, 
the 
NGEU/RRF,  if  fully  implemented,  could  have  a 
further  positive  impact  on  GDP  growth  in  the 
coming years, and therefore help to mitigate debt 
sustainability risks. 

reforms  under 

the  structural 

The  S2  sustainability  gap 
indicator  (at 
low  risks, 
1.2 pps.  of  GDP)  points  to 
suggesting  that  Latvia  would  need  to 
improve  its  structural  primary  balance  only 
to  ensure  debt 
to  a 
stabilisation  over  the  long  term.  This  results 
from the initial budgetary position (2 pps. of GDP), 
which  is  partly  compensated  for  by  the  projected 
(-0.9 pp.)  given  the 
decline 
expected decline in pension expenditure (Table 2).  

limited  extent 

in  ageing  costs 

Given  low  long-term  debt  vulnerabilities,  as 
highlighted by the S1 indicator, overall long-
term risks are assessed as low. Indeed, the S1 
sustainability  gap  indicator  signals  that  a  limited 
consolidation  effort  of  1.1  pps.  of  GDP  would 
suffice to bring debt to 60% of GDP by 2070. This 
result  is  driven  by  the  initial  budgetary  position 
(1.9 pps.  of  GDP),  with  the  current  low  debt  level    
(-0.4 pp.) and the projected decline in ageing costs 
(-0.4 pp.) reducing the required effort (Table 2). 

complemented by the S1 fiscal sustainability gap indicator, 
which measures the permanent fiscal effort required in 2024 
to bring the debt-to-GDP ratio to 60% in the long term (by 
2070). For both the S1 and S2 indicators, the risk 
assessment depends on the amount of fiscal consolidation 
needed: ‘high risk’ if the required effort exceeds 6 pps. of 
GDP, ‘medium risk’ if it lies between 2 pps. and 6 pps. of 
GDP, and ‘low risk’ if the effort is negative or below 2 pps. of 
GDP. The overall long-term risk classification brings together 
the risk categories derived from S1 and S2. S1 may notch up 
the risk category derived from S2 when it signals a higher 
risk than S2. See the 2022 Debt Sustainability Monitor for 
further details. 

71 

 
                                                                              
Table A21.1: Debt sustainability analysis - Latvia 

Source: Commission services. 

Table A21.2: Heat map of fiscal sustainability risks - Latvia 

Source: Commission services. 

72 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWMEDIUMLOWLOWLOWDebt level (2033), % GDP51.651.061.455.251.9Debt peak year20332033203320332033Fiscal consolidation space76%75%79%76%76%Probability of debt ratio exceeding in 2027 its 2022 level61%Difference between 90th and 10th percentiles (pps. GDP)31.7(1)Debtlevelin2033.Green:below60%ofGDP.Yellow:between60%and90%.Red:above90%.(2)Thedebtpeakyearindicateswhetherdebtisprojectedtoincreaseoveralloverthenextdecade.Green:debtpeaksearly.Yellow:peaktowardsthemiddleoftheprojectionperiod.Red:latepeak.(3)Fiscalconsolidationspacemeasurestheshareofpastfiscalpositionsinthecountrythatweremorestringentthantheoneassumedinthebaseline.Green:highvalue,i.e.theassumedfiscalpositionisplausiblebyhistoricalstandardsandleavesroomforcorrectivemeasuresifneeded.Yellow:intermediate.Red:low.(4)Probabilityofdebtratioexceedingin2027its2022level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)Thedifference 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.Short termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)LOWLOWLOWLOWLOWTable 1. Baseline debt projections20202021202220232024202520262027202820292030203120322033Gross debt ratio (% of GDP)42.043.740.839.740.541.442.643.845.146.447.749.050.351.6Changes in the ratio5.41.8-2.9-1.10.80.91.21.31.31.31.31.31.31.3of whichPrimary deficit3.76.73.93.21.91.91.91.91.81.81.81.81.71.7Snowball effect1.1-3.7-5.6-3.3-1.3-1.0-0.7-0.6-0.5-0.5-0.5-0.4-0.5-0.4Stock-flow adjustments0.6-1.2-1.2-1.00.20.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)9.010.14.94.74.95.15.45.76.06.36.66.97.27.4S1S2Overall index  (pps. of GDP)1.11.2of which Initial budgetary position1.92.0Debt requirement-0.4Ageing costs-0.4-0.9of which    Pensions-0.7-1.1     Health care0.30.2     Long-term care0.10.1Others-0.1-0.1Table 2. Breakdown of the S1 and S2 sustainability gap indicators01020304050607020202021202220232024202520262027202820292030203120322033Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p9001020304050607020202021202220232024202520262027% of GDPGraph 2. Stochastic debt projections 2023-2027MedianBaseline 
 
 
 
 
 
   
 
 
   
 
ANNEX 22: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX  

falling  real  disposable  income  are  expetcted  to 
dampen  demand  for  housing  over  the  near  term 
and would hence slow the growth of house prices. 
The  current  account  deficit  is  expected  to  remain 
elevated  in  2023  and  2024,  however,  given  the 
lack of momentum in private lending, government 
deficit  is  likely  to  be  the  main  contributor  to  the 
current account deficit over the foreseeable future 
and hence a reduction in the  budget deficit should 
also  return  the  current  account  close  to  balance. 
Finally,  inflation  is  expected  to  subside  this  year 
and, especially in 2024, while real wage growth is 
likely  to  resume  growth  at  a  brisk  pace  over  the 
medium term as the falling labour supply, which is 
largely  driving  the  productivity  divergence,  is 
expected to persist.  

Policies  that  help  increase  the  quality  and 
quantity  of  labour  supply  are  essential  to 
mitigate  the  impact  of  the  ageing  society. 
With  demand  impulse  from  credit  being  negative, 
Latvia’s  challenges  are  on  the  supply  side  of  the 
economy  with  the  falling  labour  supply  being  the 
key  issue.  Investments  in  skills  and  health  offer 
one avenue to boost quality and quantity of labour 
supply  in  the  context  of  a  significant  cohort  of 
population  having  inadequate  skills  and  society’s 
overall  weak 
outcomes.  Moreover, 
facilitating  internal  labour  mobility  should  help 
better  match  skills  supply  with  demand.  Reducing 
the red tape in construction as  well  as supporting 
lending to SMEs in regions outside of Riga should 
facilitate  housing  supply.  Finally,  it  is  important 
that  any  future  energy  price  support  measures 
maintain  the  price  signal  in  order  to  mitigate  the 
widening of the current account.  

health 

Based  on  this  assessment,  the  Commission 
considered  in  its  communication  European 
Semester – 2023 Spring Package (COM(2023) 
600  final)  that  Latvia  does  not  experience 
imbalances. 

The  Macroeconomic 
Imbalance  Procedure 
matrix presents the main elements of the in-
depth  review  undertaken  for  Latvia (120).  
Latvia  was  selected  for  an  in-depth  review  in  the 
in-depth 
2023  Alert  Mechanism  Report.  This 
review  on  the  prevention  and  correction  of 
macroeconomic  imbalances  presents  the  main 
findings  on  the  gravity  and  evolution  of  the 
challenges  identified,  as  well  as  policy  responses 
and potential policy needs. Findings cover all areas 
of vulnerability assessed in the in-depth reviews.  

in 

correction 

significant 

In  Latvia,  vulnerabilities  related  to  housing 
and external borrowing remain mild, however 
risks  to  competitiveness  remain  pertinent, 
albeit contained in the near term. House prices 
doubled  during  the  past  decade  after  having 
undergone  a 
the 
aftermath  of  the  global  financial  crisis.  However, 
over  the  past  decade  house  price  growth  has 
remained  broadly  in  line  with  income  growth. 
Moreover,  weak  mortgage  credit  growh  suggests 
that the effective demand impulse from credit has 
been  negative  over  the  past  10  to  15  years. 
Latvia’s  current  account  deficit  considerably 
widened  over  the  past  two  years.  In  2021,  it  was 
largely  explained  by  elevated  government 
borrowing,  however  in  2022  rising  energy  prices 
negatively  affected 
the  balances  of  both 
households  and  the  govrnement.    Latvia’s  net 
international  investment position  at  -27%  of  GDP 
is  relatively  benign.  However,  excluding  non-
defaultable instruments from the balance, renders 
it  positive.  The  gap  between  Latvia’s  real  wage 
growth  and  productivity  growth  has  consistently 
expanded  over  the  past  decade,  resulting  in 
notable  increase  in  the  labour  share  of  income, 
raising  concerns  about  its  cost  competitiveness. 
recent  energy  price  shock  hit  Latvia 
The 
leading 
significant 
particularly  hard, 
divergence 
the  euro  area 
inflation  with 
countries,  adding  further  concerns  about  its  price 
competitiveness.  

to  a 

in 

House  price  growth  and 
inflation  are 
expected  to  slow  and  external  balances  to 
stabilise  while  the  fundamental  drivers  of 
wage  divergence  from  productivity  are 
expected  to  persist.  Rising  interest  rates  and 

(120)  European Commission (2023), In-Depth Review for Latvia, 

Commission staff working document (COM(2023) 636 final), 
in accordance with Article 5 of Regulation (EU) No 
1176/2011 on the prevention and correction of 
macroeconomic imbalances.  

73 

 
 
                                                 
 
Table A22.1: Assessment of macroeconomic imbalances matrix 

Source: European Commission 

74 

Gravity of the challengeEvolution and prospectsPolicy responseUnsustainable trends, vulnerabilities and associated risksExternal positionWhile Latvia’s current account broadly remained in balance since the global financial crisis, it declined significantly over the past two years, reaching a deficit of 6.1% of GDP in 2022. The deterioration in non-energy goods balance as well as services balance and primary income were the main contributors to the increase in deficit in 2021.The worsening in 2022 was mainly driven by the  deterioration of the energy balance. From the sectoral net borrowing perspective, it was mostly driven by government borrowing, albeit, households' net lending position also decreased. However, Latvia's net international investment position (NIIP) has significantly improved over the past decade, from -83% of GDP in 2010 to [-27%] of GDP in 2022 and it is positive if non-defaultable instruments are excluded.  The current account balance is expected to improve to   3.4% of GDP in 2023, and to   2.7% in 2024. Over the medium term, the current account is expected to normalise provided the public deficit returns to the pre-pandemic levels. Given the decade-long trend of weak bank lending, both households and corporations are expected to continue deleveraging or to grow their liabilities no faster than the pace of GDP growth. Public deficits, EU fund inflows and FDI flows are expected to be the main determinants of the current account balance. Fiscal policy bore the most signficiant contribution to the current account deficit recently and hence an improvement of the current account is tied to reduction in fiscal deficits. Budgetary support to the private sector to compensate for energy price increases links the energy prices to the current account. The design of the support system for the 2022/2023 heating season made sure to maintain the price signals to motivate the households to reduce energy consumption and hence mitigate current account widening. House pricesSince 2012 house prices have grown by 103% while income has grown by 94%. This has led the price to income ratio to increase by 4.5% over the same period. However, in historical perspective, the price to income ratio has remained broadly unchanged – below the average of the early 2000s and some 36% below its peak reached in 2007. The Commission estimates Latvian house prices to have been overvalued by 18.7% in 2022 mostly due to a large increase in the price-to-rent ratio, while the price-to-income ratio and model-based assessments show only mild overvaluation. Mortgage lending in Latvia has been weak since the global financial crisis. As a result, household debt declined from 50% of GDP in 2009 to below 20% of GDP in 2021. The substantial household deleveraging suggests that the demand impulse from credit was negative.House price growth accelerated in Q4 2021, peaking at 17.4% y-o-y in Q2 2022. It has moderated since then, with the most recent reading showing 11.1% y-o-y growth in Q4 2022. Monthly bank lending data for November 2022 show lending growth slowed from around 7% during the first half of the year to 4.7% in November. Demand for housing and hence house price growth is expected to trend downwards in the near term, as interest rates continue rising and real income growth remains subdued.  Latvia could do more to improve the functioning of the housing market on the supply side.  Moreover, Latvia would benefit from the shortening of the construction permitting process, which is considerably longer than in neighbouring Estonia and Lithuania. Additionally, it is advisable to monitor the impact on the rental market of the new rental law of 2021, which aims to facilitate investments in rental properties. Finally, the housing supply would likely benefit from better access to skilled labour.Cost competitivenessLatvia’s 3-year unit labour cost growth reached 13.7% in 2022. Since 2014,  real wage growth has exceeded productivity growth by some 15 pps., raising concerns about cost competitveness. Moreover, the recent energy price surge has added to cost competitiveness pressures as it has hit Latvia harder than other euro area economies. Energy price inflation in Latvia peaked at 70% (vs. 40% in euro area) and HICP inflation peaked at 22% (vs. 11.5% in euro area), with domestic factors playing a singificant role . At the same time, Latvia's export market shares have continued growing at a brisk pace since 2014. In 2022, exporters benefitted from nearly unchanged terms of trade, despite the significant increase in imported prices.The wage-productivity gap is set to narrow in 2023 as pressure in the labour market abates with slowing economic growth. However, the underlying problem stemming from population ageing is set to shape the labour market over the medium and long term, and hence wage pressures are set to return. Inflation is forecast to slow to 9.3% in 2023 and to 1.7% in 2024. Compared with EU and euro area averages, inflation is still projected to remain higher in Latvia in 2023 and only somewhat lower in 2024 pointing to continued inflation differentials.  Measures to invest in skills and health of its working population, as well as  to facilitate internal mobility to better match skills with jobs could help address labour shortages and thus mitigate the impact of population ageing, which is the structural driver of cost competitiveness concerns.