Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Latvia, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, social policy, soft energy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 614 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia {SWD(2024) 600 final} - {SWD(2024) 614 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Latvia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

1 
2 

3 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  
The  REPowerEU  Regulation3,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 

the  Recovery  and  Resilience  Facility 

OJ L 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17),  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj. 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1), ELI: http://data.europa.eu/eli/reg/2023/435/oj. 

EN 

1 

  EN 

 
(3) 

(4) 

(5) 

renewables,  energy  storage  capacities  and  energy  efficiency.  Latvia  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’4, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member  States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report5.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.     

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey6, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it did not identify Latvia as one 
of  the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. On the same date, the 
Commission  adopted  an  opinion  on  the  2024  draft  budgetary  plan  of  Latvia.  The 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 12 April 2024, as well 
as the proposal  for the 2024 Joint Employment Report analysing the implementation 
of  the  Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social 
Rights, which the Council adopted on 11 March 2024. 

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States7.  The  objectives  of  the 
new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
gradual  fiscal  consolidation  as well  as  through  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 

4 
5 
6 
7 

COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 

EN 

2 

  EN 

 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure8 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring  and/or  maintain  the  government  deficit  below  the  3%  of  GDP  reference  value 
over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms 
and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, 
the  adjustment  period  may  be  extended  by  3  years  at  most.  For  the  purpose  of 
supporting the preparation of those plans, on [21 June] 2024, the Commission   is set 
to  provide  Member  States  with  guidance  on  the  content  of  the  plans  and  the 
subsequent  annual  progress  reports  that  they  will  need  to  submit  and,  in  accordance 
with Article 5 of Regulation (EU) 2024/1263, will transmit to them technical guidance 
on  the  fiscal  adjustments  (reference  trajectories  and  technical  information,  where 
applicable). Member States should submit their medium-term fiscal-structural plans by 
20 September 2024, unless the Member State and the Commission agree to extend the 
deadline by a reasonable period of time. Member States should ensure the involvement 
of their national parliaments, and the consultation of independent fiscal institutions, of 
social partners and other national stakeholders, as appropriate.   

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.   

On  30  April  2021,  Latvia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery  and  resilience  plan  for  Latvia9,  which  was  amended  on  8  December  2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the REPowerEU 
chapter10. The release of instalments is conditional on a decision by the Commission, 

Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 
Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Latvia (10157/2021). 
Council Implementing Decision of 8 December 2023 amending the Implementing Decision of 13 July 
2021 on the approval of the assessment of the recovery and resilience plan for Latvia (15569/2023). 

(6) 

(7) 

8 

9 

10 

EN 

3 

  EN 

 
(8) 

(9) 

taken in accordance with Article 24(5)  of Regulation (EU) 2021/241, that Latvia has 
satisfactorily  fulfilled  the  relevant  milestones  and  targets  set  out  in  the  Council 
Implementing  Decision.  Satisfactory  fulfilment  presupposes  that  the  achievement  of 
preceding milestones and targets has not been reversed. 

progress 

On 14 May 2024, Latvia submitted its 2024 National Reform Programme and, on 30 
April 2024, its Stability Programme, in line with Article 4(1) of Regulation (EC) No 
1466/97.  
The Commission  published the 2024 country report for Latvia11 on 19 June  2024.  It 
assessed  Latvia’s 
country-specific 
recommendations  adopted by the Council  between 2019  and  2023 and  took stock of 
Latvia’s  implementation  of  the  recovery  and  resilience  plan.  Based  on  this  analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Latvia’s progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

addressing 

relevant 

the 

in 

(10)  Based on data validated by Eurostat12, Latvia’s general government deficit decreased 
from 4.6% of GDP in 2022 to 2.2% in 2023, while the general government debt rose 
from 41.8% of GDP at the end of 2022 to 43.6% at the end of 2023. 

(11)  On  12  July  2022,  the  Council  recommended13  that  Latvia  takes  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance14,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Latvia  was  recommended  to  stand  ready  to  adjust  current 
spending  to  the  evolving  situation.  Latvia  was  also  recommended  to  expand  public 
investment  for  the  green  and  digital  transitions,  and  for  energy  security  taking  into 
account  the  REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and 
Resilience  Facility  and  other  Union  funds.  In  2023,  according  to  the  Commission 
estimates, the fiscal stance15 was expansionary, by 0.5% of GDP, in a context of high 
inflation.  The  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary revenue measures) in 2023 provided an expansionary contribution to the 
fiscal  stance  of  1.1%  of  GDP.  This  includes  the  reduced  cost  of  the  targeted 
emergency support measures to households and firms most vulnerable to energy price 
hikes  by  0.4%  of  GDP.  The  expansionary  contribution  of  nationally  financed  net 

11 
12 
13 

14 

15 

SWD(2024) 614 final. 
Eurostat-Euro Indicators, 22.4.2024. 
Council Recommendation of 12 July 2022 on the National Reform Programme of Latvia and delivering 
a Council opinion on the 2022 Stability Programme of Latvia OJ C 334, 1.9.2022, p. 112. 
Based on the Commission spring 2024 forecast, the medium-term potential output growth of Latvia in 
2023, which is used to measure the fiscal stance, is estimated at 7.6% in nominal terms, based on the 
10-year average real potential growth rate and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

EN 

4 

  EN 

 
primary current expenditure in 2023 was therefore not due to the targeted emergency 
support  to  households  and  firms  most  vulnerable  to  energy  price  hikes.  The 
expansionary  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary  revenue  measures)  was  driven  by  increases  in  public  sector  wages  and 
social  benefits.  In  sum,  the  projected  growth  of  nationally  financed  primary  current 
expenditure  in  2023  was  not  in  line  with  the  Council  recommendation.  Expenditure 
financed by Recovery and Resilience Facility grants and other EU funds amounted to 
1.5% of GDP in 2023. Nationally financed investment amounted to 3.3% of GDP in 
2023,  with  an  annual  decline  of  0.1  percentage  points  from  2022.  Latvia  financed 
additional  investment  through  the  Recovery  and  Resilience  Facility  and  other  EU 
funds.  It  financed  public  investment  for  the  green  and  digital  transitions,  and  for 
energy  security,  such  as  the  purchase  of  electric  vehicles  for  public  transport, 
improving the energy efficiency of multi-apartment buildings and business properties, 
modernising  the  electricity  transmission  and  distribution  networks,  centralising  the 
governance of digital platforms and systems in the public sector, developing the digital 
skills  and  digitisation  of  processes 
infrastructure 
development  as  well  as  fostering  digitalisation  in  the  education  sector,  which  are 
largely funded by the Recovery and Resilience Facility and other EU funds.  

in  businesses,  broadband 

(12)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP to grow by 1.4% in 2024 and 2.9% in 2025, while it projects HICP inflation at 
1.6%  in  2024  and  2.5%  in  2025.  The  general  government  deficit  under  current 
policies16 in the 2024 Stability Programme is projected to increase to 2.9% of GDP in 
2024 and decline to 2.7% of GDP in 2025, while the general government debt-to-GDP 
ratio  is  set  to  increase  to  45.2%  by  the  end  of  2024  and  46.3%  by  the  end  of  2025. 
After 2025, the general government deficit is projected to decrease to 2.2% of GDP in 
2026, 2.0% in 2027 and 1.7% in 2028. Therefore, the general government balance is 
planned to remain below the 3% of GDP deficit reference value over the programme 
horizon. In turn, after 2025, the general government debt-to-GDP ratio is projected to 
decrease to 46.2% in 2026, increase to 48.8% in 2027 and decrease to 48.2% in 2028. 

(13)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  1.7%  in  2024 
and 2.6% in 2025, and HICP inflation to stand at 1.6% in 2024 and 2.0% in 2025. 

(14)  The Commission Spring 2024 Forecast projects a government deficit of 2.8% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to increase to 44.5% 
by the end of 2024. In 2024, the impact of the complete phasing-out of energy-related 
measures  by  the  end  of  2023  will  be  more  than  offset  by  additional  expenditure,  on 
public  wage  increases  for  teachers  and  administration,  healthcare  and  education,  as 
well  as  supplementary  payments 
technical 
infrastructure  on  the  country’s  border  will  contribute  to  an  increase  in  public 
investment  expenditure.  The introduction of  corporate income tax advance payments 
from  the  financial  sector,  an  increase  in  the  rates  for  several  excise  products  and 
additional  dividend  payments  from  state-owned  companies  are  expected  to  yield  a 
moderate increase in revenue. Based on the Commission’s estimates, the fiscal stance 
is projected to be expansionary by 0.9% of GDP in 2024. 

to  pensioners.  Development  of 

16 

The  2024  Stability  Programme  states  that  according  to  current  policies  the  budget  deficit  in  2025  is 
forecast to be 0.5ppt higher than the deficit target in the Programme. The Stability Programme does not 
include any details on policy measures to be taken in order to ensure compliance with deficit targets.      

EN 

5 

  EN 

 
(15)  Expenditure amounting to 1.6% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.4%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Latvia. 

(16)  On  14  July  2023,  the  Council  recommended17  that  Latvia  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary  expenditure18  in  2024  to  not  more  than  3.0%.  When  executing  their  2023 
budgets  and  preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were 
invited  to  take  into  account  that  the  Commission  would  propose  to  the  Council  the 
opening  of  deficit-based  excessive  deficit  procedures  based  on  the  outturn  data  for 
2023.  According  to  the  Commission  Spring  2024  Forecast,  Latvia’s  net  nationally 
financed primary expenditure is projected to increase by 4.9% in 2024, which is above 
the recommended maximum growth rate. This excess spending over the recommended 
maximum growth  rate in  net  nationally financed  primary expenditure  corresponds  to 
0.7% of GDP in 2024. However, net expenditure in 2023 was lower than expected at 
the time of the recommendation (by 0.9% of GDP). As the recommendation for 2024 
was formulated as a growth rate, the assessment of compliance also needs to take into 
account  the  base  effect  from  2023.  Had  net  expenditure  in  2023  been  the  same  as 
expected  at  the  time  of  the  recommendation,  the  resulting  growth  rate  of  net 
expenditure in 2024 would have been below the recommended growth rate by 0.2% of 
GDP.  Overall,  net  nationally  financed  primary  expenditure  is  assessed  as  at  risk  of 
being not fully in line with the recommendation. 

(17)  Moreover,  the  Council  recommended  that  Latvia  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Latvia  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost19 of emergency energy support measures is estimated at 1.0% of GDP in 2023 and 
0.0% of GDP  in  both  2024 and 2025.  If the  related savings were used to reduce the 
government deficit, as recommended by the Council, these projections would imply a 
fiscal  adjustment  of  1.0%  of  GDP  in  2024,  whereas  net  nationally  financed  primary 
expenditure20  provides  a  contractionary  contribution  to  the  fiscal  stance  of  0.5%  of 
GDP in that year. The emergency energy support measures are projected to be wound 
down  as  soon  as  possible  in  2023  and  2024.  This  is  in  line  with  the  Council 

17 

18 

19 

20 

Council  Recommendation  of  14  July  2023  on  the  2023  National  Reform  Programme  of  Latvia  and 
delivering a Council opinion on the 2023 Stability Programme of Latvia, OJ C 312, 1.9.2023, p. 125. 
Net primary expenditure is defined as nationally financed expenditure net of (i)  discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
This contribution is measured as the change in general government primary expenditure, net of (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 

EN 

6 

  EN 

 
recommendation.  However,  the  related  savings  are  not  projected  to  be  fully  used  to 
reduce  the  government  deficit.  This  risks  being  not  in  line  with  the  Council 
recommendation. 

(18) 

In  addition,  the  Council  also  recommended  that  Latvia  preserve  nationally  financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to increase to 3.4% of GDP in 2024 from 3.3% of GDP 
in 2023. This is in line with what was recommended by the Council. 

(19)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 2.9% of GDP in 2025. The general government debt-to-GDP ratio is set to 
increase to 46.3% by the end of 2025. The increase of the debt-to-GDP ratio in 2025 
mainly reflects positive stock-flow adjustment and the government deficit. 

(20)  Latvia’s tax revenue as a share of GDP remains significantly below the EU average, 
limiting the funding for public services, in particular healthcare and social protection. 
In 2022, the share of tax revenues decreased to 30.3% of GDP (40.2% of GDP in the 
EU),  the  lowest  level  in  the  last  3  years.  In  the  taxation  fields  less  detrimental  to 
growth,  in  particular  capital  and  property,  Latvia  still  scores  below  the  EU  average. 
Revenue  from  corporate  income  tax  has  been  gradually  recovering  after  the  sharp 
downward correction following the 2018 reform, while cadastral reform  for property 
taxation to reflect current market values has not yet been adopted. The relatively low 
revenue  from  labour  taxation,  despite  relatively  high  tax  rates,  suggests  that  there  is 
potential  to  increase  revenue  from  labour  taxes.  This  warrants  sustained  efforts  to 
improve tax compliance and shift economic activity from the shadow economy to the 
formal  economy.  Meanwhile,  poverty  and  income  inequality  remain  high  in  Latvia. 
Among EU Member States, Latvia has one of the highest percentages of people at risk 
of poverty and social exclusion, one of the highest risks of poverty for older people, as 
well as some of the lowest pensions compared to wages. Moreover, income inequality 
remains  significantly  above  the  EU  average.  Fragmentation  of  social  support  at 
municipal level, the poor quality and limited availability of existing social housing as 
well  as  significant  socio-economic  differences  across  regions  continue  to  pose 
challenges for social inclusion and the labour market. Public spending on healthcare in 
Latvia  remains  among  the  lowest  in  the  EU,  leading  to  a  high  level  of  unmet 
healthcare  needs  and  weak  health  outcomes.  In  recent  years,  public  spending  on 
healthcare and social support temporarily increased against the backdrop of pandemic 
emergency support as well as other additional budget allocations on an ad hoc basis. 
However,  the  2024  budget  envisages  that  general  government  expenditure  on 
healthcare  will  fall  to  its  2020  level  (4.7%  of  GDP)  and  expenditure  on  social 
protection will drop below the 2020 level (12.4% of GDP planned in 2024, compared 
to 13.3% in 2020). Medium-term plans envisage a further reduction of public spending 
on healthcare, which would hit 4.1% of GDP in 2028, while public spending on social 
protection is expected to increase gradually to 13.8% of GDP in 2028. 

(21) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 

EN 

7 

  EN 

chapter, is essential to boost Latvia’s long-term competitiveness through the green and 
digital transition, while ensuring social fairness. To deliver on the commitments of the 
plan  by  August  2026,  it  is  essential  for  Latvia  to  continue  the  implementation  of 
reforms and investments. The systematic involvement of local and regional authorities, 
social  partners,  civil  society  and  other  relevant  stakeholders  remains  essential  to 
ensure  broad  ownership  for  the  successful  implementation  of  the  recovery  and 
resilience plan. 

included 

in  each  programme.  While  Latvia  has  made  progress 

(22)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Latvia  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan.  This  review  forms  the basis for the definitive allocation of the EU 
funding 
in 
implementing  cohesion  policy  and  the  European  Pillar  of  Social  Rights,  challenges 
remain and significant regional disparities persist between the capital city Riga and the 
rest  of  Latvia,  in  particular  Latgale  in  the  east.  Accelerating  the  implementation  of 
cohesion  policy  programmes  is  crucial.  The  priorities  agreed  in  programme  remain 
relevant. It is important to support the capacity of businesses to innovate and digitise 
in order to increase productivity. Supporting energy efficiency measures in buildings 
and  businesses  remains  a  priority.  It  is  equally  important  to  ensure  access  to  timely 
and  equal  good  quality  health  services  and  infrastructure,  social  services,  including 
social  housing,  continuing  the  transition  to independent  living  and  community-based 
the  unemployed  and  boosting 
care.  Activation,  reskilling  and  upskilling  of 
participation  in  the  labour  market  for  under-represented  groups  remains  a  priority. 
Improving  the  quality  and  inclusiveness  of  education  together  with  upskilling  and 
reskilling the adult population should continue. In the context of the mid-term review 
of  cohesion  policy  programmes,  the  existing  regional  disparities  and  ensuring  an 
adequate level of investment in  the field  of material  deprivation  (including food  and 
material  assistance) merits  specific consideration. Latvia could  also  use the Strategic 
Technologies for Europe Platform initiative to support the transformation of industry, 
with the focus on smart and renewable energy (e.g. offshore wind energy parks) where 
there  is  interest  from  international  investors,  as  well  as  knowledge-intensive 
bioeconomy and biotechnology. 

(23)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Latvia  faces  several  additional  challenges  related  to  the 
business  environment,  labour  and  skills  shortages,  and  the  transition  to  clean  energy 
and a green economy. 

(24)  At 14.9% of GDP in 2022, business investment in Latvia is somewhat below Estonia’s 
level of 16.5% of GDP and slightly higher than 13.1% of GDP in Lithuania. However, 
levels of net private investment have remained one of the lowest in the EU, amounting 
to 0.5% over the past 5 years compared to the EU average of 3.5%. Results from the 
2023  EIB  Investment  Survey  suggest  that  private  investment  is  affected  by  high 
uncertainty,  the  lack  of  availability  of  skilled  staff  and  high  energy  costs.  In  2023, 
77%  of  Latvian  firms  perceived  business  regulations  to  be  a  long-term  obstacle  to 
investment,  which  is  one  of  the  highest  percentages  in  the  EU.  Moreover,  bank 
lending has  been weak,  acting as  a further barrier to  business  investment. Small  and 
medium-sized enterprises find it particularly difficult to get credit. This is partly due to 
their  higher  credit  risk,  but  also  to  the  high  cost  of  credit,  stringent  collateral 
requirements  and  administrative  burden.  The  banking  sector  is  concentrated,  leading 

EN 

8 

  EN 

to weak competition among banks, which is one of the factors behind the high interest 
rates.  Continued  efforts  to  increase  competition  in  the  banking  sector,  including 
through  greater  transparency  on  interest  rates  and  other  costs  associated  with  loans, 
would  foster  lending  activity  over  the  medium  term.  Furthermore,  public  lending 
and/or  guarantee  schemes  for  strategically  important  investment  areas  like  the  green 
transition  and  regional  development  could  increase  effective  competition  in  the 
banking market. In addition, boosting the availability of financing sources other than 
banking would be helpful for the business investment. The shadow economy has been 
a  long-standing  problem  for  the  business  environment,  hindering  investment,  skills 
development  and  with  it  long-term  competitiveness.  According  to  Latvian  business 
organisations,  it  distorts  competition  and  incentivises  businesses  to  remain  small. 
Moreover, the prevalence of the shadow economy and weak company balance sheets 
are key obstacles to higher business lending, according to Latvia’s banks.  

(25)  Labour and skills shortages are increasing in Latvia. In combination with demographic 
challenges  and  the  declining  working  age  population,  this  poses  a  challenge  to  the 
country’s  competitiveness.  In  2023,  the  biggest  labour  shortages  were  in  science, 
technology, engineering and mathematics (STEM), sectors that are highly relevant for 
productivity  gains,  as  well  as  in  the  green  and  digital  transition.  By  2030,  the  most 
significant  shortages  are  expected  in  engineering,  manufacturing  and  construction, 
science,  mathematics  and  IT.  In  addition,  Latvia  also  continues  to  face  shortages  in 
healthcare  and  social  care.  91%  of  Latvian  companies  mention  the  lack  of  skilled 
labour  as  a  barrier  to  investment,  which  is  above  the  EU  average  of  81%.  The  low 
proportion of graduates in technology, engineering and science, and the resulting lack 
of researchers in these areas, is one of the main barriers to strengthening the Latvian 
research  and  innovation  capacity,  especially  in  the  private  sector.  High-quality 
education and training systems aligned with changing labour  market needs and well-
targeted  upskilling  and  reskilling  measures  are  key  to  reducing  the  labour  and  skills 
shortages  and  improving  the  competitiveness  of  the  country  as  well  as  boosting  the 
digital and green transition. While recent reforms have made vocational education and 
training  more  flexible  and  attractive,  continued  efforts  are  needed  to  modernise  and 
improve the training offer. To unlock untapped labour supply, training measures need 
to be accessible, including for the low-skilled and across regions. 

(26)  Latvia enjoys one of the highest shares of energy from renewable sources in the EU. 
This is mostly attributable to power production from hydro plants and the high use of 
biomass, mainly in the heating sector. There is scope to further diversify the country’s 
renewable energy mix. In 2022 and 2023, Latvia experienced an increase in installed 
capacity for solar and wind power, but these capacities remain significantly below the 
levels  installed in  both Estonia and Lithuania.  To increase its share of renewables in 
final  energy  consumption,  Latvia  would  benefit  in  particular  from  tapping  into  wind 
and  solar  power,  and  by  scaling  up  production  from  these  sources.  Despite  some 
limited  action  planned  under  the  national  recovery  and  resilience  plan,  additional 
efforts  are  needed  to  remove  remaining  barriers  in  the  granting  of  permits  for  the 
construction  or  installation  of  wind  and  solar  power  generation  facilities.  Moreover, 
Latvia  could  take  further  action  to  promote  demand-side  flexibility,  such  as  energy 
storage owned by end consumers and participation in distributed energy resources and 
in  balancing and  flexibility  services.  It  could  also clearly define the roles for  certain 
energy  market  participants,  such  as  aggregators  of  small-scale  demand.  Separately, 
applications  for  grid  connection  permits  for  renewable  energy  generation  facilities 
considerably  exceed  the  electricity  network’s  available  capacity,  which  is  why  the 

EN 

9 

  EN 

issuing of new permits has been halted since July 2023. This shows that there is scope 
for further regulatory action. 

(27)  Latvia’s  progress  towards  a  circular  economy  needs  accelerating  to  meet  the  EU 
circular economy goals. Indicators of sustainable economic growth are below the EU 
average,  and  the  country’s  material  footprint  is  on  the  rise.  Latvia  is  an  average 
performer in  eco-innovation and would benefit from accelerating the implementation 
of  circular  business  models  and  boosting  investment  in  eco-innovation  to  increase 
resource  efficiency  and  competitiveness.  Latvia  has  made  progress  with  its  waste 
management system, but still landfills more than half of its municipal waste.  

(28) 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation  on 
the  euro  area.  For  Latvia, 
recommendations  (1),  (2),  (3)  and  (4)  help  implement  the  first,  second,  third  and 
fourth euro area recommendations.   

the  economic  policy  of 

HEREBY RECOMMENDS that Latvia take action in 2024 and 2025 to:  

1. 

2. 

3. 

4. 

21 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure21  in  2025 to  a rate  consistent  with  maintaining  the general  government 
deficit  below  the  3%  of  GDP  Treaty  reference  value  and  keeping  the  general 
government  debt  at  a  prudent  level  over  the  medium  term.  Broaden  taxation, 
including  of  capital  and  property,  and  strengthen  the  adequacy  of  healthcare  and 
social protection.  

Continue with the swift and effective implementation of the recovery and resilience 
plan,  including  the  REPowerEU  chapter,  ensuring  completion  of  reforms  and 
investments  by  August  2026.  Accelerate  the  implementation  of  cohesion  policy 
programmes. In the context of the mid-term review continue focusing on the agreed 
priorities,  taking  action  to  better  address  persistent  regional  disparities  and 
inequalities  while  considering 
the  Strategic 
Technologies for Europe Platform initiative to improve competitiveness. 

the  opportunities  provided  by 

Improve  the  business  environment  by  reducing  the  administrative  and  regulatory 
burden for companies and improving access to finance for small and medium-sized 
enterprises,  including  through  public  lending  and  guarantee  schemes  aimed  at 
facilitating  investments  of  strategic  importance  and  boosting  competition  in  the 
financial markets. Address labour and skills shortages, in particular in STEM, and in 
other  specialisations  needed  for  the  green  and  digital  transition,  as  well  as  in  the 
social and healthcare sectors, including through targeted upskilling and reskilling. 

Accelerate  the  deployment  of  wind  and  solar  energy  by  improving  permit-granting 
procedures and promoting demand-side flexibility. Foster the transition to a circular 
economy through eco-innovation and sustainable resource management practices. 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

EN 

10 

  EN 

 
Done at Brussels, 

For the Council 
The President 

EN 

11 

  EN