COMMISSION STAFF WORKING DOCUMENT 2024 Country Report - Latvia Accompanying the document 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, XXX  SWD(2024) 614/2 SENSITIVE* UNTIL ADOPTION COMMISSION STAFF WORKING DOCUMENT 2024 Country Report - Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia {COM(2024) 614}  * Distribution only on a ‘Need to know’ basis - Do not read or carry openly in public places. Must be stored securely and encrypted in storage and transmission. Destroy copies by shredding or secure deletion. Full handling instructions https://europa.eu/!db43PX  
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

debt-service  costs  have  not  yet  affected  the 
quality  of banks’ credit portfolio, as the share 
of  non-performing  loans  as  a  percentage  of 
total loans decreased to 1.2% in Q3 2023, the 
lowest level since the financial crisis in 2008.  

A  slow  recovery  is  expected  in  2024. 
Private  consumption  is  forecast  to  recover  in 
2024  on  the  back  of  receding  inflation  and 
rising  real  incomes.  In  addition,  investments 
are set to remain strong, due to public and EU-
funded investments (see Annex 20).  

Graph 1.1: Selected labour-market indicators 

Latvia’s economy shows signs of 
resilience after recent headwinds 

In  2023,  economic  growth  in  Latvia  was 
negatively affected by eroded purchasing 
power, which was experienced throughout 
the  EU  due  to  high  inflation  in  2022 
following a surge in energy prices (1). As a 
result,  both  private  consumption  and  exports 
slowed  down  significantly,  especially  in  the 
first  half  of  2023.  The  Latvian  economy 
contracted by 0.3% in 2023. As energy prices 
started  to  decline  in  the  second  half  of  the 
inflation  also  slowed  down  greatly, 
year, 
reaching  an  annualised  0.9%  in  December 
2023.  In  addition,  foreign  investors  are  now 
holding  back  investments  in  Latvia  due  to 
perceived geopolitical risks. 

Rising  interest  rates  also  took  a  toll  on 
the  Latvian  economy.  Most  business  and 
household borrowers pay interest at a variable 
rate on existing loans, which means that rising 
interest  rates  have  quickly  translated  into 
higher costs for servicing debt. To address this, 
on  6 December 2023  the  Latvian  Parliament 
passed  measures  to  help  existing  mortgage 
borrowers by reducing their interest payments 
by 30%, by a maximum of 2 percentage points 
of  the  interest  rate  they  would  ordinarily  pay 
in  2024.  To  finance  the  measure,  a  tax  of 
0.5%  of  the  total  amount  of  mortgage  loan 
balances will reduce excess profits from banks 
and  credit  providers  operating  in  Latvia.  The 
total  cost  of  the  mortgage-interest-reduction 
measure 
around 
estimated 
EUR 100 million, while banks’ pre-tax profits in 
2023 
EUR 700 million, 
around 
compared with EUR 350 million in 2022. Rising 

reached 

at 

is 

(1)  The cut-off date for the data used to prepare the 27 

Country Reports was 15 May 2024. 

2 

Source: Eurostat, Labour force survey 

The  Latvian  labour  market  has  remained 
tight,  and 
real  wages  have  been 
increasing since the second half of 2023. 
The  unemployment  rate  slightly  increased  in 
the last quarter of 2023 (to 7% in Q4 2023 vs 
6.4%  in  Q3  2023)  as  the  employment  rate 
(77.5% in 2023)  returned to its pre-pandemic 
level.  Overall, 
labour  market  has 
performed reasonably well (see Graph 1.1.). As 
in  2023) 
nominal  wage  growth 
outpaced 
real 
disposable  incomes  started  to increase  slowly 

in  2023), 

inflation 

(11.9% 

(9.1% 

the 

14.217.416.813.78.9127979.58080.58181.58282.58383.58484.5024681012141618202020-Q12020-Q22020-Q32020-Q42021-Q12021-Q22021-Q32021-Q42022-Q12022-Q22022-Q32022-Q42023-Q12023-Q22023-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) 
 
 
  
in the second half of 2023 after a significant 
decrease  of  -3.9%  in  2022.  Real  wages  are 
expected  to  continue  increasing  in  2024  as 
inflation  is  forecast  to  ease  significantly. 
However,  both  skills  shortages  and  lower 
productivity  (compared  with  the  EU  average) 
could  hamper  Latvia’s  competitiveness  in  the 
long term (see Annex 14). 

Despite  Latvia’s  low  level  of  public  debt, 
there  are  some  fiscal  challenges  on  the 
horizon.  Latvia  has  generally  run  prudent 
fiscal policies and kept its public finances on a 
solid footing. This helped the Latvian economy 
to  withstand  the  shock  caused  by  the COVID-
19  crisis  and  high  energy  prices.  The  general 
government  deficit  increased  from  0.5%  of 
GDP  in  2019  to  7.2%  in  2021  before  falling 
back  to  2.2%  of GDP in  2023,  reflecting  both 
the  substantial  fiscal  impact  of  pandemic-
related  support  and  measures  aiming  to 
mitigate the impact of high energy prices, and 
this 
subsequent  gradual  phasing  out  of 
rather 
support. 
substantial  overall  increase  (7  percentage 
points) in public debt between 2019 and 2023, 
while still having one of the lowest public-debt 
stocks of all EU Member States (43.6% of GDP 
in  2023).  However,  government  finances  will 
come  under  pressure  in  the  future  due  to:  (i) 
the  government’s medium-term  commitments 
to strengthen internal and external security; (ii) 
substantial  financing  needs  to  improve  public 
services; and (iii) the implementation of large-
scale  EU  co-funded  infrastructure  projects. 
households 
Similarly, 
continued to show resilience and there has not 
been a noticeable increase in bankruptcies.  

experienced 

businesses 

Latvia 

and 

a 

Addressing the remaining 
socioeconomic challenges to 
strengthen competitiveness 

Latvia’s  GDP  per  capita  is  significantly 
below  the  EU  average,  and  the  pace  of 
convergence  with  other  EU  Member 
States is slowing. In 2023, Latvia’s GDP per 
capita  was  71%  of  the  EU  average,  which  is 
only 2 percentage points higher than in 2018. 
In  addition,  its  income  level  is  significantly 

below  the  level  of  its  Baltic  peers  –  Estonia’s 
and  Lithuania’s  GDP  per 
capita  were 
(-1  percentage  points 
respectively  81% 
compared  with  2018)  and  87% 
(+6 
percentage points compared with 2018) of the 
EU  average  in  2023 (2).  Latvia’s  productivity 
growth  of  11%  between  2018  and  2023  has 
been good. This is well above the EU  average 
of  2.8%,  and  slightly  higher  than  its  Baltic 
peers. However, the share of the population in 
employment has been declining due to ageing, 
and 
impact  of 
productivity  gains  on  GDP  per  capita.  The  key 
convergence  challenges  for  Latvia  are:  (i)  an 
ageing  population;  (ii)  skills  shortages  (see 
Annex  14);  (iii)  poor  health  outcomes  (see 
Annex  16);  (iv)  weak  innovation  performance 
(see  Annex  11);  and  (v)  regional  disparities 
(see Annex 17).  

this  has  dampened 

the 

is 

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

Social 

the 

in 

remains 
(e.g. 

fragmented 
home-care, 

Social  protection  and  inclusion  of  the 
most  vulnerable  people  in  Latvia  is  also 
hindered  by  the  limited  set  of  services 
offered  to  them.  The  provision  of  social 
across 
services 
municipalities 
daycare 
centres,  shelters),  with  unequal    access  and 
quality of the support provided. The proportion 
of  the  Latvian  population  reporting  unmet 
needs  for  medical  care  remained  among  the 
highest in the EU, with people in lower income 
groups  disproportionately  affected.  Latvia’s 
long-term 
remains 
underdeveloped.  Moreover,  there  is  a  high 

system 

care 

(2)  Expressed in Purchasing Power Standards. 

3 

 
 
Box 1: 

Latvia’s competitiveness in brief  

Latvia’s competitiveness is gradually improving. Latvia is well integrated into the 
single market, as its trade with other EU countries accounted for more than half of its 
GDP  in  2022.  Transposition  and  conformity  deficits  (i.e.  failing  to  transpose  EU 
legislation  into  national  law  and  failing  to  conform  with  EU  rules)  are  in  line  with  EU 
averages.  Industry’s  share  in  the  economy  has  increased  but  remains  below  the  EU 
average (see Annex 12). However, three main competitiveness challenges remain: 

•  skills shortages which hold back productivity, labour supply and the green and 

digital transition; 

•  a  difficult  business  environment  with  cumbersome  business  regulations,  a 
pervasive  shadow  economy  and  limited  availability  of  finance,  in  particular  for 
SMEs; 

•  low private investment and innovation performance.  

level of housing deprivation and overcrowding, 
while access to social housing is limited as the 
stock  is  small  and  often  of  poor  quality  (see 
Annex 14).  

risk  of  poverty; 

Significant  regional  disparities  continue 
to  affect  Latvia’s  competitiveness.  Gaps 
persist between the capital region around Riga 
and other regions in GDP per capita; the share 
of  people  at 
labour 
productivity;  and  employment.  Furthermore, 
Latvia is facing a negative demographic trend 
when  comparing  the  capital  region  with  the 
rest  of  the  country  – the capital  region  has  a 
younger  and  growing  population,  while  areas 
outside the capital are ageing and declining in 
population.  In  the  past  decade,  the  country 
experienced a significant decline in population 
(falling  6.4%  from  2014  and  2024).  In  the 
short  term,  depopulation  trends  may  lead  to 
labour shortages and pressure on both wages 
and  public  services,  especially  in  the  least 
developed regions (see Annex 17). 

4 

 
 
 
 
Box 2: 

UN Sustainable Development Goals (SDGs) 

Latvia  is  making  progress  in  all  SDGs  related  to  competitiveness  and 
productivity  (SDGs  4,  8,  9).  However,  it  needs  to  step  up  efforts  to  close  the 
gap with the EU average on SDGs 8 (Decent work and economic growth) and 9 
(Industry,  innovation  and  infrastructure).  Latvia’s  performance  on  SDG  9,  which 
relates to innovation, industry  and sustainable infrastructure, is below the EU average. 
This  is  mostly  due  to  low  R&D  expenditure  and  low  levels  of  patent  applications. 
Indicators of sustainable economic growth (SDG 8) are below the EU average, with real 
GDP per capita less than half of the EU average in 2023 and a large material footprint. 
Although  its  employment  indicators  are  generally  better  than  the  EU  average,  Latvia 
performs worse on indicators related to decent work, largely due to a high rate of fatal 
accidents  at  work  and  a  high  rate  of  people  who  are  in  work  but  at  risk  of  poverty. 
Latvia is improving on several SDG indicators related to fairness such as those dealing 
with  the  long-term  unemployment  rate  and  early  leavers  from  education  and  training 
(SDGs 1, 3, 4, 5, 7, 8). However, it still needs to catch up with the EU average for SDG 10 
(Reduced inequalities).  

Out of the 17 SDGs, Latvia performs below the EU average on 10. These relate 
to  environmental  sustainability  (SDGs  11,  12,  13),  fairness  (SDGs  1,  3,  5,  8,  10), 
productivity (SDGs 8 and 9) and macroeconomic stability (SDGs 8 and 16) (see Annex 1). 

5 

 
 
IMPLEMENTATION OF KEY REFORMS AND 
INVESTMENTS USING EU INSTRUMENTS 

Funding from the Recovery and Resilience 
Facility (RRF) and cohesion-policy funding 
is mutually reinforcing Latvia’s efforts to 
boost 
its  competitiveness  and  foster 
In  addition  to  the 
sustainable  growth. 
EUR 1.97 billion  of  RRF  funding  described  in 
Annex  3,  cohesion  policy  provides  Latvia  with 
EUR 4.4  billion  for  the  2021-2027  period. 
instruments 
Support 
represents  around  15.87%  of  the  country’s 
2023  GDP,  compared  to  the  EU  average  of 
5.38% of GDP (see Annex 4).  

these 

from 

two 

2014-2020 

programming 

period, 
the 
cohesion-policy  funding  support  focused  on 
the  areas  of:  support  to  enterprises,  energy 
efficiency,  transport,  and  the  upskilling  and 
reskilling  of  the  workforce.  For  the  current 
2021-2027 programming period, support from 
cohesion  policy  is  aimed  at:  (i)  strengthening 
Latvia’s  competitiveness;  (ii)  accelerating  the 
green transition; (iii) improving social cohesion; 
(iv) improving the living and working conditions 
of Latvia’s people; (v) improving the quality of 
education;  and  (vi)  improving  the  range  of 
reskilling and upskilling opportunities.  

Under  its  recovery  and  resilience  plan 
(RRP),  Latvia  has  launched  important 
policy  measures  that  are  expected  to 
improve  its  competitiveness.  In  particular, 
the  RRP  envisages  reforms  in  the  areas  of 
digitalisation  of  business;  digital 
literacy; 
healthcare; minimum income support; housing 
affordability;  higher  education;  improvement 
of  skills  for  adults;  and  the  modernisation  of 
public  administration.  Latvia  also  undertook 
substantial investments in these areas as well 
as  in  the  energy  efficiency  of  buildings  and 
businesses,  and  in  the  reduction  of  inequality 
and  regional  disparities  (for  example  support 
to the reorganisation of the school network in 
the regions).  

two  payment 

The  implementation  of  Latvia’s  recovery 
and  resilience  plan  is  well  underway. 
Latvia  submitted 
requests, 
corresponding to 52 milestones and targets in 
the  plan.  By  mid-May  2024,  this  has  resulted 
in an overall disbursement of EUR 465 million 
with  another  EUR  336  million  planned  to  be 
disbursed  by  the  end  of  the  May.  Beyond  the 
second  payment  request,  the  implementation 
of the plan is broadly on track (see Annex 3). 

Cohesion-policy  funding  helps 
tackle 
Latvia’s  growth  and  competitiveness 
challenges  and  reduce  the  country’s 
territorial  and  social  disparities.  During 

Accelerating the green and digital 
transitions  

includes  an 

important 
Latvia’s  RRP 
reform  aimed  at 
rationalising  and 
greening  Riga’s  metropolitan  transport 
system.  The  reform  is  complemented  by 
investments  in  railway  electrification,  zero-
emission public transport and cycle lanes. The 
regulatory  framework  for  the  implementation 
of  the  investments  has  been  developed.  For 
investments,  project  selection  has 
several 
been 
implementation  has 
started.  The 
investments  are  due  to  be 
completed  by  2026.  Measures  planned  under 
other  EU  funds  will  complement  the  RRP 
efforts  by  delivering  environmentally  friendly 
rolling  stock  for  collective  public  transport, 
industry,  and  deploying  or 
decarbonising 
refurbishing railway infrastructure. 

finalised  and 

Latvia has taken steps to improve energy 
efficiency  in  businesses  and  in  buildings. 
Under  its  RRP,  Latvia  has  already  launched  a 
series  of  support  programmes  for  energy-
efficiency  improvements  in:  (i)  businesses;  (ii) 
residential  buildings  and  infrastructure;  and 
(iii)  public-sector  buildings  and  infrastructure. 
The RRP also supports investments in energy-

6 

 
 
efficient  equipment  and  renewable-energy 
technologies.  The  RRP  also  contains  plans  to 
build  at  least  300  eco-friendly,  high  quality 
and affordable apartments, and the European 
(ERDF)  and 
Regional  Development  Fund 
Cohesion 
supporting 
also 
are 
Fund 
improvements  to  the  energy  performance  of 
13 450 dwellings, helping households to better 
the  green 
the  challenges  of 
overcome 
transition. 

the  RRP, 

Latvia  aims  to  increase  climate  change 
adaptation  and  preparedness  for  natural 
hazards.  Under 
the  Latvian 
government  has  laid  the  groundwork  for  the 
implementation  of  a  national  disaster-risk 
management  system.  The  RRP  also  contains 
plans  to  invest  in  the  construction  of  both:  (i) 
environmentally 
disaster-
management  centres  across  the  country;  and 
(ii)  infrastructure  to  reduce  the  risk  of  floods. 
The ERDF will complement efforts in this area 
by investing in new or upgraded equipment to 
prepare for, warn about, monitor and respond 
to natural hazards. 

friendly 

Latvia  is  taking  steps  to  accelerate  the 
deployment of renewable-energy capacity 
and  strengthen  and  modernise 
its 
electricity grid. The reforms’ main objectives 
are  to:  (i)  accelerate  the  deployment  of 
renewable-energy  capacity;  (ii)  promote  self-
consumption and energy communities; and (iii) 
improve  the  efficiency  and  flexibility  of  the 
electricity grid. The investments accompanying 
the reforms focus on delivering new electricity 
grid capacity, modernising and digitalising the 
electricity  grid,  and  increasing  the  uptake  of 
sustainable  biomethane.  Electricity  grids  are 
fundamental  enablers  of  the  green  transition, 
and 
in  their  upgrading  and 
digitalisation  are  key  for  ensuring  access  to 
competitively priced electricity. The REPowerEU 
chapter will also help to deliver a new battery 
electricity storage system, a priority in Latvia’s 
effort  to  complete  the  synchronisation  of  its 
the  continental 
electricity  network  with 
European  network  by  February  2025.  In  this 
area,  the  RRP  complements  the  financial 
support  provided  through 
the  Connecting 
Europe  Facility.  For  some  investments,  the 
notification  to  beneficiaries  of  the  award  of 
contracts  for  projects  has  already  been 

investments 

7 

concluded.  Most  of  the  investments  will  be 
completed in 2026.  

framework  will  enable 

Reforms  and  investments  in  the  digital 
transition  increase  competitiveness  and 
the development of skills. Latvia has set up 
a  framework  for  a  unified  ICT  governance 
architecture for public administration services. 
the  digital 
This 
transformation  and  management  of  public 
processes/services.  The  framework  will  be 
reinforced  by  the  cohesion-policy  funding, 
which will further support the digitalisation of 
public  administration.  In  2022,  two  European 
Digital  Innovation  Hubs  were  set  up  in  Latvia 
to  facilitate  the  digital  transformation  of 
businesses  and  public-sector  organisations  by 
providing access to digital maturity testing and 
development  of  a  digitalisation  roadmap, 
consulting  services  and  specialised  training. 
This  will  increase  digital  innovation  capacity, 
improve digital skills in enterprises, and boost 
digital 
is 
complemented by the cohesion-policy funding, 
under  which  1 750  Latvian  enterprises  are 
levels  of  digital 
expected  to  reach  high 
intensity.  Reforms  and 
that 
investments 
address  digital  skills  (see  Annex  10)  are  set 
out 
the  Latvian  RRP,  starting  with 
establishing  (i)  a  common  framework  for  the 
assessment of basic digital skills, identification 
(ii) 
and  planning  of  training  needs;  and 
amending national higher education standards 
to determine the expected outcomes in gaining 
digital  competencies.  These  actions  aim  to 
improve  the  digital  skills  of  adults,  enabling 
them  to  compete  successfully  in  the  labour 
market  and  participate  fully  in  the  processes 
of modern society.  

competitiveness. 

This  action 

in 

Fostering smart and inclusive 
growth, and improving social and 
territorial cohesion 

Latvia  has  made  progress  in  improving 
social and territorial cohesion. To facilitate 
investment  in  the  regions  outside  of  the 
is  a  need  to 
greater  Riga  area,  there 
strengthen  the  capacity  of  municipalities  in 
Latvia’s 
Latvia. 

Following 

from 

on 

 
Box 3: 

Combined action for more impactful EU funds  

To  boost  economic  growth  and  maximise  the  impact  of  EU  funding,  Latvia’s  RRP  includes 
reforms that support investments under other EU instruments, creating important synergies and 
complementarities between the various funds. For example, the Latvian RRP includes plans for a 
broad reform of higher education that aims to increase the international competitiveness of its 
higher  education  institutions.  The  reform  consists  of  three  pillars:  (i)  a  change  in  governance 
structure  by  both  separating  academic  decision-making  from  strategic  decision-making  and 
involving external members in the governance institutions of higher education; (ii) the adoption 
of  performance-based  funding  principles;  and  (iii)  the  adoption  of  a  unified  career  model  for 
academic  and  scientific  staff.  The  reform  is  coupled  with  RRP  grants  for  investments  in 
digitalisation,  technological  development,  and  improvements  in  the  research  capabilities  of 
universities.  The  grants  are  available  to  universities  that  merge  with  other  universities,  thus 
helping them to better integrate and incentivising the consolidation of universities in the system. 
The reform will also directly underpin  cohesion-policy funding investments in higher education, 
including  management  improvement,  improvements  in  education  and  research  infrastructure, 
the  creation  of  new  study  programmes,  and  funding  for  centres  of  excellence  for  scientific 
research 

administrative territorial reform in 2021 and in 
the  context  of  the  RRP,  the  Municipality  Law 
entered  into  force  in  2023  improving  local 
governance.  The  development  of  industrial 
parks  in  the  regions  outside  Riga  will:  (i)  help 
to  create  high-added-value  and  export-
oriented 
jobs;  and  (ii)  reduce  the  divide 
between  the  Riga  region  and  the  rest  of  the 
country.  In  2023,  Latvia  also  adopted  a 
housing  affordability  strategy,  which  includes 
plans to provide affordable housing in regional 
centres,  thus  contributing  to  regional  labour 
mobility.  The  planned  reorganisation  of  the 
country’s school network is set to improve the 
quality of education in regional schools. While 
the RRF investment focuses on developing and 
institutions’ 
educational 
equipping 
infrastructure, the cohesion-policy funding will 
complement  this  also  by  helping  to  deploy 
advanced  general  education  content  and 
equipment. 

In its RRP, Latvia has set out to boost its 
innovative  capacity  by  reforming 
its 
higher  education  systems  and  its  system 
for 
innovation  support.  The  Latvian 
innovation  sector’s  main  challenges  are  low 
levels  of  funding  and  a  lack  of  skilled  staff. 
Latvia’s  public  and  private  spending  on  R&D 
have  long  been  among  the  lowest  in  the  EU, 
even though they have improved recently (see 
Annex  11).  The  combined  RRF  and  cohesion-
policy  funding  for 
investments 
exceeds  EUR  500  million  between  2021  and 
2027 and is expected to give a boost to R&D 

innovation 

8 

in 

Latvia.  Moreover, 

spending 
these 
investments  are  coupled  with  a  reform  of 
innovation-system governance, which aims to: 
(i) improve collaboration and linkages between 
sectors;  and  (ii)  better  integrate  the  entire 
value chain of innovation. To achieve this, the 
Latvian government has redefined the tasks of 
the  parties 
concerned,  written  a  new 
innovation strategy, and set objectives that the 
to  achieve.  The  new 
parties  will  have 
innovation  system  became  operational 
in 
2023.  Moreover,  there  has  been  a  reform  of 
higher education, the main  aim of which is to 
improve  the  governance  of  universities  and 
introduce new funding principles for the sector 
(see Box 3). 

Supporting health and 
strengthening institutional 
resilience  

is  being  made 

In  healthcare,  the  RRP  aims  to  address 
challenges  in  resilience,  access,  quality 
and integration across different levels of 
in  both 
care.  Progress 
developing 
and 
improving  epidemiological  safety  by  investing 
in university and regional hospitals. Latvia has 
also  adopted  a  strategy  for  the  digital  health 
sector 
in  2023.  The  development  and 
deployment  of  digital  solutions  in  the  health 

healthcare 

integrated 

 
 
 
This  will 

sector  will  be  supported  with  cohesion-policy 
funding. 
ESF+ 
investments to attract and train medical staff 
and  further  develop  a  quality-assurance 
framework for healthcare. 

complement 

In 

the 

2023, 

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. 
Latvian 
government adopted both a plan to modernise 
the public administration and a concept report 
on  the  Shared  Service  Centre,  which  will  be 
responsible  for  the  central  processing  and 
execution of certain functions such as financial 
accounting and human resources. Furthermore, 
the  Technical  Support  Instrument  is  helping 
the  Latvian  authorities  to  design  a  national 
innovation  strategy (3),  which  will  be  used  to 
build  up  an  innovation  lab  under  the  Latvian 
RRP  by  2025.  The  measures  will  provide  a 
further  boost  to  increasing  the  efficiency, 
transparency  and  accountability  of  the  public 
administration. 

(3)  22LV21 – Further development of the innovative 

capacity of the public sector.  

9 

 
 
FURTHER PRIORITIES AHEAD 

faces 

additional 

Latvia 
challenges 
related  to  taxation  and  tax  compliance, 
poverty  and  social  inclusion,  healthcare, 
business  environment,  labour  and  skills 
shortages,  and  the  transition  to  clean 
energy  and  a  green  economy.  Tackling 
these  challenges  will  help  increase  Latvia’s 
long-term  competitiveness  and  ensure  the 
resilience  of  its  economy  and  foster  the 
wellbeing  of  its  people.  It  will  also  help  it  to 
make further progress in achieving the SDGs.  

is 

important  that  the 

identified 
It 
challenges  are  addressed  at  both  the 
national  and  regional  level  to  reduce 
regional disparities and improve administrative 
and  investment  capacity  in  a  balanced  way 
across the country. 

Low and stagnating tax revenue 
limits the funding of public 
services 

Latvia’s tax revenue remains low, limiting 
the  funding  available  for  public  services. 
In 2022, the share of tax revenues decreased 
to  30.3%  of  GDP  (against  an  average  of 
40.2%  of  GDP  in  the  EU),  the  lowest  level  in 
the  last  3  years.  In  the  types  of  taxation  less 
detrimental  to  growth,  in  particular  taxes  on 
capital and property, Latvia still collects lower 
revenues  than  the  EU  average.  In  2022, 
Latvia’s capital taxes were 2.6% of GDP vs an 
EU  average  of  8.9%;  and  its  property  taxes 
were 0.8% of GDP vs an EU average of 2.1% 
(see  also  Annex  19).  While  revenue  from 
corporate  income  tax  has  been  gradually 
recovering 
downward 
the 
correction following the 2018 tax reform (4), in 

sharp 

after 

2022 revenue from corporate income tax as a 
share  of  GDP  had  still  not  reached  the  pre-
reform  level,  and  also  remained  significantly 
below  the  EU  average.  A  reform  of  the 
cadastral  system  for  property  taxation  to 
reflect current market values has not yet been 
adopted.  

tax 

income 

New tax-policy guidelines  for  2024-2027 
are  under  development,  with  substantial 
tax  changes  expected  in  2026.  The  tax 
reform is still a work in progress and new tax-
policy  guidelines  are  expected  to  be  finalised 
by  the  end  of  June  2024.  However,  the  main 
directions  of  the  reform  have  already  been 
outlined. Firstly, Latvia will maintain its current 
arrangements 
corporate 
(companies  pay  corporate  income  tax  only  on 
profits  distributed  as  dividends,  to  which  a 
20% rate is applied). Secondly, it will revise its 
environmental  tax  to  contribute  to  the  green 
transition.  Thirdly,  Latvia  will  review  labour 
taxation  to  deal  with  the  challenge  of  labour 
supply.  Fourthly,  it  will  bring  the  minimum 
wage  closer  to  the  level  of  the  other  Baltics. 
And finally, Latvia will conclude the reform of 
its immovable property tax. Another important 
measure planned  as part of the tax  reform is 
the  development  of  a  sustainable  financing 
model for healthcare.  

Limiting  the  shadow  economy  remains  a 
priority.  According  to  surveys  of  company 
owners  and  managers (5),  the  size  of  Latvia’s 
shadow 
practically 
unchanged  in  2022  compared  with  2021 
(26.5% of GDP in 2022 compared with 26.6% 

remained 

economy 

contributed to the growth of companies' equity, 
providing an opportunity for companies to develop even 
under stagnant lending conditions. Source: 
https://www.fm.gov.lv/lv/media/16563/download?attach
ment   

(4)  According to the study by the Ministry of Finance, 
despite the lower tax revenue, the tax reform has 

(5)  Sauka & Putnins (2023). 

10 

 
 
 
 
 
of  GDP  in  2021) (6).  The  most  significant 
component  of  Latvia’s  shadow  economy  in 
2021  was  the  under-reporting  of  salaries, 
which  accounted  for  46.2%  of  the  total 
shadow  economy.  And  based  on  the  latest 
surveys,  under-reporting  of  salaries  further 
increased  to  46.7%  of  the  total  shadow 
economy  in  2022.  The  construction  sector 
made the largest contribution of any sector to 
the  shadow  economy  in  2022.  Meanwhile, 
combating  the  shadow  economy  remains  a 
policy  priority  for  the  Latvian  government. 
Further  actions  will  be  based  on  the  recently 
adopted 2024-2027 action plan to combat the 
shadow  economy.  The  plan  has  been 
developed  based  on  research  by  a  team  of 
independent experts (7) and aims to reduce the 
shadow economy by 1% annually. 

indicators  on 

Although  the  VAT  gap  continues  to 
tax 
decrease,  other 
compliance  and  tax  progressivity  justify 
the  need  for  further  policy  action. 
Although  the  estimated  loss  of  tax  revenue 
increased  in 
from  undeclared  wages  has 
recent  years (8),  outstanding 
tax  arrears 
remained  well  below  the  EU  average.  Latvia’s 
decrease 
continued 
VAT 
substantially  and  was  forecast  at  4.0%  in 
2022.  Meanwhile,  an  analysis  by  the  State 
Revenue Service of taxpayer segmentation (10) 
finds  that  the  tax  compliance  of  43.2%  of 
taxpayers should be improved. This shows that 

gap (9) 

to 

(6)  Schneider, F.G., New COVID-related results for 

estimating the shadow economy in the global economy 
in 2021 and 2022 (2022). This work indicates that the 
shadow economy in Latvia remains above EU average. 

(7)  In 2020-2023, the national research programme 

‘Reduction of the shadow economy for ensuring the 
sustainable development of the country’ was 
implemented. Source: https://www.fm.gov.lv/lv/petijumi-
par-enu-ekonomikas-apjomu  

(8)  State Revenue Service presentation on undeclared 

wages and tax gaps, August 2023 
https://www.vid.gov.lv/lv/media/18936/download?attach
ment  

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

(10)  Methodology of grouping taxpayers in clusters based on 

their behaviour models in the context of their tax 
compliance. Source: SRS unpublished documents, 
February 2024. 

11 

Latvia  has  the  potential  to  gain  more  tax 
revenue.  In  2022,  the  labour  tax  wedge 
(measures  the  burden  of  tax  and  social 
security  contributions  relative  to  labour  cost) 
less  than  the 
for  single  people  earning 
average  wage  was  still  higher  than  it  was  in 
both  other  Baltic  countries  and  the  EU 
average.  This  indicates  that  the  labour  tax 
system in Latvia is less progressive than in the 
EU  on  average.  At 
time, 
improvements  in  the  ability  of  the  tax  and 
benefits 
income 
to 
inequality (11) have stalled in recent years and 
remained well below the EU average.  

system 

reduce 

same 

the 

Carrying out EU co-funded investment at 
the planned pace remains challenging. EU 
co-funded  investments  in  2022  and  2023 
were lower than initially budgeted, mainly due 
to slower uptake of investment support under 
both  the  RRF  and  the  2021-2027  structural 
funds  planning  period.  This  was  partly  due  to 
delays  in  the  adoption  of  regulatory  acts  as 
well as limitations to implementation capacity 
by  public  and  private  bodies  at  the  national 
level.  Up-to-date  execution  data  and  recent 
estimates  indicate  a  more  gradual  absorption 
curve  also  in  the  medium  term (12).  This  risks 
discouraging  investment,  and  will  hold  back 
the country’s growth potential.  

Tackling poverty and income 
inequality remains a challenge 

levels  of  poverty  and 

The 
income 
inequality  in  Latvia  remain  very  high 
against  a  background  of  the  challenges 
brought by high inflation. Income inequality 
is  high  and  widening.  In  2022,  the  income  of 
the richest 20% of the population was 6.33 (vs 
4.74 in the EU)  times higher than the poorest 
20%.  Latvia  had  one  of 
the  highest 
percentages  of  people  at  risk  of  poverty  and 

(11)  Determined by the difference in Gini coefficient before 
and after taxes and cash social transfers (excluding 
pensions). 

(12)  https://www.esfondi.lv/assets/zi%C5%86ojumi/ 

mk/2024/1_2023-decembris-2024-
janvaris/esfondi_fmdivm_mk-31.01.2024.pdf. 

 
 
 
nor  does 

Latvia  have  a 
framework, 
comprehensive  system  to  collect  data  on 
homelessness. 
adopted 
housing-affordability  strategy  also  fails  to 
address homelessness. 

Latvia’s 

newly 

(i) 

in: 

socioeconomic  differences 
Significant 
they  are 
across  regions  persist  and 
the 
highlighted  by  differences 
unemployment  rate;  (ii)  the  rate  of  people  at 
risk  of  poverty  and  social  exclusion;  and  (iii) 
the number of early school leavers. These are 
in  more 
in  rural  areas  than 
all  higher 
urbanised areas. For instance, in 2021, 31.6% 
of  the  rural  population  was  at  risk  of  poverty 
or  social  exclusion,  while  the  rate  was  23.8% 
in towns and suburbs and 22.4% in cities (see 
Annex 17). 

Providing sufficient resources for 
healthcare and long-term care 

The health and long-term care sectors in 
Latvia  are  underfunded,  and  this  limits 
access  to  quality  and  timely  care.  Health 
expenditure  in  Latvia  is  among  the  lowest  in 
the EU, and 69.5% of it was publicly funded in 
2021.  Public  spending  on  long-term  care  is 
also low (0.5% of GDP vs an average of 1.7% 
of GDP in the EU in 2022). Inadequate funding 
for  care  leads  to  long  waiting  times,  a  high 
level  of  unmet  needs,  and  a  limited  range  of 
care  offered.  Consequently,  the  proportion  of 
the  Latvian  population  reporting  unmet  needs 
for  medical  care  is  among  the  highest  in  the 
EU  and  increasing  (5.4%  in  Latvia  in  2022 
compared  with  2.2%  across  the  EU),  with 
lower 
disproportionately 
groups 
affected. The share of out-of-pocket spending 
on  healthcare  is  high  in  Latvia  (27%  in  2021 
compared  with  an  EU  average  of  14.5%)  and 
similarly high for long-term care (see Annexes 
14 and 16).  

income 

Public  financing  for  health  as  a  share  of 
GDP 
the 
budgetary 
government’s 

is  stagnating.  According 

medium-term 

to 

social  exclusion  in  2022,  at  26%  for  the 
overall population compared with 21.6% in the 
EU.  The  risk  of  poverty  for  people  aged  65+ 
was the highest in the EU (40.5% vs 17.3% in 
average  in  the  EU).  Pensions  are  among  the 
lowest in the EU compared with wages, as the 
aggregate  replacement  ratio  (the  pension 
payment  as  a  proportion  of  income  from 
employment)  in  2022  was  0.42  in  Latvia, 
compared  to  0.58  in  the  EU.  Single-adult 
households  with  dependent  children  and 
people  with  disabilities  are  also  particularly 
vulnerable to poverty (see Annex 14). 

remains 

fragmented 

the  adequacy  of 

social 
Improving 
assistance  and  access 
to  services 
remains a challenge. The adequacy of social 
assistance  and  the  provision  of  services  to 
vulnerable  groups  (including  the  provision  of 
affordable  care  and  social  housing)  continues 
to  pose  a  challenge.  The  provision  of  social 
services 
across 
municipalities, with unequal access and quality 
timely 
provided. 
of 
implementation  of  the  national  minimum 
social  services  basket  reform  will  be  crucial. 
This  will  make  the  provision  of  some  social 
services  mandatory  at  local  level.  The  impact 
of  social  transfers  (excluding  pensions)  on 
poverty in Latvia is substantially less than the 
EU  average  (23.5%  of  reduction  of  at-risk  of 
poverty in Latvia vs 35% in the EU) (See Annex 
14).  

support 

The 

Latvia’s housing stock is outdated and of 
poor  quality,  which  has  a  negative social 
impact.  Latvia’s  share  of  people  living  in  an 
overcrowded  household  (40.9%  vs  16.8%  in 
the EU, 2023) and its share of people living in 
severe housing deprivation (10.3% vs 4.2% in 
the  EU,  2020)  are  among  the  highest  in  the 
EU.  Increased  housing  benefits  coupled  with 
the  RRP  investments  in  low-rent  housing  as 
well  the  ERDF  investments  in  social  housing 
will make a positive contribution, however the 
poor  quality  and 
in 
municipalities  of  existing  social  housing  for 
vulnerable  groups  still  poses  a  challenge,  due 
to  the  sheer  size  of  the  task.  Existing 
renovation  programmes  do  not 
target 
vulnerable  groups  as  primary  beneficiaries. 
Furthermore, there is no established definition 
legal 
of  homelessness 

limited  availability 

the  national 

in 

12 

 
 
plans (13), 
in  2023  public  spending  on 
healthcare  as  a  share  of GDP  returned  to the 
2020 level of 4.8% of GDP. This demonstrates 
that, despite the increased nominal allocations 
of  additional  budget  spending,  this  position 
expressed  as  a  share  of  GDP  has  been 
stagnating  if  we  disregard  the  temporary 
increase 
(when 
the 
healthcare spending surged to 6.3% of GDP in 
2021). This is low not only compared with the 
EU  average  (7.7%  of  GDP  in  2022 (14)),  but 
also  when  compared  with  the 
level  of 
necessary  public  financing  for  healthcare  of 
6%  of  GDP  by  2027,  as  indicated  in  Latvia’s 
2021-2027 guidelines for public health policy.  

pandemic 

during 

obstacle 

The  persistent  shortages  of  health 
professionals  are  an 
to 
providing  healthcare.  The  number  of 
practising  doctors  per  1 000  inhabitants  in 
Latvia is below the EU average. The number of 
practising nurses per 1 000 inhabitants is also 
one of the lowest in the EU and has declined in 
recent  years.  The  Ministry  of  Health  has 
estimated  that  the  health  sector  currently 
requires  around  4 900  additional  nurses  (see 
Annex  16).  The  shortages  of  health  workers 
are  more  acute  in  areas  outside  Riga.  Poor 
working conditions are a significant reason for 
this,  with  low  pay  being  a  deterrent  to  both 
entering  and  remaining  in  the  public  sector, 
particularly for nurses. 

Improving the business 
environment 

Private  investment  is  held  back  by  both 
weakness  in  the  business  environment 
and the high cost of credit. SMEs in Latvia 
find it more difficult to get credit than those in 
other euro area countries (15). At 14.9% of GDP 

(13)  The 2024 Stability programme of Latvia estimate that 
government expenditure on health would decline to 
4.1% of GDP in 2028 (from 4.8% in 2022, according to 
the Eurostat). 

(14)  General government expenditure by function (COFOG), 

Eurostat. 

(15)  SWD (2023) 614 final 

13 

in  2022,  business  investment  in  Latvia  is 
somewhat  below  Estonia’s  level  of  16.5%  of 
GDP  and  slightly  higher  than  the  13.1%  of 
GDP  in  Lithuania.  However,  levels  of  net 
private investment have consistently remained 
one  of  the  lowest  in  the  EU,  amounting  to 
0.5%  of  GDP  compared  to  the  EU  average  of 
3.5%  over  the  past  5  years.  Results  from  the 
2023  EIB  investment  survey  suggest  that 
private  investment  in  Latvia  is  affected  by 
high  uncertainty,  a  lack  of  skilled  staff  and 
high  energy  costs.  In  2023,  77%  of  Latvian 
firms said they perceived business regulations 
to  be  a  long-term  obstacle  to  investment, 
much  higher  than  in  their  Baltic  neighbours 
(Estonia, 46%; Lithuania 52%) and one of the 
highest percentages in the EU (see Annex 12). 
After a prolonged drop in the preceding years, 
lending  activity  to  non-financial  corporations 
increased temporarily around the end of 2022 
and the beginning of 2023 thanks to increased 
activity  in  the  commercial  real  estate  sector. 
However,  lending  to  other  sectors  remained 
sluggish  throughout  the  year.  The  weak 
lending is partly due to low investment activity 
(particularly  in  real  estate)  and  the  cost  of 
credit, which in Latvia is among the highest in 
the euro area.  

in 

lowering 

The  shadow  economy  is  a  longstanding 
problem  that  leads  to  an  unlevel  playing 
field  and  negative  impacts  on  Latvia’s 
competitiveness.  Besides 
tax 
revenue,  the  high  share  of  the  shadow 
economy is a major challenge since it impacts 
the  business 
trust 
transparency  and 
environment.  According  to  Latvian  business 
organisations,  the  shadow  economy  distorts 
competition  and  incentivises  businesses  to 
remain small. In Latvia, SMEs account for 70% 
of  value  added,  which  is  significantly  above 
the  EU  average  of  50%.  Moreover,  Latvian 
banks  say  that  the  prevalence  of  the  shadow 
economy  and  weak  company  balance  sheets 
are  also  key  obstacles  to  greater  business 
lending.  The 2018 reform of corporate income 
tax, which allowed companies to pay corporate 
income  tax  only  on  profits  distributed  as 
dividends, is widely regarded to have improved 
the  health  of  businesses’  balance  sheets. 
However,  there  is  still  substantial  scope  for 
increasing the number of eligible borrowers by 
reducing informality and fostering an increase 

 
 
in the average size of companies. Measures to 
increase competition in the banking sector are 
also  being  discussed,  including  a  reduction  in 
switching  fees  and  broadening  the  lending 
mandate  of  the  State-owned  development 
bank Altum.  

also  expected  in  healthcare  and  social  care 
(3 600).  Further  strenghtening  of  adult 
learning  could  play  a  significant  role  through 
upskilling and reskilling to alleviate these skills 
shortages.  

Labour and skills shortages 
hamper competitiveness 

Latvia  faces  skills  shortages 
in  the 
context  of a  declining supply of  workers. 
The working-age population is set to decline in 
the  coming  years  as  older  people  retire  and 
are not replaced by equal amounts of younger 
workers.  This  will  result  in  labour  shortages. 
The  general  vacancy  rate  for  all  activities 
increased from 2.1% in 2020 to 2.8% in 2022 
and  remained  at  2.8%  in  Q3  2023.  By  skill 
level,  the  greatest  shortages  appeared  in 
medium-skilled  occupations,  accounting  for 
62.7%  of  all  vacancies  (see  Annex  14).  In 
addition, according to the 2023 EIB investment 
survey,  91%  of  Latvian  firms  cite  a  lack  of 
skilled  staff  as  a  barrier  to  investment,  well 
above  the  EU  average 
low 
proportion of graduates in science, technology, 
engineering and mathematics (STEM), and the 
lack  of  researchers  and  PhD 
subsequent 
graduates  is  one  of  the  main  barriers  that 
make it difficult to strengthen the Latvian R&I 
(research and innovation) system, especially in 
the  private  sector  (see  Annex  11).  There  is  a 
low  rate  of  participation  by  workers  in  policy 
measures  to  help  people  find training  or  jobs, 
coupled with insufficient training opportunities 
that  teach  skills  needed  by  employers,  as 
demonstrated by the skills shortages. 

(81%).  The 

reskilling 

The  green  transition  requires  upskilling 
and 
energy-intensive 
in 
industries. In Latvia, 33% of SMEs think that 
skills  required  for  greening  business  activities 
are  becoming  more  important  (EU:  42%).  In 
line  with  the  EU  renewable-energy  target,  by 
2030  up  to  1000  additional  skilled  workers 
will be needed in Latvia for the deployment of 
wind  and  solar  energy  (see  Annex  8).  To 
increase 
skills, 
collaboration  with  social  partners  and  other 
relevant stakeholders is essential. 

the  uptake 

of  green 

for 

effective 

Regional  disparities  in  access  to  quality 
education and barriers to participation in 
adult  education  in  particular  remain  key 
life-long 
challenges 
is 
learning.  Access  to  quality  education 
dependent  on  a  person’s  place  of  residence, 
with  larger  urban  schools  performing  better 
than smaller,  rural ones. Latvia’s teachers are 
among  the  oldest  in  the  EU.  Low  levels  of 
statutory pay and high workloads contribute to 
making  teaching  relatively  unattractive  (see 
Annex 15). With the support of EU funding, the 
government  is  pursuing  efforts  to  consolidate 
the  school  network  in  the  regions  (see  Annex 
4).  Similarly,  while  general  participation  in 
adult  education 
improving, 
teacher  and  trainer  shortages  persist.  The 
publicly  funded  measures  to  increase  training 
opportunities  fail  to  reach  low-skilled  workers 
due  to  insufficient  targeting (16).  Measures  in 
this  area  could  help  Latvia  reach  its  2030 
national skills target. 

is  somewhat 

and 

The  increasing  skills  shortages  could  be 
alleviated by further increasing upskilling 
and reskilling measures. In the medium-to-
long  term,  the  demand  for  employees  with 
medium-level 
education 
qualifications in STEM is set to increase, while 
the  demand  for  low-skilled  workers  is  on  the 
decline.  By  2030, 
the  most  significant 
shortages, across all skills levels, are expected 
in 
and 
construction (about 48 000 jobs) and sciences, 
mathematics  and  IT  (7 000).  Shortages  are 

manufacturing 

engineering, 

higher 

(16)  Source: State Audit Office (2022) report ‘Vai pieaugušo 
izglītība sasniedz tai izvirzītos mērķus un atbilst darba 
tirgus vajadzībām? | Valsts Kontrole (lrvk.gov.lv)’. 

14 

 
 
 
Deployment of renewables, energy 
efficiency and decarbonisation 

to 

needed 

Additional 
to 
efforts  are 
accelerate  the  deployment  of  solar  and 
wind  capacity.  In  2022  and  2023,  Latvia 
experienced  an  increase  in  the  installed 
capacity  for  solar  and  wind  power,  but 
these  capacities  remain  significantly 
below the levels installed in both Estonia 
and  Lithuania.  Latvia  enjoys  one  of  the 
highest  shares  of  energy  from  renewable 
sources in the EU, which is mostly attributable 
to power production from hydro plants and the 
high use of biomass in the heating sector (see 
Annex  7).  Nevertheless,  the  country  still  has 
scope to further diversify its renewable-energy 
sources. To increase its share of renewables in 
final  energy  consumption,  Latvia  would 
particularly benefit from tapping into wind and 
solar  power  by  scaling  up  production  from 
these  sources.  Under  its  RRP,  Latvia  has 
committed 
to  promote 
taking  action 
onshore  wind  energy  and  remove  certain 
regulatory 
deployment. 
Moreover,  legislative  amendments  made  in 
2022  are 
the 
development  of  renewables, 
in  particular 
onshore  wind  and  solar  energy.  Despite  these 
actions,  Latvia  could  step  up  efforts  to:  (i) 
remove  the  remaining  barriers  in  permitting 
for  renewable  energy;  (ii)  increase  demand-
side  flexibility;  (iii)  promote  demand  response 
and  storage;  and  (iv)  promote  large-scale 
power-purchasing  agreements.  In  particular,  a 
virtually  overbooked  –  though  underused  – 
the  deployment  of 
grid 
renewables.  This  shows  there  is  a  need  for 
further 
remove 
bottlenecks  and  enable  swift  implementation 
of  mature  renewable-energy  projects.  Besides 
renewable-energy  projects  planned 
those 
under  the  RRP,  additional 
in 
upgrading the national grid are warranted, not 
for 
least 
electrification  and  decarbonisation.  Electricity 
grids  are  fundamental  enablers  of  the  green 
transition. 

increasing  needs 

is  hampering 

investments 

regulatory 

light  of 

expected 

facilitate 

barriers 

action 

its 

to 

to 

to 

in 

Timely 
Latvia’s 
electricity  network  with  the  continental 

synchronisation 

of 

15 

the  Baltic  countries  with 

European  network  remains  a  priority. 
Preparations  to  synchronise  the  electricity 
grids  of 
the 
continental  European  network  are  advancing 
well and the project is expected to be finalised 
by February 2025. This synchronisation project 
also  includes  Latvia,  Lithuania  and  Estonia. 
Timely  finalisation  of  the  project  is  of  the 
to  ensure  a  smooth 
utmost 
disconnection  from  the  network  operated  by 
Russia  and  Belarus  and the  integration  of the 
Baltic  states  into  the  continental  European 
network.  The  region’s  energy  security  can  be 
further  improved  by  ensuring  that  electricity 
interconnections  have  sufficient  capacity.  To 
that  end,  further  cooperation  with  Lithuania 
and Estonia is crucial.  

importance 

to  decarbonise 

Latvia  would  also  benefit  from:  (i)  more 
ambitious  energy-efficiency  measures  in 
the buildings and industry sectors; and (ii) 
greater  efforts 
the 
transport  sector.  In  implementing  the  EU’s 
energy-savings  obligation  for  2021-2030, 
Latvia  opted  for  a  mix  of  seven  policy 
measures, 
including  an  energy-efficiency 
obligation  scheme.  It  is  crucial  for  Latvia  to 
ensure  sufficiently  ambitious  energy-saving 
measures for the whole of this period if it is to 
achieve  the  required  amount  of  cumulative 
end-use  savings  by  2030.  The  swift  and 
effective  implementation  of  energy-efficiency 
projects  financed  by  both  the  RRF  and 
cohesion-policy funding is fundamental. Latvia 
could expand renovation programmes to reach 
the  ambitious  targets  set  by  its  long-term 
renovation  strategy  and  better  target  these 
programmes 
reduce  energy  poverty. 
Energy-efficiency and renovation programmes 
have so far been excessively dependent on the 
availability  of  EU  funding,  and  public  national 
spending  capacity  is  limited  (see  Annex  7). 
Latvia  would  therefore  benefit  from  enabling 
more  private  investments  in  this  area.  Latvia 
could also take steps to remove administrative 
barriers 
performance 
in  the  public  sector.  On  the 
contracting 
transport sector, which is still powered almost 
entirely  by  oil,  Latvia  is  making  only  slow 
progress towards decarbonisation. The country 
further 
would 
electrification  of  rail  transport  and  from 
providing  more  incentives  to  increase  the 

especially  benefit 

preventing 

energy 

from 

to 

 
share of low- and zero-emission vehicles in its 
passenger car fleet (see Annex 6). 

of 

sustainable 

Indicators 
economic 
growth  for  Latvia  are  below  the  EU 
average  and  the  country’s  material 
footprint  is  on  the  rise  (see  Annex  1). 
Resource  productivity  has  stagnated  and  is 
lower  than  the  EU  average.  Latvia’s  circular 
material  use  rate  was  only  5.4%  in  2022, 
about  half  the  EU  average  of  11.5%.  The 
country  relies  on  material  imports  more  than 
the  EU  average,  making it  more vulnerable  to 
supply-chain disruptions.  

transition 

towards  a 

progress  with 

Eco-innovation  and  efforts  to  improve 
resource  efficiency  remain  important  for 
the 
circular 
Latvia  has  made 
economy.  Although 
its  waste-
significant 
management system in the last decade, it still 
landfills  more  than  a  half  of  its  municipal 
waste and is assessed to be at risk of missing 
the EU’s target to recycle 55% of its municipal 
waste by 2025 (see Annex 9). Net greenhouse-
gas emissions from land use, land use change 
and  forestry  have  fluctuated  widely  since 
2017.  Latvia  projects  that  this  sector  will 
generate  net  emissions 
instead  of  net 
removals  by  2030 (17)  (see  Annex  6).  The 
country  is  an  average  performer  in  eco-
innovation,  and  implementation  of  circular 
business models and boosting R&D investment 
in  eco-innovation  could 
increase  resource 
productivity and competitiveness (see Annexes 
5,  9  and  11).  Overall,  Latvia  would  benefit 
from  increasing  the  efficiency  of  sustainable 
land and forest management and transitioning 
further  to  a  circular  economy  by  stepping  up 
resource-efficiency  measures  and  improving 
further its waste-management system. 

(17)  Projections submitted in Latvia’s draft updated national 

energy and climate plan, 2023. 

16 

 
 
 
Box 4: 

The mid-term review of cohesion-policy funding for Latvia 

The mid-term review of the cohesion policy funds is an opportunity to assess cohesion-
policy programmes and tackle emerging needs and challenges in EU Member States and 
their  regions.  Member  States  are  reviewing  each  programme,  taking  into  account,  as 
among other things, the challenges identified in the European Semester, including in the 
2024 country-specific recommendations. This review forms the basis for a proposal by 
the  Member  State  for  the  definitive  allocation  of  15%  of  the  EU  funding  included  in 
each programme.  

Latvia  has  made  progress  in  the  implementation  of  cohesion-policy  programmes  and 
the European Pillar of Social Rights, but the challenges outlined in this report (including 
Annexes 14 and 17) remain. In particular, there are large disparities in GDP per capita 
and  productivity  between  the  capital  city  of  Riga  and  the  rest  of  the  country,  in 
particular Latgale in the east. Against this background, it remains important to continue 
the implementation of planned priorities, with particular attention to: (i) the capacity of 
enterprises  to  innovate  and  digitise  so  they  can  increase  productivity;  (ii)  energy 
efficiency  in  buildings  and  businesses;  (iii)  timely  and  equal  access  to  good-quality 
health  services  and  infrastructure  (including  in  rural  and  remote  regions),  social 
services,  social  housing  assistance  with  the  transition  to  independent  living,  and 
community-based care;  (vi)  activation,  the  reskilling and  upskilling  of  the unemployed, 
and  increasing  participation  in  the  labour  market  for  under-represented  groups;  (v) 
improving  the  quality  and  inclusiveness  of  education  and  strengthening  the  upskilling 
and  reskilling  of  the  adult  population  to  address  labour  and  skills  shortages  and  (vi) 
accelerating  investments  in  sustainable  transport  and  electrification  of  the  railway 
network, especially by increasing the share of low and zero emission vehicles, including 
provision of electric trains.  

The  existing  regional  disparities  and  the  needs  in  the  field  of  material  deprivation 
(including  of  food  and  material  assistance)  merit  specific  consideration  in  the 
preparation  for  the  mid-term  review.  Latvia  could  also  benefit  from  the  opportunities 
provided  by  the  Strategic  Technologies  for  Europe  Platform  (STEP)  initiative (18)  to 
support  the  transformation  of  industry,  in  particular  in  the  areas  of:  (i)  smart  and 
renewable  energy  (e.g.  offshore  wind  energy  parks)  where  there  is  interest  from 
international  investors  in  contributing  to  such  projects;  and  (ii)  knowledge-intensive 
bioeconomy and biotechnology. 

(18)  Regulation (EU) 2024/795 

17 

 
 
 
 
KEY FINDINGS 

With its wide policy scope and substantial 
financial  envelope,  Latvia’s  recovery  and 
resilience  plan  (RRP)  includes  measures 
to  address  a  series  of  structural 
challenges,  in  synergy  with  other  EU 
funds, including cohesion-policy funds, by:  

measures  of  Latvia’s  recovery  and  resilience 
plan by August 2026.  

Beyond  the  reforms  and  investments  in 
the RRP and cohesion-policy programmes, 
Latvia could benefit from:  

•  accelerating 

the  green 

transition 
through  reforms  and  investments  in:  (i) 
sustainable  mobility  and  transport; 
(ii) 
energy efficiency; (iii) renewable energy; (iv) 
electricity 
transmission/distribution 
networks; (v) climate-change adaption; and 
(vi) disaster management; 

•  digitalising  the  public  sector  and 
businesses, improving basic and advanced 
digital 
and 
connectivity, 
improving broadband infrastructure; 

skills 

and 

•  reforming the governance and funding 
innovation,  and 

of 
boosting the quality of higher education;  

research  and 

increasing 

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

• 

• 

improving  the  resilience,  accessibility 
and  quality  of  healthcare, 
including 
through  digitalisation  and  investments  in 
regional  hospitals  and 
university  and 
outpatient clinics; 

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

Continued  efforts  are  key 
successful 

implementation  of  all 

for  a 
the 

and 

•  broadening the taxation of property and 
capital 
tax 
further 
compliance,  in  part  to  make  it  possible  to 
adequately  finance  healthcare  and  social-
protection services; 

improving 

• 

improving  the  business  environment 
for  increased  competitiveness  by  reducing 
simplifying 
the 
to 
regulations,  and 
finance; 

economy, 
improving  access 

shadow 

•  boosting efforts to address labour and 
skills  shortages  through  well-targeted 
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 

and 

strengthening 

poverty 
by 

income 
social 
inequality 
to 
assistance,  pensions  and  services 
vulnerable  groups, 
including  access  to 
social  housing,  and  individual  needs-based 
social services; 

•  further improving energy and resource 
efficiency by accelerating the deployment 
of  wind  and  solar  energy  projects;  further 
enabling  private  investments  in  energy 
efficiency  for  buildings  and  industries;  and 
the 
fostering 
to  a  circular 
transition 
through  eco-innovation  and 
economy 
sustainable 
resource-management 
practices. 

18 

 
 
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 – implementation 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy transition and competitiveness 

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 

LIST OF TABLES 

A2.1. 
A3.1. 

Summary table on 2019-2023 CSRs 
Key facts of the Latvian RRP 

21 

23 

23 

25 

29 

31 

34 

36 

36 

41 

46 

49 

49 

51 

53 

55 

59 

61 

61 

64 

67 

69 

72 

72 

74 

76 

77 

26 
29 

 
 
 
Support from EU instruments in Latvia 
Resilience indices across dimensions for Latvia and the EU-27 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
Key Energy Indicators 
Key indicators for a fair transition in Latvia 
Circularity indicators 

A3.2.  Measures in Latvia's RRP 
A4.1. 
A5.1. 
A6.1. 
A7.1. 
A8.1. 
A9.1. 
A10.1.  Key Digital Decade targets monitored by the Digital Economy and Society Index 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.  Selected indicators at regional level in Latvia 
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 

LIST OF GRAPHS 

A1.1. 
Progress towards the SDGs in Latvia 
A2.1. 
Latvia’s progress on the 2019-2023 CSRs (2024 European Semester) 
A3.1. 
Total grants disbursed under the RRF 
A4.1. 
Distribution of cohesion policy funding across policy objectives in Latvia 
A4.2. 
Distribution of RRF funding by pillar in Latvia 
A6.1. 
Greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2022 
A6.2. 
Changes in livestock density and organic farming 
A6.3. 
Environmental investment gap, annual average 
A7.1. 
Latvia´s energy retail prices for households and industry & service 
A7.2. 
Trends in electricity prices for non-household consumers (EU and foreign partners) 
A7.3. 
Latvia's installed renewable capacity (left) and electricity generation mix (right) 
A8.1. 
Fair transition challenges in Latvia 
A8.2. 
Job vacancy rate in transforming sectors and mining and quarrying 
A9.1. 
ETS emissions by sector since 2013 
A9.2. 
Treatment of municipal waste 
A11.1.  R&D intensity as % of GDP 2015-2022 
A12.1.  Labour productivity (per hour worked, in purchasing power standards, % of EU) 
A12.2.  Average net private investment as a % of GDP, 2019-23 
A13.1.  Government effectiveness 
A15.1.  Underachievement rates by field, PISA 2012, 2018 and 2022 
A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2024-2070 
A19.1.  Tax wedge for single and second earners as a % of total labour costs, 2023 
A19.2.  Tax revenues from different tax types, % of total revenue 

LIST OF MAPS 

A17.1.  GDP per capita (in PPS) in Latvia, NUTS 3, 2021 

22 

30 
33 
34 
40 
45 
48 
50 
52 
54 
58 
60 
61 
62 
65 
68 
70 
73 
74 
76 
79 
79 

23 
25 
30 
32 
32 
36 
38 
39 
41 
42 
43 
46 
47 
49 
50 
53 
55 
56 
59 
64 
67 
67 
74 
75 

69 

 
 
 
 
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 2, 6, 7, 14) 
or  is  improving  (SDGs 9,  11,  12)  on  several 
SDG 
indicators  related  to  environmental 
sustainability,  it  is  moving  away  from  its 
targets for SDGs 13 and 15. Addressing SDG 7 
(Affordable  and  clean  energy)  in  particular,  the 

Graph A1.1: Progress towards the SDGs in Latvia 

share  of  renewable  energy 
in  total  energy 
consumption  increased  from  39%  in  2017  to 
43.3%  in  2022,  and  was  well  above  the  EU 
average  (23%  in  2022).  On  SDG 12  (Responsible 
consumption and production), the circular material 
use rate was 5.4% in 2022, significantly below the 
EU  average  of  11.5%.  Latvia’s  recovery  and 
resilience plan (RRP) includes measures to address 
some of the energy-related challenges, in both the 
REPowerEU  chapter  and  Component  1  (Climate 
change  and  environmental  sustainability).  While 
Latvia  is  improving  on  SDG 11  (Sustainable  cities 
and communities), it needs to catch up with the EU 
average,  in  particular  on  the  recycling  rate  of 
municipal  waste  (44.1%  in  2021;  EU  average: 
48.7%) and on reducing road traffic deaths (6 per 
100 000 persons in 2022; EU average: 4.6). While 
performing better than the EU average on SDG 15 
(Life  on  land),  Latvia  is  moving  away  from  its 
targets  for  the  SDG.  The  share  of  forest  area 
slightly  decreased  from  56.4%  in  2015  to  56.2% 
in 2018 but remained well  above the EU average 
of  43.5%.  The  biochemical  oxygen  demand  in 

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). 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 25 April 2024. Data refer mainly to the period 2017-2022 or 2018-2023. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

23 

 
 
 
 
 
 
 
rivers increased from 1.27 mg O2 per litre in 2016 
to  2.19  in  2021.  Latvia  is  moving  away  from 
SDG 13  (Climate  action)  and  is  performing  worse 
than the EU average. In particular, net greenhouse 
gas emissions from land use and forestry (LULUCF 
sector)  increased  from  -44.8  tonnes  CO2  eq.  per 
km²  in  2017  to  76.6  in  2022,  well  above  the  EU 
average of -56 in 2022. While there is no progress 
on  SDG 14,  the  indicators  are  performing  better 
than the EU average. For instance, the percentage 
of marine protected areas was 15.8% in 2021 (EU 
average: 12.1%). 

in  2022).  Latvia 

While  Latvia  is  improving  on  several  SDG 
indicators  related  to  fairness  (SDGs 1,  4,  5, 
8),  it  still  needs  to  catch  up  with  the  EU 
average  and  is  moving  away  from  the 
targets  for  SDG 10  (Reduced  inequalities). 
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%  in  2020;  EU 
average:  4.3%)  and  people  at  risk  of  monetary 
poverty  after  social  transfers  (22.5% in  2022;  EU 
average:  16.5%). However,  there  have been  some 
positive  developments  in  recent  years.  Latvia 
reduced  the  risk  of  poverty  or  social  exclusion 
from  28.5%  in  2017  to  26%  in  2022,  but  it 
remains  above  the  EU  average  of  21.6%.  Unmet 
health needs have reduced over the years, even if 
they  are  still  high  (5.4%  in  2022)  and  above  the 
is  also 
EU  average  (2.2% 
underperforming  for  indicators  related  to  zero 
hunger  (SDG 2).  Unhealthy  life  choices  lead  to 
higher  obesity,  which  increased  from  21.5%  in 
2017  to  23.3%  of  adults  in  2022,  above  the  EU 
average of 14.8%. Latvia is also underperforming 
compared to the EU average on SDG 10 (Reduced 
inequalities):  the  urban-rural  gap  for  the  risk  of 
poverty or social exclusion accounted for 14.5% in 
2022, (EU average: 0.4%) while purchasing power 
adjusted GDP per capita was 71% in 2023 (the EU 
index  =  100).  At  the  same  time,  Latvia  has 
improved  on  several  fairness-related  indicators 
such as the long-term unemployment rate (SDG 8; 
1.8%  in  2023,  vs  3.4%  in  2018  and  the  EU 
average of 2.1% in 2023) and early leavers from 
education  and  training  (SDG 4;  7.7%  in  2023,  vs 
8.3%  in  2018  and  the  EU  average  of  9.5%  in 
2023).  The  RRP  includes  measures  to  reduce 
regional  disparities,  improve  the  social  safety  net 
and  encourage  social  integration  and  inclusion  in 
Latvia. 
the 
accessibility,  efficiency  and  resilience  of  Latvia’s 
health system.  

It  also  aims 

to  contribute 

to 

Latvia  is  improving  on  all  SDG  indicators 
related  to  productivity  (SDGs 4,  8,  9)  but 
needs  to  catch  up  with  the  EU  average  on 
SDGs 8  and  9.  The  share  of  households  with  a 
high-speed internet connection (SDG 9) was 91.5% 
in  2022,  significantly  above  the  EU  average 
(73.4%).  Latvia  has  low,  albeit  slowly  increasing, 
gross  domestic  expenditure  on  R&D  (SDG 9).  In 
2022,  this  stood  at  0.75%  of  GDP  in  2022  (EU 
average:  2.24%).  Sustainable  economic  growth 
indicators  (SDG 8)  are  below  the  EU  average.  The 
material footprint increased over the 5 years from 
2017  to  2022,  reaching  20  tonnes  per  capita  in 
2022  (EU  average:  14.8  tonnes  per  capita).  While 
Latvia is performing better than the EU average on 
general  employment  indicators,  the  level  of  fatal 
accidents  at  work  stood  at  4.29  accidents  per 
100 000  workers  in  2021  (EU  average:  1.76). 
Strengthening  digital  skills  (SDG 4)  remains  a 
challenge, as only less than half of people have at 
least  basic  digital  skills  (45.3%  in  2023;  EU 
average:  55.6%).  Reforms  and  investment  under 
the  RRP  focus  on  further  developing  digital 
infrastructure  and  equipment  and  on  improving 
digital skills at all levels. 

Latvia  is  improving  on  the  SDG  indicators 
related  to  macroeconomic  stability  (SDGs 8, 
16,  17).  Latvia  has  improved  on  SDG 8  (Decent 
work and economic growth) but needs to catch up 
with the EU average. In recent years, Latvia’s real 
GDP per capita increased, going from EUR 12 140 
in  2018  to  EUR 13 220  in  2023  (EU  average: 
EUR 28 940  in  2023).  The  investment  share  of 
GDP  is  slightly  below  the  EU  average  (21.8%  of 
GDP,  vs  22.9%  for  the  EU  in  2022).  Latvia’s 
performance  on  the  quality  of  its  institutions, 
including  trust  in  institutions,  is  below  the  EU 
average  but  improving  (SDG 16  on  Peace,  justice 
and  strong  institutions).  The  RRP  includes  several 
measures  to 
increase  the  transparency  and 
integrity  of  public  administration  through  training 
on  general  skills  like  ethics,  integrity  and  anti-
corruption.  

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

24 

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

Graph A2.1: Latvia’s progress on the 2019-2023 
CSRs (2024 European Semester) 

Source: European Commission. 

The Commission has assessed the 2019-2023 
country-specific  recommendations  (CSRs) (19) 
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 (20)  and  the 
commitments  in  its  recovery  and  resilience  plan 
(RRP) (21).  At  this  stage  of  RRP  implementation, 
84%  of  the  CSRs  focusing  on  structural  issues 
from  2019-2023  have  recorded  at  least  ‘some 
progress’,  while  9%  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. 

(19)  2023 CSRs: EUR-Lex - 32023H0901(14) - EN - EUR-Lex 

(europa.eu) 
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) 

(20)  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). 

(21)  Member States were asked to effectively address in their 
RRPs all or a significant subset of the relevant country-
specific recommendations issued by the Council. 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. 

25 

No Progress7%Limited Progress9%Some Progress68%Substantial Progress16% 
 
 
 
     
 
 
 
 
 
Table A2.1:  Summary table on 2019-2023 CSRs 

(Continued on the next page) 

26 

LatviaAssessment in May 2024RRP 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.Not relevant anymoreNot applicableSDG 8, 16Reducetaxationforlow-incomeearnersbyshiftingittoothersources,particularlycapitalandproperty,andbyimprovingtaxcompliance. Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023, 2025 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 and 2022. Relevant RRP measures being planned as of 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 and 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 and 2022. Relevant RRP measures being planned as of 2023, 2024 and 2026.SDG 4Increase the accessibility, quality and cost-effectiveness of the healthcare system.Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 32019 CSR 3Some ProgressFocus investment-related economic policy on innovation, Limited ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 9, 10, 11the provision of affordable housing,Some ProgressRelevant RRP measures implemented as of 2021.SDG 1, 2, 8, 10, 11transport, in particular on its sustainability,Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2026.SDG 10, 11resource efficiency  and energy efficiency, energy interconnectionsSome ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 6, 7, 9, 10, 11, 12, 13and  digital infrastructure, taking into account regional disparities.Some ProgressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 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 and 2022. Relevant RRP measures being planned as of 2023, 2024, 2025 and 2026.SDG 9, 162020 CSR 1Some 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.Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 32020 CSR 2Some ProgressProvide adequate income support to the groups most affected by the crisis Substantial ProgressRelevant RRP measures implemented as of 2021.SDG 1, 2, 10and strengthen the social safety net. Some ProgressRelevant RRP measures implemented as of 2021 and 2022.SDG 1, 2, 10Mitigate the employment impact of the crisis, including through flexible working arrangements,Substantial ProgressSDG 8 active labour market measures and skills. Some ProgressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 2023, 2024 and 2026.SDG 4, 8 
 
 
 
 
  
 
Table (continued) 

(Continued on the next page) 

27 

2020 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 measures implemented as of 2022.SDG 8, 16and promote private investment to foster the economic recovery.Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 8, 9Focusinvestmentonthegreenanddigitaltransition,inparticularonresearch and innovation, Limited ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023, 2024 and 2026.SDG 9clean and efficient production and use of energy, Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 7, 9, 13sustainable transport Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2026.SDG 11and digital infrastructures.Some ProgressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 2023, 2024, 2025 and 2026.SDG 92020 CSR 4Substantial progressContinue progress on the anti-money-laundering framework. Substantial progressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 2023, 2024 and 2025.SDG 8, 162021 CSR 1Not relevant anymoreIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationallyfinancedinvestment.Keepthegrowthofnationallyfinanced current expenditure under control. Not relevant anymoreNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Not relevant anymoreNot applicableSDG 8, 16Atthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasures,inordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Not relevant anymoreNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacy,andsustainabilityofhealthand social protection systems for all.Not relevant anymoreNot 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 ProgressSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Some ProgressSDG 8, 16Pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositions.Full ImplementationSDG 8, 16Broaden taxation, including of property and capital,No ProgressSDG 8, 10, 12and strengthen the adequacy of healthcareLimited ProgressSDG 3and social protection to reduce inequality.Some ProgressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 2023.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 3Some 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.Some ProgressSDG 8, 9RRP 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.  
 
 
  
 
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 

28 

2022 CSR 4Some ProgressReduce overall reliance on fossil fuels and diversify imports of fossil fuelsSome ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023, 2024, 2026.SDG 7, 9, 13by accelerating the deployment of renewables,Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 7, 9, 13ensuring sufficient interconnection capacity, diversifying energy supplies and routesSubstantial ProgressRelevant RRP measures being planned as of 2023 and 2024.SDG 7, 9, 13and reducing overall energy consumption through ambitious energy efficiency measures.Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2026.SDG 72023 CSR 1Some ProgressWind 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. Should renewed energy price increases necessitate new or continued support measures, ensure that such support measures are targeted at protecting vulnerable households and firms are fiscally affordable and preserve incentives for energy savings.Substantial ProgressNot applicableSDG 8, 16Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 3,0 %.Some ProgressNot applicableSDG 8, 16Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions.Full ImplementationNot applicableSDG 8, 16For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, in order to achieve a prudent medium-term fiscal position.Full ImplementationNot applicableSDG 8, 16Broaden taxation, including of property and capital, andNo ProgressSDG 8, 10, 12strengthen the adequacy of healthcare andLimited ProgressSDG 3social protection.Some ProgressRelevant RRP measures implemented as of 2021 and 2022. Relevant RRP measures being planned as of 2023.SDG 1, 2, 102023 CSR 2Continue the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.2023 CSR 3Some 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 in the areas of the green transition and regional development.Some progressSDG 8, 92023 CSR 4Some ProgressReduce overall reliance on fossil fuelsSome ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023, 2024, 2026.SDG 7, 9, 13by accelerating the deployment of renewable energy, in particular onshore and offshore wind energy and solar energy,Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023 and 2024.SDG 7, 9, 13and strengthening energy efficiency measures, for example through new financing and support measures to meet the targets of the long-term renovation strategy.Some ProgressRelevant RRP measures implemented as of 2022. Relevant RRP measures being planned as of 2023.SDG 7Ensure sufficient capacity of interconnections to increase security of supply and continue synchronisation with the Union electricity grid.Substantial ProgressRelevant RRP measures being planned as of 2023 and 2024.SDG 7, 9, 13Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.Some ProgressSDG 4RRP implementation is monitored through the assessment of RRP payment requests and analysis of the bi-annual reporting on the achievement of the milestones and targets, to be reflected in the country reports. Progress with the cohesion policy is monitored in the context of the Cohesion Policy of the European Union. 
 
 
  
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN – IMPLEMENTATION 

This  Annex  provides  a  snapshot  of  Latvia’s 
implementation of its recovery and resilience 
plan  (RRP),  past  the  mid-way  point  of  the 
Recovery  and  Resilience  Facility’s 
(RRF) 
lifetime.  The  RRF  has  proven  central  to  the  EU’s 
recovery  from  the  COVID-19  pandemic,  helping 
speed  up  the  twin  green  and  digital  transition, 
while  adapting  to  geopolitical  and  economic 
developments and strengthening resilience against 
future  shocks.  The  RRF  is  also  helping  implement 
the  UN  Sustainable  Development  Goals  and 
address  the  country-specific  recommendations 
(see Annex 2).  

The  RRP  paves  the  way  for  disbursing  up  to 
EUR 1,970  million  in  grants  under  the  RRF 
over  the  2021-2026  period,  representing 
4.9% of Latvia’s GDP (22). As of mid-May 2024, 
EUR  465  million  have  been  disbursed  to  Latvia 
under the RRF. 

Latvia still has EUR 1,504 million available in 
grants from the RRF. This will be disbursed after 
the  assessment  of  the  future  fulfilment  of  the 
remaining 220 milestones and targets (23) included 
in  the  Council  Implementing  Decision (24)  (CID), 
ahead  of  the  2026  deadline  established  for  the 
RRF.  

Latvia’s progress in implementing its plan is 
recorded  in  the  Recovery  and  Resilience 
Scoreboard (25).  The 
scoreboard  gives  an 
overview  of  the  progress  made  in  implementing 
the RRF as a whole. Graph A3.1 shows the current 
state of play as reflected in the scoreboard.  

Latvia’s  RRP  includes  a  REPowerEU  chapter 
to phase out its dependency on Russian fossil 
its  energy  supplies  and 
fuels,  diversify 
produce  more  clean  energy  in  the  coming 
years.  To  kick-start  the  REPowerEU  chapter’s 

(22)  GDP information is based on 2023 data. Source: 

https://ec.europa.eu/economy_finance/recovery-and-
resilience-scoreboard/index.html?lang=en.   

(23)  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. 

(24)  https://data.consilium.europa.eu/doc/document/ST-10157-

2021-ADD-1/en/pdf  

implementation,  EUR  26.9  million  was  disbursed 
as pre-financing on 25 January 2024. This helped 
launch  relevant  reforms  like  the  introduction  of  a 
regulatory  framework  for  energy  communities, 
currently underway. 

The  plan  has  a  strong  focus  on  the  green 
transition,  devoting  41.5%  of  the  available 
funds  to  measures  that  support  climate 
objectives and 23% of its total allocation to 
support  the  digital  transition.  It  also  retains  a 
strong  social  dimension  with  social  protection 
to  healthcare, 
measures,  especially 
education and skills.    

related 

Table A3.1:  Key facts of the Latvian RRP 

Source: RRF Scoreboard, C(2024) 3393 final 

complete  payment 

With  one 
request 
completed,  Latvia’s  implementation  of  its 
RRP  is  well  underway.  The  Commission  gave  a 
positive  assessment  of  Latvia’s  payment  request 
on  29  July  2022,  taking  into  account  the  opinion 
of the Economic and Financial Committee. This led 
to  EUR  201  million  being  disbursed  in  financial 
support  on  7  October  2022 (26).  The  related  9 
milestones  covered  reforms  and  investments  in 
the areas of the minimum income support system, 
broadband  infrastructure,  educational  institutions' 
infrastructure  and  remote  learning,  and  others  in 
the areas of public procurement, the prevention of 
money  laundering  and  terrorist  financing,  as  well 
as the construction of low-rent dwellings. 

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

resilience-scoreboard/country_overview.html  

(26)  When requested payments are disbursed, the pre-financing 
is cleared proportionally. The net amounts are quoted here.  

29 

Initial plan CID adoption date13 July 2021Scope Revised plan with REPowerEU chapterLast major revision8 December 2023Total allocation EUR 1969 million in grants (4.9% of 2023 GDP)Investments and reforms 63 investments and 25 reforms Total number of milestones and targets229Fulfilled milestones and targets52 (23% of total) 
 
 
 
  
 
 
 
 
Graph A3.1: Total grants disbursed under the RRF 

Note: This graph displays the amount of grants, including 
pre-financing, 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 

As  of  15  May  2024,  the  Commission  has 
adopted  a  preliminary  assessment  of 
request.  The 
Latvia’s  second  payment 
corresponding  disbursement  will  take  place 
soon.  The  40  milestones  and  3  targets  of  the 
second  payment  request  cover  reforms  and 
investment  in  the  areas  of  higher  education, 
digitalisation,  healthcare,  affordable  housing, 
energy efficiency, clean mobility, customs and tax 
compliance.  This  payment  request  of  EUR  336 
million  in  financial  support  will  bring  the  funds 
paid  out  to  Latvia  under  the  Recovery  and 
Resilience  Facility  to  EUR  801  million,  which 
correspond to 41% of all the funds in the Latvia’s 
plan.  Table  A3.2  highlights  some 
relevant 
measures  achieved  so  far,  and  some  that  will  be 
implemented before 2026 to keep making Latvia’s 
economy  greener,  more  digital,  inclusive,  and 
resilient.  

Table A3.2:  Measures in Latvia's RRP 

Source: FENIX 

30 

EUR 465.3million (23.6%)Total allocation: EUR 1969millionReforms and investments implemented• Support Programme for Residential Energy Efficiency• Establishment of digital maturity test system for entities to identify level of digitalisation• Modernisation of public administrationUpcoming reforms and investments• Greening the Riga Metropolitan Transport System• Construction of low-rent dwellings• Increase of the uptake of sustainable biomethane 
 
     
 
     
 
 
 
 
  
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

EU funding instruments provide considerable 
resources for recovery and growth to the EU 
Member  States.  In  addition  to  the  EUR 1.97 
billion  of  Recovery  and  Resilience  Facility  (RRF) 
funding  described  in  Annex  3,  EU  cohesion  policy 
funds (27)  provide  EUR 4.4  billion  to  Latvia  for  the 
2021-2027 period (28).  Support  from  these  two 
instruments  combined  represents  around  15.87% 
of  the  country’s  2023  GDP,  compared  to  the  EU 
average  of  5.38%  of  GDP (29).  Cohesion  policy 
supports  regional  development,  economic,  social 
and  territorial  convergence  and  competitiveness 
through  long-term  investment  in  line  with  EU 
priorities and with national and regional strategies. 

During  the  2014-2020  programming  period, 
cohesion  policy  funds  boosted  Latvia’s 
competitiveness, with  tangible achievements 
notably in support provided to businesses, in 
energy  efficiency,  transport  and  skills.  Over 
the whole period, which financed investments until 
December  2023,  cohesion  policy  funds (30)  had 
made  EUR 4.6  billion  available  to  Latvia (31),  of 
which  EUR 2.7  billion  has  been  disbursed  since 
COVID-19 
when 
March 
pandemic began (32). 
of 
The 
cohesion  policy  funds  over  the  programming 
period included support to create 5 066 new direct 
jobs,  provide  direct  financial  support  to  7  292 
businesses  and  1 596  start-ups,  to  give  an 
additional 
to 
broadband,  to  improve  energy  performance  in  22 
710  households  and  to  rebuild  698  kilometres  of 
roads. During the same period, over 74 949 adults 

achievements 

households 

69 300 

access 

2020, 

the 

(27)  In 2021-2027, cohesion policy funds include the Cohesion 
Fund, the European Regional Development Fund, the 
European Social Fund Plus and the Just Transition Fund. 

(28)  European territorial cooperation (ETC) programmes are 
excluded from the figure. In 2021-2027, the total 
investment, including national financing, amounts to EUR 5.2 
billion. 

(29)  RRF funding includes both grants and loans, where 

applicable. The EU average is calculated for cohesion policy 
funds excluding ETC programmes. GDP figures are based on 
Eurostat data for 2022. 

(30)  In 2014-2020, cohesion policy funds included the Cohesion 

Fund, the European Regional Development Fund, the 
European Social Fund and the Youth Employment Initiative. 
REACT-EU allocations are included but ETC programmes are 
excluded. 

(31)  In 2014-2020, the total investment, including national 

financing, amounted to EUR 5.4 billion. 

(32) Cut-off date: 14 May 2024. 

31 

support 

received 
upskilling/reskilling 
under 
measures  funded  by  the  European  Social  Fund 
(ESF), with almost one in five recipients being low-
qualified and almost 40% from rural areas. 

In  the  current  programming  period,  cohesion 
policy will provide a further boost to Latvia’s 
competitiveness,  to  the  green  transition  and 
to  social  cohesion,  improving  the  living  and 
working  conditions  of  Latvia’s  people.  In 
2021-2027,  the  European  Regional  Development 
Fund  (ERDF)  and  Cohesion  Fund  (CF)  aim  to 
provide financial support to 3 742 businesses and 
non-financial  support  to  2 339  businesses.  1 750 
businesses are expected to achieve a high level of 
digital intensity. The ERDF and CF aim to improve 
the  energy  performance  of  13 450  dwellings, 
helping  people  overcome  the  challenges  of  the 
green  transition.  They  also  aim  to  increase  the 
share  of  renewable  energy 
in  final  energy 
consumption  to  46.5%  in  2029  (from  39%  in 
2017).  EUR 192  million  under  the  Just  Transition 
Fund  will  be  invested  in  the  country  to  support  a 
fair transition to a climate-neutral economy. These 
investments  will  support  the  phasing-out  of  peat 
for  energy  generation  by  2030  and  peatland 
restoration,  reducing  greenhouse  gas  emissions 
and  improving  the  local  environment.  3  950 
persons,  including  1  600  workers  in  the  peat  and 
other  affected  sectors  will  receive  support  in  the 
form of specific training.  

to 

care 

over 

education 

The  European  Social  Fund  Plus  (ESF+)  will 
invest  over  EUR 260  million 
in  social 
inclusion  measures  to  support  over  42 000 
disadvantaged  and  unemployed  people,  to 
community-based 
provide 
social 
services 
to  over  1 000  people  with 
disabilities  and  to  provide  access  to  early 
childhood 
1 200 
disadvantaged  children.  Funding  under  the 
ESF+  will  also  continue  to  provide basic  food  and 
material  assistance  to  the  growing  number  of 
people  in  need,  over  100 000  people  a  year, 
including  Ukrainians  fleeing  Russia’s  military 
aggression  in  Ukraine.  With  this  work,  cohesion 
policy  substantially  contributes  to  achieving  the 
UN  Sustainable  Development  Goals  (SDGs)  in 
Latvia,  in  particular  SDG  9  (Industry,  innovation, 
infrastructure),  SDG  7  (Affordable  and  clean 
energy)  and  SDG  8  (Decent  work  and  economic 
growth). 

 
 
 
 
 
TSI  also  helps  Latvia  implement  specific  reforms 
and  investments  included  in  its  RRP,  such  as 
modernising  the  digital  systems  of  the  public 
employment  service  and  boosting  the  innovative 
capacity of Latvia’s public sector. 

Graph A4.2: Distribution of RRF funding by pillar in 
Latvia 

Through combined action, cohesion policy and 
the recovery and resilience plan (RRP) have a 
mutually  reinforcing  impact  in  Latvia.  For 
instance,  the  RRP  focuses  on  improving  school 
infrastructure,  including  purchasing  IT  equipment 
and implementing online and remote learning. The 
ERDF  focuses  more  on 
in  school 
infrastructure  and  advanced  general  education 
content  (e.g.  learning  tools  and  equipment,  STEM 
equipment  and  educational  technologies).  The 
ESF+  provides  investment  in  soft  skills  to  train 
staff  in  regional  schools.  All  three  elements  are 
complementary and aim to improve the quality of 
education in regional schools.  

investing 

Graph A4.1: Distribution of cohesion policy funding 
across policy objectives in Latvia 

(1) Each RRP measure helps achieve the aims of two of the 
six policy pillars of the RRF. The primary contribution is shown 
in the outer circle while the secondary contribution is shown in 
the inner circle. Each contribution represents 100% of the RRF 
funds. Therefore, the total contribution to all pillars displayed 
on this chart amounts to 200% of the RRF funds allocated to 
Latvia. 
Source: European Commission 

Latvia  also  receives  funding  from  several  other 
instruments, including those listed in Table A4.1. 

Source: European Commission 

Funding  under  the  RRP,  ERDF  and  ESF+  is 
also complementary in the area of long-term 
care.  The  RRP  will  provide  community-based 
housing  for  elderly  people  and  the  ESF+  will 
develop  long-term  care  services,  such  as  home 
care and  day care centres for people with mental 
and functional disabilities, including for the elderly. 
In addition, funding under the ESF+ and ERDF will 
provide  infrastructure  for  children  with  functional 
for  people  with  mental 
impairments  and 
disabilities. The contribution of cohesion policy and 
RRP  funding  by  policy  objective  is  illustrated  by 
Graphs A4.1 and A4.2. 

in  Latvia  to  design  and 

The Technical Support Instrument (TSI) helps 
Latvia invest in its public administration and 
create a better enabling environment for EU 
and  national  investment.  The  TSI  has  funded 
projects 
implement 
growth-enhancing 
reforms  since  2017.  The 
support provided to Latvia in 2023 included action 
to  improve  road  safety  for  vulnerable  road  users, 
support  to  roll  out  the  New  Academic  Careers 
Framework  and  to  strengthen  the  medium-term 
expenditure framework and budget outcomes. The 

32 

PO1 Smarter EuropePO2 Greener EuropePO3 Connected EuropePO4 Social EuropePO5 Europe closer to citizensPO8 JTF specific objectiveGreen transitionDigital transformationSmart, sustainable and inclusivegrowthSocial & territorial cohesionHealth & resilienceNext generation 
 
   
   
Table A4.1:  Support from EU instruments in Latvia 

(1) RRF implementation period is 2021-2026. 
(2) The public sector loan facility’s programming period is 2021-2025 and the amount reflects the national share in its grant 
component reserved until the end of the period. 
(3) Common agricultural policy programming periods are 2014-2022 and 2023-2027. 
(4) EMFF – European Maritime and Fisheries Fund, EMFAF – European Maritime, Fisheries and Aquaculture Fund. 
(5) Data on the Connecting Europe Facility covers transport and energy and has a cut-off date of 15 May 2024. 
(6) Data on Horizon Europe (2021-2027) has a cut-off date of 13 May 2024. 
(7) 2021-2027 data on the LIFE programme has a cut-off date of 15 May 2024. 
(8) The amount of the EU guarantee signed under the EFSI Infrastructure and Innovation Window was derived based on the 
signed amount of the operations and the average internal multiplier, as reported by the EIB (cut-off date is 31 December 2023). 
(9) The amount of the EU guarantee and of the volume of operations signed under InvestEU includes the EU compartment as well 
as the Member State compartments (cut-off date is 31 December 2023). 
(10) SURE - European instrument for temporary support to mitigate unemployment risks in an emergency. 
Source: European Commission 

33 

Amount 2021-2027 (EUR million)Cohesion policy4 434.3RRF grants (1)1 969.2Public sector loan facility (grant component) (2)14.5Common agricultural policy (3)2 409.0EMFF/EMFAF (4)134.9Connecting Europe Facility (5) 642.2Horizon 2020 / Horizon Europe (6) 63.3LIFE programme (7) 38.7Volume of operations (EUR million)European Fund for Strategic Investment 2015-2020 (8) 202.8InvestEU 2021-2027 (9) 1.0PeriodTotal amount available (EUR million)Disbursed amount (EUR million)SURE (10)2020-2022 472.8 472.83 400.0 81.6 1.0EU loans139.8 692.3 116.749.2EU guaranteesEU Guarantee (EUR million)EU grantsAmount 2014-2020 (EUR million)4 640.7-- 
 
  
 
ANNEX 5: RESILIENCE 

Table A5.1:  Resilience indices across dimensions for Latvia and the EU-27 

(1) The synthetic indices aggregate the relative resilience situation of countries across all considered indicators. For an indicator, 
each country’s relative situation in the latest available year is compared with the collection of values of that indicator for all 
Member States and all years in the reference period. 
Source: Resilience Dashboards - version spring 2024, data up to 2022 

(RDB) (33) 
resilience 

This  Annex  uses  the  Commission’s  resilience 
to  show  Latvia’s 
dashboards 
relative 
and 
vulnerabilities (34)  that  may  be  of  relevance 
for  societal,  economic,  digital  and  green 
transformations, and for dealing with future 
shocks and geopolitical challenges. (35) 

capacities 

According  to  the  RDB’s  set  of  resilience 
indicators,  Latvia  has  medium  overall 
vulnerabilities  and  capacities.  The  capacities 
are below the EU average and stable with respect 
to  the  2023  RDB.  This  is  also  reflected  in  the 
distribution of indicators across different resilience 
categories:  almost  50%  of  vulnerability  indicators 
are  medium-low  or  low,  while  under  40%  of 
capacity indicators are medium-high or high.  

(33)  Https://ec.europa.eu/info/strategy/strategic-

planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en. Resilience is defined as the 
ability not only to withstand and cope with challenges but 
also to undergo transitions, in a sustainable, fair, and 
democratic manner. 2020 Strategic Foresight Report: 
Charting the course towards a more resilient Europe 
(COM(2020) 493). 

(34)  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, 
capacities refer to enablers or abilities to cope with crises 
and structural changes and to manage transitions. 

(35)  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. 

capacities 

With  respect  to  the  2023  RDB,  Latvia’s 
remained 
vulnerabilities  and 
stable in the social and economic dimension. 
At risk of poverty or social exclusion rate (AROPE) 
and income inequality (income quintile share ratio 
s80/s20)  remain  high  in  Latvia.  In  the  2024  RDB, 
Latvia  continues  to  have  medium-low  social  and 
economic capacities, lagging behind the EU in two 
thirds  of  indicators.  For  example,  its  household 
savings  rate  has  dropped  sharply.  Average  active 
labour  market  policies  per  persons  wanting  to 
work,  impact  of  social  transfers  (other  than 
pension)  on  poverty  reduction  and  healthy  life 
years in absolute value at birth are also below EU 
average.  

Latvia  has  medium-low  vulnerabilities  and 
medium capacities in the green dimension of 
the 2024 RDB. Although less vulnerable than the 
EU on average, it could improve in two areas with 
high  vulnerabilities:  farm  income  variability  and 
harmonised  risk  indicator  1  for  pesticides.  On  the 
capacity  side,  Latvia  has 
third  highest 
proportion  of  renewable  energy  in  final  energy 
consumption  in  the  EU.  That  said,  the  country 
could do more to be ready for the green transition 
in  many  indicators,  particularly  in  sustainable 
transport and the environmental innovation sector.  

the 

In  the  2024  RDB,  Latvia  has  medium 
vulnerabilities  and  capacities  in  the  digital 
dimension.  The  gap  between  large  and  small 
businesses’  broadband  access  has  gotten  wider 
since last year, going from 17.7% to 24.5%. Latvia 
remains  the  poorest  EU  performer  with  the  EU 
average  at  5.6%.  On  the  capacity  side,  the 

34 

LVLVEU-272023 RDB2024 RDB2024 RDBHighMedium-highMediumMedium-lowLowHighMedium-highMediumMedium-lowLowCapacitiesGeopoliticalVulnerabilities0.390.410.41Capacities0.480.650.65DigitalVulnerabilities0.660.560.52Capacities0.600.580.65GreenVulnerabilities0.640.670.44Capacities0.550.510.70Social and economicVulnerabilities0.740.670.47Capacities0.310.310.67DimensionDistribution of indicators by vulnerabilities and capacitiesOverall resilienceVulnerabilities0.620.590.50Capacities0.500.520.67Vulnerabilities0%20%40%60%80%100%Vulnerabilities(59 indicators)Capacities(64 indicators) 
 
 
 
   
 
 
proportion  of  businesses  seeking  information  and 
communication (ICT) specialists increased between 
2020 and 2022.  

in 

in 

the 

capacities 

Finally,  Latvia  has  medium  vulnerabilities 
the 
and  medium-high 
geopolitical  dimension,  both  at  the  EU 
average.  Its  vulnerability  is  consistently  high  or 
the 
medium-high 
concentration of its suppliers in energy carriers, its 
extra-EU  export  and  import  partners,  and  its 
outward  foreign  direct  investment  partners.  Most 
of  its  capacity  indicators  have  remained  stable, 
and there was even a clear improvement in intra-
EU trade in energy, more than doubling from 6.5 in 
2021 to 17.7% of GDP in 2022. 

indicators 

for 

35 

 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

Latvia  has  made  progress  in  the  green 
transition,  with  more  action  needed,  for 
example to specify its funding framework and the 
policies  needed  to  attain  its  2030  effort  sharing 
target,  and  biodiversity  and  ecosystem  protection. 
This Annex provides a snapshot of climate, energy, 
and  environmental  aspects  of  the  transition  in 
Latvia (36). 

Latvia’s  draft  updated  national  energy  and 
climate plan (NECP) lacks key information on 
investment  needs  and  funding  sources  to 
achieve its 2030 climate and energy targets. 
The  plan  lacks  information  on  the  investment 
needs  for  the  planned  policies  and  measures. 
Latvia  provided  only  some  information  on  past 
bond  issuance  (EUR 600 million  in  sustainable 
euro  bonds  in  2021,  EUR 220 million  in  corporate 
green  bonds,  and  the  reference  year  is  unclear). 
The plan briefly lists the main sources of financing 
available  under  climate  action 
instruments, 
including  funding  from  the  EU  and  international 
institutions.  It  does  not  provide  a  consolidated 
overview, which means it is not possible to identify 
potential  funding  gaps.  The  plan  recognises  the 
importance  of  attracting  private  investments  to 
cover  the  financial  needs  of  the  climate  and 
energy transition (37). 

The policies and measures planned by Latvia 
to  reduce  its  effort  sharing  emissions  are 
insufficient  to  reach  its  2030  effort  sharing 
target (38).  Latvia’s  2022  greenhouse  gas 
emissions  from  its  effort  sharing  sectors  are 
expected  to  come  in  at  2.8%  below  2005  levels. 
With  current  policies,  Latvia  is  projected  to  see 

(36)  This Annex is complemented by Annex 7 on energy transition 

and competitiveness, Annex 8 on the fair transition to 
climate neutrality, Annex 9 on resource efficiency, circularity, 
and productivity, and relevant topics in other annexes to this 
country report. 

(37)  See the Commission’s (2023) assessment of the draft 

national energy and climate plan of Latvia. 

(38)  The national greenhouse gas emission reduction target is 
laid down in Regulation (EU) 2023/857 (the Effort Sharing 
Regulation). The aim is to align action in the sectors 
concerned with the objective to reach the EU-level economy-
wide target of greenhouse gas reductions of at least 55% 
compared to 1990 levels. The target also applies to the 
sectors outside the current EU Emissions Trading System, 
notably buildings (heating and cooling), road transport, 
agriculture, waste, and small industry (known as the effort 
sharing sectors). 

levels (39).  Latvia 

effort sharing emissions increase by 6.6% from to 
2005 levels by 2030. Additional policies set out by 
Latvia are projected to reduce these emissions by 
is  hence 
8.4%  from  2005 
projected to fall short of its effort sharing target, -
17 % compared to 2005 levels, by 8.6 percentage 
points,  which  calls  for implementing  and planning 
more  ambitious  climate  action.  The  draft  updated 
NECP  reiterates  Latvia’s  commitment  to  achieve 
climate  neutrality  by  2050.  Additionally,  the  draft 
updated  NECP  is  not  fully  aligned  with  the  peat 
phase-out  timeline  outlined  in  the  Territorial  Just 
Transition  Plans  (TJTP).  The  final  updated  NECP 
should ensure such alignment. 

Graph A6.1: Greenhouse gas emissions from the 
effort sharing sectors in Mt CO2eq, 2005-2022 

Source: European Environment Agency 

There is scope for increasing Latvia’s targets 
for 
energy 
its  final  updated  NECP (40). 
efficiency in 

renewable 

energy 

and 

(39)  The effort sharing emissions for 2022 are based on 
approximated inventory data. The final data will be 
established in 2027 after a comprehensive review. 
Projections on the impact of current policies (‘with existing 
measures’, WEM) as per Latvia's draft updated NECP. 
Latvia’s draft updated NECP does not provide emission 
projections with additional measures for the effort sharing 
sectors. The information on those projections is based on the 
latest data that had to be reported by 15 March 2023 under 
Article 18 of Regulation 2018/1999 (the Governance 
Regulation). 

(40)  The EU target set out in the revised Renewable Energy 

Directive is to have 42.5% of gross final energy consumption 
coming from renewable energy sources by 2030, with the 
aspiration to reach 45%. The formula in Annex I to Directive 
(EU) 2023/1 791 sets the indicative national contribution for 
Latvia at 3.7 Mtoe for primary energy consumption. The 
Commission communicated a corrected national contribution 
of 3.46 Mtoe in final energy consumption for 2030 in 
accordance with Article 4(5) of the Energy Efficiency 
Directive to increase the contribution towards the Union’s 
binding energy efficiency target. 

36 

012345678920052022MtCO2eWasteSmall industryAgricultureBuildings (under ESR)Domestic transport (excl. aviation) 
 
 
 
     
 
 
 
 
Latvia’s  renewable  energy  contribution  set  in  its 
draft  updated  NECP,  57%  by  2030,  is  below  the 
contribution  of  61%. 
Its  energy  efficiency 
contribution  of  3.85  Mtoe  in  primary  energy 
consumption  and  3.54  Mtoe 
in  final  energy 
consumption  for  2030  set  in  the  draft  updated 
NECP fall short  of the contribution required under 
the Energy Efficiency Directive. 

Sustainable  transport  has  yet  to  take  off  in 
Latvia, which has high potential in electrified 
rail transport (41). At 0.4% in 2022, the share of 
battery  electric  vehicles  in  its  passenger  car  fleet 
is  comparatively  low  (EU  average:  1.2%).  Latvia 
has  450  publicly  accessible  charging  points  in 
2023,  one  for  every  8  e-vehicles  (EU  average  of 
1:10).  89%  of  passenger  transport  is  by  car,  but 
only 46% of freight is transported by road. At 53% 
- almost all being international transit – the share 
of  rail  in  freight  transport  is  far  above  the  EU 
average (16%). However, only 14% of Latvia's rail 
network is electrified (EU average: 56%). 

Latvia  has  a  low  capacity  to  remove  carbon 
from the atmosphere, and its land use, land-
use change and forestry sector has become a 
net  greenhouse  gas  emitter  in  recent  years. 
Latvia’s  net  carbon  removals  through  land  use 
have fluctuated widely each year since 2017 with 
emissions  from  the  sector  doubling  in  the  most 
inventories (42).  Greenhouse  gas 
recent  GHG 
emissions  from  cropland  and  grassland  are 
comparatively  high,  indicating  high  volumes  of 
emissions from soils with high organic content and 
diminishing  forest  stocks  (see  further  below).  The 
forest  sink  in  Latvia  has  decreased  considerably 
which is the main driving force behind the LULUCF 
emissions in the country. Latvia projects the sector 
to remain in net emissions instead of removals by 
2030 (43). To meet the 2030 target for this sector, 
additional  carbon  removals  of  -  644 kt CO2eq  are 
needed (44).  

(41)  Unless otherwise indicated, data in this section refer to 
2021. See European Commission, 2023, EU transport in 
figures, transport.ec.europa.eu. 

(42)  EEA data: https://climate-

energy.eea.europa.eu/topics/climate-change-mitigation/land-
and-forests/data  

(43)  Projections submitted in Latvia’s draft updated national 

energy and climate plan, 2023. 

(44)  National LULUCF targets of the Member States in line with 

Regulation (EU) 2023/839. 

Latvia  faces  climate  adaptation  challenges 
in  the  coastal  region  in  particular.  Climate 
change is affecting many sectors, with agriculture 
and  forestry  most  affected.  Rising  rainfall  levels 
increase  flood  hazards,  and  extreme  weather 
events  such  as  heatwaves  are  projected  to  occur 
more often. The most climate-sensitive sectors are 
agriculture,  infrastructure,  energy  and  transport. 
The decline of biodiversity and ecosystem services 
due  to  climate  change  poses  a  risk  to  the 
preservation  and  sustainable  development  of 
Latvia’s natural capital. It is key to shift away from 
forestry  and  agriculture  monocultures  and  to 
monitor  invasive  species  and  pests  in  order  to 
protect  Latvia’s  ecosystems.  The  draft  updated 
NECP  recognises  the  need  for  sustainable  land 
management planning, for protecting organic soils, 
and  for  efficient  land  management.  However,  it 
lacks details on the related policies (45). 

in 

Latvia 

restoration 

level  of  nature  protection  and 
The 
biodiversity 
is 
insufficient.  By  the  end  of  2021,  Latvia  had 
protected  18.2%  of  its  land  and  15.8%  of  its 
marine  areas.  According  to  the  report  on  the 
conservation  status  of  habitats  and  species 
covered  by  Article  17  of  the  Habitats  Directive  in 
2013-2018,  less  than  10%  of  habitats  and  40% 
of  species  were  in  a  good  conservation  state (46). 
Latvia  ranks  24th  in  the  EU  on  the  conservation 
status  of  its  habitats.  Agricultural  land  has  been 
affected  by  biodiversity  loss  and  the  common 
farmland bird index declined from 129 in 2015 to 
92  in  2020.  In  addition,  the  pace  of  Latvia’s 
circular economy  transition  is  insufficient  to meet 
the EU's goals in the circular economy action plan, 
also  due  to  low  levels  of  recycling  and  resource 
efficiency (see Annex 9). 

Despite  positive  trends,  the  pace  of  the 
sustainable  transition  of  the  agri-food 
system  is  still  slow  in  Latvia.  Between  2015 
and  2023,  the  value  of  the  agricultural  sector’s 
annual output fluctuated between EUR 1.2 and 1.6 
billion  and  reached  EUR 1.4  billion  in  2023.  The 
adoption of organic farming practices is improving 
and  the  share  of  land  under  organic  farming 

(45)  Also see the Commission’s 2023 assessment and 

recommendation on Latvia’s progress on climate adaptation. 

(46)  According to the report on the conservation status of 

habitats and species covered by Article 17 of the Habitats 
Directive in 2013-2018, against the EU average of 15% and 
28%. 

37 

 
 
 
reached 15.3% of total utilised agricultural area in 
2021,  against  the  EU  average  of  9.1% (47). 
However, there is still space to grow to help meet 
the  goal  of  at  least  25%  of  the  EU’s  agricultural 
land under organic farming by 2030. 

Like  most  of  EU  Member  States  Latvia 
reduced  livestock  density between 2010  and 
2020.  Latvia’s  livestock  density  index  fell  from 
0.26%  in  2010  to  0.24%  in  2020 (48).  However, 
the  total  number  of  livestock  units  increased 
approximately  12 000.  Intensive  dairy  cattle  and 
pig farming is one of the most polluting sectors in 
terms  of  ammonia  emissions  into  the  air.  The 
agricultural  sector  was  responsible  for  generating 
85.2%  of  all  ammonia  emissions,  against  the  EU 
average  of  90.7%  in  2021 (49).  In  Latvia,  a 
negligible share  of  land  is  irrigated  but  the  water 
abstracted for agricultural purposes accounted for 
in  2019 (50).  Food 
30.9%  of  all  abstraction 
consumption  is  yet  to  become  sustainable.  The 
country produced 130 kg of food waste per person 
in  2021,  roughly  in  line  with  the  EU  average  of 
131  kg  per  person.  Most  was  generated  by 
household use. The composting and digestion rate 
of  municipal  waste  fell  to  37  kg  per  person  in 
2021, representing 8% of all municipal waste (see 
Annex 9). 

(47)  In 2020. 2021 data is not available. 

(48)  Statistics | Eurostat (europa.eu)  

(49)  Statistics | Eurostat (europa.eu) 

(50)  Annual freshwater abstraction by source and sector 

[env_wat_abs] – European Environment Agency (europa.eu) 

38 

Graph A6.2: Changes in livestock density and 
organic farming 

Livestock unit (LSU)/ha of UAA: it measures the stock of 
animals (cattle, sheep, goats, equidae, pigs, poultry and 
rabbits) converted in LSUs per hectare of UAA. 
Source: Eurostat 

Latvia’s agricultural sector continues to have 
a  negative  impact  on  soils  and  to  degrade 
peatlands.  Based  on 
the  best  available 
information  on  soil  health  at  Member  State  level 
used  in  the  impact  assessment  for  the  Soil 
Monitoring  Law (51),  24%  of  Latvian  soil  could  be 
considered as unhealthy (52), mainly due to topsoil 
compaction,  which  affects  25%  of  cropland  area. 
Soil  organic  carbon  content  plays  a  crucial  role  in 
boosting  water  resilience,  as  it  prevents  droughts 
and  floods.  The  total  estimated  organic  carbon 
content  in  arable  land  is  114  megatons,  with  an 
average  of  31%,  above  the  EU  average  of 
24%. (53)  However,  conservation  tillage  practices, 
which  increase  soil  organic  carbon,  only  covered 
7% of the tillable area in Latvia (54). The net stock 
change of organic soils in cropland and grassland 
areas  increased  to  1 425  kt  in  2021 (55). Drained 
peatlands  account  for  6%  of  Latvia’s  agricultural 
land but are responsible for generating 71% of its 
agricultural  emissions (56).  Restoring  drained 

(51)  SWD 417 final of 5.7.2023 - impact assessment for the 

Directive of the European Parliament and of the Council on 
Soil Monitoring and Resilience (Soil Monitoring Law), (see. p. 
10, pp. 189-190, pp. 835-845). 

(52)  However, not all soil degradation processes could be 

quantified for all land uses. This number simply indicates an 
order of magnitude. 

(53)  C41 Soil organic matter in arable land (europa.eu) 

(54)  The latest available data (2016) 

(55)  FAOSTAT 

(56)  Peatland Atlas 2023 

0120510152020162020% LSU per hectare% of total utilised agricultural areaLivestock density index Latvia (% LSU per ha)Livestock density index EU-27 (% LSU per ha)Organic farming Latvia (% of total utilised agricultural area)Organic farming EU-27 (% of total utilised agricultural area) 
 
 
      
 
 
Graph A6.3: Environmental investment gap, annual 
average 

The numbers are computed by the European Commission 
based on the latest internal reports, Eurostat, EIB and national 
data sources. 
Source: European Commission 

peatlands would be one of the most cost-effective 
ways  to  reduce  emissions  in  the  agricultural 
sector. 

Air  quality  in  Latvia  is  generally  good,  with 
exceptions. The latest available annual estimates 
(2021)  by  the  European  Environmental  Agency 
indicate that Latvia suffers about 755 years of life 
to 
lost  for  every  100 000 
exposure  to  particulate  matter  (PM2.5),  and  69 
years due to NO2. 

inhabitants  due 

Food  waste  production  remains  relatively 
high  while  composting  and  digestion  levels 
could be improved. The country produced 130 kg 
of food waste per capita in 2021, approximately in 
line  with  the  EU  average  of  131  kg  per  capita. 
Most  of 
it  was  generated  during  household 
activities.  Composting  and  digestion  of  municipal 
waste  decreased  to  37  kg  per  capita  in  2021, 
representing 8% of total municipal waste.  

Latvia  would  benefit  from  investing  more  in 
biodiversity protection and restoration and in 
a  faster  transition  to  the  circular  economy. 
Over  the  2014-2020  period,  the  environmental 
investment gap was estimated at EUR 826 million 
per  year,  equivalent  to  3%  of  GDP,  significantly 
above  the  EU  average  of  0.8%.  The  gap  is 
estimated  to  be  widening  over  the  2021-2027 
period  at  almost  EUR  1  billion  per  year.  There 
remains  an  opportunity  to  increase  funding,  in 
particular  for  biodiversity  (EUR 638  million  per 
year).  Latvia  would  also  benefit  from  closing  the 
EUR  67  million  investment  gap  in  the  circular 
economy  and  waste  management  as  well  as 
investing  more  in  sustainable  water  management 
and pollution prevention and control. 

39 

89441767368226676380200400600800Pollution prevention &controlWater managementCircular economy andwasteBiodiversity andecosystemsmillion EUR2014-20202021-2027 
      
 
Table A6.1:  Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Source:  (1)  Member  States’  emission  data  for  2019  and  2020  are  in  global  warming  potential  (GWP)  values  from  the  4th 
Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ 2005 base year emissions 
under  Regulation  (EU)  2018/842,  emissions  data  for  2021  and  2022,  and  2030  projections  are  in  GWP  values  from  the  5th 
Assessment Report (AR5) of the IPCC. 2021 data are based on the final inventory reports, 2022 data are based on approximated 
inventory reports and European Environmental Agency’s calculation of effort sharing emissions. The final data for 2021 and 2022 
will  be  established  after  a  comprehensive  review  in  2027.  The  2030  target  is  in  percentage  change  of  the  2005  base  year 
emissions. Distance to target is the gap between the 2030 target and projected effort sharing emissions with existing measures 
(WEM) and with additional measures (WAM), in percentage change from the 2005 base year emissions. The measures included 
for  the  2030  emission  projections  reflect  the  state  of  play  as  reported  in  Member  States'  draft  updated  national  energy  and 
climate plans or, if unavailable, as reported by 15 March 2023 as per Regulation 2018/1999. (2) Net removals are expressed in 
negative figures, net emissions in positive figures. Reported data are from the 2024 greenhouse gas inventory submission. 2030 
value  of  net  greenhouse  gas  removals  as  in  Regulation  (EU)  2023/839  –  Annex  IIa.  (3)  The  2030  national  objectives  for 
renewable  energy  and  energy  efficiency  are  indicative  national  contributions,  in  line  with  Regulation  (EU)  2018/1999  (the 
Governance  Regulation),  the  EU-level  2030  renewable  energy  target  set  out  in  Directive  EU/2018/2001  amended  by  Directive 
EU/2023/2413 (the revised Renewable Energy Directive) – 42.5% of gross final energy consumption with the aspiration to reach 
45% –, and the formula in Annex I to Directive (EU) 2023/1791 (the Energy Efficiency Directive). (4) Passenger battery electric 
vehicles (BEV) and fuel cell electric vehicles  (FCEV). (5) The climate protection gap refers to the share of non-insured economic 
losses caused by climate-related disasters, based on modelling of the risk from floods, wildfires, windstorms, and the insurance 
penetration rate. Scale: 0 (no protection gap) –4 (very high gap) (European Insurance and Occupational Pensions Authority, 2022). 
(6) Total water consumption in renewable freshwater resources available for a territory and period. (7) Material extractions  for 
consumption and investment. (8) Years of potential life lost through premature death due to exposure to particulate matter with a 
diameter  of  less  than  2.5  micrometres.  (9)  Share  of  habitats  in  good  conservation  status  according  to  the  records  submitted 
under  Art.  17  of  the  Habitats  Directive  (Directive  92/43/EEC)  for  2013-2018.(10)  Multi-species  index  measuring  changes  in 
population abundances of farmland bird species. (11) Source: annex 12 of the Commission’s proposal for a soil monitoring law, 
SWD (2023) 417 final. (12) Estimates of organic carbon content in arable land. 

40 

Target200520192020202120222030WEMWAMProgress to climate and energy policy targetsGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq, %, pp8,597.81%-1%1%-3%-17%-10-9Net greenhouse gas removals from LULUCF (2)Kt CO2eq-5 905-1 969758.0002 2024 944 -644n/an/aShare of energy from renewable sources (1) (3)%32%41%42%42%43%61%--Energy efficiency: primary energy consumption (3)Mtoe4.54.64.34.54.33.7Energy efficiency: final energy consumption (3)Mtoe4.04.13.94.14.03.5Projected20182019202020212022202120222030Green transition: mobility         Greenhouse gas emissions: road transportMt CO2e---3.23.1769.0786.63.2Share of zero-emission vehicles in new registrations (4)% 0.80.62.12.96.4912.1n/aNumber of publicly accessible AC/DC charging points --265359499299178446956n/aShare of electrified railways%13.5%13.5%13.5%13.5%-56.1%-n/aGreen transition: buildings         Greenhouse gas emissions: buildingsMt CO2e---1.61.6537.0486.71.3Final energy consumption in buildings2015=100107.8%103.8%98.5%106.6%99.6%104.0%97.2% Climate adaptation         Climate protection gap (5)score 1-4--0.91.41.51.51.5n/a20182019202020212022202020212022State of the environmentWater | Water exploitation index (WEI+) (1) (6)% of renewable freshwater0.30.4---3.6--Circular economy | Material footprint (7)tonnes per person17.017.317.618.919.514.214.814.9Pollution | Years of life lost due to air pollution by PM2.5 (8)per 100.000 inhabitants594846479755-545584-Biodiversity | Habitats in good conservation status (9)%-14.7                       Common farmland bird index (10)2000=1001039292--78--Green transition: agri-food sectorOrganic farming% of total utilised agricultural area14.4714.7914.7915.34-9.1--Nitrates in groundwatermg NO3/litre55.2748.847.84--20.42--Food waste per capitaKg per capita145130-130131-Share of soil in poor health (11)%2441Soil organic matter in agricultural land (12)Mt per ha114----7,904--DistanceEU-27 
 
 
      
 
ANNEX 7: ENERGY TRANSITION AND COMPETITIVENESS 

This Annex (57) sets out Latvia’s progress and 
in  accelerating  the  net-zero 
challenges 
energy  transition  while  bolstering  the  EU’s 
competitiveness 
energy 
sector (58). It considers measures and targets put 
forward in the draft updated National Energy and 
Climate Plan (NECP) (59). 

clean 

the 

in 

After  successfully  phasing  out  Russian 
natural  gas  in  2022,  Latvia  is  advancing  in 
its  efforts  to  synchronise  its  grid  with  the 
European  Continental  Network  by  February 
2025. The country saw an increase in deployment 
of  solar  photovoltaics  and  new  wind  capacities, 
from  previously  insignificant  levels.  This  enabled 
increase in the share of renewables in the energy 
consumption  and  boosted  competitiveness  of  its 
energy  system.  However,  due  to  the  virtual 
overcapacity  of  the  grids,  the  deployment  of  new 
renewables project has been blocked. The sector of 
clean  technologies  manufacturing  is  still  in  its 
infancy. 

Retail  energy  prices  in  Latvia  followed  the 
EU's  prevailing  trends  in  2023,  declining 
below late 2022 levels. Average household gas 
prices  decreased  by  18%  in  the  second  half  of 
in  the  first  semester. 
2023  after  stabilising 
Meanwhile, household electricity prices, which had 
been on a persistent upward trend in the first half 
of the year, dipped by 9% in the second semester 
of 2023. After reaching a peak in the second half 
of  2022, 
industrial  consumers  experienced  a 
gradual decline in both average gas and electricity 
prices,  dropping  by  28%  and  32%  respectively  in 
the first half of 2023, widening the price gap with 
the  EU  average. Gas  prices  continued to  decrease 
in the second half of 2023, falling 12% below the 
EU  average,  while  electricity  prices  slightly 
increased  but  remained  25%  below  the  EU 
average. 

Latvia  had  some  support  measures  in  place 
since  2021  to  cushion  the  effects  of  high 
energy  prices  for  final  consumers,  while  not 

(57)  It is complemented by Annex 6 as the European Green Deal 

focuses on the clean energy transition and by Annex 8 on the 
action taken to protect the most vulnerable groups, 
complementing ongoing efforts under the European Green 
Deal, REPowerEU and European Green Deal Industrial Plan. 

(58)  In line with the Green Deal Industrial Plan and the Net-Zero 

Industry Act 

targeting  specifically  vulnerable  households 
or firms. Since December 2021 various forms of 
support  measures  were  provided  to  households 
and  firms  to  partially  compensate  for  the  rising 
energy  costs,  aiming  to  mitigate  the  negative 
impact  of  the  unprecedented 
socio-economic 
sharp rise in energy prices. The budget for energy 
support measures amounted to EUR 622 million in 
2023, with a decision on extending support during 
the next heating season pending, possibly ensuring 
more targeted support (60). 

Graph A7.1: Latvia´s energy retail prices for 
households and industry & service 

(1) For industry, consumption bands are I3 for gas and IC for 
electricity, which refer to medium-sized consumers and 
provide an insight into affordability 
(2) For households, the consumption bands are D2 for gas 
and DC for electricity 
(3) Industry prices are shown without VAT and other 
recoverable taxes/levies/fees as non-household consumers 
are usually able to recover VAT and some other taxes 
Source: Eurostat 

have 

consumers 

In  relative  terms,  electricity  prices  for  non-
increased 
household 
significantly  compared  to  the  US  and  Japan. 
Although  there  has  been  a  notable  decline  since 
the second half of 2022, Latvia’s electricity prices 
have  persisted  above  those  of  the  US  and  Japan. 
This  could  potentially  affect  the  international 
competitiveness  of  energy-intensive  industries  in 
the country.  

(60)  Stability programme of Latvia 2023–2026, chapter 3.3, 

(59)  Latvia submitted its draft updated NECP in December 2023. 

section “Energy support”. 

41 

0.000.050.100.150.200.250.300.35€/KWhGas (industry & service) - LVGas (industry & service) - EUGas (households) - LVGas (households) - EUElectricity (industry & service) - LVElectricity (industry & service) - EUElectricity (households) - LVElectricity (households) - EU 
 
 
   
 
 
Graph A7.2: Trends in electricity prices for non-
household consumers (EU and foreign partners) 

(1) For Eurostat data (EU and LV), the band consumption is ID 
referring to large-sized consumers with an annual 
consumption of between 2 000 MWh and 20 000 MWh, such 
as in electricity intensive manufacturing sectors, and gives an 
insight into international competitiveness 
(2) JP = Japan 
Source: Eurostat, IEA 

Consumer  empowerment  in  the  electricity 
and gas markets is significant in Latvia, with 
the deployment of smart meters being nearly 
complete.  In  Latvia,  the  share  of  fixed-price 
contracts  held  by  households 
increased  for 
electricity from about 57% in 2021 to about 65% 
in  2022,  and  for  gas  from  about  95%  to  100%. 
Likewise,  switching  rates  in  electricity  increased 
from around 5% to 6% in 2022, and for gas they 
decreased from about 2% to about 1%. Switching 
procedures took on average 10 days for electricity 
and  20  days  for  gas.  98%  of  household 
consumers had smart meters in 2022 (EU average 
80%).  One  limiting  factor  is  the  incomplete  legal 
framework for energy communities, which reforms 
pursued  under  the  REPowerEU  chapter  aim  to 
resolve. 

Latvia strengthened its security of supply in 
gas  and  set  objectives  for  reducing  the  role 
of  gas  by  increasing  uptake  of  renewable 
gasses.  With  the  completion  of  works  on  the 
enhancement of Latvia – Lithuania Interconnection 
project  (ELLI),  the  security  of  supply  of  both 
countries  has  been  improved,  as  well  as  more 
effective  use  of  the  Inčukalns  Underground  Gas 
Storage  (UGS)  facility.  Latvia  imports  natural  gas 
from 
the 
Lithuanian  Klaipeda  and  Estonian  Paldiski  LNG 
terminals,  and  since  22  April  2024  it  can  again 

the  global  LNG  markets 

through 

in 

the 

the  Baltic  States, 

access  the  Finnish  LNG  terminal  in  Inkoo (61). 
Latvia  owns  the  only  underground  gas  storage 
facility 
Inčukalns 
underground  storage  (2.3  bcm),  which  has  a  key 
role in ensuring the regions security of supply. This 
facility is undergoing enhancement works expected 
to be completed by 2025, which aims to increase 
the  working  gas  volume  to  2.8  bcm.  Latvia’s  gas 
storage  capacity  greatly  exceeds  its  national 
consumption (at 272%). For that reason, based on 
the  Gas  Storage  Regulation,  Latvia’s  filling  target 
and intermediate targets shall be reduced to 35% 
of  its  average  annual  gas  consumption  over  the 
previous  5  years.  Latvia  fulfilled  its  gas  storage 
obligations  last  winter,  reaching  95.8%  by  1 
November  2023,  and  ended  the  winter  season 
with  a  storage  filled  at  46.23%  by  1  April  2024. 
(62).  Latvia  has  the  potential  to  replace  its  entire 
household  gas  consumption  (0.1  bcm  in  2021) 
with domestically produced biomethane. Measures 
planned  to  be  undertaken  under  the  Latvian 
REPowerEU chapter will support this. 

Timely  synchronisation  with  the  continental 
European  network  remains  a  priority.  Like 
other  Baltic  states,  Latvia  is  still  connected  with 
the  BRELL  power  grid  (Belarus  and  Russia).  The 
project  to  synchronise  the  Baltic  states’  electricity 
grids  with  the  Continental  European  network  is  a 
flagship Project of Common Interest (PCI) financed 
by  the  Connecting  Europe  Facility  to  the  tune  of 
EUR 1.2 billion, and for Latvia also by the RRF. The 
project  deadline  has  been  brought  forward  to 
February  2025  through  a  joint  decision  at  the 
highest  level  taken  by  the  Baltic  States  and 
Poland.  It  will  increase  security  of  supply  for  the 
region  and  add  additional  transmission  capacity 
for integrating renewable electricity.  

The  surge  in  deployment  of  renewables 
continues to be driven by the uptake of solar 
PVs,  while  wind  capacities  remain  limited.  
Although hydro power remains the main source of 
renewable  electricity,  the  rapid  increase  in  2022 
and  2023  came  from  solar  PVs  and  to  a  lesser 

(61)  In Early October 2023, the Balticonnector sustained damage 
putting it temporarily out of operation, with no immediate 
impact on the security of the gas supply of Latvia. The 
Balticonnector was repaired and came back online as of the 
22nd of April 2022.  

(62)  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. 

42 

050100150200250300Index ( 2018 S2 = 100)JPUKUSLVEU 
 
  
 
extent,  new  wind  capacities.  Still,  these  sources 
remain  significantly  below  the  levels  installed  in 
both  Estonia  and  Lithuania.  The  total  installed 
capacity in solar reached in 2023 was 353 MW (a 
increase) (63).  Government  support 
240  MW 
programs were essential for this. Installed capacity 
in  onshore  wind  reached  141  MW  (a  59  MW 
increase),  with  no  offshore  capacities  still 
deployed.  The  state-owned  “Latvijas  Veja  parki” 
plans to develop 800 MW of onshore wind parks in 
8  municipalities.  The  project  was  granted  the 
status  of  national 
is  currently 
undergoing  an  environmental  impact  assessment. 
Latvia is also pursuing a joint offshore grid project 
with  Estonia  under  the  BEMIP  grids  offshore 
corridor,  having  secured  its  first  offshore  hybrid 
interconnector  on  the  1st  PCI/PMI  list.  ELWIND 
interconnector  with  Estonia 
combines  both 
transmission  and  generation  assets.  consisting  of 
an  interconnector  and  a  joint  offshore  wind  park 
with  a  capacity  which  could  go  up  to  2  GW. 
Commissioning is expected by 2035.  

interest  and 

Graph A7.3: Latvia's installed renewable capacity 
(left) and electricity generation mix (right) 

(1) "Other" includes solid biofuels and biogas 
Source: IRENA, Ember 

Latvia’s high share of renewables in heating 
and cooling is mainly related to biomass use. 
In 2022, it increased to 61% from 57.4% in 2021, 
with  further  growth  expected  as  households  and 
district  heating  providers  are  transitioning  away 
from  natural  gas  to  renewable  sources,  namely 
Innovative  district  heating  systems, 
biomass. 
including  large-scale  solar  district  heating  plants 
or  industrial  scale  heat  pumps,  are  scarce  in  the 
country.  In  terms  of  transport,  the  share  of 
renewables remains very low level (3.1%) (64). 

(63)  IRENA report Renewable Energy Statistics 2024. 

(64)  RES SHARES tool, Eurostat 

43 

power. 

accelerate 

for  wind 

renewables 

Latvia needs to undertake more swift action 
deployment, 
to 
notably 
Regulatory 
amendments  made  in  2022  are  expected  to 
facilitate  the  development  of  renewables,  notably 
onshore  wind  and  solar  energy.  With  progress 
slow,  further  efforts  should  be  undertaken  to 
address  the  remaining  barriers  to  permitting  and 
administrative  procedures.  According  to  the  draft 
updated  NECP,  Latvia  plans 
to  designate 
accelerated renewable deployment areas in 2025, 
with  the  focus  on  wind  power,  solar  energy, 
biomethane  production  and  grid  injection  areas. 
Additional  actions  should  be  taken  in  promoting 
demand 
increasing 
demand  -side  flexibility,  and  promoting  power 
purchasing agreements.  

response  and 

storage, 

the 

The  connection  of  new  large  renewable 
generation  facilities  is  being  blocked  due  to 
virtual  overcapacity  of  the  grid.  The  current 
applications  for  grid  connection  considerably 
eclipses 
transmission  network's  capacity, 
which  at  the  same  time  remains  underutilised. 
However,  a  large  portion  of  the  applied  projects 
lack  credible  evidence 
they  will  be 
implemented. The issuing of new permits has been 
stopped since July 2023. The unlocking of existing 
connection  capacities  should  be  accompanied  by 
targeted  investment  in  the  different  elements  of 
the  grid.  Under  its  REPowerEU  chapter,  Latvia  set 
out  to  prepare  a  regulatory  framework  aimed  at 
enabling  a  more  optimised  use  of  existing 
electricity  networks  to  support  connection  of 
additional renewable generation facilities. 

that 

although 

significant 

in 
Energy  efficiency  gains  slowed  down 
Latvia, 
untapped 
potential  exists.  In  2022,  Latvia  had  a  primary 
energy consumption of 4.3 Mtoe, a 3.6% decrease 
compared  to  2021  and  a  3.0%  increase  over 
2012.  It  had  a  final  energy  consumption  of  4.0 
Mtoe,  a  2.3%  decrease  compared  to  2021  and  a 
1.6%  fall  since  2012.  In  2022,  the  residential 
sector  decreased  its  final  energy  consumption  by 
7.5%  while  the  industry  sector  increased  it  by 
1.3%. 
the  energy  savings 
obligation  for  the  new  obligation  period  2021-
2030, Latvia opted for a mix of 7 policy measures, 
including  an  energy  efficiency  obligation  scheme. 
As  2021  is  the  first  year  of  the  new  obligation 
period, it is crucial for Latvia to ensure sufficiently 
ambitious  energy  saving  measures  for  the  whole 
period  if  it  is  to  achieve  the  required  amount  of 
cumulative end-use savings by 2030. 

implementing 

In 

 
 
 
the  Net-Zero  Industry  Act  (as  a  share  of  VC 
investment  in  clean  energy  technology).    EUR  46 
million  of  VC  investment  went  into  renewables, 
which  constitutes  96%  of  VC  investment  in  clean 
energy technologies.  

Latvia  remains  dependent  on  imports  for 
clean  energy  technologies.  Some  private 
initiatives  are  emerging  that  might  propel  the 
manufacturing  and  utilisation  of  hydrogen  in 
Latvia. For example, a Riga-based startup is at the 
forefront  of  designing  innovative  nano-coating 
solutions  and  essential  materials  to  support  the 
production of electrolysers and fuel cells. 

renovation  programmes, 

Increasing  investment  in  energy  efficiency 
currently 
and 
dependent on the availability of EU funding – 
is  critical.  Grants  are  the  most  common  type  of 
financing  scheme  for  energy  efficiency,  followed 
by  debt 
financing,  guarantees  and  energy 
efficiency  obligations.  They  cover  a  range  of 
sectors  and  beneficiaries,  with  budgets  ranging 
from  EUR  3  million  to  EUR  314  million  for  the 
main  measure.  Under  cohesion  policy,  more  than 
13% of the overall funding in Latvia covers energy 
efficiency  investment,  targeting  companies  and 
deep  renovation  of  buildings.  Ramping  up  energy 
efficiency programmes is dependent on the ability 
to  promote  other  innovative  energy  efficiency 
financing  models  and  to  remove  administrative 
barriers  where  they  exist,  such  as  in  energy 
performance contracting in the public sector. 

Building  renovation  programmes  need  to  be 
expanded for Latvia to achieve its ambitious 
goals,  but  also  better  targeted  to  help 
alleviate energy poverty. Latvia's building stock 
is relatively old, with around 90% of all residential 
buildings  being  constructed  before  2003.  Latvia’s 
Long-Term  Renovation  Strategy  sets  out  an 
objective  of  renovating  30%  of  multi-apartment 
buildings by 2030. While there is no available data 
on  the  share  of  buildings  renovated  to  date,  it  is 
estimated  that  planned  measures  will  not  be 
sufficient  to  meet  the  ambition.  Furthermore,  in 
terms  of  their  design  no  existing  programmes 
primarily benefit the energy poor. A low number of 
market surveillance activities on products covered 
by  ecodesign  and  energy 
labelling  creates 
concerns about compliance levels. 

Latvia has put forward only limited plans to 
illustrate  the  increased  role  hydrogen  will 
have  in  its  economy.  The  draft  updated  NECP 
does  not  provide  information  on  the  capacity  of 
electrolysers  in  2030.  Still,  through  BEMIP,  Latvia 
is  closely  working  with  its  neighbouring  Member 
States on decarbonising regional gas markets. This 
enabled  the  PCI  selection  of  the  Nordic-Baltic 
Hydrogen  Corridor  –  a  cross-border  hydrogen 
pipeline from hydrogen producing- Finland through 
the Baltics to offtakers in Poland and Germany. 

Latvia  is  an  emerging  innovator.  In  2023, 
compared  to  2021  (0.2  million),  Latvia  was 
characterised by exceptionally high venture capital 
(VC)  investment  worth  EUR  59.3  million  in  clean 
energy  technology  start-ups  and  scale-ups.  100% 
of  VC investment  was  into  technology  covered by 

44 

 
 
Table A7.1:  Key Energy Indicators 

(1) The ranking of the main suppliers is based on the latest available figures (for 2022) 
(2) Venture Capital investment includes Venture Capital deals (all stages), Small M&A deals and Private Equity (PE) growth deals 
(for companies that have previously been part of the portfolio of a VC investment firm or have received Angel or Seed funding). 
Source: Eurostat, Gas Infrastructure Europe, JRC elaboration based on PitchBook data (03/2024), JRC SETIS (2024) 

45 

20192020202120222019202020212022Import Dependency [%] 43.9%45.5%38.3%38.7%60.5%57.5%55.5%62.5%of Solid fossil fuels 110.8%89.6%93.1%193.2%43.3%35.8%37.3%45.8%of Oil and petroleum products 100.2%105.6%93.7%101.5%96.7%96.8%91.7%97.7%of Natural Gas 100.0%100.1%100.0%99.8%89.7%83.6%83.6%97.6%Dependency from Russian Fossil Fuels [%]of Natural Gas 100.0%100.0%100.0%22.6%39.7%41.3%41.1%21.0%of Crude Oil0.0%0.0%0.0%0.0%28.8%26.7%26.4%19.5%of Hard Coal80.0%97.0%40.1%39.9%43.5%49.1%47.4%21.5%2016201720182019202020212022Gas Consumption (in bcm)1.4                   1.2                   1.4                   1.4                 1.1                 1.2                 0.8                 Gas Consumption year-on-year change [%]4.2%-11.7%17.5%-5.4%-17.7%6.6%-29.0%Gas Imports - by type (in bcm)1.1                   1.2                   1.4                   1.4                 1.1                 1.2                 0.8                 Gas imports - pipeline1.1                   1.2                   1.4                   1.4                 1.1                 1.2                 0.8                 Gas imports - LNG0.00.00.00.00.00.00.0                 Gas Imports - by main source supplier (in bcm) (1)Lithuania-                   -                   -                   -                 -                 -                 0.6                 Russia1.1                   1.2                   1.4                   1.4                 1.1                 1.2                 0.2                 20192020202120222023LNG Terminals - storage capacity m3 LNGNumber of LNG Terminals00000LNG Storage capacity (m3 LNG)00000Underground StorageNumber of storage facilities1                      1                      1                      1                    1                 Technical Capacity (bcm)2.2                   2.2                   1.9                   1.9                 2.1                 20162017201820192020202120222023Gross Electricity Production (GWh) (2)6,424              7,531              6,725              6,438             5,725             5,846             4,997             -              Combustible Fuels3,767           3,000           4,170           4,174         2,940         2,990         2,016         -              Nuclear0000000-              Hydro2,530           4,381           2,432           2,108         2,603         2,708         2,750         -              Wind128              150              122              154             177             141             190             -              Solar00135741-              Geothermal0000000-              Other Sources0-                   0                   0                   0                 0                 0-                 0                 -              Gross Electricity Production [%]Combustible Fuels58.6%39.8%62.0%64.8%51.4%51.1%40.3%-              Nuclear0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Hydro39.4%58.2%36.2%32.7%45.5%46.3%55.0%-              Wind2.0%2.0%1.8%2.4%3.1%2.4%3.8%-              Solar0.0%0.0%0.0%0.0%0.1%0.1%0.8%-              Geothermal0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Other Sources0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Net Imports of Electricity (GWh)1,033              64-                    909                  1,118             1,626             1,773             2,312             -              As a % of electricity available for final consumption 15.9%-1.0%13.6%16.8%24.3%25.6%34.4%-              Electricity Interconnection [%]-               45.3%46.1%53.9%42.1%47.2%82.4%69.4%Share of renewable energy consumption - by sector [%]Electricity51.3%54.4%53.5%53.4%53.4%51.4%53.3%-              Heating/cooling51.8%54.6%55.4%57.7%57.1%57.4%61.0%-              Transport2.4%2.3%4.7%4.6%6.7%6.4%3.1%-              Overall37.1%39.0%40.0%40.9%42.1%42.1%43.3%-                 20192020202120222023VC investments in climate tech start-ups and scale-ups (EUR Mln)2.70             1.59             0.18             48.16             59.31             as a % of total VC investment (3) in Latvia start-ups and scale-ups45.3%6.1%0.1%72.7%86.5%Research & Innovation spending in Energy Union R&i prioritesPublic R&I (EUR mln)12.6             13.2             11.1             -              -              Public R&I (% GDP)0.03%0.03%0.02%-              -              Private R&I (EUR mln)4.3               -               -               -              -              Private R&I (% GDP)0.01%-                   -                   -                 -                 ELECTRICITY/ENERGYCLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIESLatviaEUENERGY DEPENDNCE 
 
   
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

skills  shortages  are  holding  them  back  in  general 
business activities (69). 

The  green  transition  requires  the  reskilling 
and upskilling of workers in energy-intensive 
industries.  In  Latvia,  33%  of  SMEs  think  that 
skills  required  for  greening  business  activities  are 
becoming more important  (EU:  42%) (69).  If  Latvia 
matches  its  projected  contribution  to  the  EU’s 
2030  renewable  energy  target,  between  500  and 
1 000 additional skilled workers will be needed for 
the deployment of wind and solar energy (e.g. the 
installation and maintenance of wind turbines and 
solar panels), which may require an investment in 
skills  of  EUR  1.7-2.1  million (70).  To  address  this 
challenge, the ESF+ will invest  approximately EUR 
into  developing  more  structural 
15  million 
upskilling  and  reskilling  and  flexible 
learning 
pathways  as  well  as  into  increasing  green  skills 
and  boosting  the  economy  in  Latvia.  To  mitigate 
the social impact of the peat sector’s transition in 
the most affected areas, the Just Transition Fund 
will  also  provide  EUR  16.9  million  for  upskilling 
and  reskilling  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 

This  Annex  monitors  Latvia’s  progress  in 
ensuring  a  fair  transition  towards  climate 
neutrality  and  environmental  sustainability, 
particularly  for  workers  and  households  in 
vulnerable situations. Latvia’s green economy is 
contracting. Between 2015 and 2021, total jobs in 
the  environmental  goods  and  services  sector 
decreased  by  12%  (to  around  24 000)  (EU: 
+18.2%), reaching 2.8% of total employment (EU: 
2.7%).  Also,  between  2015  and  2022,  the 
greenhouse  gas  emission  intensity  of  Latvia’s 
workforce  (see  Graph  A8.1  and  Table  A8.1) 
declined  from  11.6  to  10.5  tonnes  per  worker, 
below  the  EU  average  (14.3  tonnes  per  worker  in 
2022) (65),  indicating  a  positive trend  in the  green 
transition.  Upskilling  and  reskilling  measures  will 
promote  smooth  labour  market  transitions  and 
ensure  a  fair  green  transition  in  line  with  the 
Council  Recommendation on  ensuring  a 
fair 
transition  towards  climate  neutrality (66)  and  the 
implementation  of  the  REPowerEU  plan.  Latvia’s 
recovery 
envisages 
resilience 
investments 
in  areas  relevant  to  the  green 
transition (67),  complementing  the  territorial  just 
transition  plan  and  wider  upskilling  and  reskilling 
actions  supported  by  the  European  Social  Fund 
Plus (ESF+). 

plan 

and 

of 

1.7% 

comprised 

Employment 
in  sectors  that  are  most 
affected by the green transition remains low. 
In  2023,  employment  in  Latvia’s  energy-intensive 
industries (68) 
total 
employment  (3.5%  in  the  EU).  Employment  in 
mining  and  quarrying  has  fallen  by  10.3%  since 
2015 (to around 3 500 workers in 2023).  The job 
vacancy  rate  in  construction  (see  Graph  A8.2),  a 
key  sector  for  the  green  transition  as  regards 
renovation  strategies, 
lower  than  the  EU 
is 
average  (2.8%  vs  3.6%  in  EU  in  2023).  However, 
at the same time, 78% of small and medium-sized 
enterprises  (SMEs)  in  the  sector  indicated  that 

(65)  Workforce-related calculations are based on the EU Labour 
Force Survey. Note, in the 2023 country report for Latvia, 
such indicators were calculated based on employment 
statistics in the national accounts. This may result in limited 
comparability across the two reports. 

(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 the 2022 country report (Annex 6). 

(68)  Mining and quarrying (NACE B), chemicals (C20), minerals 

Source: Eurostat, EU Labour Force Survey, EMPL-JRC GD-
AMEDI/AMEDI+ and DISCO(H) projects (see Table A8.1). 

indicators  have  been 
Energy  poverty 
improving  and  remain below  the  EU  average 
in recent years, but the spike in energy prices 

(69)  Eurobarometer on skills shortages, recruitment, and retention 

strategies in small and medium-sized enterprises. 

(C23), metals (C24) and automotive (C29) 

(70)  EMPL-JRC AMEDI+ project. 

46 

0.00.51.01.52.0Greenhouse gasemissions per workerEmployment inEnergy-IntensiveIndustriesEnergy povertyTransport poverty(proxy)Carbon inequalityLV Latest vs EU LatestEU LatestLV 2015 vs EU Latest 
 
 
  
 
 
could aggravate the situation. The share of the 
population unable to keep their homes adequately 
warm  decreased  from  14.5%  in  2015  to  7.1%  in 
2022,  below the  EU  average  (9.3%) (71).  However, 
the  indicator  increased  by  2.2  percentage  points 
between  2021  and  2022  on  the  back  of  energy 
price  increases  due  to  supply  constraints  caused 
by  the  COVID-19  pandemic  and  Russia’s  war  of 
aggression against Ukraine. In particular, 18.3% of 
the  population  at  risk  of  poverty  (AROP)  (EU: 
20.1%)  and  6.9%  of 
lower  middle-income 
households  (in  deciles  4-5)  (EU:  11.6%)  were 
unable  to  keep  their  homes  adequately  warm  in 
2022.  Moreover,  in  January  2023,  10.8%  of  the 
population at risk of poverty  spent a considerable 
proportion  of  their  budget  (more  than  6%)  on 
private transport fuels (EU: 37.1%) (72). 

Graph A8.2: Job vacancy rate in transforming 
sectors and mining and quarrying 

B - Mining and quarrying 
C - Manufacturing 
D - Electricity, gas, steam and air conditioning supply 
E - Water supply; sewerage, waste management and 
remediation activities 
F - Construction 
H - Transportation and storage 
Source: Eurostat jvs_a_rate_r2. 

Despite  being  below/equal  the  EU  average, 
environmental inequalities remain an issue in 
Latvia.  In  2021,  the  consumption  footprint  for 
20% of the population with the highest income in 
Latvia  was  1.8  times  higher  than  the  footprint  of 

(71)  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.   

(72)  Affordability of private transport fuels is one key dimension 

of transport poverty. The indicator has been developed in the 
context of the EMPL-JRC GD-AMEDI/AMEDI+ projects. 
Methodology explained in Economic and distributional effects 
of higher energy prices on households in the EU. 

the  poorest  20%  in  2021  (EU:  1.8) (73).  For  both 
groups,  the  consumption  footprint  is  highest  for 
food and housing. In Latvia, the average levels of 
air  pollution in  2021  stood  below  the  EU  average 
(10.7  vs  11.4  µg/m3  PM2.5),  with  59%  of  the 
population  living  in  regions  exposed  to  critical 
levels  of  air  pollution (74).  This  had  led  to  a 
significant  impact  on  health,  affecting  vulnerable 
groups  in  particular,  and  around  1400  premature 
deaths annually (75).  

reskilling  policies  and 

Latvia  is  making  progress  in  implementing 
policies for a fair transition towards climate 
neutrality,  although  further  targeting  of  the 
specific  challenges  is  needed  in  the  context 
of  the  Council  Recommendation  of  June 
2022. Latvia is taking steps to improve upskilling 
and 
increase  adult 
participation in training. However, labour shortages 
in  key  sectors  of  the  green  economy  remain  an 
issue.  Areas  that  require  more  attention  include 
the development of green skills among the labour 
force,  support  for  social  entrepreneurs  and  SMEs, 
social  dialogue  in  green  employment,  the  use  of 
an  evidence-based  approach  to  policy  making,  as 
well  as  the  regional  approach,  which  needs  to  be 
strengthened 
green 
programmes in targeted sectors (76). 

implementing 

when 

(73)  Developed in the context of the EMPL-JRC DISCO(H) project. 
Methodology explained in Joint Research Centre, 2024. 
Carbon and environmental footprint inequality of household 
consumption in the EU. JRC137520. The EU average refers to 
EU27 without Italy (household income data not available for 
IT in the HBS) 

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

Quality Guidelines (annual exposure of 5µg/m3). 

(75)  EEA- Air Quality Health Risk Assessment 

(76)  Based on the monitoring review of the Council 

Recommendation on ensuring a fair transition towards 
climate neutrality, which took place in October 2023. 

47 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%BCDEFHEU 2023LV 2023LV 2015 
      
 
 
 
Table A8.1:  Key indicators for a fair transition in Latvia 

Source: Eurostat (env_ac_ainah_r2, lfsa_egan2d, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-JRC 
GD-AMEDI/AMEDI+ and DISCO(H) projects. 

48 

IndicatorDescriptionLV 2015LVEUGHG per workerGreenhouse gas emissions per worker – CO2 equivalent tonnes11.610.5 (2022)14.3 (2022)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24) and automotive (C29)1.4%1.7% (2023)3.5% (2023)Energy povertyShare of the total population living in a household unable to keep its home adequately warm14.5%7.1% (2022)9.3% (2022)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport10.1%10.8% (2023)37.1% (2023)Carbon inequalityRatio between the consumption footprint of the top 20% vs bottom 20% of the income distribution1.81.8 (2021)2.7 (2021) 
 
 
  
 
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The green transition of industry and the built 
environment,  in  particular  decarbonisation, 
resource  efficiency  and 
is 
Latvia’s 
essential 
competitiveness (77). In this regard, priorities for 
Latvia  are  waste  management  and  the  use  of 
circular materials in industry and construction. 

circularity, 

boost 

to 

transition 

Latvia’s  circular  economy 
is 
insufficient  to  achieve  the  EU  Circular 
Economy  Action  Plan  goals.  Latvia’s  material 
footprint  increased  from  14.4  to  20  tonnes  per 
capita  between  2016  and  2022,  remaining  above 
the  EU  average  of  14.8  tonnes  per  capita.  Waste 
production  per  capita  doubled  between  2010  and 
2020,  when  it  reached  1.5  tonnes  per  capita.  The 
2022  Eco-Innovation  Scoreboard  placed 
the 
country among the average performers in terms of 
eco-innovation.  Latvia  scored  105.4,  which 
indicates the country has some ground to make up 
in  eco-innovation.  Furthermore,  as  of  September 
2023,  Latvia  totalled  6  awarded  EU  Ecolabel 
licences  and  92  products  with  the  EU  Ecolabel, 
showing  an  increase  compared  to  the  last  few 
years. There is still room to make better use of the 
potential  of  the  circular  economy  transition  to 
drive the decarbonisation of Latvia’s industry. 

Graph A9.1: ETS emissions by sector since 2013 

Source: European Commission 

In  2023,  the  sectors  covered  by  the  EU 
emissions  trading  system  (ETS)  in  Latvia (78) 
emitted  33% less  greenhouse  gases  than  in 
the 
2019. 

In  2023,  about  half 

(47%)  of 

(77)  See also Annexes 6, 7 and 12. 

(78)  This analysis excludes air travel. The data for 2023 reflects 
verified emissions as of 14 May 2024 and may still be 
revised due to late data submissions. For more details and 
the data sources, see Weitzel, M; van der Vorst, C. (2024), 
Uneven progress in reducing emissions in the EU ETS, JRC 
Science for policy brief, JRC138215, Joint Research Centre. 

greenhouse  gases  from  Latvia’s  ETS  installations 
came  from  power  generation,  slightly  lower  than 
the EU average (57%). Of the total emissions from 
all  industry  sectors,  cement  and  lime  production 
accounted  for  85%,  with 15%  coming  from  other 
industries.  Since  2019,  the  power  sector  has 
registered  higher  reductions 
(49%)  than  the 
industry  sectors  (11%).  Between  2013  and  2019, 
greenhouse  gas  emissions  fluctuated  in  both  the 
power  sector  and  the  industry  sector,  with  2019 
levels being 6% below 2013 levels.  

last  few  years. 

Latvia is not keeping up with the EU average 
resource efficiency and productivity levels in 
the  industrial  sector.  Latvia’s  circular  material 
use rate was only 5.4% in 2022, about half of the 
EU  average  of  11.5%.  Resource  productivity  has 
remained  relatively  stable  and  lower  than  the  EU 
It  stood  at 
average  in  the 
1.6 purchasing  power  standards  per  kilogram  in 
2022.  Latvia  relies  on  imports  more  than  the  EU 
average:  its  material  import  dependence  rate 
stood  at  32%  in  2022,  compared  with  an  EU 
average  of  22.4%.  This  makes  the  country 
comparatively  more  vulnerable  to  supply  chain 
disruptions. Furthermore, the manufacturing sector 
accounted for 15.2% of water abstracted in 2019 
compared with an EU average of 9.2%.   

There is still room for reducing the industry’s 
impact  on  the  environment.  The  impact  of 
particulate  matter  emissions  from  industry  on  air 
quality 
is  higher  than  the  EU  average.  The 
emissions  of  PM2.5  per  economic  output 
(EUR’10) (79)  decreased  from  0.44 grams  in  2017 
to  0.40 grams  in  2020,  versus  an  EU  average  of 
0.07 grams/EUR’10  in  2020.  A  similar  trend  was 
reported for PM10, with 0.5 grams/EUR’10 in 2017 
and  0.44 grams/EUR’10  in  2020,  versus  an  EU 
average of 0.10 grams/EUR’10 in 2020. Moreover, 
between 2010 and 2020, Latvian industry reduced 
its  emissions  into  the  air  of  some  pollutants  and 
was  among  the  top  5  countries  for  reduction  of 
non-methane  volatile  organic  compounds  and 
PM10.  However, 
releases  of  heavy  metals 
(cadmium,  mercury,  nickel,  and  lead)  into  water 
increased by more than 20%. Latvia would benefit 
from  improving  hazardous  waste  treatment.  In 
2020,  the  country  produced  74 kg  of  hazardous 

(79)  In 2010 prices. 

49 

00.20.40.60.810.00.51.01.52.02.520132014201520162017201820192020202120222023Emissions relative to 2013Mt CO2eCement & LimeChemicalsMetalsRefineriesPower generationOtherLatvia (both axes) 
 
 
  
 
 
 
waste  per  capita  –  below  the  EU  average  of 
214 kg per capita – and treated only 21.6% of it. 

national  waste  management  plan  for  2021-2028 
includes end-of-waste criteria for construction and 
demolition waste.  

Graph A9.2: Treatment of municipal waste 

Source: Eurostat 

The  built  environment  system  has  a  high 
impact on the climate, and there is need for 
both  mitigation  and  adaptation  strategies. 
Important  mitigation  strategies  include  whole-life 
carbon  approaches  for  buildings,  Latvia  is  yet  to 
adopt these and integrate them into its regulatory 
framework.  Extreme  weather  events  such  as 
floods are increasing in intensity and frequency all 
over  Europe.  Latvia  took  action  to  protect  the 
population  from  extreme  flood  events,  with 
support  from  the  Cohesion  Fund,  the  European 
Regional Development Fund and the Recovery and 
Resilience Facility. 

room 

there 

is  still 

Latvia has made significant progress with its 
waste  management  system  over  the  last 
for 
decade,  but 
improvement. The municipal waste recycling rate 
increased from 25.2% in 2016 to 44.1% in 2021. 
However, Latvia missed the EU target of recycling 
50% of municipal waste by 2020 and is assessed 
to be at risk of missing the EU target of recycling 
55%  by  2025.  Although  Latvia  is  strengthening 
the  regional  approach  to  waste  management,  a 
lack of incentives for municipalities still holds back 
investment  in  separate  collection,  in  particular  in 
Riga.  On  a  positive  note,  the  plastic  packaging 
recycling  rate  is  increasing  and  stands  above  the 
EU  average,  reaching  41.6%  in  2021.  In  the  last 
few years, Latvia has decreased its landfilling rate, 
but  it  remains  highly  dependent  on  this  waste 
disposal  method.  The  country  risks  missing  the 
target  of  a  maximum  of  10%  of  landfilling  by 
2035.  Latvia  registered  only  1  new  patent  on 
waste and recycling in 2020. 

The  built  environment  system  continues  to 
exacerbate  the  depletion  of  resources.  The 
residential  floor  area  per  capita  stood  below  the 
EU  average  in  2020  (33.52  versus  36.48 m2  per 
capita) but has been increasing more quickly than 
in  other  EU  countries.  A  similar  trend  can  be 
observed  for  the  non-residential  floor  area.  In 
2020,  Latvia  submitted  a  long-term  renovation 
strategy aiming to decarbonise the building stock. 
Despite  some  positive  trends,  there  is  still  room 
for  improving  construction  and  demolition  waste 
management. After a peak in 2014, the amount of 
waste generated from construction and demolition 
activities  per  capita  has  decreased  and  stands 
below the EU average. The proportion of backfilling 
has  remained  stable  since  2014  and  stood  at 
9.6% in 2020, below the EU average of 9.9%. The 

Table A9.1:  Circularity indicators 

Source: Eurostat, European Environment Agency 

50 

4074394784610010020030040050020182019202020212022Kg per capita Waste treatment to be determinedLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27201820192020202120222023EU-27Latest yearIndustryResource productivity (purchasing power standard (PPS) per kilogram)1.41.51.51.41.6-2.52022Circular material use rate (%)4.74.75.25.65.4-11.52022Eco-innovation index (2013=100)97.897.897.2102.1105.4-121.52022Recycling of plastic packaging (%)35.835.435.941.6--40.72021Cost of air emissions from industry (EUR bn)0.40.40.30.4--352.72021Built environmentRecovery rate from construction and demolition waste (%)97.0-99.092.0--89.02020Soil sealing index (base year = 2006)101.7-----103.42018Non-residential floor area (m2 per capita)10.711.011.2---18.02020Waste backfilled (%)8.8-9.6-9.8-9.92020 
 
        
 
      
 
ANNEX 10: DIGITAL TRANSFORMATION 

infrastructure/connectivity 

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  23%  of  its  total  Recovery 
and  Resilience  Facility  budget  to  digital  (EUR  470 
million) (80).  Under  Cohesion  Policy,  an  additional 
the  country’s 
EUR 0.5 billion 
total 
(11%  of 
Cohesion  Policy  funding) 
is  allocated  to  the 
country’s digital transformation (81). 

and 

The  Digital  Decade  Policy  Programme  sets 
out  a  pathway  for  EU’s  successful  digital 
transformation  by  2030.  Latvia’s  national 
roadmap outlines the actions it intends to take to 
reach the objectives and targets at national  level. 
The first report on the State of the Digital Decade 
highlighted the need to accelerate and deepen the 
collective efforts to reach the EU-wide targets and 
objectives (82).  Among  others,  a  digitally  skilled 
population 
the  development  and 
adoption  of  digital  technologies  and  leads  to 
productivity  gains  and  new  business  models.  It 
also  leads  to  higher  inclusion  and  participation  in 
an environment increasingly shaped by the digital 
transformation (83). 
technologies, 
infrastructure  and  tools  all  play  a  role 
in 
addressing 
the  current  structural  challenges, 
including  strategic  dependencies,  cybersecurity 
and climate change.  

increases 

Digital 

(80)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII to the 
Recovery and Resilience Facility Regulation. 

(81)  This amount includes all investment specifically aimed at or 
substantially contributing to digital transformation in the 
2021-2027 cohesion policy programming period. The source 
funds are the European Regional Development Fund, the 
Cohesion Fund, the European Social Fund Plus, and the Just 
Transition Fund. 

(82)  European Commission (2023): Report on the state of the 

Digital Decade 2023, 2023 Report on the state of the Digital 
Decade | Shaping Europe’s digital future (europa.eu). 

(83)  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) and OECD (2019): Going Digital: 
Shaping Policies, Improving Lives – 
Summary, https://www.oecd.org/digital/going-digital-
synthesis-summary.pdf. 

51 

Tackling the digital skills gap remains one of 
Latvia’s  key  digital  challenges.  Latvia  scores 
below  the  EU  average  for  basic  digital  skills,  with 
45.3% of its population having basic digital  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. 

improve 

its  VHCN 
Latvia  has  scope  to 
coverage  and  5G  deployment.  Latvia  has 
already  allocated  a  radio  spectrum  for  5G,  but 
performs  below  the  EU  average  on  very  high 
capacity network (VHCN) coverage and has limited 
available  commercial  5G  services  to  businesses 
and  individuals (84).  As  of  2023,  5G  coverage  had 
reached 53.1% of populated areas in Latvia, which 
is  considerably  lower  than  the  EU  average  of 
89.3%.  Several  activities  are  ongoing  to  support 
the  development  of  industrial  and  innovative 
applications  of  5G  technology.  Latvia  is  also 
involved in various CEF Digital national and cross-
border  projects 
smart 
communities,  implementation  of  5G  technology 
solutions. 

connection  with 

in 

Digitalisation of businesses remains an issue 
for  Latvia. Latvia is  closing  the  gap  with  the  EU 
average  on  most  indicators.  48%  of  small  to 
medium-sized  firms  have  at  least  basic  digital 
intensity,  compared  to  an  EU  average  of  58%.  At 
37%,  the  take-up  of  data  analytics  is  already 
slightly  above  the  EU  average  of  33%.  In  2022, 
3.8%  of  enterprises in Latvia  reported  ICT  service 
outage  due  to  cyberattacks  (e.g.  ransomware 
attacks,  denial  of  service attacks).  Over  the  same 
year, 39.7% of enterprises developed or reviewed 
their  ICT  security  policy  within  the  previous  12 
months. 

Latvia  performs  well  on  digital  public 
services. Latvia scores well above the EU average 
for  digital  public  services for  citizens,  and  slightly 
above to the EU average for digital public services 
its  share  of  e-
for  businesses.  Moreover, 
government  users  exceeds  the  EU  average.  The 
Latvian  RRP  includes  measures  that  are  expected 
to  support  the  digitalisation  of  public  processes 

(84)  Some services have been launched since the data was 

collected in 2021. 

 
 
 
 
 
Table A10.1:Key Digital Decade targets monitored by the Digital Economy and Society Index 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 evolution will also be monitored separately and taken 
into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75% of EU 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.   

Nordic  and  Baltic  countries  in  order  to  ensure 
cross-border  access  to  digital  services  in  the 
region.  

Source: Digital Economy and Society Index 

and  services,  among  others  to  achieve  the  2030 
Digital Decade targets. Regarding online access to 
medical  records,  Latvia  scores  85  out  of  100, 
above  the  EU  average.  It  continues  to  take 
measures  to  improve  services  in  this  area.  Latvia 
has  an  electronic  identification  (eID)  scheme  that 
has been notified under the eIDAS Regulation and 
is already available to 39% of the public. Latvia 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 

52 

EUDigital Decade target by 2030 2022202320242024(EU)Digital skillsAt least basic digital skills51%51%45%56%80%% individuals20212021202320232030ICT specialists (1)3.8%4.4%4.4%4.8%20 million% individuals in employment aged 15-7420212022202320232030Digital infrastructure/connectivityFixed very high capacity network (VHCN) coverage63%63%71%79%100%% households20212022202320232030Fibre to the premises (FTTP) coverage (2)61%61%62%64%-% households2021202220232023Overall 5G coverage0%42%53%89%100%% populated areas20212022202320232030Digitalisation of businessesSMEs with at least a basic level of digital intensity38%NA48%58%90%% SMEs2021202320232030Data analyticsNANA37%33%-% enterprises20232023Cloud22%22%29%39%-% enterprises2021202120232023Artificial intelligence4%4%5%8%-% enterprises2021202120232023AI or cloud or data analytics (3)NANA48%55%75%% enterprises202320232030Digitalisation of public servicesDigital public services for citizens87878879100Score (0 to 100)20212022202320232030Digital public services for businesses86868785100Score (0 to 100)20212022202320232030Access to e-health recordsNA798579100Score (0 to 100)2022202320232030Latvia 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
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 transition and ensuring long-
term competitiveness.  

Graph A11.1: R&D intensity as % of GDP 2015-
2022 

‘emerging 

innovator’  - 

Latvia  is  an 
its 
performance  has  been  increasing  slowly  in 
recent  years.  According  to  the  2023  edition  of 
the  European 
the 
country’s  improvement  trends  continue  although 
at  a  slower  rate  than  the  EU  average.  The  main 
reasons  for  the  low  scores  are  a  decline  in  ‘firm 
R&D investment’ and low ‘government support for 
business R&D’. 

Innovation  Scoreboard (85), 

R&D  intensity (86)  stagnated  at  0.75% (87)  of 
GDP in 2022 and remains significantly below 
the  EU  average  of  2.24%.  Unlike  in  most 
Member States, business R&D expenditure (0.27% 
of  GDP)  is  significantly  lower  than  public  R&D 
spending (0.48% of GDP) and is the lowest in the 
EU (EU average 1.48% of GDP). Public expenditure 
on  R&D  remains  low  and  adversely  impacts  the 
entire  R&I  system, 
including  human  capital 
endowment  and  research  outputs.  Absorption  of 
the  nearly  EUR 200 million  earmarked  for  R&I  in 
the Latvian recovery and resilience plan (RRP) and 
of  the  EUR 342 million  allocated  to  R&I  in  the 
Latvian  cohesion  programming  started  recently; 
both have the potential to increase the total  R&D 
spending  in  Latvia.  However,  to  double  R&D 
intensity (88),  Latvia  needs  to  place  further  and 
continuous  emphasis  on  increasing  public  R&D 
spending.  

(85)  2023 European Innovation Scoreboard (EIS), country profile, 
Latvia: https://ec.europa.eu/assets/rtd/eis/2023/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). 

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

percentage of GDP. 

(87)  Source: Eurostat. 

(88)  Target of 1.5% of GDP is set in the National Development 

Plan of Latvia for 2021-2027: 
https://www.pkc.gov.lv/sites/default/files/inline-
files/NAP2027__ENG.pdf. 

53 

Source: Eurostat, 2023 

limits 

respectively (89)) 

The  lack  of  human  capital  is  holding  back 
research and innovation performance. The low 
number of researchers both in business and in the 
public  sector  (1.3  and  3.8  per  thousand  active 
population, EU averages 5.4 and 4.2 per thousand 
active  population 
the 
research  and  innovation  capacity  of  Latvia.  The 
low  but  slowly  increasing  number  of  doctoral 
graduates (90) and science, technology, engineering 
and  mathematics  (STEM)  graduates (91)  further 
exacerbates  the  situation.  The  new  doctoral  and 
academic  career  model,  part  of  the  RRP,  and  the 
education  reform  should  lead  to  higher  numbers 
of  highly skilled  workers. Going  forward, it  will  be 
necessary 
improving  working 
conditions  and  to  ensure  predictable  financing  to 
retain talent in Latvia (92). Additionally, Latvia could 
talent  from  abroad,  for 
consider  attracting 
example through targeted scholarships, as a short-
term solution. 

continue 

to 

The  quality  of  R&I  outputs  remains  low.  As 
illustrated  by 
the  percentage  of  scientific 
publications  within  the  top  10%  most  cited 
scientific  publications  worldwide  (4.4%  in  Latvia, 
9.6%  in  the  EU (93)),  Latvia  performs  significantly 
below  the  EU  average  in  terms  of  quality  of 
research  outputs.  This  is  caused  by  the  lack  of 

(89)  Source Eurostat. 

(90)  183 Doctoral gradates in 2022 according to Latvia 

Statistical office 
https://data.stat.gov.lv/pxweb/en/OSP_PUB/START__IZG__IG_
_IGA/IGA010/table/tableViewLayout1/.  

(91)  8.7 per thousand population, see Table A11.1 

source Eurostat. 

(92)  Source: OECD Economic Surveys: Latvia 2022 

https://doi.org/10.1787/c0113448-en. 

(93)  in 2020, Source: Science-Metrix. 

0.40.81.21.622.420152016201720182019202020212022EULV 
 
 
      
 
 
Table A11.1:Key innovation indicators 

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

research  and 

researchers,  the  historic  underinvestment  in  R&D 
and  a  fragmented 
innovation 
system (94).  The  consolidation  of  universities  and 
the  creation  of  the  Strategic Council  for  Research 
and  Innovation,  both  parts  of  reforms  within  the 
RRP,  should  reduce the  fragmentation.  This  would 
also  contribute  to  increasing  Latvia’s  participation 
in  Horizon (95),  which  can  contribute  to  research 
excellence and international collaboration. 

The 
innovation  potential  of  the  private 
sector  is  untapped.  Innovation  activity  in  the 
private companies is subdued, as indicated by the 
low  number  of  patent  applications  (0.98  patent 
application  per  billion  GDP  compared  to  the  EU 
average  of  3.4  in  2020 (96)).  This  is  caused 

(94)  Source: OECD Economic Surveys: Latvia 2022 

https://doi.org/10.1787/c0113448-en. 

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

(96)  Source: EPO’s Patent Statistical Database. 

primarily  by  low  private  R&D  spending  and  an 
overall  weak  public  science  base.  Although  the 
introduction  of  the  Latvian  Innovation  Fund’s 
industry  research  programme  and  investments 
the  RRP  might  boost  private  sector 
from 
innovation,  Latvia  should  consider 
introducing 
more  incentives  for  businesses  to  invest  in  R&D 
and  report  their  R&D  activities.  There  also 
continues  to  be  a  shortage  in  venture  capital 
in  2022 (97)),  hindering  the 
(0.02%  of  GDP 
formation of start-ups.  

(97)  EU average is 0.085% of GDP 

Source: Invest Europe. 

54 

EUaverage (1)R&D intensity (GERD as % of GDP)0.610.620.730.750.752.24Public expenditure on R&D as % of GDP0.380.470.480.460.480.73Business enterprise expenditure on R&D (BERD) as % of GDP0.220.150.260.280.271.48Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 1.563.984.36::9.6Patent Cooperation Treaty patent applications per billion GDP (in PPS)0.480.850.98::3.4Public-private scientific co-publications as % of total publications5.546.547.208.678.917.62Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0500.0510.0370.038:0.054New graduates in science & engineering per thousand pop. aged 25-3413.19.78.48.7:16.9Total public sector support for BERD as % of GDP:0.07:0.05:0.204R&D tax incentives: foregone revenues as % of GDP0.0000.002:::0.104Share of environment-related patents in total patent applications filed under the Patent Cooperation Treaty (%)0.003.3111.27::14.65Venture capital (market statistics) as % of GDP0.0160.0220.0140.0230.0350.085Employment share of high growth enterprises measured in employment (%):17.4212.23::12.512022Finance 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 2021Latvia201020152020 
 
 
 
 
     
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

Productivity  growth  in  Latvia  is  increasing, 
but a gap with the EU average remains. Over 
the  past  two  decades,  productivity  in  Latvia  grew 
rapidly as the economy converged towards the EU 
average.  While  the  country  is  still  catching  up,  its 
labour  productivity  rate  has  begun  to  slow  down, 
maintaining  its  productivity  gap  with  its  Baltic 
peers  and  the  rest  of  the  EU.  In  2023,  Latvia’s 
labour productivity (per hour worked, in purchasing 
power  standards,  see  graph  A12.1)  as  a 
percentage of the EU average was 62.7%, trailing 
both  Estonia  (67.9%)  and  Lithuania  (69.8%).  This 
its  economic 
could  be  partly  attributable  to 
structure, which is dominated by low and medium-
low  tech  firms,  as  well  as  to  regional  disparities 
(see  Annex  17).  Modernising  export  activities  and 
boosting R&D  and innovation from their low base 
have  been  highlighted  as  measures  to  close  the 
productivity gap (98).   

Graph A12.1: Labour productivity (per hour worked, 
in purchasing power standards, % of EU) 

Source: Eurostat 

The  low  rate  of  productivity  in  the  economy 
low 
largely  determined  by  markedly 
is 
productivity  in  the  manufacturing  sector. 
Labour productivity in industry was -2.7% in 2023 
(compared  to  an  EU  average  of  -1.2%,  see  table 
A12.1).  Low-tech  industries  clearly  dominate  the 
Latvian  manufacturing 
industry,  as  traditional 
(food,  timber  processing)  represent 
industries 
of 
total 
almost  half 
manufacturing.  Low  and  medium-low  technology 
intensity sectors accounted for around 85% of the 
total  manufacturing  labour  force (99).  An  increase 
in  industrial  productivity  can  be  achieved  by 
allocating  resources  to  higher  tech  (and  higher 
productivity) sectors. 

value  added 

the 

Similarly, manufacturing receives only about 
11%  of  inward  foreign  direct  investment, 
and this is directed to sectors with relatively 
low  technology.  The 
largest  foreign  direct 
investment sector within manufacturing is textiles, 
wood  and  paper  products,  printing (100).  However, 
between  2013  and  2019  the  higher  tech  sectors, 
including  biomedicine  and  IT,  grew  rapidly  and 
more  quickly  than  the  lower  technology  sectors. 
Improving  skills  and  the  business  environment 
could reinforce this trend.  

in 

it  comes 

(around  50%).  When 

low-tech  manufacturing  and 

Productivity  among  small  and  medium-sized 
enterprises (SMEs) is waning, and the digital 
and green transition is lagging. The bulk of the 
Latvian  economy  consists  of  SMEs.  They  account 
for  69.7%  of  value  added,  well  above  the  EU 
average 
to 
intensity,  67%  of  businesses  are 
knowledge 
involved 
less 
knowledge-intensive  services.  SME  productivity  is 
held  back  by  Latvia’s  low  investment  in  R&D,  as 
reflected  by  its  consistently  low  score  in  the 
European  Innovation  Scoreboard  (see  Annex  11). 
Latvian SMEs trail their counterparts on basic level 
of  digital  intensity,  ranking  23rd,  with  14%  of 
SMEs  selling  online  compared  to  18%  in  the  EU. 
While  the  need  to  accelerate  the  green  transition 
has  become  more  pressing  following  Russia’s 
invasion  of  Ukraine,  only  15%  of  SMEs  indicate 
that  they  have  a  specific  strategy  in  place  to 
reduce their  carbon  footprint  and  become  climate 
neutral,  with  63%  of  SMEs  offering  neither  green 
products  nor  services  (versus  an  EU  average  of 
54%). 

in 

Industry’s  share 
the  economy  has 
increased. It went up from 15.2% of GDP in 2019 
to 17.9 in 2023. This is still below the EU average 
is  mainly 
(20.6%).  The  manufacturing  sector 
behind  this  performance,  benefitting  also  from 
COVID-19  support.  The  wood 
industry,  which 
exports  80%  of  its  production  and  accounts  for 
20% of the country’s exports (101), benefitted from 
high external demand and high prices.  

businesses 

Latvian 
late 
payments,  but  the  situation  has  improved. 
The gap between the terms offered to businesses 
and actual payment is one of the largest in the EU. 

suffer 

from 

(98)  IMF, Article IV Latvia, 2023. 

(100) OECD International Direct Investment Statistics 2022., 2023. 

(99)  Latvia’s Productivity Report 2022. 

(101) Central Statistical Bureau of Latvia.  

55 

5055606570752014201520162017201820192020202120222023EstoniaLatviaLithuania 
 
          
 
 
 
On  average,  there  is  a  gap  of  16.2  days  for  B2B 
payments,  above  the  EU  average  and  one  of  the 
highest in the EU. The gap for payments from the 
public sector has improved significantly and is now 
12  days,  the  second  best  in  the  EU.  Overall 
performance  is  still  far  from  that  in  2019,  when 
the  average  gap  was  only  2  days  and  4  days 
respectively.  As  the  inflation  rate  has  come  down 
significantly,  the  improvement  in  late  payments 
helps put Latvian business on a firmer footing.    

improved  ranking 

While  improvements  have  been  made,  high 
barriers  to  finance  remain  a  challenge  for 
SMEs. In the EIF SME Access to Finance Index, the 
country improved from 26th place in 2020 to 16th 
in  2022.  Latvia’s 
in  2022 
compared to 2021 can largely be attributed to the 
equity side. However, its performance on the loan 
side,  arguably  more  important  for  SMEs,  has 
deteriorated. The withdrawal of COVID-19 support 
has  dramatically  reduced  the  share  of  SMEs 
benefitting  from  grants  and  subsidised  loans. 
Latvia  ranks  second  in  the  share  of  finance-
constrained  firms  in  the  EU (102).  Factors  that 
explain  Latvia’s  poor  access  to  finance  include 
persistently high interest rates and high collateral 
costs (103).   

is 

the  biggest  barrier 

Skills  shortages  are an  important  constraint 
to  long-term  growth.  Firms  in  the  industry 
sector  report  below-average  shortages  in  labour 
compared  to  other  EU  Member  States  (17%  vs 
23%).  Nevertheless,  according  to  the  2023  EIB 
Investment  Survey,  91%  of  Latvian  firms  cite the 
lack  of  availability  of  skilled  staff  as  a  barrier  to 
to 
investment.  This 
investment  reported  by  Latvian  companies  and 
well above the EU average (81%). Latvia imposes 
prior  checks  on  45  qualifications  for  temporary 
and  occasional  services  compared  to  its  Baltic 
neighbours  (Estonia  5;  Lithuania  11) (104).  Despite 
making 
regulatory 
restrictiveness  for  civil  engineers  and  patent  and 
trademark  agents  remains  higher  than  the  EU 
average (105).  This  increases  the  administrative 
burden  for  professionals  and  reduces  market 
flexibility.    

improvements, 

the 

Graph A12.2: Average net private investment as a 
% of GDP, 2019-23 

Source: AMECO 

Improving the business environment remains 
key  to  boosting  investment.  Total  investment 
as  a  percentage  of  GDP  has  been  hovering  just 
above  20%  since  2017,  accounting  for  21.8%  in 
2022 (compared to 27.5% in Estonia and 21.4% 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  1.1%  of  GDP 
over  the  past  5  years  compared  to  0.45%  in  the 
EU. However, levels of net private investment have 
consistently remained one of the lowest in the EU, 
amounting  to  -0.4%  of  GDP,  compared  to  an  EU 
average of 3.8% over the past 5 years (see graph 
A12.2).  Although  it  has  been  increasing,  private 
investment  is  still  lower  than  before  the  2007-
2008  financial  crisis.  Results  from  the  2023  EIB 
Investment 
private 
investment  is  affected  by  high  uncertainty,  the 
availability  of  skilled  staff  and  high  energy  costs. 
In 2023, 77% of Latvian firms perceived business 
regulations 
to 
their  Baltic 
investment,  much  higher 
neighbours (Estonia 46%; Lithuania, 52%) and one 
of the highest percentages in the EU. Only 39% of 
surveyed 
their 
investors  are  confident 
investments  are  protected  by  law  and  courts  in 
Latvia  (54%  being  the  EU  average).        Frequent 
changes  in  legislation  and  the  quality  of the  law-
making process are the main reasons for concern 
for Latvian investors. 

long-term  obstacle 

to  be  a 

suggest 

Survey 

than 

that 

that 

(102) EIB Investment Survey 2023. 

(103) IMF 2022. 

(104) SMET Report 2021 – 2022. 

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

Latvia  is  well  integrated  into  the  Single 
Market,  with  its  average  trade  total  with 
other EU countries accounting for more than 
half  of  its  GDP  in  2022.  Transposition  and 
conformity  deficits  are  in  line  with  EU  averages. 

56 

-2%0%2%4%6%8%10%LatviaEuropean UnionLithuaniaEstonia 
 
 
          
On  public  procurement,  the  country  is  an  average 
performer overall, with 28% of contracts awarded 
after  receiving  only  single  bids  in  2023.  This 
constitutes  a  significant  decrease  compared  with 
2022 (37%). Latvia is also among the 17 Member 
States  that  became  part  of  the  unitary  patent 
system from the outset in June 2023. The system 
enables simple patent protection in Europe, with a 
single  procedure  for  the  registration  of  patents 
litigation.  Furthermore,  Latvia 
and  centralised 
solved all  the cases (6) it handled as lead centre, 
above  EU  average  88%  (see  Table  A12.1),  with 
very  good  scores  on  handling  time  in  2023.  The 
Single  Market  Scoreboard  shows  that  the  burden 
of  government  regulation  and  administrative 
requirements  has  increased  by  almost  30%  since 
2018.  

Latvia has advanced to the preliminary stage 
of  technical  implementation  of  the  ‘once-
only’  technical  system  (OOTS) (106).  As  part  of 
the  Single  Digital  Gateway  Regulation (107),  the 
system  will  enable  the  automated  cross-border 
exchange  of  evidence  between 
competent 
authorities, improving online access to information, 
administrative  procedures  and  assistance  within 
the  EU.  The  onboarding  of  Latvian  competent 
authorities  is  crucial  for  the  system  to  function 
smoothly and to reduce administrative burden. 

(106) Implementing Regulation (EU) 2022/1463. 

(107) Regulation (EU) 2018/1724. 

57 

 
 
 
Table A12.1:Industry and the Single Market 

Source: (1) AMECO, (2) Eurostat, (3) Single Market Scoreboard, (4) OECD, (5) ECFIN BCS, (6) COMEXT and Commission 
calculations, (7) EIB Investment Survey, (8) Intrum Payment Report, (9) SAFE survey, (10) EIF SME Access to Finance Index.  
* Own Commission calculations for the EU27 average 

58 

POLICY AREAINDICATOR NAME20192020202120222023EU27 average*Net Private investment, level of private capital stock, net of depreciation, % GDP1-0,7-1,3-0,3-0,51,03,8Net Public investment, level of public capital stock, net of depreciation, % GDP11,01,71,50,51,01,2Real labour productivity per person in industry (% yoy)2-0,87,17,4-1,9-2,7-1,24Cost competitivenessNominal unit labour cost in industry (% yoy)28,7-4,4-0,213,815,89,83Single Market integrationEU Trade integration, % (Average intra-EU imports + average intra EU exports)/GDP242,142,246,853,646,842,9Transposition deficit, % of all directives not transposed30,30,821,20,50,7Conformity deficit, % of all directives transposed incorrectly30,8110,80,41,1SOLVIT, % resolution rate per country3100,0100,0100,0100,0100,088,3Number of pending infringement proceedings3131722171025,9RestrictionsEEA Services Trade Restrictiveness Index40,050,050,040,040,040,05Single bids, % of total contractors3322526372828,6Direct Awards, %38811888,1Material Shortage (industry), firms facing constraints, %57,37,816,122,912,917,2Labour Shortage using survey data (industry), firms facing constraints, %525,912,121,322,717,323,3Vacancy rate, % of vacant posts to all available ones (vacant + occupied)23,22,02,72,72,42,5Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials60,170,160,160,170,170,22Installed renewables electricity capacity, % of total electricity produced20,60,60,60,650Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle743,434,750,325,040,022,2Bankruptcies, Index (2015=100)270,544,930,537,430,0105,6Business registrations, Index (2015=100)285,472,575,672,972,2120,2Payment gap - corporates B2B, difference in days between offered and actual payment8-1611161615Payment gap - public sector, difference in days between offered and actual payment8-189131216Share of SMEs experiencing late payments in past 6 months, %956,536,536,538,150,648,7EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1100,390,170,400,26-0,49EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 110 0,160,140,140,26-0,17ECONOMIC STRUCTUREShortagesStrategic dependenciesBUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to financeLatviaHEADLINE INDICATORSEconomic StructureSINGLE MARKETCompliancePublic procurement  
 
 
     
 
ANNEX 13: PUBLIC ADMINISTRATION 

competitiveness  by, 

Latvia’s public administration is essential for 
in 
the  economy's 
particular,  shaping  the  conditions  for  the 
twin  transitions  and  creating  a  favourable 
business  environment.  The  perception  of 
government effectiveness is below the EU average 
and  shows  a  downward  trend  (Graph  A13.1).  To 
address  systemic  challenges,  Latvia  adopted  a 
modernisation  plan  for  public  administration  for 
2023-2027. 
includes  measures  for  better 
regulation,  the  centralisation  and  standardisation 
of supporting functions, support for innovation and 
digital  transformation.  The  Innovation  Lab (108)  in 
the  State  Chancellery  has  promoted  innovative 
approaches to improve the quality of critical public 
services (109). The internal control system, including 
the internal audit and risk management functions, 
became mandatory for local government bodies in 
2023 (110). 

It 

Latvia’s  civil  service  has  a  good  education 
profile.  The  share  of  public  administration 
employees  with  higher  education  and 
their 
participation  rate  in  adult  learning  indicate  a 
relatively  high-skilled  workforce.  Moreover,  the 
public administration workforce in Latvia is among 
the five youngest in the EU. While gender parity in 
senior civil service positions slightly deteriorated in 
2023, it remains well above the EU average (Table 
A13.1).  

Latvia's  public  administration  performs  well 
in  digitalisation.  The  overall  score  for  e-
government ranged from 80.2-84.7 in 2021-2023, 
which is above the EU average of 75.8. In 2023, in 
line with Latvia’s national reform programme, the 
government  has  developed  a  single  public 
administration web platform. The websites of 119 
public organisations share the same technological 
and visual whole-of-government approach.  

(108) https://www.mk.gov.lv/lv/jaunums/valsts-kancelejas-

inovacijas-laboratorija-uzlabos-sabiedribai-nozimigu-
pakalpojumu-kvalitati (accessed 23/01/2024). 

(109) Inovācijas sprintu konkursa pieteikumi atklāj valsts pārvaldē 

aktuālo problēmu daudzveidību | Ministru kabinets 
(mk.gov.lv) (accessed on 23/01/2024). 

(110) The law on internal audit was approved in 2012 and is now 
outdated as global internal audit standards promulgated by 
the Institute of Internal Auditors (Home | The Institute of 
Internal Auditors | The IIA) have been updated three times 
since then. The new global internal audit standard was 
released on 9 January 2024 and will become effective on 9 
January 2025 (2024 Global Internal Audit Standards). 

Graph A13.1: Government effectiveness 

Average value over 2018-2022 and change over 2018-2022. 
The GDP per head bar shows the mean value of the 
government effectiveness indicator for the group of EU 
countries belonging to the same GDP per head cluster as 
Latvia (EU countries are ranked in terms of their GDP per 
head and grouped into three equally sized clusters). 
Source: Worldwide Governance Indicators. 

Latvia has taken measures to strengthen its 
policymaking  through  better  coordination 
and  use  of  evidence (111).  This  includes  the 
creation  of  the  Analytical  Service  at  the  State 
Chancellery  in  March  2024.  However,  the  country 
faces  challenges in  systematically  generating  and 
using  evidence  for  policy  design  and  assessment. 
The  Cross-Sectoral  Coordination  Department 
provides  a  central  manual  on  policymaking, 
although  there  is  neither  specific  methodological 
guidance on how to use evidence nor a monitoring 
mechanism  to  assess  whether  the  manual  is 
followed.  The  Unified  Portal  for  the  Development 
and  Agreement  of  Draft  Legal  Acts  offers  an 
interactive  and  open  platform  for  stakeholders  to 
send  feedback  and  to  monitor  the  status  of 
government  policy  proposals.  Moreover, 
the 
amended  Law  on  Local  Government  brought  in 
several  mechanisms  to  foster  the  involvement  of 
civil society in local decision-making. 

In  providing  open  government  data,  Latvia 
performs  close  to  the  EU  average.  In  October 
2023, the Cabinet of Ministers approved the Data 
Distribution 
Platform 
Regulations.  This  sets  out  the  procedures  to  run 
the  Data  Distribution  and  Management  Platform 

Management 

and 

(111) With the creation of the Strategic Management Thematic 

Committee. 

59 

-0.20.00.20.40.60.81.01.2LVEU-27GDP perhead clusterChange 2018-2022Average 2018-2022 
 
 
   
 
 
 
Table A13.1:Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2023 value. If unavailable, the latest value available 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: E-government activities of individuals via websites, 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). 

(DAGR),  which  aims  to  facilitate  identifying  and 
reusing  public  data  sets (112).  Moreover,  the  fifth 
national  Open  Government  Partnership  Plan 
(2022-2025) (113)  aims 
to  strengthen  public 
participation in decision-making and make national 
and local authorities more transparent. 

estimated 

The  justice  system  works  efficiently.  The 
estimated time needed to resolve litigious civil and 
commercial  cases  at  first  instance  was  209  days 
in 2022, a slight decrease from 216 days in 2021. 
The 
resolve 
administrative  cases  at  first  instance  decreased 
from 256 days in 2021 to 200 days in 2022. The 
proportion  of  pending  administrative  cases 
remained one of the lowest in the EU. The quality 
of the justice system is good overall and is being 

needed 

time 

to 

improved. The level of digitalisation of courts and 
the  prosecution  services  continues  to  be  high.  On 
judicial  independence,  no  systemic  deficiencies 
have been reported (114). 

There  is  room  for  strengthening  Latvia’s 
independent  fiscal  institution  (IFI),  to  help 
address  fiscal  challenges.  The  Fiscal  Discipline 
Council  of  the  Republic  of  Latvia  focuses  mostly 
on  endorsing  the  macroeconomic  forecast  and 
monitoring compliance with fiscal  rules. With only 
three  full-time  staff  members,  it  is  a  relatively 
small  IFI.  It  could  therefore  face  challenges  if  it 
were  to  pick  up  new  tasks  such  as  costings  of 
planned  policy  measures.  The  Council  has  some 
media  presence,  but  there  is  scope  for  increasing 
outreach  activities  and  hence,  its  role  in  national 
fiscal debates.  

(112) As of November 2023, 818 data sets are available in the 
data portal, compared to 623 in 2022 and 472 in 2021. 
Source: Open data portal.  

(113) The plan is available at: https://www.mk.gov.lv/lv/atverta-

(114) For more details, see the 2024 EU Justice Scoreboard and 

parvaldiba (accessed 23/11/2023). 

the 2024 Rule of Law Report (forthcoming). 

60 

LV20192020202120222023EU-27(2)1n/an/an/a77.078.975.02n/a81.780.281.784.775.830.70.80.80.60.80.8471.973.075.2 (b)76.877.552.9515.811.818.3 (b)20.123.617.963.48.210.03.24.69.272.72.52.4 (b)2.62.51.580.80.90.90.9n/a0.791.11.11.11.1n/a1.410n/an/a1.79n/an/a1.7Medium-term budgetary framework indexIndicator (1)E-government and open government dataShare of internet users within the last year that used a public authority website or appE-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with higher 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 governance 
 
 
 
 
      
 
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 the EU headline and national targets 
for  2030  on  employment,  skills  and  poverty 
reduction.  

Table A14.1:Social Scoreboard for Latvia 

Source: Update of 25 April 2024. Member States are 
categorised based on the Social Scoreboard according to a 
methodology agreed with the EMCO and SPC Committees. 
Please consult the Annex of the Joint Employment Report 
2024 for details on methodology. 

The  Latvian  labour  market  continues  to 
perform  well.  The  employment  rate  (20–64 
years of age) rose to 77.5% in 2023 (EU: 75.3%). 
The  contraction  of  the  economy  is  set  to  slightly 
ease labour market tightness, as evidenced by the 
recent  fall  in  the  number  of  job  vacancies.  The 
gender employment gap is one of the lowest in the 
EU  (3.1%  in  2023,  EU:  10.2%),  and  the  disability 
employment  gap  is  also  below  the  EU  average 
(20.8%  vs  21.4%),  despite  increasing  from  2021. 
In  2023,  the  unemployment  rate  stood  at  6.5% 
(EU  average  6.1%),  however  significant  regional 

discrepancies  persist (115).  Despite  improvements, 
the youth unemployment rate was 12.3% in 2023 
(EU:  14.5%)  and  the  unemployment  rate  of 
persons  with  disabilities  was  7.1%  in  2022  (EU: 
6.3%).  

Active 
(ALMPs) 
labour  market  policies 
promote  quick  reintegration,  but  activation 
support  is  still  low.  The  European  Social  Fund 
Plus  (ESF+)  will  invest  EUR  55  million  in  the 
activation  of  the  most  vulnerable  unemployed 
persons, 
jobseekers  and  people  from  at-risk 
groups  to  find  work.  This  will  help  Latvia  achieve 
its  national  target  of  having  at least  80%  of  20–
64-year-olds  in  employment  by  2030  and  will 
limit  the  impact  of  the  persistently  high  labour 
shortages.  The  rate  of  in-work  poverty  increased 
from 8.2% in 2020 to 9.2% in 2022, partly due to 
high  inflation.  Although  it  was  raised  from  EUR 
620 in 2023 to EUR 700 in January 2024, Latvia 
still had one of the lowest minimum wages in the 
EU  in  2023.  Collective  bargaining  coverage  and 
trade union density in Latvia are relatively low and 
decreasing (116). 

Labour  and  skills  shortages  are  increasing. 
Also,  the  decline  in  the  working-age  population, 
caused by an ageing population, continues to be a 
major  challenge  in  Latvia.  The  general  vacancy 
rate for all activities increased from 2.2 in 2020 to 
2.7  in  2023In  2023,  labour  shortages  resulted  in 
more  than  3 100  unfilled  vacancies  in  science, 
technology,  engineering  and  mathematics  (STEM), 
the  sector  with  the  greatest  shortages,  which  is 
also  highly  relevant  to  the  green  and  digital 
transition (117).  The  combination  of  demographic 
challenges  and  skills  and  labour  shortages  also 
undermines  Latvia’s  potential  to 
its 
economic  competitiveness.  By  skill 
level,  the 
greatest 
in  medium-skilled 
shortages  are 
for  62.7%  of  all 
occupations,  accounting 
vacancies.  The  macro-economic  skills  mismatch 
was higher than the EU average for the 15-29 age 

increase 

(115) From 10.5% in Latgale to 5.6% in Vidzeme, 5.1% in Zemgale 

and 4.2% in Riga. 

(116) Collective bargaining coverage was 27.1% in 2018; trade 

union density was11.6%. 

(117) Darbaspēka pieprasījuma un piedāvājuma sabalansētība - 

EM 

61 

34.17.745.3103.16.377.56.51.8123.62619.82520.85.432.75.4Critical situationTo watchWeak but improvingGood but to monitorOn averagePoliy areaHeadline indicatorEqual opportunities and access to the labour marketAdult participation in learning (during the last 12 months, excl. guided on the job training, % of the population aged 25-64, 2022)Early leavers from education and training(% of  the population aged 18-24, 2023)Share of individuals who have basic or above basic overall digital skills(% of the population aged 16-74, 2023)Young people not in employment, education or training(% of the population aged 15-29, 2023)Gender employment gap(percentage points, population aged 20-64, 2023)Income quintile ratio (S80/S20, 2022)Dynamic labour markets and fair working conditionsEmployment rate(% of the population aged 20-64, 2023)Unemployment rate(% of the active population aged 15-74, 2023)Long term unemployment(% of the active population aged 15-74, 2023)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2022)Social protection and inclusionAt risk of poverty or social exclusion (AROPE) rate (% of the total population, 2022)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2022)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2022)Disability employment gap (percentage points, population aged 20-64, 2022)Housing cost overburden (% of the total population, 2022)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2022)Self-reported unmet need for medical care (% of the population aged 16+, 2022)Better than averageBest performers 
 
 
 
   
 
 
 
group  in  2022  and  has  been  increasing  since 
2019. 

increasing 

reskilling  are  key 

to 
Upskilling  and 
addressing 
labour  and  skills 
shortages.  The  share  of  high-skilled  workers  is 
expected  to  rise  from  42%  in  2022  (EU:  37%)  to 
49%  by  2035  (EU:  46%).  By  2030,  the  most 
significant  shortages,  across  all  skills  levels,  are 
expected 
in  engineering,  manufacturing  and 
construction  (about  48 000  jobs)  and  natural 
sciences,  mathematics  and  IT  (7 000  jobs) (118). 
Shortages  are  also  expected  in  healthcare  and 
social  care  (3 600).  While  recent  reforms  in 
vocational  education  have  made  vocational 
flexible  and 
education  and 
to 
attractive,  continued  efforts  are  needed 
modernise  and  improve  the  training  offer.  The 
piloting  of  skills  funds  and  individual  learning 
accounts  in  the  context  of  the  recovery  and 
resilience  plan  will  help  address  future  skills 
shortages. The continued development of targeted 
and  evidence-based  adult  learning  will  support 
Latvia in getting closer to its national target of at 
least  60%  of  adults  in  education  or  training  per 
year by 2030. 

training  more 

There  are  gaps  in  the  adequacy  of  social 
assistance  and  old-age  pensions.  This  creates 
challenges  for  Latvia  to  reach  its  2030  target  of 
95  000  fewer  people  at  risk  of  poverty  or  social 
exclusion  (AROPE).  The  AROPE  rate  (26.0%  in 
2022)  and  income  inequality  (S80/S20  at  6.33  in 
2022)  both remain above the EU average (21.6% 
and 4.74). While consumer price inflation fell from 
nearly  20%  in  2022  to  9.1%  in  2023,  it  is  still 
putting 
vulnerable 
households.  

additional 

pressure 

on 

Social  transfers  have  a  limited  impact  on 
poverty reduction (119). In 2022, the level of the 
minimum income adequacy stood at 51.3% of the 
poverty  threshold,  below  the  EU  average  of 
58.9% (120). While  reform of the minimum income 
in  2023  is  a  first  step,  the  Latvian  Constitutional 
Court  found  that  the  level  of  the  guaranteed 
minimum  income  is  still  inadequate.  Likewise, 
despite  recent  pension  reforms,  old-age  poverty 

(118) Darbaspēka pieprasījuma un piedāvājuma sabalansētība - 

EM.   

(119) Impact (excluding pensions) at 25% in 2022 (EU: 35%). 

(AROP)  remains  one  of  the  highest  in  the  EU 
(40.5%  vs  17.3%  in  the  EU  in  2022),  with  a  big 
gender  gap (121).  The  aggregate  replacement  ratio 
remains significantly below the EU average. While 
Latvia  will  gradually  reintroduce  from  2024  on 
pension  supplements  for  those  who  retired  after 
2012, this is expected to have a limited impact on 
reducing  old-age  poverty (122).  Additionally,  the 
funding allocated under the ESF+ for material and 
food support risks being insufficient. 

Unmet  medical  needs  and  inadequate  long-
term care (LTC) are persistent problems.  The 
share  of  the  population  aged  65  and  over  is 
expected  to  increase  from  20.9%  in  2022  to 
30.1%  in  2050,  while  funding  for  LTC  (0.3%  of 
GDP  in  2021)  is  well  below  the  EU  average  of 
1.7%.  Only  14.6%  of  people  aged  65  and  over in 
need of LTC used home care services in 2019, two 
times less than in the EU. The affordability of LTC 
issue,  with  out-of-pocket  costs 
is  also  an 
representing  223%  of  the  median  income  of 
people with severe needs.  

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, special extraction excl. guided on-the-job training. 
(2) Change in the number of persons at risk of poverty or 
social exclusion (AROPE), reference year 2019. 
Source: Eurostat, DG EMPL. 

social 

services 

provision  of 

is 
The 
inadequate.  The  provision  of  social  services 
remains  fragmented  at  the  municipality  level, 
which  limits  the  coverage  and  the  quality  of 
legislative 
support 
amendments,  currently  in  negotiation,  for  the 
provision  of  minimum  services (123) 
in  each 
municipality  from  2024  to  2029  and  their  timely 

Proposed 

provided. 

(121) The AROP (at-risk-of-poverty) rate for older women was 

45.6% in 2022 vs 30.2 for men. 

(122) Estimations performed by the European Commission, Joint 
Research Centre, based on the EUROMOD model, I6.0+”. 

(123) These services include home care, group homes, day care 

(120) Source: SILC 2022, based on income year 2021. 

centres and family assistants. 

62 

IndicatorsLatest dataTrend            (2016-2023)2030 targetEU target 77.5(2023)34.1(2022)-302023Poverty reduction2 (thousands)-95-15,000Employment (%)8078Adult learning1 (%)6060 
 
 
 
   
 
 
implementation  would  help  solve  this  problem. 
Deinstitutionalisation  efforts,  launched  with  the 
help of EU funding for 2014-2020, have provided 
more  people  with  mental  disabilities  access  to 
community-based services (up from 20% in 2012 
to 32% in 2021), but further efforts are needed to 
reach the national 45% target by 2027.  

is 

legal 

Homelessness  and  the  poor  quality  of  social 
housing  remain  key  challenges.  The  social 
housing  stock  is  very  limited  and  there  is  no 
established  definition  of  homelessness  in  the 
there  a 
framework,  nor 
national 
comprehensive  data  collection  system,  which 
limits  effective  policy  planning  in  this  area.  The 
lack  of  housing  is  also  a  result  of  the  local 
authorities’  struggles  to  host  people  fleeing 
Russia’s war of aggression against Ukraine, which 
puts  in  question  the  ability  of  municipalities  to 
house the projected 12 000 new arrivals in 2024. 
recently  adopted  2023-2027  housing 
The 
affordability guidelines aim to create a strategy to 
improve  the  availability  of  housing  for  different 
income groups. An investment of EUR 51.8 million 
from the European Regional Development Fund in 
social  housing  will  support  the  construction  or 
renovation of at least 1 500 dwellings by 2029. An 
investment of EUR 42.9 million from the Recovery 
and  Resilience  Fund  will  support  the  construction 
of almost 500 low-rent dwellings by 2026.  

63 

 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  of 
Latvia’s education and training system based 
on  the  2023  Education  and  Training  Monitor 
for 
and 
the  2022  OECD  Programme 
(PISA) 
International  Student  Assessment 
results. 

More  than  20%  of  15-year-olds  have 
insufficient  basic  skills  in  mathematics  and 
reading,  which  risks  harming  Latvia’s  future 
economic  potential.  The  proportion  of  15-year-
olds  underachieving  in  reading,  mathematics  and 
science,  as  measured  by  the  Programme  for 
International  Student  Assessment  (PISA)  in  2022, 
has 
remaining 
consistently  below  the  EU  average  (Table  A15.1 
and  Graph  A15.1).  Latvia  is  among  the  top-
performing  EU  countries  in  science.  However,  the 
share  of  top-performing  students  in  all  three 
domains is below the EU average and has been for 
the  past  decade,  which  may  harm  Latvia’s 
innovation capacity going forward. 

increased  since  2012,  while 

on 

influence 

Socio-economic  status  has  a  comparatively 
limited 
educational 
performance. In 2022, the socio-economic gap in 
underachievement  in  mathematics  was  equal  to 
lower  than  the  EU  average. 
28 pps,  9.1 pps 
Although  the  underachievement  rate  in  students 
from  the  bottom  quarter  of  the  distribution 
increased  by  9.6 pps  compared  with  2018,  it 
remained  well  below  the  EU  average  in  2022,  at 
36.9% vs 48.0% at EU level. 

Graph A15.1: Underachievement rates by field, 
PISA 2012, 2018 and 2022 

Source: OECD (2023). 

ELET rate among 18-24-year-olds was at 7.7%, up 
from  6.7%  the  previous  year  but  still  below  both 
the EU average of 9.5% and the EU-level target of 
less  than  9%  by  2030.  Men  are  almost  twice  as 
likely  as  women  to  be  early 
leavers  from 
education  and  training  (10%  as  against  5.5%). 
However,  over  the  years,  the  male  ELET  rate  has 
been  falling  steadily,  progressively  reducing  the 
gender  gap,  from  8.4 pps  in  2010  to  4.3 pps  in 
2023 (EU average 3.6 pps). 

Teacher  shortages  are  increasingly  being 
felt, but renewing the teaching force remains 
a  challenge.  Despite  substantial  improvements 
over  the  years,  low  statutory  pay (124)  and  high 
workload  contribute  to  making  teaching  relatively 
unattractive. The proportion of students in schools 
whose  principals  say  that  the  capacity  to  provide 
instruction is hindered by the lack of teaching staff 
has  risen  sharply  over  the  years,  from  21.5%  in 
2015  to  67.7%  in  2022,  well  above  the  EU 
average  of  53.4%  (PISA  2022).  As  a  high  share 
(36.9%)  of  Latvian 
is  approaching 
retirement age, the lack of new teachers entering 
the  profession  may  pose  a  threat  to  ensuring 
adequate  teacher  availability  within  the  next 
decade. 

teachers 

Regional  inequalities  in  access  to  quality 
education  are  a  challenge.  Access  to  quality 
education is dependent on place of residence, with 
larger  urban  schools  performing  better  than 
smaller, rural ones. 

The  government  is  pursuing  its  efforts  to 
consolidate  the  school  network.  More  than 
EUR 30  million 
is  available  for  this  purpose 
through  the  EU  Recovery  and  Resilience  Facility. 
The  government  is  encouraging  municipalities  to 
build  high-quality  basic  education  schools  outside 
big  cities  by 
infrastructure  and 
learning  technologies.  In  addition,  the  Ministry  of 
Education and Science is planning a new financing 
model for schools which it hopes will lead to faster 
consolidation as well as better wages for teachers. 
Under  the  new  model,  the  state  would  no  longer 
allocate  funds  to  municipalities  based  on  the 
number  of  pupils  in  the  entire  municipality,  but 
would  allocate  funding  to  each  school  separately, 

investing 

in 

leavers  from 
The  proportion  of  early 
education and training (ELET) is below the EU 
average  and  shows  a  marked  reduction  in 
gender disparities over the years. In 2023, the 

(124) The average salaries of teachers in Latvia are below GDP per 
capita at all educational levels except for general upper 
secondary education (European Commission, European 
Education and Culture Executive Agency 2022). 

64 

05101520253035LVEULVEULVEUMathematicsReadingScience%2012201820222030 EU target 
 
  
 
 
 
Table A15.1:EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Notes: b = break in time series; d = definition differs; e = estimated; p = provisional; u = low reliability; : = data not available. 
Source: 1,3,4,5,7,8,9,10,12=Eurostat; 11= Eurostat, Adult Education Survey; 2,6=OECD, PISA. 

effectively curtailing the ability of municipalities to 
redistribute funding in favour of small schools. 

Participation  in  early  childhood  education 
and  care  (ECEC)  is  almost  universal  for 
children  aged  between  3  and  the  start  of 
compulsory  education.  In  2022,  95.5%  of  3-6-
year-olds  were  enrolled  in  ECEC,  above  the  EU 
average of 93.1%, and not far below the EU-level 
target  of  96%  by  2030.  The  share  of  children 
under 3 enrolled in formal childcare is growing but 
remains below the EU average. (see Annex 14). 

the 

share  of 

The  proportion  of  young  adults  with  a 
tertiary educational qualification is high and 
growing,  but 
science, 
technology,  engineering  and  mathematics 
(STEM)  graduates  remains  low,  particularly 
among  women.  In  2023,  45.1%  of  Latvian  25-
34-year-olds 
educational 
a 
qualification, above both the EU average of 43.1% 
and the EU-level target of 45% by 2030. But while 
the tertiary educational attainment rate for young 
women  (57.3%)  is  significantly  above  the  EU 
average  of  48.8%,  the  rate  for  men  is  slightly 

tertiary 

had 

below (33.6% vs 37.6%). The resulting gender gap 
is  among  the  widest  in  the  EU.  The  proportion  of 
tertiary  students  pursuing  a  degree  in  STEM  is 
below  the  EU  average.  In  2021  25.9%  of  new 
entrants  into  tertiary  education  were  enrolled  in 
STEM, fewer than in 2016 (27.6%) and below the 
EU  average  of  28.9%.  By  contrast,  the  proportion 
of new entrants in ICT grew to 8.3% in 2021 (from 
7.1%  in  2016)  and  remains  well  above  the  EU 
average of 4.9%.   

The  low  proportion  of  STEM  graduates  and 
the  unattractiveness  of  academic  careers 
may  limit  innovation  capacity.  The  lack  of 
researchers  and  PhD  graduates (125)  is  one  of  the 
main  barriers  to  strengthening  the  Latvian  R&I 
system,  especially  in  the  private  sector.  The 
Latvian  recovery  and  resilience  plan  introduces 
various  reforms  of  the  higher  education  system 
that aim to align university courses with industrial 
needs  and  to  increase  the  attractiveness  of 

(125) In 2021, there were 0.3 PhD graduates per 1 000 inhabitants 

aged 25-34 (EU average: 1.3), down from 0.5 in 2015. 
Eurostat: educ_uoe_grad06. 

65 

96%91.3%201391.8%201394.1%92.2%94.5%202192.5%2021,dReading< 15%17.0% 18.0%22.4% 22.5%22.8%202226.2%2022Mathematics< 15%19.9% 22.1%17.3%22.9%22.2%202229.5%2022Science< 15%12.4% 16.8%18.5%22.3%16.5%202224.2%2022< 9 %10.6%12.6%8.3%10.5%7.7%9.5%Men14.7%14.5%11.4%12.1%10.0%11.3%Women6.3%10.6%5.0%8.7%5.5%7.7%Cities7.5%b11.2%:u9.4%6.0%u8.6%Rural areas13.9%b14.0%11.3%11.0%9.5%9.9%5By country of birthNative10.8%11.3%8.4%9.2%7.9%8.2%EU-born:u26.2%:u22.4%:u21.0%Non EU-born:u30.1%:u23.0%:u21.6%6Socio-economic gap (percentage points)25.6:19.829.528.0202237.220227Exposure of VET graduates to work-based learning≥ 60% (2025) ::: :: 64.5%45%38.7%34.1%41.6%38.7%45.1%43.1%Men26.2%29.1%30.0%33.3%33.6%37.6%Women51.2%39.2%53.8%44.2%57.3%48.8%Cities45.0%b43.5%48.8%49.0%53.8%53.3%Rural areas31.3%b24.8%30.3%27.7%33.6%31.7%Native38.8%35.4%41.6%39.7%44.0%44.2%EU-born:u29.3%:u36.7%:u40.2%Non EU-born32.0%24.2%41.6%31.0%64.0%37.1%11Participation in adult learning (age 25-64)≥ 47% (2025) ::39.0%201637.4%201634.1%202239.5%202224.6%201322.7%201329.0%23.8%36.9%202124.5%2021Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth12Share of school teachers (ISCED 1-3) who are 55 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 urbanisation201220182023IndicatorTargetLatviaEU-27LatviaEU-27LatviaEU-27 
 
 
  
 
research careers in a bid to increase the country’s 
productivity and innovation potential. 

66 

 
 
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 at birth in Latvia was among 
the  lowest  in  the  EU  in  2022.  There  was  a 
significant  drop  in  life  expectancy  between  2020 
and  2021  due  to  the  COVID-19  pandemic.  As 
mortality  from  COVID-19  declined 
in  2022 
compared to 2021 (126), life expectancy rebounded, 
levels.  Latvia’s 
though  not  to  pre-pandemic 
mortality  rate  from  treatable  causes  was  among 
the  highest  in  the  EU  in  2021.  At  the  same  time, 
mortality  in  the  economically  active  age  groups, 
both  as  a  share  of  total  mortality  and  relative  to 
the workforce size, is among the highest in the EU. 
In  2021,  diseases  of  the  circulatory  system 
(‘cardiovascular  diseases’)  and  cancer  were  the 
leading  causes  of  death,  followed  by  COVID-19. 
Cancer  screening  rates  are 
in 
relatively  high  cancer  mortality  rate  compared 
with the EU average. 

low,  reflected 

Graph A16.1: Life expectancy at birth, years 

Source: Eurostat 

Health  expenditure  in  Latvia  remains  among 
the  lowest  in  the  EU  and  only  69.5%  of  it 
was  publicly  funded  in  2021.  Spending  per 
capita  is  below  the  respective  EU  averages  for 
outpatient care, inpatient care, disease prevention, 
pharmaceuticals  and  medical  devices.  In  2021, 
total  healthcare  spending  increased  to  9.1%  of 
GDP, up from 7.3% in 2020, but it was still below 
the EU average of 10.9%. The increase came from 
additional  resources  allocated  to  the  health 
system  in  response  to  COVID-19  pandemic.  The 

(126) Based on data provided directly by Member States to the 

European Centre for Disease Prevention and Control, under 
the European Surveillance System. 

proportion  of  total  health  spending  that  was 
publicly  funded  (69.5%)  remained  well  below  the 
EU  average  of  81.1%.  Provisional  data  from  the 
OECD  suggest  that  in  2022  total  healthcare 
spending  fell  back  to  8.8%  of  GDP.  Based  on  the 
age profile of the population, public expenditure on 
health  is  projected  to  increase  by  0.5 percentage 
points (pps) of GDP by 2070, compared to 0.6 pps 
for the EU overall (see Graph 16.2 and Annex 21). 

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2024-2070 

Baseline scenario 
Source: European Commission / EPC (2024) 

In  2021,  spending  on  prevention  in  Latvia 
amounted  to  5.1%  of  total  spending  on 
healthcare,  compared  to  6.0%  for  the  EU 
overall.  Between  2019  and  2021,  spending  on 
preventive care in Latvia doubled, closely following 
the  trend  across  the  EU.  Proportionally,  budget 
shares  for  prevention  across  the  EU  increased 
most  for  emergency  response,  disease  detection 
and 
Latvia, 
spending  on  immunisation  programmes  increased 
by 529% in 2021, making that the biggest  single 
factor  behind  that  year’s  increase  in  spending  on 
preventive care. 

immunisation  programmes. 

In 

in  Latvia 

is  under-
The  health  system 
resourced  and  this  limits  access  to  quality 
and timely care. Low levels of public funding for 
health results in quotas for provision of healthcare 
services, high waiting times and high unmet needs. 
The proportion of the Latvian population reporting 
unmet needs for medical care in 2022 was among 
the highest in the EU (5.4% in Latvia compared to 
an EU average of 2.2%), with lower income groups 
disproportionally  affected.  A  significant  proportion 
of  the  population  (8%)  reported  unmet  needs  for 
mental  healthcare  during  the  pandemic (127).  Cost 

(127) Eurofound (2022), Living, working and COVID-19 survey, 

rounds three and five (spring 2021 and spring 2022). Dublin, 

67 

74.975.175.775.573.174.580.981.081.380.480.180.6201720182019202020212022LatviaEU6.65.30.60.502468EULatvia% of GDP20242070increase 
 
   
 
   
 
 
 
 
Table A16.1:Key health indicators 

Note: The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple 
average is used. Doctors’ density data refer to practising doctors in all countries except Greece, Portugal (licensed to practise) and 
Slovakia (professionally active). Nurses’ density data refer to practising nurses in all countries except Ireland, France, Portugal, 
Slovakia (professionally active) and Greece (hospital only). 
Source: Eurostat Database; except: * OECD, ** Joint Questionnaire on non-monetary healthcare statistics, *** ECDC, **** Council 
Recommendation on stepping up EU actions to combat antimicrobial resistance in a One Health approach. 

Latvia’s  mortality 

and  long  waiting  lists  have  been  reported  as  the 
most frequent barriers to accessing mental health 
services (128).  Overall, 
the  statutory  benefits 
package for healthcare is relatively limited and the 
services  and  goods  covered  nearly  always  require 
user co-payments. Consequently, the share of out-
of-pocket  spending  for  healthcare  is  very  high  in 
Latvia  (27%  in  2021  versus  an  EU  average  of 
14.5%).  The  underfunding  of  the  health  system 
levels  of  avoidable 
also  contributes  to  high 
mortality. 
from 
rates 
preventable  and  treatable  causes  are  among  the 
highest  in  the  EU.  In  2021,  Latvia  reported  the 
highest  rates  in  the  EU  for  mortality  within 
30 days of hospital admission for heart attack and 
stroke. In recent years, public financing for health 
has increased and this may have contributed to an 
observed  reduction  in  out-of-pocket  spending  for 
healthcare.  This  trend  is  encouraging,  but  further 
investment  is  needed  to  improve  the  accessibility 
and  quality  of  healthcare.  For  example,  a  plan  to 
improve  the  organisation  of  mental  healthcare  in 
2023-2025 was approved in 2022, but funding to 
implement  the  plan  has  been  allocated  only  from 
2024 and is lower than what the plan envisages. 

Latvia  faces  persistent  shortages  of  health 
professionals,  which  hinder  the  provision  of 
healthcare.  The  number  of  practising  nurses  per 
1 000  population  (4.2  in  2021)  is  one  of  the 
lowest  in  the  EU.  The  Ministry  of  Health  has 
estimated  that  the  health  sector  requires  around 
4 900  additional  nurses.  The  number  of  doctors 

https://www.eurofound.europa.eu/surveys/living-working-and-
covid-19-e-survey. 

per  1 000  population  (3.4  in  2021)  is  also  below 
the  EU  average  (4.1  in  2021).  Working  conditions 
are  a  significant  factor,  with  low  pay  acting  as  a 
deterrent  to  entering  the  profession,  particularly 
for  nurses.  A  significant  proportion  of  doctors 
(47.7%) and nurses (34.3%) are aged 55 or above, 
raising  concerns  about  the  long-term  accessibility 
of  health  services.  Through  its  recovery  and 
resilience plan (RRP), Latvia is developing a health 
workforce  strategy  and  a  new  pay  model  for 
healthcare staff. 

the 

EU  funds  support  substantial investments  in 
healthcare  in  Latvia.  Through  its  RRP,  Latvia 
plans  to  invest  EUR 181.5 million  in  healthcare. 
The RRP includes a set of reforms and investments 
aimed  at  strengthening 
resilience  and 
accessibility  of  Latvia’s  health  system.  Work  has 
progressed,  for  example,  with  the  adoption  of  a 
digital  health  strategy  and  recommendations  for 
the  planning  of 
integrated  care,  and  with 
investments 
infrastructure. 
Complementary  investments  are  planned  under 
the  cohesion  policy  funds  in  2021-2027.  Latvia 
will  invest  EUR 184 million  in  medical  equipment, 
health  infrastructure,  digitalisation  of  healthcare 
the  accessibility, 
improve 
to 
and  measures 
effectiveness  and 
the  health 
resilience  of 
system (129). 

hospital 

in 

(129) The EU cohesion policy data reflect the status as of 13 May 

(128) https://europa.eu/eurobarometer/surveys/detail/3032 

2024. 

68 

20182019202020212022EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)196.4188.6185.5205.0NA93.3 (2021)Cancer mortality per 100 000 population293.9292.6296.5283.6NA235.4 (2021)Current expenditure on health, % GDP 6.26.67.39.1NA10.9 (2021)Public share of health expenditure, % of current health expenditure59.960.163.669.5NA81.1 (2021)Spending on prevention, % of current health expenditure 2.62.63.15.1NA6.0 (2021)Available hospital beds per 100 000 population549542529516NA525 (2021)Doctors per 1 000 population3.33.33.33.4NA4.1 (2021)*Nurses per 1 000 population4.4**4.4**4.2**4.2**NA7.9 (2021)Total consumption of antibacterials for systemic use, daily defined dose per       1 000 inhabitants per day ***13.813.911.911.615.019.4 (2022) 
 
 
 
 
  
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

Annex 17 showcases the economic and social 
regional  dynamics  in  Latvia.  It  provides  an 
analysis  of  economic,  social  and 
territorial 
cohesion  in  the  Latvian  regions  and  assesses 
investment  and  subnational  reform 
emerging 
social 
needs 
development and competitiveness in the country. 

foster  economic  growth, 

to 

of 
Overview 
performance at regional level 

economic 

and 

social 

Map A17.1:  GDP per capita (in PPS) in Latvia, NUTS 
3, 2021 

Source: Eurostat, DG REGIO elaboration 

The  regional  outlook  is  characterised  by 
significant  disparities  between  the  capital 
Rīga and the rest of the country. In 2021, the 
GDP  per  capita  (in  purchasing  power  standards 
(PPS))  of  the  Rīga-capital  was  116%  of  the  EU 
average,  but  in  the  other  NUTS  3  regions  ranged 
between 56% in Pierīga and 35% in Latgale in the 
east of the country (Map A17.1). 

There  are  very  large  regional  differences  in 
GDP  growth  and  productivity,  with  Latgale 
lagging  behind  most.  Productivity  (measured  as 
gross value added (pps) per worker) is lower than 
the  EU  average  (100)  in  all  Latvian  regions  and 

69 

varies  between  41  in  Latgale  and  89  in  Pierīga. 
Lower  productivity  feeds  into  lower  income  levels 
in  the  regions  with  negative  effect  on  levels  of 
employment,  share  of  people  at-risk-of-poverty 
and  other  socio-economic  indicators.  GDP  per 
capita in Pierīga and Rīga grew at an annual  rate 
of 3.5% and 4,1% respectively in 2012-2021, but 
by  only  2.4%  in  Latgale.  Kurzeme  and  Latgale 
have  a  lower  average  annual  GDP  growth  rate 
in  Latgale  e.g. 
in  2012-2021 
(around  0.5% 
compared to 2.6% in Latvia nationwide and 1.6% 
in  the  EU  2013-2022)  resulting  in  increased 
divergence with the rest of the country and the EU. 
Importantly,  Latgale  has  the  lowest  GDP  per 
capita,  and  it  has  suffered  from  the  recent 
complete  breakdown  of  trade  relations  with 
neighbouring Russia and Belarus since the start of 
Russia’s war of aggression against Ukraine.  

regions  are  undergoing 

Latvian 
rapid 
depopulation driven by the low birth rate and 
emigration.  In  Rīga  and  Pierīga,  there  are 
signs  of  suburbanisation.  Latvia's  population 
decreased by 8.4% in 2013-2021. The population 
fell  by  more  than  10%  since  2013  in  4  regions 
(Kurzeme,  Vidzeme,  Zemgale  and  Latgale).  The 
biggest  fall  was 
in  Latgale  (-18.7%).  Rīga's 
population  decreased  by  6.7%,  whereas  the 
population  in  the  surrounding  region  of  Pierīga, 
increased by 4.1%, which was the strongest most 
recent increase. 

Significant 
differences 
socio-economic 
between  urban  and  rural  areas  persist.  The 
unemployment  rate,  the  share  of  young  people 
neither in employment nor in education or training 
(NEET),  the  share  of  early  school  leavers  were  all 
higher in rural areas than in more urbanised areas 
(cities,  towns  and  suburbs)  in  2021.  People  living 
in  rural  areas  also  have  on  average  a  lower level 
of  educational  attainment.  Patent  applications  to 
the  European  Patent  Office  (EPO)  per  million 
inhabitants  were  nearly  10  times  higher  in  Rīga 
and Pierīga than in the (rural) rest of the country. 

Large  disparities  remain  between  urban  and 
rural  areas  in  terms  of  poverty  and  social 
exclusion.  In  2021,  31.6%  (almost  3  percentage 
points up on 2020) of the rural population was at-
risk-of-poverty  or  social  exclusion  (AROPE)  while 
the  rate  was  23.8%  in  towns  and  suburbs  and 
22.4%  in  cities.  The  demand  for  basic  food  and 
material  assistance  in  Latvia  has  significantly 
increased – 127 000 people in 2022 compared to 
87  000  in  2021.  In  2023  the  number  of  the  aid 

 
 
 
 
 
 
Table A17.1:Selected indicators at regional level in Latvia 

Source: Eurostat, EDGAR database 

recipients  has  slightly  decreased,  but 
it  still 
exceeded  100  000.  The  cost  of  food  and  other 
essentials has also increased considerably. 

Regional  differences  are  evident  in  Latvia’s 
transport systems performance. The efficiency 
of the road network for a return trip in a single day 
(measured  as  share  of  population  accessible 
within  1h30  by  road,  from  the  total  population 
living  in  120  km  radius  (reference  year  2021))  is 
higher in the capital region (75.8%) and in Pierīga 
(69.2%)  than  the  EU  average  but  lower  in  the 
other regions, particularly in Kurzeme (39.2%) and 
Vidzeme  (34.9%).  There  is  a  need  to  step  up 
investments  in  the  country’s  railway  network  (as 
an  alternative  to  road  transport)  and  sustainable 
urban  transport:  especially  in  the  electrification 
and provision of electric trains. 

The  digital  divide  between  urban  and  rural 
areas  persists.  Recent  years  have  seen  a  high 
increase  in  the  uptake  of  public  digital  services. 
77% of Latvians interacted with public authorities 
online in 2021, which was significantly higher than 
the EU average of 58%. Nevertheless, insufficient 
connectivity  in  rural  areas  is  hampering  the 
integration  of  digital  technologies.  In  rural  areas, 
fixed very high-capacity network coverage reached 
75% in 2021, an increase of only 1 pps compared 
to the previous year. Due to low incomes and low 
incentives  for 
population  density,  commercial 
private  operators  to  connect  premises  in  rural 
areas  are  lacking.  More  public  funding  is  needed 
for  the  deployment  of  last  mile  infrastructure  in 
order to overcome these obstacles and to achieve 
nationwide speeds of at least 100 Mbit by 2027. 

Investment  and  subnational  reform  needs 
ahead 

Skills  shortages  and  mismatches  require 
more  attention.  Investing  in  upskilling,  reskilling 
and job-to-job transitions, improving the quality of 
education,  in  particular  in  general  and  vocational 
education,  and  adult 
remains  an 
important investment priority in the years to come. 
This  is  a  particular  issue  for  social  services  and 
healthcare providers as there is a lack of qualified 
professionals due to current labour shortages and 
an increasing demand for these services. Generally 
speaking,  the  situation  is  in  fact  so  serious  that 
Latvia risks falling into a talent development trap.  

learning 

transfer 

capacity, 

the  weak 

The capacity for businesses, especially in the 
lagging  regions  to  innovate  and  increase 
productivity  remains  weak.  This  is  true  for 
technology 
public-private 
collaboration and the share of innovative SMEs, as 
well  as 
innovation  enablers  and 
participation  in  European  research  and  innovation 
networks, 
programmes. 
Strengthening  the  quality  and  efficiency  of  the 
innovation  eco-system  is  necessary  to  ensure  a 
investments 
full  uptake  of 
contributing to innovation diffusion among all eco-
system stakeholders.  

the  additional 

platforms 

and 

Latvia  needs  to  accelerate  support  to 
achieve  its  green  transition.  It  would  be 
beneficial to focus on energy efficiency measures, 
especially  in  housing  as  well  as  the  further 
deployment of renewable energy installations and 
facilitating  investments  in  net-zero  technologies 
manufacturing.  The 
renovation  of  apartment 
buildings  through  financial  instruments  to  make 

70 

NUTS 3 RegionGDP per capita (PPS)GDP (mln of PPS)Productivity (GVA (PPS) per person employed)Real productivity growthGDP growthGDP per head growthPopulation growthNet migrationTransport performance by carAverage excess mortality, 2020-2021EU27=100, 2022 (LV); 2021 (regions)2022 (LV); 2021 (regions)Index, EU27 = 100, 2022 (LV); 2021 (regions)Average % change on the preceding year, 2013-2022; 2012-2021 (regions)Average % change on the preceding year, 2013-2022; 2012-2021 (regions)Average % change on the preceding year, 2013-2022; 2012-2021 (regions)Average annual change per 1000 residents, 2013 - 2021Average annual change per 1000 residents, 2013 - 2021Share of population in a 120-km radius that can be reached within 1h30 (%); 2021% compared to average 2015-2019European Union100159052801000.71.61.41.92.977.2Latvija7348555732.52.63.4-8.4-3.760.213.2Kurzeme534061591.60.92.3-13.2-7.539.28.8Latgale352891410.70.52.4-18.7-8.249.914.3Rīga11623133823.03.44.1-6.7-2.875.815.8Pierīga566959894.23.73.54.14.569.212.5Vidzeme513058584.03.65.1-14.5-8.134.99.7Zemgale483548602.82.83.9-11.2-6.257.013.6 
 
 
  
 
GDP  growth  rates  well  below  national  averages, 
the  gap  with  other  Baltic  regions  and  the  rest  of 
the  EU  is  set  to  increase.  Latgale  observed  
a  depopulation  of  nearly  20%  in  2013-2021 
alone. Low productivity, low incomes and negative 
demographic  trends  have  restrained  access  to 
services.  The  Russian  war  of  aggression  against 
Ukraine  has  led  to  economic  sanctions  being 
applied  against  Russia  and  Belarus  with  cross-
border  activities  being  curtailed,  which  has 
disproportionately  and  adversely  affected  border 
regions  such  as  Latgale,  leading  to  their  further 
decline in potential growth. 

Investments  in  administrative  capacity  and 
in  a  variety  of  sectors  (such  as  energy 
efficiency,  healthcare,  social  services  and 
long-term  care,  social  entrepreneurship, 
skills  and  vocational  training)  could  help  to 
alleviate  the  situation.  The  situation  on  the 
ground  could  be  improved  by  national  and  local 
authorities having more administrative capacity to 
devise  and  implement  projects  that  are  key  to 
ensuring  further  convergence  of  the  regions, 
including social cohesion. 

these  buildings  more  energy  efficient  has  worked 
well and should be continued as planned. But there 
is  also  a  need  to  accelerate  investments  in  the 
country’s  sustainable  urban  transport  and  railway 
network,  especially 
in  the  electrification  and 
provision  of  electric  trains,  to  overcome  –  in  a 
sustainable way  – the huge regional  disparities in 
transport  performance.  Latvia  could  benefit  from 
the opportunities of the Strategic Technologies for 
Europe  Platform initiative to boost  investments in 
critical technologies to support the transformation 
of  industry.  Latvian  regions  also  need  support  in 
accelerating the transition to the circular economy 
(Annex  9)  and  in  protecting  nature  and  restoring 
biodiversity, leading to a restoration of the carbon 
sinks (Annex 6).  

should 

projects 

investment 

To  facilitate  these  investments,  there  is  
a  need  to  strengthen  the  capacity  of 
municipalities  and successfully  complete  the 
administrative-territorial  reform,  including a 
financing 
reform  of  municipalities.  The 
municipalities’  capacity  to  plan,  finance  and 
manage 
be 
strengthened.  Reforms  providing  municipalities 
with  more  own-source  revenue  could  strengthen 
their  capacity  to  invest.  These  reforms  could  be 
accompanied by sufficient administrative capacity 
for  municipal  services  to  develop  and  implement 
high-quality 
The 
municipalities  could  be  made  more  financially 
autonomous  and  more  business-friendly  because 
the  location  of  businesses  ultimately  raises  local 
tax  revenues.  This  concerns  especially  the  border 
regions  to  the  east  (mainly  Latgale)  that  in 
addition  to  its  economic  handicap  faces  new 
challenges  and  new  socio-economic  conditions 
caused  by  Russia's  war  of  aggression  against 
Ukraine  (such  as  the  breakdown  of  trade)  that 
negatively  impacts  the  ability  to  attract investors, 
the  decisions  of  entrepreneurs  and  limits  the 
capacity to invest EU funds.  

investment 

projects. 

There  are  major  investment  needs  in  the 
regions bordering Russia and Belarus, mainly 
Latgale – and the Russian war of aggression 
against  Ukraine  has  further  aggravated  the 
situation. Peripheral regions bordering Russia and 
Belarus  have  been  performing  under  the  national 
averages in Latvia for decades. The GDP per capita 
in Latgale region was only 35% of the EU average, 
placing  it  among  the  poorest  in  the  EU.  More 
concerted  effort  could  help 
in  overcoming 
increasing disparities of the region and to bring it 
into  line  with  the  rest  of  Latvia  and  the  EU.  With 

71 

 
 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

Latvia  has  a  relatively  small  banking  sector 
with  a  strong  presence  of  banks  from 
elsewhere  in  the  Nordic  region.  The  capital 
market remains relatively underdeveloped. At 
the  end  of  September  2023,  banks’  total  assets 
were  equivalent  to  66.8%  of  GDP,  significantly 
below the EU average (257%) and also below the 
level  reached  in  2017  (104.9%).  The  size  of  the 
sector has been shrinking as banks servicing non-
residents  have  substantially  downsized 
their 
operations  following  the  introduction  of  stricter 
anti-money laundering rules. The banking sector is 
highly  concentrated,  and  borrowing  costs  are 
among the highest in the EU in almost all lending 
segments.  The  capitalisation  of  the  stock  market 
and the number of companies quoted on the stock 
exchange  are  very  small  compared  to  other  EU 
countries,  even  lagging  behind  Lithuania  and 
Estonia.  In  addition,  the  level  of  activity  in  the 
bond market is also low. Due to its integration with 
the  Nordic  and  Baltic  banking  systems  Latvia’s 
banking  sector  may  be  exposed  to  spillover  risks 
from these regions. 

The  financial  system  of  Latvia  remains 
stable,  and  the  ability  of  credit  institutions 
to  absorb  shocks  is  good.  Latvian  banks’ 
capital-adequacy ratio continues to exceed the EU 
average (22.6% vs an EU average of 19.6% in Q3-
2023)  and the  resilience of  credit institutions  has 
been  strengthened  by  a  substantial  rise  in  their 
profitability. Return on equity has registered record 
highs  (22.3%  in  Q3-2023),  more  than  double  the 
EU  average  (9.9%),  on  the  back  of  rising  market 
interest  rates,  which  were  passed  through  more 
rapidly into income from loans than into expenses 
on  deposits.  The  results  of  macroeconomic  stress 
tests  suggest  that  the  resilience  of  significant 
credit  institutions  to  potential  shocks  is  good. 
However, the positive effect of high interest rates 
on banks’ net interest income could be offset by a 
deterioration  in  the  quality  of  the  credit  portfolio. 
The  liquidity  ratios  of  Latvian  banks  remain  very 
high,  and  the  cost-to-income  ratio  (34.5%  in  Q3-
2023) is low relative to euro area peers. 

economic 

Despite  weakening 
growth, 
borrowers'  solvency  has  not  worsened  in 
general,  and  non-performing 
loans  have 
continued  to  decrease.  The  share  of  non-
performing  loans  as  a  percentage  of  total  loans 
decreased  to  1.2%  in  Q3-2023,  the  lowest  level 
since  the  financial  crisis  in  2008.  Borrowers' 

72 

total 

Furthermore, 

solvency has been supported by both savings built 
up  during  the  pandemic  and  government  support 
measures. 
private-sector 
low.  Nevertheless,  high 
indebtedness  remains 
inflation  and  higher  interest  rates  are  putting 
pressure on borrowers’ ability to service their debt, 
especially  given  the  high  prevalence  of  variable-
interest-rate loans in banks’ portfolios. To address 
this  problem, 
the  Latvian  Parliament  on 
6 December  2023  passed  measures  to  assist 
mortgage  borrowers  by  reducing  their  interest 
payments  for  one  year  by  30%,  with  a maximum 
of  2  percentage  points  of  the  interest  rate  they 
pay fixed for the period. To finance the measure, a 
fee of 0.5% of the total amount of mortgage loan 
balances  will  skim  excess  profits  from  banks  and 
credit  providers  operating 
in  Latvia.  These 
measures  came  into  force  on  1 January 2024. 
However,  even  though  non-financial  corporations 
(NFCs) show stable  financial indicators in general, 
the  quality  of  the  loan  portfolio  has  slightly 
worsened  in  construction  and  manufacturing,  so 
credit risk needs to be carefully assessed. 

Funding  risks  for  Latvian  credit  institutions 
remain  low  in  general,  as  domestic  deposits 
significantly  exceed  issued  loans.  Domestic 
deposits  reached  83.3%  of  the  total  amount  of 
financing in September 2023, and their annual rise 
compared with September 2022 was 9.3%, mainly 
explained  by  the  strong  increase  in  NFC  deposits. 
At the same time, deposits from foreign customers 
continue  to  be  on  a  downward  trend.  In  March 
2023, their share of total deposits had dropped to 
12.2%,  down  from  more  than  40%  in  2018. 
Thanks  to  the  strong  domestic  customer-deposit 
base, Latvian credit institutions do not heavily rely 
on  wholesale  financial  markets  for  funding 
(around  21%),  nor  do  they  rely  heavily  on  their 
cross-border parent banking groups.  

remains  weak,  weighing 

on 
Lending 
investment  and  economic  activity,  although 
lending for real estate is outperforming. After 
a prolonged drop for several years, lending activity 
to  NFCs  has increased,  albeit  slowing  down  again 
in  recent  months.  A  rise  in  long-term  business 
loans  over  2023  was  mainly  observed  in  real 
estate  activities.  This  helps  explain  why  Latvian 
credit  institutions’  exposure  to  commercial  real 
estate (CRE) in the total portfolio is relatively high 
In  Q2-2023,  these 
compared 
total 
exposures 

to  EU  peers. 
represented  54%  of  banks’ 

 
 
 
 
Table A18.1:Financial Soundness Indicators 

1Last data: Q3 2023. 
2Data are annualised. 
3Data available for EA countries only, EU average refers to EA area. 
Source: ECB, Eurostat. 

in 

portfolio  of  loans  to  NFCs  and  23%  of  all  loans, 
according to the European Banking Authority’s Risk 
Dashboard.  The  sluggish  pace  of  lending  to  other 
sectors  and  SMEs  and  the  relatively  high  loan 
interest  rates  can  be  partly  explained  by the  high 
degree  of  market  concentration  in  the  banking 
sector.  This  high  degree  of  concentration 
is 
reflected 
lending  conditions  being  more 
stringent  and  lending  rates  less  attractive  than 
those  offered  in  other  euro  area  countries.  But 
demand  factors  –  such  as  the  willingness  of 
companies  to  invest  and  their  financial  position  – 
and  the  prevalence  of  the  shadow  economy  are 
also  involved.  At  the  same  time,  banks  have 
become  more  cautious.  The  role  of  non-bank 
financial intermediation has gradually increased in 
Latvia over the past few years, with the assets of 
the non-bank financial sector standing at almost a 
quarter of the assets of banks at the end of 2022. 

Activity  in  the  housing  market  in  Latvia  is 
decreasing, hampered by high financing costs 
and  the  unaffordability  of  new  dwellings. 
From  2010  to  the  end  of  2023,  house  prices 
increased  more  than  210%  –  the  fourth  highest 
rate in the EU over this period. However, the risks 
of  significant  declines  in  house  prices  are  low,  as 
the market has recorded persistently weak supply. 
In  parallel,  lending  to  households  is  also  showing 
signs  of  slowing  activity.  Higher  interest  rates, 
weak  economic  activity  and  high  inflation  reduce 
households’  risk  appetite  to  take  on  large  long-
term liabilities.  

The  Latvian  Central  Bank  has  re-calibrated 
some  macroprudential  measures 
to 
strengthen  the  resilience  of  the  financial 
system.  In  December  2023,  the  Latvian  Central 
Bank  decided  to  start  implementing  a  positive 
neutral  CCyB  rate  of  0.5%  from  December  2024 
and  of  1%  from  June  2025.  Since  CRE  market 
liquidity  has  generally  improved  and  loss  rates 
have fallen compared with the period of the global 
financial  crisis  and  its  aftermath,  the  Latvian 
Central  Bank  also  decided  to  adjust  the  risk 
weighting  for  CRE  exposures  to  80%  from 
30 June 2024,  compared  with  the  situation  in 
2007,  when  a  100%  risk-weighting  requirement 
was implemented. Both measures aim to build up 
loss-absorbing  capacity,  which  can  protect  the 
banking  sector  from  the  negative  effects  of 
potential downturns in the property market and/or 
financial  cycle. Moreover, and taking effect at the 
beginning of 2023, the capital buffer requirements 
for  three  of  the  five  other  systemically  important 
institutions  were  increased  by  0.25  percentage 
points.  Finally,  Latvia’s  central  bank  has  adjusted 
the measures taken in accordance with Article 124 
of the Capital Requirements Regulation (130). 

(130) The Latvian Central Bank estimates that the cumulative 

effect of the CCyB and the measures under Article 124 of 
the Capital Requirements Regulation will be tightening. 

73 

2017201820192020202120222023EUMedianTotal assets of the banking sector (% of GDP)104.978.274.379.974.469.566.8257.0184.6Share (total assets) of the five largest banks (%)73.680.983.287.887.488.2--69.6Share (total assets) of domestic credit institutions (%)148.432.933.934.215.214.713.8-62.9NFC credit growth (year-on-year % change)2.13.6-0.6-0.7-1.18.8-1.0-2.4HH credit growth (year-on-year % change)0.60.70.90.56.43.82.9-1.4Financial soundness indicators:1        - non-performing loans (% of total loans)5.65.33.94.62.11.41.21.81.8- capital adequacy ratio (%)20.622.323.426.829.724.122.619.620.1- return on equity (%)27.69.29.65.24.510.222.39.913.2Cost-to-income ratio (%)158.461.362.464.558.547.134.552.844.9Loan-to-deposit ratio (%)160.670.770.763.560.672.483.393.380.2Central bank liquidity as % of liabilities1.00.20.16.22.92.30.4-0.7Private sector debt (% of GDP)75.669.866.465.258.552.5-133.0118.4Long-term interest rate spread versus Bund (basis points)51.750.659.544.837.1113.0139.4107.7104.2Market funding ratio (%)13.013.815.716.621.320.8-50.839.8Green bonds outstanding to all bonds (%)3---0.21.31.81.94.02.71-34-1011-1718-2424-27Colours 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  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
provides 
tax  collection  and 
compliance. 

information  on 

Latvia’s  tax  revenues  are  relatively  low  in 
relation  to  its  GDP.  Table  A19.1  shows  that 
Latvia’s tax revenues were considerably below the 
EU aggregate in 2022 (at about 30.3% of GDP as 
compared  with  40.2%  for  the  EU  as  a  whole). 
Revenues from labour taxation were below the EU 
aggregate,  while  revenues  from  consumption 
taxes and (to a lesser extent) environmental taxes 
exceeded  the  EU  aggregate  as  a  share  of  GDP. 
Revenues from property taxes as a percentage of 
GDP  were  below  the  EU  aggregate  but  were 
significantly  higher  than  in  Baltic  peers  Lithuania 
country-specific 
and 
2023, 
recommendations  to  Latvia 
included  one  to 
‘broaden  taxation, 
including  of  property  and 
capital’. Tax measures related to the 2024 budget 
included  the  introduction  of  a  corporate  income 
tax  advance  payment  of  20%  of  the  previous 
year’s profits that is payable by credit institutions 
and  consumer  credit  (loan)  providers,  as  well  as 
increases  in  excise  rates  on  alcoholic  beverages 
and  tobacco  products.  Pollution  and  resources 
taxes  only  account  for  4.9%  of  environmental 

Estonia. 

In 

taxes, so there could be potential to strengthen the 
application  of  the  ‘polluter  pays’  principle.  Latvia 
has  already implemented four  of  the  six  types  of 
pollution  and  resources  taxes  (i.e.  taxes  on  NOx 
emissions,  waste 
incineration, 
into  water,  and  plastic 
discharge  of  waste 
products). 

landfilling  and 

Graph A19.1: Tax wedge for single and second 
earners as a % of total labour costs, 2023 

The second earner tax wedge assumes a 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  significant  reforms  in  recent 
years (including the lowering of the tax burden on 
labour  and  the  introduction  of  some  progressivity 

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. 
(**) Forecast value for 2022, if available. For more details on the VAT gap, see European Commission, Directorate-General for 
Taxation and Customs Union, 2023, VAT gap in the EU, https://data.europa.eu/doi/10.2778/911698. 
For more data on tax revenues as well as the methodology applied, see the Data on Taxation webpage, 
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en. 
Source: European Commission and OECD 

74 

33.837.541.142.937.52025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - LVSingle earner - EU averageSecond earner -  LVSecond earner -  EU averageLV2010202020212022202320102020202120222023Total taxes (including compulsory actual social contributions) (% of GDP)28.331.030.730.337.940.040.440.2Labour taxes (as % of GDP)14.315.515.114.620.021.320.720.3Consumption taxes (as % of GDP)11.213.113.013.210.810.711.211.0Capital taxes (as % of GDP)2.82.42.62.67.18.08.68.9Of which, on income of corporations (as % of GDP)1.00.70.91.02.42.53.03.4Total property taxes (as % of GDP)1.01.01.00.81.92.32.22.1Recurrent taxes on immovable property (as % of GDP)0.70.70.70.61.11.21.11.0Environmental taxes as % of GDP3.03.02.82.22.42.22.32.0Tax wedge at 50% of average wage (Single person) (*)42.435.035.333.533.833.931.732.131.831.7Tax wedge at 100% of average wage (Single person) (*)44.042.340.540.441.141.040.139.940.040.2Corporate income tax - effective average tax rates (1) (*)17.017.017.019.519.019.0Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5.85.45.55.58.68.18.27.9Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)9.49.940.935.5VAT Gap (% of VAT total tax liability, VTTL)(**)31.09.07.34.09.75.4LatviaEU-27Tax structureProgressivity & fairnessTax administration & compliance 
 
     
 
 
       
 
Graph A19.2: Tax revenues from different tax types, % of total revenue 

Source: European Commission 

for  personal  income  tax  rates),  the  labour  tax 
wedge for Latvia in 2023 was higher than the EU 
average  for  single  people  earning  the  average 
wage  or  less.  The  tax  wedge  at  higher  earnings 
levels  was  close  to  but  somewhat  below  the  EU 
average. This means that labour taxation in Latvia 
was  less  progressive  than  in  the  EU  on  average. 
The  ability  of  the  tax  and  benefits  system  to 
reduce  income  inequality  was  also  significantly 
below the EU average in 2022 (Table A19.1). 

improve 

economy  and 
its  capacity  to  fight 
economic crime as well as measures to strengthen 
tax and customs administration  (132). 

informally 

The  shadow  economy  remains  extensive. 
Surveys  of  company  owners  and  managers 
indicate  that Latvia’s  shadow  economy  accounted 
for  26.5%  of  its  GDP  in  2022,  which  was  higher 
than  in  Latvia’s  Baltic  peers  (25.8%  in  Lithuania 
and  18%  in  Estonia). The  biggest  component  of 
the shadow economy is underreporting of salaries 
(estimated at 46.7% of Latvia’s shadow economy), 
with  an  average  of  25%  of  total  salaries  being 
paid 
The 
construction  (34.5%)  and  retail  (30.5%)  sectors 
had  the  highest  estimated  shares  of  shadow 
activity in 2022  (131). Tax arrears increased slightly 
by  0.5 pps  to  9.9%  of  total  net  revenue  in  2021 
but  were  still  well  below  the  EU-27  average  of 
35.5%.  At  the  same  time,  2022  fast  estimates 
point to a further decrease in the VAT gap (the gap 
between  revenues  actually  collected  and  the 
theoretical  tax  liability)  from  7.3%  in  2021  to 
4.0% in 2022 (Table A19.1). Latvia is continuing to 
implement its RRP measures to reduce the shadow 

(‘envelope  wages’). 

(131) Stockholm School of Economics Riga, 2023, Shadow 

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

(132) Ekonomisko lietu tiesas vadītājs: VID ir viens no korupcijas 
perēkļiem valstī - nra.lv, https://nra.lv/latvija/408483-
ekonomisko-lietu-tiesas-vaditajs-vid-ir-viens-no-korupcijas-
perekliem-valsti.htm. 

75 

50.627.322.148.143.48.5Tax revenue shares in 2022, Latvia (outer ring) and EU (inner ring)Taxes on labourTaxes on consumptionTaxes on capital5.83.91.10.90.50.22.02.50.82.7012345678Latvia -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) NIIP excluding direct investment and portfolio equity shares. 
Source: Eurostat and ECB as of 2024-5-17, where available; European Commission for forecast figures (Spring forecast 2024). 

76 

2004-072008-122013-2020212022202320242025Real GDP (y-o-y)10.2-2.71.86.73.0-0.31.72.6Potential growth (y-o-y).-0.32.32.71.51.91.92.1Private consumption (y-o-y)12.5-3.61.17.37.2-1.31.72.0Public consumption (y-o-y)3.8-2.92.93.52.87.02.63.3Gross fixed capital formation (y-o-y)21.4-6.91.07.20.68.22.83.5Exports of goods and services (y-o-y)14.54.53.69.010.3-5.9-0.43.1Imports of goods and services (y-o-y) 19.2-2.23.415.111.1-2.80.43.1Contribution to GDP growth:Domestic demand (y-o-y)14.8-5.01.46.54.82.42.22.7Inventories (y-o-y)0.3-1.00.33.7-1.0-0.50.00.0Net exports (y-o-y)-4.92.80.1-3.5-0.9-2.1-0.5-0.1Contribution to potential GDP growth:Total Labour (hours) (y-o-y).-1.8-0.40.0-0.30.20.10.1Capital accumulation (y-o-y).1.30.70.91.01.21.11.1Total factor productivity (y-o-y).0.22.01.80.80.50.70.9Output gap6.0-5.20.8-0.11.3-0.9-1.1-0.6Unemployment rate8.815.38.77.66.96.56.56.3GDP deflator (y-o-y)12.62.12.33.811.85.44.22.5Harmonised index of consumer prices (HICP, y-o-y)7.44.61.33.217.29.11.62.0HICP excluding energy and unprocessed food (y-o-y)6.53.41.72.011.39.83.22.3Nominal compensation per employee (y-o-y)24.41.57.38.512.212.65.74.7Labour productivity (real, hours worked, y-o-y)8.02.52.97.9-1.80.01.22.2Unit labour costs (ULC, whole economy, y-o-y)15.80.25.2-0.912.013.04.22.3Real unit labour costs (y-o-y)2.9-1.82.9-4.50.27.20.0-0.2Real effective exchange rate (ULC, y-o-y)11.1-1.83.3-1.77.05.1-0.8-0.2Real effective exchange rate (HICP, y-o-y)2.91.90.80.36.43.8..Net savings rate of households (net saving as percentage of net disposable income)-7.7-2.2-2.71.9-7.2...Private credit flow, consolidated (% of GDP)27.7-2.2-0.10.93.1...Private sector debt, consolidated (% of GDP)89.9115.873.758.553.2...of which household debt, consolidated (% of GDP)31.542.322.619.517.9...of which non-financial corporate debt, consolidated (% of GDP)58.473.551.139.035.3...Gross non-performing debt (% of total debt instruments and total loans and advances) (1).9.95.01.71.3...Corporations, net lending (+) or net borrowing (-) (% of GDP)-9.45.12.70.81.3-1.4-0.80.0Corporations, gross operating surplus (% of GDP)31.029.425.726.827.223.924.024.2Households, net lending (+) or net borrowing (-) (% of GDP)-4.90.80.93.8-0.71.13.33.5Deflated house price index (y-o-y)17.0-11.34.27.20.4-3.9..Residential investment (% of GDP)4.52.92.42.82.43.0..Current account balance (% of GDP), balance of payments-16.4-2.00.4-3.9-4.8-4.0-3.1-2.9Trade balance (% of GDP), balance of payments-17.2-5.3-0.7-3.2-4.6-3.9..Terms of trade of goods and services (y-o-y)1.4-0.21.1-1.6-0.63.60.90.1Capital account balance (% of GDP)1.32.21.81.40.72.0..Net international investment position (% of GDP)-59.7-77.0-49.6-27.3-26.8-24.6..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)-30.1-37.9-2.119.417.119.8..IIP liabilities excluding non-defaultable instruments (% of GDP) (2)93.3132.8120.198.391.988.2..Export performance vs. advanced countries (% change over 5 years)..10.617.819.28.3..Export market share, goods and services (y-o-y)14.11.62.8-2.63.6-6.9-3.7-0.5Net FDI flows (% of GDP)-5.1-2.6-1.9-2.5-3.2-1.4..General government balance (% of GDP)-0.7-5.6-1.3-7.2-4.6-2.2-2.8-2.9Structural budget balance (% of GDP)..-1.6-7.3-5.1-1.9-2.4-2.7General government gross debt (% of GDP)11.238.139.244.441.843.644.546.3forecast 
 
 
 
  
 
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  annex  assesses  fiscal  sustainability 
risks  for  Latvia  over  the  short,  medium  and 
long  term. 
It  follows  the  multi-dimensional 
approach  of  the  European  Commission’s  2023 
Debt Sustainability Monitor, updated based on the 
Commission 2024 spring forecast. 

1  –  Short-term  risks  to  fiscal  sustainability 
low.  The  Commission’s  early-detection 
are 
indicator  (S0)  does  not  point  to  any  major  short-
term  fiscal  risks  (Table A21.2) (133).  Government 
gross financing needs are estimated at around 7% 
(Table A21.1, Table 1). 
of  GDP 
Financial  markets’  perceptions  of  sovereign  risk 
are  positive,  as  confirmed  by  the  ratings  of  the 
main agencies. 

in  2024-2025 

2  –  Medium-term  fiscal  sustainability  risks 
appear low.   

The baseline DSA shows that the government 
debt ratio is projected to increase but remain 
at  a  moderate  level  over  the  medium  term, 
with  debt  rising  to  56%  of  GDP  in  2034 
(Graph 1,  Table 1) (134).  The  assumed  structural 
primary balance (a deficit of 1.4% of GDP prior to 
changes  in  ageing  costs)  contributes  to  these 
developments.  Compared  to  historical  data,  the 
deficit  appears  plausible, 
indicating  that  the 
country  has  room  for  corrective  action.  Indeed, 
most  of  past  fiscal  positions  were  more  stringent 
than  the  one  assumed  in  the  baseline  (Table 

A21.2) (135).  The  debt  dynamics  benefit  from  a 
small favourable snowball effect in 2025-2034. 

four 

The  baseline  projections  are  stress-tested 
against 
deterministic 
alternative 
scenarios to assess the impact of changes in 
key  assumptions  relative  to  the  baseline 
(Graph 1).  Under  the  historical  structural  primary 
balance  (SPB)  scenario  (i.e.  the  SPB  returns  to  its 
historical  15-year  average  of  -1.6%  of  GDP)  the 
debt ratio would be about 2 pps. higher than under 
the  baseline  in  2034.  Under  the  adverse  interest-
growth  rate  differential  scenario  (i.e.  the  interest-
growth  rate  differential  deteriorates  by  1 pp. 
compared with the baseline), the debt ratio would 
be about 4 pps. of GDP higher in 2034 than under 
the  baseline.  Under  the  financial  stress  scenario 
(i.e.  interest  rates  temporarily  increase  by  1 pp. 
compared with the baseline) the government debt 
ratio  would  be  similar  in  2034,  as  would  be  the 
case  for  the  lower  structural  primary  balance 
scenario (i.e. the projected deterioration in the SPB 
in 2024 is increased by half). 

stochastic 

plausible 

to 
These 

The  stochastic  projections  indicate  low  risk, 
pointing to limited sensitivity of the baseline 
unforeseen 
projections 
events  (136). 
simulations 
indicate a 67% probability that the debt ratio will 
be higher in 2028 than in 2023, implying low risks 
given  the  current  debt  level.  In  addition,  the 
the  baseline  debt 
uncertainty 
projections  is  moderate,  as  measured  by  the 
difference  between  the  10th  and  90th  debt 
distribution percentiles, which is at 36 pps. of GDP 
in five years’ time (Graph 2).  

surrounding 

(133) The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of fiscal and financial-
competitiveness indicators that have proven to be a good 
predictor of emerging fiscal stress in the past.  

(134) The assumptions underlying the Commission’s ‘no-fiscal 

policy change’ baseline include in particular: (i) a structural 
primary deficit, before changes in ageing costs, of 1.4% of 
GDP from 2024 onwards; (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 ahead); (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; (iv) real GDP growth rates 
from the Commission 2024 spring forecast, followed by the 
EPC/OGWG ‘T+10 methodology projections between T+3 and 
T+10 (average of 1.3%); (v) ageing costs in line with the 
2024 Ageing Report (European Commission, Institutional 
Paper 279, April 2024). For information on the methodology, 
see the 2023 Debt Sustainability Monitor (European 
Commission, Institutional Paper 271, March 2024). 

3  –  Long-term  fiscal  sustainability  risks 
appear overall low. This assessment is based on 
the  combination  of  two  fiscal  gap  indicators, 
capturing  the  required  fiscal  effort  to  stabilise 
debt (S2 indicator) and bring it to 60% of GDP (S1 

(135) This assessment is based on the fiscal consolidation space 

indicator, which measures the frequency with which a tighter 
fiscal position than assumed in a given scenario has been 
observed in the past. Technically, this consists in looking at 
the percentile rank of the projected SPB within the 
distribution of SPBs observed in the past in the country, 
taking into account all available data from 1980 to 2023. 

(136) The stochastic projections show the joint impact on debt of 

10,000 different shocks affecting the government’s 
budgetary position, economic growth, interest rates and 
exchange rates. This covers 80% of all the simulated debt 
paths and therefore excludes tail events. 

77 

 
 
 
 
 
 
indicator) in the long term (137). This assessment is 
driven  by  a  projected  decrease  in  age-related 
spending against a background of moderate debt.  

indicator  points  to 

The  S2 
low  fiscal 
sustainability  risks.  The  indicator  shows  that, 
relative  to  the  baseline,  the  SPB  would  need  to 
improve by 0.6 pp. of GDP in 2025 to ensure debt 
stabilisation  over  the  long  term.  This  result  is 
driven 
position 
(contribution  of  1.3 pps.),  with  the  projected 
decrease  in  ageing-related  spending  lowering  the 
required  effort  (-0.8 pp.).  The  decline  in  ageing 
costs  is  driven  by  public  pension  expenditure 
(-1.3 pps.) (Table A21.1, Table 2).  

budgetary 

initial 

the 

by 

The  S1  indicator  also  points  to  low  fiscal 
sustainability  risks.  The  indicator  shows  that 
preventing  government debt  from  exceeding  60% 
of GDP by 2070 would require an improvement of 
the fiscal position by 0.7 pp. of GDP in 2025. This 
limited  effort  is  due  to  the  initial  budgetary 
position  (contribution  of  +1.3 pps.)  being  partly 
offset by the current low government debt-to-GDP 
ratio and the declining ageing costs (-0.3 pp. each) 
(Table A21.1, Table 2).  

4  –  Finally,  several  additional  risk  factors 
need to be considered in the assessment.  On 
the  one  hand,  risk-increasing  factors  include  the 
recent  rise  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. 

(137)The S2 fiscal sustainability indicator measures the 

permanent SPB adjustment in 2025 that would be required 
to stabilise public debt over an infinite horizon. It is 
complemented by the S1 indicator, which measures the 
permanent SPB adjustment in 2025 to bring the debt ratio to 
60% by 2070. The impact of the drivers of S1 and S2 may 
differ due to the infinite horizon component considered in the 
S2 indicator. 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% of GDP, 
‘medium risk’ if it is between 2% and 6% of GDP, and ‘low 
risk’ if the effort is negative or below 2% of GDP. The overall 
long-term risk classification combines the risk categories 
derived from S1 and S2. S1 may notch up the risk category 
derived from S2 if it signals a higher risk than S2. See the 
2023 Debt Sustainability Monitor for further details. 

78 

 
 
 
Table A21.1:Debt sustainability analysis - Latvia 

Source: Commission services 

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

Source: Commission services 

79 

Table 1. Baseline debt projections20212022202320242025202620272028202920302031203220332034Gross debt ratio (% of GDP)44.441.843.644.546.147.148.149.250.351.452.553.554.655.5Changes in the ratio1.7-2.61.81.01.61.01.01.11.11.11.11.01.01.0of whichPrimary deficit6.74.21.61.81.51.51.41.31.31.31.31.21.21.2Snowball effect-3.7-5.4-1.4-1.4-1.0-0.5-0.3-0.2-0.2-0.2-0.2-0.2-0.2-0.2Stock-flow adjustments-1.4-1.41.60.61.00.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)10.04.87.77.07.46.66.76.87.07.17.37.47.67.7S1S2Overall index  (pps. of GDP)0.70.6of which Initial budgetary position1.31.3Debt requirement-0.3Ageing costs-0.3-0.8of which    Pensions-0.7-1.3     Health care0.40.5     Long-term care0.20.3Education-0.2-0.2Table 2. Breakdown of the S1 and S2 sustainability gap indicators01020304050607020212022202320242025202620272028202920302031203220332034Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p900102030405060708020212022202320242025202620272028% of GDPGraph 2. Stochastic debt projections 2024-2028MedianBaselineBaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWLOWDebt level (2034), % GDP55.558.056.159.956.0Debt peak year20342034203420342034Fiscal consolidation space71%76%73%71%71%Probability of debt ratio exceeding in 2028 its 2023 level67%Difference between 90th and 10th percentiles (pps. GDP)36.4Short termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)(1)Debtlevelin2034.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)Probabilityofdebtratioexceedingin2028its2023level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)thedifferencebetweenthe90thand10thpercentilesmeasuresuncertainty,basedonthedebtdistributionunder10000differentshocks.Green,yellowandredcellsindicateincreasinguncertainty.(Forfurtherdetails on the Commission's multidimensional approach, see the 2023 Debt Sustainability Monitor)LOWLOWLOWLOWLOW