Recommendation for a COUNCIL RECOMMENDATION endorsing the national medium-term fiscal-structural plan of Latvia
Date: 2024-11-26
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Latvia, budget deficit, coordination of EMU policies, economic reform, fiscal policy, investment, macroeconomics, national planning, public debt, structural adjustment

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   EUROPEAN COMMISSION  Strasbourg, 26.11.2024  COM(2024) 720 final  Recommendation for a COUNCIL RECOMMENDATION endorsing the national medium-term fiscal-structural plan of Latvia  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

endorsing the national medium-term fiscal-structural plan of Latvia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121 thereof, 

Having regard to Regulation (EU) 2024/1263, and in particular Article 17 thereof, 

Having regard to the recommendation from the Commission, 

Whereas: 

GENERAL CONSIDERATIONS 

(1) 

(2) 

1 

2 

3 

A reformed EU economic governance framework entered into force on 30 April 2024. 
Regulation  (EU)  2024/1263  of  the  European  Parliament  and  of  the  Council  on  the 
effective  coordination  of  economic  policies  and  on  multilateral  budgetary 
surveillance1,  together  with  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure2,  and  the  amended  Council 
Directive  2011/85/EU  on  the  budgetary  frameworks  of  Member  States3  are  the  core 
elements of the reformed EU economic governance framework. The framework aims 
at  ensuring  public  debt  sustainability  and  sustainable  and  inclusive  growth  through 
reforms  and  investments.  It  promotes  national  ownership  and  has  a  medium-term 
focus, combined with an effective and coherent enforcement of the rules. 

The  national  medium-term  fiscal-structural  plans  that  Member  States  submit  to  the 
Council  and  to  the  Commission,  are  at  the  centre  of  the  new  economic  governance 
framework. The plans are to deliver on two objectives: i) ensuring that, by the end of 
the adjustment period, general government debt is on a plausibly downward trajectory, 
or stays at  prudent  levels,  and that the government  deficit is  brought and maintained 
below the reference value of 3% of GDP over the medium term, and ii) ensuring the 
delivery  of  reforms  and  investments  responding  to  the  main  challenges  identified  in 
the context of the European Semester and addressing the common priorities of the EU. 

No 

(EC) 

Regulation 

Regulation  (EU)  2024/1263  of  the  European  Parliament  and  of  the  Council  of  29  April  2024  on  the 
effective  coordination  of  economic  policies  and  on  multilateral  budgetary  surveillance  and  repealing 
Council 
30.4.2024, 
1466/97 
ELI: http://data.europa.eu/eli/reg/2024/1263/oj). 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1264/oj). 
Council Directive (EU) 2024/1265 of 29 April 2024 amending Directive 2011/85/EU on requirements 
(OJ  L,  2024/1265,  30.4.2024,  ELI: 
for  budgetary 
http://data.europa.eu/eli/dir/2024/1265/oj).  

the  Member  States 

frameworks  of 

2024/1263, 

(OJ 

L, 

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1 

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To that end, each plan is to present a medium-term commitment to a net expenditure4 
path, which effectively establishes a budgetary constraint for the duration of the plan, 
covering four or five years (depending on the regular term of legislature in a Member 
State).  In  addition,  the  plan  is  to  explain  how  the  Member  State  will  ensure  the 
delivery  of  reforms  and  investments  responding  to  the  main  challenges  identified  in 
the  context  of  the  European  Semester,  in  particular  in  the  country-specific 
recommendations  (including  those  pertaining  to  the  macroeconomic  imbalances 
procedure (MIP), if applicable), and how the Member State will address the common 
priorities of the Union. The period for fiscal adjustment covers a period of four years, 
which  may  be  extended  by  up  to  three  years  if  the  Member  State  commits  to 
delivering a set of relevant reforms and investments that satisfies the criteria set out in 
Regulation (EU) 2024/1263. 

(3) 

(4) 

Following the submission of the plan, the Commission is to assess whether it complies 
with the requirements of Regulation (EU) 2024/1263. 

Upon  a  recommendation  from  the  Commission,  the  Council  is  to  then  adopt  a 
recommendation to set the net  expenditure path  of the Member State concerned and, 
where  applicable,  endorses 
investment  commitments 
the  set  of  reform  and 
underpinning an extension of the fiscal adjustment period. 

CONSIDERATIONS  CONCERNING  THE  NATIONAL  MEDIUM-TERM  FISCAL-
STRUCTURAL PLAN OF LATVIA 

(5) 

On 15 October 2024, Latvia submitted its national medium-term fiscal-structural plan 
to  the  Council  and  to  the  Commission.  The  submission  took  place  following  an 
extension  of  the  deadline  set  out  in  Article  36  of  Regulation  (EU)  2024/1263,  as 
agreed with the Commission in view of the reasons provided by Latvia. 

Process prior to the submission of the plan 

(6) 

Prior to the submission of its plan, Latvia requested technical information5, which the 
Commission  provided  on  21  June  2024,  and  published  on  15  October  20246.  The 
technical information indicates the level of the structural primary balance in 2028 that 

4 

5 

6 

Net expenditure as defined in Article 2 of Regulation (EU) 2024/1263, namely government expenditure 
net  of (i) interest  expenditure, (ii) discretionary 
revenue  measures, (iii) expenditure  on  Union 
programmes fully matched by revenue from Union funds, (iv) national expenditure on co-financing of 
programmes  funded  by  the  Union, (v) cyclical  elements  of  unemployment  benefit  expenditure and 
(vi) one-offs and other temporary measures.  
Prior  guidance  transmitted  to  the  Member  States  and  Economic  and Financial Committee includes 
technical information i) without and with an extension of the adjustment period (covering 4 and 7 years, 
respectively),  and  ii)  with and without the deficit  resilience  safeguard. It  also  includes the  main  initial 
conditions  and  underlying  assumptions  used  in  the  Commission’s  medium-term  government  debt 
projection  framework. The  reference  trajectory  was  calculated  on  the  basis  of  the  methodology 
2023 (https://economy-
described 
Commission’s Debt 
finance.ec.europa.eu/publications/debt-sustainability-monitor-2023_en). 
on 
based 
the European Commission Spring 2024 Forecast and its medium-term extension up to 2033, and long-
term  GDP  growth  and  ageing  costs  are  in line  with  the  joint European Commission-Council 2024 
Ageing  Report (https://economy-finance.ec.europa.eu/publications/2024-ageing-report-economic-and-
budgetary-projections-eu-member-states-2022-2070_en).  
https://economy-finance.ec.europa.eu/economic-and-fiscal-governance/national-medium-term-fiscal-
structural-plans_en#latvia. 

Sustainability  Monitor 

It is 

the  

in 

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is necessary to ensure that the general government deficit is maintained below 3% of 
GDP over the medium term and that the general government debt remains below 60% 
of  GDP  over  the  medium  term,  even  in  the  absence  of  further  budgetary  measures 
beyond  the  4-year  adjustment  period.  The  medium  term  is  defined  as  the  ten-year 
period after the end of the adjustment period. The technical information was prepared 
and  transmitted  to  the  Member  States  under  two  scenarios:  a  scenario  including 
consistency  with  the  deficit  resilience  safeguard7,  in  line  with  Article  9(3)  of 
Regulation  (EU)  2024/126,  and  a  scenario  without  this  safeguard.  The  technical 
information for Latvia sets out that, in order to comply with the applicable fiscal rules 
over an adjustment period of 4 years, and based on the Commission’s assumptions, the 
structural primary balance should amount to at least  -1.3% of GDP at the end of the 
adjustment period (2028); scenario without the deficit resilience safeguard), as per the 
following table. For information, considering also the deficit resilience safeguard, the 
structural primary balance should amount to at least  -0.1% of GDP at the end of the 
adjustment  period  (2028).  However,  the  deficit  resilience  safeguard  is  not  a 
requirement for Latvia, which is eligible for technical information.  

Table 1: Technical information provided by the Commission to Latvia 

Final year of the adjustment period 

Minimum value of the structural primary balance (% of GDP), scenario without the deficit 
resilience safeguard 

For information only: Minimum value of the structural primary balance (% of GDP), scenario 
with the deficit resilience safeguard 

2028 

-1.3 

-0.1 

Source: Commission’s calculations. 

(7) 

(8) 

In  line  with  Article  12  of  Regulation  (EU)  2024/1263,  Latvia  and  the  Commission 
engaged in  a technical  dialogue in  September 2024. The dialogue centred on the net 
expenditure  path  envisaged  by  Latvia  and  its  underlying  assumptions  (in  particular 
potential  output  and  interest  rates),  as  well  as  the  envisaged  delivery  of  reforms  and 
investments  responding  to  the  main  challenges  identified  in  the  context  of  the 
European  Semester  and  the  common  priorities  of  the  Union  in  fair  green  and  digital 
transition, social and economic resilience, energy security and the build-up of defence 
capabilities. 

In September 2024, in line with Article 11(3) and 36(1), point (c) of Regulation (EU) 
2024/1263,  according  to  the  information  provided  by  Latvia  in  its  plan,  Latvia 
reported  that  it  had  engaged  in  a  consultation  process  with  social  partners  and  other 
relevant  stakeholders,  including  the  Association  of  Employer’s  Organisations,  the 
Confederation  of  Free  Trade  Unions  and  the  Association  of  Local  and  Regional 
Governments. According to the information provided by Latvia in its plan, the meeting 
centred  on  how  Latvia  is  planning  to  address  the  country-specific  recommendations 

7 

The deficit resilience safeguard established in Article 8 of Regulation (EU) 2024/1263 establishes that 
the annual improvement in the structural primary balance is of 0.4 percentage points of GDP (or 0.25 
percentage points of GDP in case of an extension of the adjustment period) until the structural deficit is 
lower than 1.5% of GDP. 

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(9) 

(CSRs)  and  EU  common  priorities,  with  a  particular  focus  on  tax  policy,  education 
and healthcare.  

In  June  2024,  the  Fiscal  Discipline  Council  (Latvia’s  independent  fiscal  institution) 
endorsed  the  macroeconomic  forecast  underpinning  the  Medium-Term  Budget 
Framework 2024-2028 acknowledging that the macroeconomic forecast presented by 
the  Ministry  of  Finance  was  overall  prudent  and  reflected  actual  economic 
developments.  In  October,  the  Fiscal  Discipline  Council  delivered  an  opinion  on  the 
Medium-Term  Budget  Framework  2025-2028,  the  Budget  2025  and  the  Medium-
Term Fiscal Structural Plan. They concluded that, although up-to-date national fiscal 
data were used for the 2024 fiscal  forecasts and  the preparation of the 2025 Budget, 
the macroeconomic forecast endorsed in June this year was not revised and therefore 
did not take into account the outcome of the benchmark revision and the most recent 
economic trends.  At the same time, the Fiscal  Discipline Council acknowledged that 
the  fiscal  trajectory  of  the  medium-term  fiscal-structural  plan  complies  with  the 
conditions of Regulation 2024/1263 (the Commission’s technical information). 

Other related processes 

(10)  On  15  October,  Latvia  submitted  its  Draft  Budgetary  Plan  for  the  year  2025.  The 
Commission  adopted  an  opinion  on  this  Draft  Budgetary  Plan  on  [26  November 
2024]8.  

(11)  On 21 October 2024, the Council addressed to Latvia a series of CSRs in the context 

of the European Semester9.  

SUMMARY OF THE PLAN AND THE COMMISSION’S ASSESSMENT THEREOF 

(12) 

In  line  with  Article  16  of  Regulation  (EU)  2024/1263,  the  Commission  assessed  the 
plan as follows: 

Context: macroeconomic and fiscal situation and outlook 

(13)  Economic activity in Latvia grew by 1.7% in 2023, driven by investments and public 
expenditures.  According  to  the  European  Commission  Autumn  2024  Forecast,  the 
economy  is  expected  to  stagnate  in  2024,  due  to  weak  private  consumption  and 
investments and despite strong government consumption. In 2025, real GDP is set to 
increase  by  1%,  and  by  2.1%  in  2026,  as  private  consumption  and  investments  are 
expected to recover. In 2026, exports are also expected to pick up. Over the forecast 
horizon (i.e., 2024-2026), potential GDP growth in Latvia is expected to pick up after 
a drop in 2024, to 1.5% in 2026. The unemployment rate stood at 6.6% in 2023 and is 
projected by the Commission to amount to 6.7% in 2024, 6.7% in 2025 and 6.5% in 
2026.  Inflation  (GDP  deflator)  is  projected  to  decrease  from  9.1%  in  2023  to  1.2% 
2024, and to reach 2.2% in 2025 and 2.2% in 2026.  

(14)  Regarding fiscal developments, in 2023 Latvia’s general government deficit amounted 
to 2.4% of GDP. According to the European Commission Autumn 2024 Forecast, it is 

8 
9 

Commission Opinion on the Draft Budgetary Plan of Latvia, 26.11.2024, C(2024)9060 final. 
Council  Recommendation  on  economic,  budgetary,  employment  and  structural  policies of  Latvia,  not 
yet published. 

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set to reach 2.8% of GDP in 2024 and to increase to 3.2% of GDP in 2025 and, on a 
no-policy-change basis, remain at 3.2% in 2026. The European Commission Autumn 
2024 Forecast includes Latvia’s draft budget for 2025 that the government proposed to 
the  national  parliament  in  October.  General  government  debt  was  45.0%  of  GDP  at 
end-2023.  According  to  the  European  Commission  Autumn  2024  Forecast,  the  debt 
ratio is  expected to increase to 48.1% of GDP  at  end-2024.  It is  projected to  further 
increase to 50.3% of GDP at end-2025 and 51.6% at end-2026. The fiscal forecast by 
the Commission does not consider the policy commitments in the medium-term plans 
as  such  until  they  are  underpinned  by  credibly  announced  and  sufficiently  specified 
concrete policy measures. 

Net expenditure path and main macroeconomic assumptions in the plan 

(15)  Latvia’s national medium-term fiscal-structural plan covers the period 2025-2028 and 

presents a fiscal adjustment over four years.  

(16)  The  plan  contains  all  information  required  by  Article  13  of  Regulation  (EU) 
2024/1263.  Contrary  to  the  Guidance  to  Member  States  on  the  Information 
Requirements  for  the  Medium-Term  Fiscal-Structural  Plans  and  for  the  Annual 
Progress Reports published in the Official Journal on 21 June 2024, the plan does not 
contain tables 7c and 7d. However, these tables are not essential for the assessment of 
the Latvian plan. 

(17)  The  plan  commits  Latvia  to  the  net  expenditure  path  indicated  in  Table  2, 
corresponding to  average net  expenditure growth of 4.1% over the years  2025-2028. 
The  technical  information  (assuming  a  linear  adjustment  path)  is  consistent  with  an 
average net expenditure growth of 3.7% over the adjustment period (2025-2028). The 
net expenditure path committed to in the plan is reported to lead to a structural primary 
balance of -1.3% of GDP at the end of the adjustment period (2028). This is equal to 
the  minimum  level  of  the  structural  primary  balance  of  -1.3%  of  GDP  in  2028 
provided by the Commission in the technical information on 21 June 202410. The plan 
assumes  potential  GDP  growth  to  decrease  to  2.1%  in  2025  (from  2.2%  in  2024), 
before decreasing to 0.9% in 2028. In addition, the plan expects the GDP deflator to 
remain stable at 2.5% during the adjustment period (2025-2028).  

Table 2: Net expenditure path and main assumptions in Latvia’s plan  

2024 

2025 

2026 

2027 

2028 

Average over the 
period of 
validity of the 
plan 2025-2028 

Net expenditure 
growth 
(annual, %) 

Net expenditure 
growth 
(cumulative, from 

9.1 

5.9 

3.6 

3.4 

3.3 

4.1 

9.1 

15.5 

19.7 

23.8 

27.9 

n.a. 

10 

In the scenario without the deficit resilience safeguard.  

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base year 2023, %) 

Potential GDP 
growth (%) 

Inflation (GDP 
deflator) (%) 

2.2 

2.4 

2.1 

2.5 

1.2 

2.5 

0.9 

2.5 

0.9 

2.5 

1.3 

2.5 

Source: Medium-term fiscal-structural plan of Latvia and Commission calculations 

Implications of the plan’s net expenditure commitments for general government debt 

(18) 

If the net  expenditure path  committed to  in  the plan and the underlying assumptions 
materialise, general government debt would, according to the plan, gradually increase 
from 45.8% in 2024 to 50.8% of GDP at the end of the adjustment period (2028), as 
per the following table. After the adjustment, over the medium term (i.e. until 2038), 
the debt ratio is expected to gradually increase according to the plan, reaching 59.9% 
by 2038.  

Table 3: General government debt and balance developments in Latvia’s plan  

2023 

2024 

2025 

2026 

2027 

2028 

2038 

Government debt 

(% of GDP) 

43.6 

45.8 

47.5 

48.5 

49.7 

50.8 

59.9 

Government balance 

-2.2 

-2.6 

-2.9 

-2.9 

-2.9 

-2.9 

-2.9 

(% of GDP) 

Source: Medium-term fiscal-structural plan of Latvia  

Thus,  according  to  the  plan,  general  government  debt  would  stay  below  the  Treaty 
reference value of 60% of GDP over the medium term.Therefore, based on the plan’s 
policy  commitments  and  macroeconomic  assumptions,  the  net  expenditure  path  put 
forward  in  the  plan  is  consistent  with  the  requirement  for  debt  as  set  out  in  Article 
16(2) of Regulation (EU) 2024/1263. 

Implications of the plan’s net expenditure commitments for general government balance 

(19)  Based  on  the  plan’s  net  expenditure  path  and  assumptions,  the  general  government 
deficit  would  remain  at  2.9%  of  GDP  annually  over  the  adjustment  period.  Thus, 
according  to  the  plan,  the  general  government  balance  would  not  exceed  the  3%  of 
GDP reference value at the end of the adjustment period (2028). In addition, in the ten 
years following the adjustment period (i.e. until 2038), the government deficit would 
not  exceed  3%  of  GDP  but  would  remain  just  below  the  deficit  reference  value. 
Therefore, based on the plan’s policy commitments and macroeconomic assumptions, 
the net expenditure path put forward in the plan is consistent with the requirement for 
the deficit as set out in Article 16(2) of Regulation (EU) 2024/1263.  

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Macroeconomic assumptions of the plan 

(20)  The  plan  is  based  on  a  set  of  assumptions  which  differs  from  the  Commission’s 
assumptions  transmitted  to  Latvia  on  21  June  2024.  In  particular,  the  plan  uses 
different  assumptions  for  6  variables,  namely  the  starting  point  (structural  primary 
balance, potential GDP growth, actual GDP growth, nominal implicit interest rate on 
debt, stock-flow adjustment and GDP deflator growth). A careful assessment of these 
differences  is  necessary,  especially  as  average  net  expenditure  growth  in  the  plan  is 
higher than implied by the technical information. 

The  differences  with  the  most  significant  impact  on  average  net  expenditure  growth 
are  listed  below,  together  with  an  assessment  of  each  difference  considered  in 
isolation. 

• 

The plan assumes an initial structural primary budget balance of -0.8% of GDP 
in 2024, which is 0.6 pps higher than the structural primary balance of -1.4% of 
GDP assumed in the technical information of 21 June 2024, and 0.7 pps higher 
compared  to  the  European  Commission  Autumn  2024  Forecast.  This 
contributes  to  higher  average  net  expenditure  growth  over  the  adjustment 
period than according to the Commission’s assumptions.  

The better fiscal position in 2024 reflects the plan’s assumptions of:  

• 

• 

• 

a  lower  headline  deficit.  The  plan’s  assumptions  regarding  updated  budget 
expenditure  and  higher  non-tax  revenue  are  in  line  with  the  European 
Commission Autumn 2024 Forecast, whereas  the assumptions on tax revenue 
in 2024 seem optimistic. 

a  worse  cyclical  position  of  the  economy.  The  plan’s  assumption  of  higher 
potential  GDP  growth  in  2024  is  not  consistent  with  the  common  Debt 
Sustainability  Analysis  framework,  whereas  the  downward  revision  in  actual 
GDP growth in 2024 and assumptions on real and potential output growth from 
2025 onwards are in line. 

higher interest payments. The plan’s assumptions of a higher nominal implicit 
interest rate are based on a more recent assessment by the national authorities 
and are consistent with the European Commission Autumn 2024 Forecast.   

Overall, the assumptions in the plan regarding the improvement in the starting point in 
2024,  which  are  not  duly  justified,  are  balanced  by  assumptions  in  line  with  the 
common  Debt  Sustainability  Analysis  framework  used  as  of  2025  onwards.  The 
remaining  differences  do  not  have  a  significant  impact  on  average  net  expenditure 
growth  compared  to  the  Commission’s  assumptions.  This  implies  that  the  difference 
between the net expenditure path in the plan and the technical information is explained 
by differences in assumptions that overall can be accepted. Based on this assessment, 
the  plan  fulfils  the  requirement  under  Article  13,  point  (b),  of  Regulation  (EU) 
2024/1263. The Commission will take into account the above assessment of the plan’s 
assumptions in future assessments of compliance with the net expenditure path. 

Fiscal strategy of the plan 

(21)  According  to  the  indicative  fiscal  strategy  in  the  plan,  the  commitments  on  net 
expenditure  will  be  delivered  through  both  expenditure  and  discretionary  revenue 

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measures.  On  the  revenue  side,  discretionary  measures  include  revisions  of  labour 
taxation as of 2025, in particular an upward revision of personal income tax rates and 
an  increase  and  horizontal  application  of  non-taxable  income.  As  these  revenue 
measures  result  in  a  negative  fiscal  impact,  the  government  has  proposed:  a  bank 
windfall  profit  tax  as  of  2025;  shifting  1 percentage  point  of  pension  contributions 
levied  on  earned  income  from  the  funded  to  the  state  pension;  as  well  as  other 
compensatory  measures,  including  an  upward  revision  of  excise  rates  for  different 
product  groups  and  an  increase  of  tax  rates  for  private  and  company  cars.  On  the 
expenditure side, expenditure-increasing discretionary measures are mainly dedicated 
to strengthening internal and external security, including capacity of internal security 
services (including increase of renumeration), cybersecurity, purchase of ammunition 
and  individual  equipment  as  well  as  military  support  to  Ukraine  and  support  for 
Ukrainian  civilians  in  Latvia.  Expenditure-decreasing  measures  include  limiting  the 
renumeration  growth  in  the  public  sector,  reduction  of  expenditure  for  goods  and 
services across sectoral ministries, revision of municipal expenditure for salaries and 
investment,  as well as  revision of expenditure  for companies included in  the general 
government. The specification of the policy measures to be adopted is to be confirmed 
or adjusted and quantified in the annual budgets. Some risks remain with respect to the 
implementation  of  the  indicative  fiscal  strategy  in  the  plan.  These  stem  from  lower-
than-expected fiscal  impact  of certain  discretionary revenue measures, as  well as the 
increasing  spending  needs  on  defence,  all  of  which  may  necessitate  further 
discretionary revenue measures or expenditure restraint. The Draft Budgetary Plan for 
2025  specifies  the  policy  measures  through  which  the  net  expenditure  commitment 
will be achieved11. 

Reform  and  investment  intentions  in  the  plan  responding  to  the  main  challenges 
identified in the context of the European Semester and addressing the common priorities 
of the Union 

(22)  The plan describes policy intentions concerning reforms and investments to respond to 
the main challenges identified in the context of the European Semester, especially the 
CSRs  and  to  address  the  common  priorities  of  the  EU.  The  plan  includes  more  than 
130  reforms  and  investments  addressing  the  common  priorities  of  the  EU,  of  which 
more than 40 are financially supported by the Recovery and Resilience Facility (RRF) 
and more than 50 by the Cohesion policy funds. 

(23)  Concerning  the  common  priority  of  a  fair  green  and  digital  transition,  including  the 
climate  objectives  set  out  in  Regulation  (EU)  2021/1119,  the  plan  includes  an 
extensive  list  of  measures  grouped  under  such  policy  directions  as  transition  to  a 
circular  economy,  education  and  skills,  fostering  investment,  transport  sustainability 
and digital infrastructure. The reforms and investments included in the plan intend to 
address  CSRs  to  foster  transition  to  a  circular  economy  and  sustainable  resource 
management  issued  in  2024,  on  sustainable  transport  issued  in  2020  and  2019,  on 
investments  in  green  and  digital  skills  issued  in  2024  and  2023,  digital  services  and 
infrastructure,  including  in  regions  issued  in  2022,  2020  and  2019,  as  well  as  focus 
investment  related economic policy on research  and innovation  to  support green  and 
digital  transition  issued  in  2023,  2022,  2020  and  2019.  The  measures  to  support  the 

11 

See Commission Opinion on the Draft Budgetary Plan of Latvia, 26.11.2024, C(2024)9060 final. 

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green  transition  priority  through  fostering  investment,  improving  energy  efficiency, 
and  increasing  the  share  of  renewables  in  the  final  consumption  are  included  in  the 
National Energy and Climate Plan. 

(24)  Concerning  the  common  priority  of  social  and  economic  resilience,  including  the 
European  Pillar  of  Social  Rights,  the  plan  includes  an  extensive  list  of  measures 
grouped  under  several  policy  areas  such  as  social  protection  and  safety,  health  care, 
education  and  skills,  employment  policy,  fostering  investment,  and  availability  of 
housing. The reforms and investments included in the plan intend to address CSRs to 
improve  the  adequacy  of  social  protection,  including  pensions,  accessibility, 
resilience,  affordability  and  quality  of  health  care,  quality  of  education,  in  particular 
vocational education and training, to deliver skills needed for the labour market, issued 
in  2024, 2023, 2022, 2020, 2019; to improve the labour market participation issued in 
2024, 2019, 2020; to foster investment for innovation and access to finance issued in 
2024,  2023,  2022,  2020,  2019  as  well  as  increase  the  provision  of  affordable  and 
social housing issued in 2019. 

renewable  energy,  and  most  notably  completing 

(25)  Concerning  the  common  priority  of  energy  security,  the  plan  includes  a  set  of 
measures  aimed  at  reducing  the  country’s  reliance  on  fossil  fuels,  promoting  energy 
efficiency,  deploying 
the 
synchronisation  of  its  electricity  system  with  the  Continental  European  Network, 
supported  through  the  Connecting  Europe  Facility  for  Energy  and  the  RRF.  These 
measures  are  included  under  the  policy  direction  on  energy  and  energy  efficiency. 
Furthermore,  the  reforms  and  investments  included  in  the  plan  intend  to  address  the 
CSRs to reduce reliance on fossil fuel and accelerate deployment of renewables issued 
in  2024,  2023,  2022,  2020,  strengthen  energy  infrastructure  and  networks  issued  in 
2022 and 2019, improve energy efficiency issued in 2023, 2022, 2019,  and increase 
the  security  of  supply  and  continue  synchronisation  with  the  Union  electricity  grid 
issued in 2023 and 2022. 

(26)  Concerning the common priority of defence capabilities, the plan sets out an intention 
to develop a set of measures related to the National Armed Forces, which is primarily 
aimed at countering threats to the country, and to ensure the protection of the civilian 
population. 

(27) 

In  addition,  the  plan  includes  other  policy  measures  going  beyond  the  common 
priorities of the EU. Under the policy direction on tax policy, the measures intend to 
address  CSRs to  broaden taxation issued in 2024, 2023, 2022, 2019 by  reducing  the 
tax  burden  on  low  and medium  wage  earners  as  well  as  improving  tax  payment  and 
compliance. Under the policy direction on the efficiency of the public sector, the plan 
includes measures that intend to address the CSR to strengthen the accountability and 
efficiency  of  public  sector  issued  in  2019,  for  instance  reforms  to  improve  the 
management of state-owned and municipal enterprises, the prevention of conflicts of 
interest, which is included in the recovery and resilience plan (RRP). To address the 
CSR to improve the business environment issued in 2024, the plan includes reforms to 
identify  and  remove  bureaucratic  barriers,  reduce  the  administrative  burden  for  real-
estate development, market surveillance in the banking sector and, with the support of 
the RRP, the modernisation of the enterprise registry. 

(28)  The  plan  provides 

the  consistency  and,  where  appropriate, 
complementarity,  with  the cohesion  policy funds  and Latvia’s RRP. The plan makes 
appropriate  references  to  the  measures  included  in  the  RRP  and  cohesion  policy 

information  on 

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programme, as well as references to the various funding sources. The plan also makes 
references to demarcation and complementarity across the various funding sources. 

(29)  The plan provides an overview of the public investment needs of Latvia related to the 
common priorities of the EU. The total investment needs correspond to around EUR 
15.5  billion  and  cover  the  period  of  2025-2028.  Examples  of  investment  needs 
identified by Latvia to support a fair green transition and digital transformation, in line 
with  the  climate  objectives  set  out  in  Regulation  (EU)  2021/1119,  include 
digitalisation and modernisation of the ports in Riga and Liepaja, sustainable transport, 
energy  efficiency  in  buildings,  production  of  electricity  and  heat,  digitalisation  of 
public administration, water and wastewater management, and restoration of degraded 
ecosystems in both terrestrial and marine areas, with total investment needs amounting 
to  EUR  6.6  billion.  Concerning  the  common  priority  of  social  and  economic 
resilience,  including  the  European  Pillar  of  Social  Rights,  Latvia  has  identified 
investment  needs  of  EUR  3.9  billion,  for  instance  for  a  large-scale,  multi-modal 
industrial  and  logistics  park  in  the  port  of  Riga  with  a  Rail  Baltica  rail  connection, 
investments  in  roads,  support  for  higher  education,  innovation,  research  and  skills 
development, as well as improving the adequacy of social protection. Concerning the 
common priority of energy security, Latvia’s plan identifies investment needs of EUR 
2.9 billion, including, for example, the establishment of an offshore wind farm service 
terminal  in  Ventspils  port, investments  in  the ports of Liepaja, Salacgriva, and Roja, 
synchronisation  of  grids  with 
the  Continental  European  electricity  network, 
modernisation  of  the  Incukalns  underground  gas  storage  facility,  and  investments  in 
storage  solutions  in  high-capacity  power  plants.  To  increase  defence  capabilities, 
Latvia’s  plan  identifies  investment  needs  of  EUR  2.2  billion,  for  example  to  restore 
and  construct  shelters,  build  new  disaster  management  centres,  and  develop 
infrastructure to strengthen the response capacity of home affairs services, to enhance 
maritime safety and defence capabilities in the ports of Riga, Liepaja, and Ventspils, 
as well as for a set of measures to be implemented by the National Armed Forces. 

Conclusion of the Commission’s assessment 

(30)  Overall, the Commission is  of the view that Latvia’s plan fulfils the requirements of 

Regulation (EU) 2024/1263. 

OVERALL CONCLUSION 

(31) 

In accordance with Article 17 of Regulation (EU) 2024/1263, the net expenditure path 
as set in the plan should be recommended by the Council to Latvia. 

HEREBY RECOMMENDS that LATVIA 

1. 

Ensure  that  net  expenditure  growth  does  not  exceed  the  maxima  established  in 
Annex I to this Recommendation. 

In  addition,  the  Council  invites  Latvia  to  ensure  the  delivery  of  reforms  and  investments 
responding  to  the  main  challenges  identified  in  the  context  of  the  European  Semester,  in 
particular in the country-specific recommendations, and addressing the common priorities of 
the Union.  

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ANNEX I 
Maximum growth rates of net expenditure 
(annual and cumulative growth rates) 
LATVIA 

Years 

2025 

2026 

2027 

2028 

Growth rates  

Annual 

5.9 

3.6 

3.4 

3.3 

(%) 

Cumulative (*) 

15.5 

19.7 

23.8 

27.9 

(*) The cumulative growth rates are calculated by reference to the base year of [2023]. 

Done at Strasbourg, 

For the Council 
The President 

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