COMMISSION STAFF WORKING DOCUMENT 2025 Country Report - Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Latvia, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, labour market, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  SWD(2025) 214 final  COMMISSION STAFF WORKING DOCUMENT 2025 Country Report - Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION  on the economic, social, employment, structural and budgetary policies of Latvia {COM(2025) 214 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC DEVELOPMENTS AND KEY POLICY 
CHALLENGES 

Latvia’s economy is on a path to 
modest growth 

to 

and 

context 

In  2024,  the  economy  faced  a  recession 
(-0.4%).  This  was  mostly  due 
the 
perceived 
geopolitical 
uncertainties  by  both  households  and 
companies.  Despite  pronounced  wage  growth, 
private consumption was weak, and the saving 
to 
rate  was  very  high  at  11.3%  due 
precautionary  saving. 
In  addition,  foreign 
investors  are  holding  back  investments  in 
Latvia  due  to  geopolitical  risks  following 
Russia’s full-scale invasion of Ukraine. Private 
investment  was  also  hampered  by  high 
interest  rates  while  some  public  investments 
were  delayed,  in  particular  investment  under 
EU co-financed programmes. As a result, after 
solid  growth 
investment 
significantly  declined  in  2024  (-6.7%).  Goods 
and  services  export  growth  was  still  negative 
in  2024  due  to  a  weak  external  environment 
and  a  deterioration  in  cost  competitiveness. 
However,  goods  and  services  imports  fell 
faster.  In  2024,  the  economy  was  mostly 
supported  by  public  consumption,  which 
remains strong. 

in  2023  (9.9%), 

A slow recovery is expected in 2025. Solid 
wage growth should support a further increase 
in  real  incomes,  which  should  eventually  spill 
over  into  consumer  spending.  Investment  is 
expected  to  recover  in  2025  supported  by  EU 
fund  inflows,  increasing  spending  on  defence 
and  easing  financial  conditions. 
In  2025, 
investment  is  projected  to  decrease  by  1.2%, 
before  picking  up  to  2.6%  in  2026.  After  two 
years  of  decline,  exports  could  remain  weak 
this year due to the direct impact of US tariffs 
and  the  potential  exposure  of  Latvia’s  main 
trading partners.  

in 

increasing 

The  Latvian  labour  market  is  performing 
well,  but  shows  structural  challenges, 
labour  and  skills 
such  as  growing 
shortages.  After 
the  first 
quarter  of  2024  to  7.1%,  the  unemployment 
rate fell slightly to 6.9% in the last quarter of 
2024,  while  the  employment  rate  (77.4%  in 
2024)  returned  to its  pre-pandemic  level  (see 
in  Annex  13).  As  the 
Social  Scoreboard 
economy  recovers,  the  unemployment  rate  is 
expected  to  decrease  further  in  2025  and 
2026.  In  2024,  nominal  wages  increased  by 
7.7%.  Nominal  wage  growth  is  set  to  reach 
5.5%  in  2025  and  4.5%  in  2026,  driven  by  a 
tight labour market.  

In  2024,  energy  prices  declined  quickly, 
which  rapidly  pushed  down  headline 
inflation.  With  a  broad-based  slowdown  in 
price  rises  for  other  items  in  the  Harmonised 
Index of Consumer Prices, inflation fell to 1.4% 
in  2024.  Inflation  is  set  to  reach  3%  in  2025 
and  1.7%  in  2026.  Following  wage  trends, 
services inflation is projected to rise to 5.1% in 
2025  and  decrease  gradually  to  3.7%  by 
2026. Headline inflation excluding energy and 
unprocessed food was above general headline 
inflation  in  2024  and  is  set  to  remain  so  in 
2025,  driven  by  pressures  in  services  and 
processed  food  prices.  The  two  figures  are 
likely to converge again by 2026. 

Public finances are under pressure 
to fund key priorities 

In  2024,  the  general  government  budget 
deficit stood at 1.8% of GDP, down from 
2.4% in 2023.  In 2024, general government 
revenue  grew  faster  than  expenditure.  This 
was  mainly  due  to  strong  revenue  growth 
from  labour  and  corporate  taxes,  including 
corporate income tax advance payments from 

2 

 
 
Box 1: 

UN Sustainable Development Goals (SDGs)  

Latvia  performs  well  or  is  improving  on  SDGs  related  to  productivity  (SDGs  4,  9)  and 
macroeconomic stability (SDGs 16, 17) but is moving away from the targets for some 
SDGs related to environmental sustainability (SDGs 6, 15). 

Latvia  is  well  below  the  EU  average  and  is  moving  away  from  the  targets  on  good 
health  and  well-being  (SDG  3)  and  on  reduced  inequality  (SDG  10),  mainly  due  to 
increasing  unmet  needs  for  medical  care  and  a  wide  urban-rural  gap  for  the  risk  of 
poverty or social exclusion (see Annex 15). 

the  Council 

(2).  The 
recommended  by 
cumulative  growth  rate  of  net  expenditure  in 
2024 and 2025 taken together is projected at 
10.4%,  which  is  below  the  maximum  growth 
rate recommended by the Council.  

A  structural  revenue  increase  may  be 
necessary to keep up with rising spending 
needs. Latvia’s tax revenue remains below the 
EU  average,  at  32.9%  of  GDP 
in  2023 
compared to the EU average of 39.0%. Labour 
and  consumption  taxes  are  Latvia’s  main 
revenue  sources,  whereas  taxes  on  capital, 
including corporate income tax, tax on income 
from  capital  (3)  and  taxes  on  property  (4), 
represent  a  relatively  low  share  of  total  tax 
revenue  and  of  GDP  compared  to  other 
Member  States.  In  2023,  taxes  on  capital 
accounted  for  3.1%  of  GDP  in  Latvia  against 
8.5%  in  the  EU  as  a  whole.  In  terms  of 
immovable  property  taxation,  Latvia  ranks  in 
the  upper-middle  section  among  EU  Member 
States but, at 0.6% of GDP in 2023, revenues 
were still below the EU average of 0.9%. While 
this relative overall tax revenue gap might not 
be  an  issue  per  se,  it becomes  relevant  when 
viewed  in  the  context  of  the  government’s 
ability  to  sustainably  finance  policy  priorities 

(2)  Council Recommendation of 21 January 2025 

endorsing the national medium-term fiscal-structural 
plan of Latvia (OJ C, C/2025/652, 10.2.2025, ELI: 
http://data.europa.eu/eli/C/2025/652/oj). 

(3)  Income from capital gains (disposal of real estate, 

shares, virtual currency, intellectual property, investment 
gold, etc.) and income from capital (taxable dividends, 
interest on deposits, income from investment 
promissory notes, income derived from the investment 
account, etc.). 

(4)  Taxes on immovable property, duties on operations 
related to real estate, legacies and donations, etc. 

the financial sector, other taxes on production 
as  well  as  additional  dividend  payments  from 
state  owned  enterprises.  The  lower  growth  of 
general government expenditure was driven by 
phase-out of measures to mitigate the impact 
of high energy prices. The general government 
deficit is forecast  to increase to 3.1% of GDP 
in 2025, mainly due to weaker revenue growth 
and  increasing  current  expenditure.  In  2026, 
the government deficit is forecast to remain at 
3.1% of GDP. Government debt is expected to 
rise  from  46.8%  of GDP in  2024  to  48.6%  in 
stock-flow 
2025,  affected  by  positive 
adjustments  and  budget  deficit,  and  reach 
49.3% in 2026. 

driven  by 

The  growth  of  net  expenditure  both  in 
2025  and  cumulatively  since  2024  is 
projected  to  be  below  the  recommended 
maxima. In 2024, net expenditure (1) in Latvia 
grew  by  4.5%  (see  Annex  1).  This  increase  is 
mainly 
current 
expenditure, particularly social benefits (due to 
continuous  rise  of  the  average  retirement 
pension) and compensation of employees (due 
to the increase in the national minimum wage 
and  higher  remuneration  for  public  sector 
is 
employees). 
forecast by the Commission to grow by 5.7%, 
which  is  below  the  maximum  growth  rate 

In  2025,  net  expenditure 

growth 

of 

(1)  Net expenditure is defined in Article 2(2) of Regulation 
(EU) 2024/1263 as government expenditure net of (i) 
interest expenditure, (ii) discretionary revenue 
measures, (iii) expenditure on programmes of the Union 
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-off 
and other temporary measures. 

3 

 
 
 
 
 
and  provide  adequate  public  services  while 
complying with fiscal rules. 

Taxation  of  sources  less  detrimental  to 
growth  has  been  only  marginally 
addressed  by  the  recent  tax  reform.  The 
tax  reform  that  entered  into  force  in  January 
2025 mainly adjusted the personal income tax 
system  with  the  aim  of  simplifying  taxation 
and  raising  disposable 
income  for  most 
workers.  The  reform  also  increased  tax  rates 
on  income  from  capital  in  line  with  the 
increase  in  the  standard  personal  income  tax 
rate  (from  20%  to  25.5%)  (5).  Furthermore,  it 
made  annual  income  above  EUR 200 000, 
including  income  from  capital,  subject  to  a 
higher personal income tax rate (an additional 
3%  is  applied  on  top  of  the  standard  rate). 
Nonetheless, these measures are estimated to 
have  rather  a  minor  fiscal  impact  on  capital 
tax  revenue,  amounting  to  less  than  0.1%  of 
GDP in 2025 and in 2026. The government is 
formally  committed  to  transitioning  to  new 
land  and  property  values  ('cadastral  values') 
for  immovable  property  taxation  from  2026, 
alongside a review of real estate tax rates and 
the  rebate  system.  The  current  plan  aims  to 
revenue  at  0.6%  of  GDP, 
stabilise 
approximately 0.2 percentage points below the 
10-year  annual  average  and  significantly 
lower  than  the  theoretical  revenue  under  the 
newly projected cadastral values (6). 

tax 

and 

reviews 

Improving  the current approach to public 
spending 
gradually 
introducing performance-based budgeting 
could  yield 
fiscal  benefits.  Annual 
expenditure  reviews  have  been  carried  out 
since  2016  with  the  aim  of  making  public 
spending more effective. However, the current 
practice  has  largely  been  limited  to  returning 

(5)  A personal income tax rate of 25.5% rate is applied to 

annual income not exceeding EUR 105 300; a 33% rate 
is applied above this threshold (excluding income from 
capital). 

(6)  According to the Ministry of Finance, in 2023 actual real 
estate tax revenue amounted to EUR 237 million, while 
theoretical real estate tax revenue under the new 
projected cadastral values, assuming unchanged tax 
rates, was estimated at EUR 511 million; 
https://www.fm.gov.lv/lv/media/18078/download?attach
ment. 

4 

their 

most  savings  (approximately  0.3%  of  GDP 
annually) to the line ministries involved in the 
review  process 
internal 
to  finance 
priorities.  A  potentially  better  approach  could 
be to redirect the resulting funding to a limited 
number  of  priority  areas,  such  as  defence, 
healthcare  and  social  protection.  According  to 
the  declaration  on  intended  actions  by  the 
current  government,  proposals  will  be  made 
for  improving  the  principles  guiding  state 
budgeting,  setting  clearer  goals  for  state 
budget  programmes  and  regularly  evaluating 
the  results.  As  a  first  step,  in  February  2025, 
the  Ministry  of  Finance  submitted  an 
report  on  performance-based 
informative 
budgeting 
government 
for 
in 
consideration.  This  initiative  aims  to  ensure 
more  effective  and  transparent  management 
of  state  budget  funding  and  to  improve  the 
connection  between  state  budget  expenditure 
on the one hand, and the goals and results of 
sectoral policies on the other hand. 

Latvia 

Tackling socio-economic 
challenges to boost 
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 2024, Latvia’s GDP per 
capita  was  71%  of  the  EU  average,  which  is 
only 5 percentage points higher than in 2019. 
In  addition,  its  income  level  is  significantly 
below that of its Baltic peers – GDP per capita 
for  Estonia  and  Lithuania  was,  respectively, 
(down 
79%  of 
5 percentage  points  on  2019)  and  87%  (up 
4 percentage  points  on  2019).  This  suggests 
that  key  convergence  challenges,  such  as  an 
ageing population, skills shortages, poor health 
outcomes,  weak  innovation  performance  and 
regional  disparities,  are  hindering 
faster 
progress. 

the  2023  EU  average 

Simplifying  regulations  and  increasing 
investment in research have the potential 
Latvia’s 
to 
business  environment  could  benefit  from 
regulatory  simplification,  a  reduction  in  the 

competitiveness. 

improve 

 
 
labour  mobility  (see  Section  4  and 

also 
Annexes 10, 11, 12, 13, 14 and 17). 

size  of  the  shadow  economy  and  improved 
access  to  finance,  particularly  for  small  and 
medium-sized  enterprises.  The  lack  of  highly 
skilled  human  capital  and  low  public  R&D 
spending  are  barriers  for  both  research 
performance  and  innovation  output.  Latvia 
could benefit from strengthening the resilience 
of  its  regions,  particularly  its  eastern  border 
areas  by  promoting  balanced  economic 
development,  enhancing  security  and  stability 
and  maximising  the  use  of  EU  funding  for 
long-term  growth 
(see  Section  2  and 
Annexes 3, 4, 5 and 6). 

There is scope for Latvia to more closely 
align  decarbonisation  and  competitive-
ness  objectives.  Latvia  would  especially 
benefit  from  faster  deployment  of  wind  and 
solar  energy  capacity,  which  would  entail 
addressing  current  electricity  grid  constraints 
further  expediting  and  streamlining 
and 
permitting  procedures,  including  those  for  the 
installation  of  electricity  storage  capacities. 
Moreover,  considering  the  already  high  share 
of  renewable  sources  in  its  electricity  mix, 
Latvia could promote further electrification as 
a cost-effective way to reduce greenhouse gas 
emissions and bring the benefits of affordable 
renewable  generation  to  consumers.  Finally, 
climate  action  in  the  agri-food  and  land 
management sectors is essential to contribute 
to  the  broader  goal  of  a  climate-neutral  and 
resilient  EU  by  2050.  Latvia  could  step  up 
efforts 
to  more 
sustainable  practices  in  those  sectors  (see 
Section 3 and Annexes 7, 8 and 9). 

to  foster  a 

transition 

limiting 

Latvia’s competitiveness is also linked to 
its  social  fairness,  which  remains  a 
challenge.  Inadequate  social  protection  leads 
to  persistently  high-income  inequality  and 
poverty, 
for 
the 
vulnerable  groups  as  reflected  in  the  social 
scoreboard  accompanying  the  European  Pillar 
of  Social  Rights  (7).  The  healthcare  system  is 
underfunded, 
health 
outcomes and losses of working time. The lack 
of  affordable  and  quality  housing  in  the 
regions hinders not only social  well-being, but 

opportunities 

resulting 

poor 

in 

(7)  https://ec.europa.eu/eurostat/cache/dashboard/social-

scoreboard/. 

5 

 
 
Box 2: 

Barriers to private and public investment 

Latvia needs more private investment to support economic growth and competitiveness. Several 
barriers to private investment exist. 

•  Unfavourable  financing  conditions.  58%  of  Latvian  enterprises  reported  the  non-availability 
of  finance  as  an  obstacle  to  long-term  investment  in  2024.  Private  investment  has  been 
constrained by high lending rates and stringent collateral requirements. 

•  Geopolitical  risks.  Foreign  investors  are  holding  back  from  investing  in  Latvia  following 

Russia’s full-scale invasion of Ukraine. 

•  Labour  market  challenges.  83%  of  Latvian  businesses  report  a  lack  of  skilled  staff  as  a 

primary obstacle to long-term investment. 

•  Sluggish  innovation  performance.  Poor  R&D  incentives  and  bureaucratic  hurdles  discourage 

R&D investment. 

Latvia  makes  effective  use  of  EU  funds  to  supplement  national  investments,  ensuring  the 
advancement  of  critical  infrastructure  and  reforms,  especially  given  constraints  in  its  national 
budget.    However,  barriers  to  efficient  public  spending  remain.  These  challenges  also  act  as  a 
bottleneck to the implementation of EU funds: 

•  Administrative capacity and execution strategies. The pace of implementation of EU-funded 
projects  is  slowed  by  constraints  in  administrative  resources,  cumbersome  interinstitutional 
coordination,  excessive  administrative  burden  on  final  beneficiaries  and  systemic  delays  in 
setting national regulatory frameworks for implementation. Certain EU-funded projects may 
also struggle with low demand at municipal level due to  potential future funding needs for 
maintenance or services.  

• 

Implementation capacity of the construction sector.  The construction sector risks limitations 
in  implementation  capacity  as  multiple  construction  projects  happen  simultaneously, 
competing  for  limited  resources  such  as  skilled  labour,  materials  and  equipment,  slowing 
down  the  delivery  of  public  investment.  Large  investment  projects  are  also  affected  by 
administrative  hurdles,  such  as delays in  procurement  processes,  and  external  factors such 
as supply chain constraints and increasing costs due to inflation.   

The implementation of Latvia’s RRP is facing challenges. At present, Latvia has fulfilled 38% of 
the  milestones  and  targets  in  its  RRP.  Accelerating  progress  and  addressing  the  above-
mentioned barriers would support timely and effective implementation of the plan.  

It remains important to accelerate the implementation of cohesion policy programmes. The mid-
term review offers opportunities to speed up progress and better address EU strategic priorities 
related to competitiveness, defence, housing, water resilience and the energy transition. 

While  Latvia  has  leveraged  STEP  to  reallocate  some  Cohesion  Policy  resources  towards  this 
priority, it can further support the development or manufacturing of critical technologies in the 
areas of digital and deep tech, clean and resource efficient technologies, and biotechnologies.    

6 

 
 
 
INNOVATION, BUSINESS ENVIRONMENT AND 
PRODUCTIVITY 

for 

obstacles 

business 

environment 

Investment  Bank  showed 

has 
Latvia’s 
improved,  but  the  country  needs  to 
address  ongoing  obstacles  to  achieve 
stronger  economic  and  productivity 
growth.  A  survey  carried  out  in  2024  by  the 
European 
that 
Latvian 
companies  have  become  more 
optimistic  about  the  business  environment. 
Business investments in Latvia are 30% above 
levels.  Latvian  firms  faced 
pre-COVID-19 
investment (8). 
lower 
Nevertheless,  Latvian  business  still 
face 
challenges  such  as  low  R&D  intensity,  limited 
access  to  finance,  high  interest  rates,  a  high 
regulatory  burden,  geopolitical  risks  and  a 
significant  shadow  economy.  Furthermore, 
labour  productivity  and  economic 
while 
efficiency 
total  factor 
productivity)  have  picked  up  in  recent  years, 
Latvia’s  productivity  level  remains  not  only 
below  the  EU  average,  but  also  that  of  its 
Baltic peers, Estonia and Lithuania. To achieve 
more  robust  economic  growth,  it  is  essential 
for Latvia to address these ongoing challenges 
and bridge the productivity gap. 

(as  measured  by 

Boosting innovation and R&D 
investment 

R&D  outputs  and  investment  in  Latvia 
are  lagging  the  European  average.  The 
European 
Innovation  Scoreboard  classifies 
Latvia  as  an  emerging  innovator.  Unlike  in 
most  Member 
R&D 
States, 
expenditure  (0.3%  of  GDP)  is  significantly 
lower  than  public  R&D  spending  (0.53%  of 
GDP) and is the lowest in the EU (EU  average 
1.49%  of  GDP).  The  quality  of  research  and 

business 

innovation  (R&I)  outputs  also  remains  below 
the  EU  average.  For  example,  only  4.55%  of 
scientific  publications  written  in  Latvia  are 
within  the  top  10%  most-cited  scientific 
publications (9).  Innovation  output  in  terms  of 
patents and trademarks is also low, with only 
1.0  patent  applications  per  EUR 1 billion  of 
GDP  compared  to  the  EU  average  of  2.8  in 
2022 (see Annex 3). 

lead 

However, 

institutions. 

to 
capacity 

In  terms  of  research  activities,  Latvia  is 
lagging  behind  the  EU  average.  In  Latvia, 
there  are  only  a  few  high-performing  public 
research 
the 
consolidation  of  universities,  the  creation  of 
the  innovation  governance  model,  and  the 
establishment  of  competence  centres  (all  of 
which  feature  in  the  recovery  and  resilience 
plan) could potentially lead to progress in this 
area. Successful continuation of the reforms in 
further 
higher  education  could 
improvements.  Latvia's  R&I 
is 
hindered by a shortage of researchers in both 
the  public  and  private  sectors  (see  Annex  3). 
This  could  also  negatively  impact  the  R&I 
funds.  The 
system  capacity 
relaxation 
language 
requirement  for  academic  staff  in  2024  may 
help to attract more researchers from abroad, 
although  further  steps,  such  as  a  relaxation 
for 
lecturers  and  assistants,  would  be 
beneficial.  The  number  of  doctoral  graduates 
and  science,  technology,  engineering  and 
mathematics  (STEM)  graduates  is  low  and 
increasing  too  slowly  to  address  the  shortage 
of  researchers  in  the  short  or  medium  term 
(see  Section  4  and  Annex  3).  The  number  of 
new  doctoral  students  has  already  increased 
following  the  new  doctoral  model  (part  of 
recovery  and  resilience  plan).  However,  their 

to  absorb 
the 

Latvian 

of 

(8)  https://www.eib.org/en/press/all/2025-069-latvian-
companies-see-improved-business-environment-in-
new-eib-investment-survey. 

(9)  DG RTD based on Science-Metrix using data from 

Scopus (Elsevier) with fractional count and a 2-year 
citation window. 

7 

 
 
 
 
impact on the workforce will only be visible in 
the long run. 

customers could increase competition between 
banks and reduce high credit costs. 

to  support  business 

Private  R&D  investment  is  very  low. 
Latvia does not currently have corporate R&D 
tax incentives in  place  and  mostly  uses  direct 
funding 
innovation 
instead. The lack of incentives for the business 
sector to distinguish R&D from other types of 
investment may lead to underreporting of R&D 
investment,  although 
level  of 
innovation  output  shows  the  low  level  of 
innovation  activity.  Consideration  could  be 
given  to  introducing  indirect  funding,  such  as 
leveraging  public  procurement  to  stimulate 
broader  R&D  activity 
in  businesses  and 
improve monitoring. 

low 

the 

Improving access to finance 

Despite  some  revival  of  credit  growth  in 
2024,  companies  in  Latvia  use  external 
financing  less  than  their  peers  in  other 
EU  countries.  Bank  lending  to  non-financial 
corporations in December 2024 grew by 5.8% 
year-on-year,  thus  exceeding  the  growth  rate 
of nominal GDP. In 2023, loans, listed  shares, 
trade  credit  and  bonds  constituted  34%  of 
GDP in Latvia and 54% in the EU. The cost of 
credit  is  high:  in  December  2024,  the  lending 
interest rates were 5.22% in Latvia, compared 
with 4.24% in the euro area (see Annex 5). 

Cyclical  and  structural  issues  constrain 
lending in Latvia. These issues are reflected 
in  high  lending  rates  and  stringent  collateral 
requirements. This is most notable in corporate 
lending,  where  interest  rate  markups  have 
remained high and a large proportion of loans 
have  variable  interest  rates,  resulting  in  very 
high lending rates. Market concentration in the 
banking sector is among the highest in the EU. 
Spreading 
products, 
including those provided by smaller banks, and 
their  costs  could  partly  mitigate  this  problem.  
Work  is  underway  to  facilitate  switching  for 
bank  customers.  For  example, 
in  2024 
mortgage  loans  transfers  from  one  lender  to 
another  were  simplified  and  the  switching 
costs  for  consumers  were  reduced.  A  further 
for  bank 
reduction  of  switching  costs 

information 

about 

Latvia’s  capital market  is  less  developed 
than  the  EU  average  or  the  markets  in 
neighbouring  countries.  In  Q2-2024,  stock 
market  capitalisation  in  Latvia  was  equal  to 
1.5% of GDP (for comparison: 67.6% in the EU, 
5.8  in  Lithuania  and  12.7%  in  Estonia).  In 
2023,  listed  shares  and  bonds  accounted  for 
just  1.3%  of  all  funding  sources  for  Latvian 
non-financial  corporations.  Moreover,  Latvia 
has  only  listed  bonds  for  three  of  its  state-
owned enterprises, in contrast to Lithuania and 
Estonia,  where  they  account  for  slightly  more 
than  a  third  of  market  capitalisation  (see 
Annex  5).  Latvian  authorities  are  working  to 
unify  capital  markets  with  other  Baltic  states. 
Further  harmonising  reporting  requirements 
across  Baltic  capital  markets  could  make  the 
capital market more attractive. 

investment  amounted 

The venture capital sector shows positive 
signs  of  development;  however,  it  still 
lags  the  EU  average.  According  to  the 
Capital  Markets  Union  Dashboard (10),  annual 
venture  capital 
to 
0.02% of GDP on average between 2021 and 
2023,  well  below  the  EU  average  of  0.08%. 
Venture  funds  in  Latvia  often  depend  on  co-
investments  from  the  state  budget,  Latvia’s 
national  promotional institution, EU funds, the 
for  Reconstruction  and 
European  Bank 
Development  or  the  European 
Investment 
Fund.  Even  then,  Latvian  venture  capital  still 
the 
encounters  difficulties 
necessary  level  of  private  capital  for  the 
publicly  supported  hybrid  venture  capital 
funds.  However,  crowdfunding  platforms  are 
rather popular, accounting for 0.7% of GDP. 

in  attracting 

The  non-bank  financial  sector’s  assets 
largely  comprised  of  household 
are 
retirement savings. At the end of Q2-2024, 
Latvia’s pension savings in all types of pension 
products (22.3% of GDP) exceeded Lithuania’s 

(10)  https://finance.ec.europa.eu/document/download/ 

60d966f8-8f3a-4133-a852-
de7d6978e387_en?filename=240719-capital-
markets-union-indicators_en.pdf 

8 

 
 
(11%),  and  Estonia’s  (19%  in  2019).  At  the 
end  of  2023,  second-pillar 
(occupational) 
pension plans had accumulated almost half of 
the  total  assets  of  the  non-bank  financial 
sector. Due to the growing contributions to the 
second-pillar  pension  scheme,  the  high  return 
on investment and the licensing of investment 
platforms 
in  2021,  the  role  of  Latvia’s 
institutional  investors  has  been  growing  over 
recent  years.  Pension  funds  have  contributed 
to the development of Latvian capital markets, 
but  their  domestic  investment  remains  low 
due to the shallow local financial markets (see 
Annex 5). 

Reducing the administrative 
burden 

there 

regulators 

compliance 

costs 
are 

Currently, 
for 

Latvia’s  regulatory  framework  presents 
challenges  in  terms  of  administrative 
for 
burden  and 
no 
companies. 
requirements 
to  assess 
compliance costs in new or existing legislation, 
and  no  recent  efforts  have  been  made  to 
consolidate  or  streamline  regulations  (see 
Annex  6).  Although  public  participation  in  the 
legislative  process  has  increased,  the  use  of 
policy  impact  analyses  remains  below  the  EU 
average,  indicating  gaps  in  long-term  policy 
evaluation.  Public 
in  government 
decisions  is  relatively  low,  with  only  26%  of 
Latvians believing that decisions are evidence-
based,  compared  to  41%  in  OECD  countries 
overall (11). 

trust 

The  licensing  regime  in  Latvia  is  slightly 
more  restrictive  than the  EU  average, as 
indicated  by  the  OECD  product  market 
regulation 
indicator.  While  an  online 
inventory  of  permits  and  licenses is  available, 
regular  reviews  to  assess  the  need  for  them 
are lacking. Most permits and  licenses require 
periodic  renewal,  contributing  to  regulatory 
real  estate 
complexity. 

In  sectors 

like 

(11)  OECD Survey on Drivers of Trust in Public Institutions – 

2024 Results | OECD 

development,  administrative  hurdles  remain. 
The  potential  for  simplification  in  systems 
such  as  the  Building  Information  System  is 
identified  by  the  action  plan  as  a  way  of 
reducing the administrative burden in the field 
of real estate development (12). 

The  regulatory  burden  is  reported  as  an 
obstacle  to  investment.  According  to  the 
European 
Investment 
Investment  Bank's 
Survey 2024 (13), 42% of businesses in Latvia 
identified  business  regulation  as  a  major 
challenge,  exceeding  the  EU  average  of  32% 
and  levels  reported  in  Estonia  (15%)  and 
Lithuania 
(22%).  From  a  competitiveness 
perspective,  reducing  regulatory  complexity 
and  ensuring  a  more  predictable  business 
environment  are  essential 
fostering 
investment. 

to 

Formalising the economic activity 

Recent  assessments  reveal  a  positive 
break  in  the  growth  of  the  shadow 
economy  over  the  past  four  years. 
According  to  surveys  of  company  owners  and 
managers (14), the shadow economy decreased 
in  size  in  2023  to  22.9%  of  GDP,  3.6 
percentage  points  lower  than  in  2022.  This 
was  due  to  a  decrease  in  the  share  of 
underreported  business  income  and  in  the 
share  of  envelope  wages.  While  there  are 
different  ways  of  measuring  the  size  of  the 
shadow economy and it is difficult to establish 
causality,  the  persistent  focus  on  policy 
measures 
to  formalise  economic  activity 
seems  to  have  reduced  companies'  tolerance 
for the shadow economy and their willingness 
to  participate 
important  but 
unimplemented  measures  are  carried  over 

it.  Also, 

in 

(12)  https://www.em.gov.lv/lv/jaunums/valdiba-apstiprina-
pasakumu-planu-administrativa-sloga-mazinasanai-
nekustamo-ipasumu-attistisanas-joma 

(13)  EIB investment survey 2024 Latvia 

https://www.ei0b.org/files/documents/lucalli/20240238_
econ_eibis_2024_latvia_en.pdf. 

(14)  Shadow Economy Index for the Baltic Countries 2009-
2023; https://www.sseriga.edu/sse-riga-shadow-
economy-index-shadow-economy-latvia-decreased-
2023-229-gdp. 

9 

 
 
 
civilian 

attention 

additional 

weaker-than-average 

economic 
their 
performance, these regions, especially Latgale, 
merit 
and  more 
investment  to  support  border  security  and 
connectivity, 
defence, 
administrative  capacity-building  and  business. 
Furthermore,  the  regions  have  significant 
untapped  potential  stemming  from  the  'green 
transition',  particularly  in  renewable  wind  and 
solar  energy  deployment,  and  advances  in 
sustainable transport. 

resilience, 

from  one  action  plan  to  the  next,  ensuring 
continuity of policy implementation. 

Data  on  taxpayers’  ratings  show  some 
positive results in the taxpayer structure. 
The  taxpayer  rating  (a  measure  under  the 
recovery and resilience plan) is a tool operated 
by  the  State  Revenue  Service  aimed  at 
assessing  the  settlement  of  tax  liabilities  of 
commercial  companies.  It  is  comprised  of 
several  indicators,  e.g.  timely  submission  of 
reports,  status  of  tax  settlement  and  salary-
setting principles. Recent analysis by the State 
Revenue Service (15) shows that the proportion 
of  taxpayers  with  good  and  overall  good 
settlement  of  tax  liabilities  has  increased  by 
0.1% and 2.5% respectively, while the share of 
inactive  taxpayers  has  decreased  by  2.4%. 
However,  these  results  must  be  treated  with 
some  caution  given  the  relatively  short  time 
series. 

Building resilient and competitive 
regions 

to 

Latvia  could  benefit  from  stepping  up 
efforts to reduce disparities between the 
capital region and other areas. While some 
regions  show  promising  growth  trajectories 
based  on  a  mix  of  traditional  sectors,  more 
attention  could  be  paid  to  developing  strong 
foundations  for  businesses 
thrive  by 
providing  quality  public  services,  access  to 
finance  and  infrastructure,  in  particular,  road, 
railway  and  digital  connections.  Improving 
connectivity  in  lagging  regions  would  also 
strengthen their attractiveness for visitors and 
talent and would support their competitiveness 
and productivity. Moreover, the war in Ukraine 
has had a profound impact on Latvia’s eastern 
border  regions  disrupting  trade,  triggering 
migration and the need for new investments in 
civil  protection  and  defence.  The  government 
recently  approved  an  action  plan  to  boost 
economic growth in the eastern border regions 
and  strengthen  their  security.  However,  given 

(15)  Assessment by the State Revenue Service based on 
taxpayers rating data; February 2024 and February 
2025. 

10 

 
 
 
DECARBONISATION, ENERGY AFFORDABILITY AND 
SUSTAINABILITY 

below the EU average and has stagnated over 
the past decade (see Annex 8). Given the high 
and  increasing  share  of  renewables  in  the 
electricity mix, promoting further electrification 
across  sectors  could  be  an  effective  strategy 
to reduce overall greenhouse gas intensity and 
enhance  economic  resilience.  For  example, 
Latvia could increase electricity's share in final 
energy consumption for buildings and industry 
sectors  by  further  supporting  electrification 
under  future  energy  efficiency  schemes.  This 
would  help 
the  potential  of 
electrification  to  drive  decarbonisation  and 
support a cleaner energy system. 

to  unlock 

with 

Further  electrification  and  a  higher  rate 
of renewables in the country’s energy mix 
require  solid  planning  and  support  for 
upgrades  to  the  grid,  promotion  of 
storage,  demand  response  and  market-
based  flexibility.  Under  its  recovery  and 
resilience  plan  and  EU  cohesion  policy 
programming,  Latvia  is  already  investing  in 
expanding,  securing  and  digitalising  electricity 
transmission  and  distribution  networks.  The 
successful 
the 
synchronisation 
continental  European  electricity  network  as  of 
9 February  2025  strengthens  energy  security 
but demands additional efforts to improve grid 
resilience. The installation of a 60 MW battery 
energy storage system in Rēzekne, co-financed 
by the Recovery and Resilience Facility, will be 
a  positive  development  for  energy  storage. 
The  variability  associated  with  renewable 
energy  generation  means  that  ways  must  be 
found  to  balance  energy  supply  with  demand 
throughout the day. Latvia could benefit from: 
(i)  promoting  demand-response  tools,  which 
can  adjust  energy  use  in  real  time  to  match 
energy availability;  (ii)  providing incentives for 
the  installation  of  batteries  or  other  systems 
for  storing  excess  energy  generated  at  peak 
role  of 
(iii)  enhancing 
times;  and 
independent  aggregators  of 
small-scale 
demand  able  to  provide  flexibility  over  the 

the 

Speeding up renewable energy 
deployment and electrification 

While  Latvia  already  has  a  high 
proportion of renewables in its electricity 
mix,  speeding  up  the  deployment  of 
additional solar and wind energy capacity 
would  be  beneficial.  In  2024,  74%  of 
Latvia’s  electricity  was  generated 
from 
renewable  sources,  with  hydro  accounting  for 
51%  of  the  total.  However,  the  shares  for 
solar  and  wind  production,  at  8%  and  4% 
respectively, were still significantly lower than 
in  Lithuania  and  Estonia,  and  below  the  EU 
average  (16).  Beyond  the  measures  planned 
under  Latvia’s  recovery  and  resilience  plan, 
there  is  ample  scope  for  additional  measures 
to  improve  grid  queue  management  (see 
Annex  8)  and  to  expedite  and  streamline 
permitting procedures  for new  solar  and  wind 
energy  projects,  as  well  as  related  storage 
capacities.  On  grid  queue  management, 
amendments to the Electricity Market Law that 
entered 
into  force  on  1 April  2025  are 
expected  to  ease  the  current  bottleneck  (17). 
Improving  the  design  of  national  support 
schemes 
long-term 
predictability  is  also  crucial  for  developers  of 
large-scale generation facilities. 

provide  more 

to 

Promoting  electrification  across  sectors 
could  be  a  cost-effective  way  to  reduce 
greenhouse  gas  emissions  and  bring  the 
renewable 
benefits 
generation 
Latvia’s 
electrification  rate  –  electricity  as  a  share  of 
final  energy  consumption  –  is  substantially 

consumers. 

affordable 

of 

to 

(16)  Ember,  Electricity  Data  Explorer,  available  at  Electricity 

Data Explorer | Ember. 

(17)  Amendments to the Electricity Market Law 

11 

 
 
 
course  of  a  day  and  balancing  services  when 
needed. 

Decarbonising the transport sector 

Latvia  could 
its  efforts  to 
intensify 
decarbonise  the  transport  sector,  which 
remains  heavily  reliant  on  oil  products. 
The  potential  for  further  electrification  and 
decarbonisation  is  significant  in  this  sector, 
particularly  in  road  transport,  which  is  one  of 
the largest energy consumers and greenhouse 
gas  emitters  in  the  country  (see  Annex  7). 
However,  the  penetration  of  electric  vehicles, 
including both full battery-electric and plug-in 
hybrid  electric  vehicles,  is  relatively  low,  as  is 
the uptake of vehicles powered by alternative 
fuels. 

The  Latvian  government  is  taking  some 
steps 
in  the  field  of  transport,  but 
additional  efforts  are  needed.  Some 
positive  measures  are  in  place  or  in  the 
pipeline:  Latvia  has  adopted  taxation  policies 
linking  vehicle  registration  and  ownership 
taxes  to  CO2  emissions;  the  Ministry  of 
Transport  is  currently  working  on  a  proposal 
for  a  new  Road  Charges  Act,  introducing 
differentiated  toll  rates  according  to  the  CO2 
emissions  of  vehicles  and  a  new  distance-
based levy from 2030; support measures and 
direct  investments  are  ongoing  or  at  the 
design  phase.  Furthermore,  the  cross-border 
Rail  Baltica  project,  which  aims  to  strengthen 
connectivity between the Baltic states and the 
rest  of  the  EU,  is  crucial  for  shifting  traffic 
interests  of 
from 
sustainability.  However,  progress  has  been 
slow  and  would  benefit  from  measures  to 
ensure faster implementation. Funds from the 
Recovery  and  Resilience  Facility  were  recently 
allocated  for  the  completion  of  works  in  the 
southern part of Riga Central Railway Station – 
a  big  step  towards  a  rail  connection  linking 
Riga  International  Airport  to  the  main  Rail 
Baltica  line.  Latvia  could  do  more  to  promote 
the  uptake  of  electric  vehicles,  and  the 
production  and  uptake  of renewable  and  low-
carbon  fuels  for  both  public  and  private 
transport. Retrofitting conventional heavy-duty 
vehicles,  especially  buses,  with  an  electric 

road 

the 

rail 

to 

in 

a 

to 

expand 

be 
fleet 

investment 

could 
to 

cost-effective 
powertrain 
decarbonisation. 
contribution 
Additional 
the 
recharging  network  would  also  be  beneficial. 
On  the  legislative  front,  the  swift  adoption  of 
the  Climate  Law  and  Transport  Energy  Law 
would  help  create  certainty  and  stability  for 
market operators and users as they transition 
to  cleaner  forms  of  transport.  Lastly,  the 
targeted use of the Social Climate Fund will be 
essential 
in  supporting  vulnerable  groups 
during this transition. 

Improving energy efficiency 

Significant energy efficiency schemes are 
currently  running  or  being  planned,  but 
Latvia could benefit from stepping up the 
renovation  of  its  rather  old  building 
stock, especially by leveraging additional 
private funding. The building stock is a major 
energy  consumer  in  the  country  and,  while 
energy  consumption  from  the  sector  has 
decreased  in  the  past  few  years,  additional 
efforts are needed to achieve the 2030 energy 
efficiency  targets  (see  Annex 8).  Moreover, 
fuel  taxes  for  buildings  are  much  lower  than 
the  EU  average  and  so  do  not  provide  a 
incentive  and 
sufficient  decarbonisation 
perpetuate  reliance  on  fossil  fuels.  The  OECD 
measures  this  incentive  by  effective  carbon 
rates  (see  also  Annex  8)  which,  for  buildings, 
are EUR 7.87 in Latvia compared to EUR 61.49 
for  the  EU  as  a  whole.  Most  current  and 
planned support schemes are dependent on EU 
funding,  especially  via  the  Recovery  and 
Resilience  Facility,  EU  cohesion  funds  and  the 
is  scope  for 
Modernisation  Fund.  There 
attracting  additional  private 
funding,  by 
deploying dedicated  financial  instruments and 
for  energy  efficiency 
de-risking  options 
investments, 
the 
supporting 
and 
development  of  the  energy  services  sector  as 
a  key  market-enabler  for  energy  efficiency 
improvements.  Moreover,  swift  drafting  and 
submission  of  the  first  draft  national  building 
renovation plan by 31 December 2025 will be 
fundamental  (and  is  required  by  the  Energy 
Performance  of  Buildings  Directive).  The 
Latvian  government  plans  to  have  a  new 
Energy  Efficiency  Law  adopted  by  the  end  of 

by 

12 

 
2025, which would provide a legal framework 
for  the  country  to  achieve  the  targets  set  by 
relevant EU Directives. Latvia has also recently 
amended  the  Law  on  Residential  Property, 
which  should  speed  up  decision-making  for 
energy  efficiency 
in  multi-
apartment buildings. 

renovations 

advisory  services,  and  supporting  innovative 
carbon  farming  start-ups,  could  help  land 
sector  operators  build  a  compelling  business 
case for transitioning to more sustainable and 
resilient practices. 

Sustainable land management 

Circular economy and waste 
management 

Latvia  faces  significant  challenges  in  its 
transition  to  a  circular  economy  and 
could  benefit  from 
improved  waste-
management policies. In 2023, the country’s 
circular  material  use  rate  was  less  than  half 
the EU average, and resource productivity was 
also  below  the  EU  average  (see  Annex  7). 
Improving  resource  productivity  can  help  to 
minimise negative impacts on the environment 
and 
raw 
reduce  dependency  on  volatile 
material  markets.  Despite  significant progress 
in  its  waste-management  system  in  the  last 
decade,  Latvia  still  struggles  with  municipal 
waste  and  bio-waste  collection  and  recycling; 
a  significant  proportion  of  municipal  waste 
(44%)  is  still  sent  to  landfills,  putting  the 
country  at  risk  of missing  its  2025  reuse  and 
recycling 
landfill 
reduction target. 

targets  and 

its  2035 

different 

consumption 

The  2021-2027  action  plan  ‘Towards  a 
Circular  Economy’,  which  is  the  main 
national  policy  document  in  this  area, 
marks a positive step towards circularity 
and 
and 
production patterns. However, the plan lacks 
quantified  targets  and  a  clear  strategy  to 
ensure  that  planned  initiatives  go  beyond 
niche areas and are effectively integrated into 
the  broader  economy  and  society.  In  2024, 
Latvia  introduced  a  system  for  bio-waste 
collection 
producer 
responsibility  system  for  textile  products, 
which  is  a  positive  development.  Latvia  could 
increasing 
this,  for  example  by 
develop 
municipal  waste  recycling  and  improving  bio-
waste collection by providing all residents with 
separate  bio-waste  containers,  by  raising 
public  awareness  through  campaigns  and  by 
public 
extending 
are 
procurement. 

green 
investments 

use 
Further 

extended 

and 

the 

an 

of 

(LULUCF) 

land  use, 

land-use  change  and 
The 
forestry 
the 
sector  and 
agricultural  sector  continue  to  be  a 
source  of  concern,  as  Latvia’s  carbon 
removals  are  insufficient  to  meet  its 
2030  target.  Amid  increased  logging  and 
high greenhouse gas emissions from degraded 
peatlands,  the  LULUCF  sector  has  become  a 
net  greenhouse  gas  emitter  in  recent  years. 
According  to  the  latest  projections,  Latvia  is 
unlikely to meet its target for net  greenhouse 
gas  removals  without  additional  efforts  (see 
Annex 9). 

forestry  and  peat 
The  agriculture, 
extraction  sectors  put  significant  strain 
on 
the  natural  environment,  with 
degraded  peatlands  being  a  particular 
concern. Wetlands, including peatlands, play a 
significant  role  in  greenhouse  gas  emissions 
within  Latvia's  LULUCF  sector,  accounting  for 
approximately  38%  according  to  the  latest 
available data. The vast majority of emissions 
from  wetlands  are  attributable 
to  peat 
extraction  for  horticultural  purposes.  While 
Latvia’s  common  agricultural  policy  strategic 
plan  includes  some  positive  measures  (see 
Annex 9),  the  country  would  benefit  from 
further initiatives to reduce the environmental 
intensity of these sectors and from a stronger 
national  regulatory framework for sustainable 
land  management.  For  instance,  Latvia  could: 
(i)  implement  capacity-building  programmes 
local 
for 
communities;  (ii)  provide  additional  incentives 
rewetting  programmes 
for  set-aside  and 
through  compensation  schemes;  and 
(iii) 
enforce  sustainable  forest  management  and 
peat 
Furthermore, 
providing  farm-level  monitoring  data  and 

land  managers  and 

extraction 

practices. 

farmers, 

13 

 
necessary  to  unlock  the  full  potential  of  a 
circular  economy  and  address  the  existing 
challenges. 

Net-zero manufacturing capacity 

Latvia’s  manufacturing  capacity  for  net-
zero  technologies  remains  limited.  Net-
zero technologies are seen as fundamental to 
attaining the EU's 2030 and 2050 climate and 
energy objectives (18). The country has limited 
capacity  to  produce  steel  structures  for  wind 
turbines  or  components  for  solar  photovoltaic 
installations  and  solar  thermal  industries.  The 
country  has  a  stronger  track  record  in  the 
production  and  export  of  grid  technology 
components  (see  Annex  7).  There  is  currently 
no  dedicated  industrial  policy  strategy  nor 
regulatory 
net-zero 
manufacturing. 

framework 

for 

(18)  See European Commission, Proposal for a regulation of 

the European Parliament and of the Council on 
establishing a framework of measures for 
strengthening Europe’s net-zero technology products 
manufacturing ecosystem (Net-Zero Industry Act), 
16 March 2023, available at Net-Zero Industry Act - 
European Commission. 

14 

 
 
 
SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS 

suffer 

Latvia  faces  considerable  labour  market 
and  social  challenges,  which  also  hinder 
its  competitiveness.  The  ageing  of  the 
population is leading to a decline in the labour 
force.  Labour  and  skills  shortages  continue  to 
weigh on economic growth and slow down the 
transition  to  digital  and  green  economy. 
Furthermore,  both  the  workforce  and  the 
economy 
from  poor  healthcare 
outcomes.  Social  protection  remains  weak, 
with  a  persistently  high  poverty  and  social 
exclusion 
risk,  notably  for  older  people. 
Strengthening access to quality social services 
and  long-term  care,  as  well  as  improving  the 
quality  of  housing,  are  essential  for  ensuring 
social  fairness.  Strong  discrepancies  in  labour 
outcomes  and  wages  between  Riga  and  the 
regions  negatively  impact  the  regions’  ability 
to attract and retain talent and young families, 
exacerbating socio-economic and demographic 
challenges. 

Addressing labour and skills 
shortages 

Labour  and  skills  shortages  remain  a 
significant challenge, in particular for the 
green  and  digital  transitions.  The  Latvian 
labour  market  is  facing  labour  and  skills 
shortages,  with  high  vacancy  rates  in  key 
sectors  such  as  construction,  manufacturing, 
insulation,  forestry  and  healthcare.  The  share 
of  science, 
technology,  engineering  and 
mathematics (STEM) graduates remains below 
the  EU  average  (see  Section  2),  and  only  one 
in  three  STEM  graduates  is  female,  despite 
women’s  above-average  tertiary  education 
attainment  overall.  The  relatively  low  and 
decreasing  level  of  digital  competency  also 
poses  a  significant  risk  to  productivity:  the 
proportion  of  individuals  with  basic  or  above-
basic  digital  skills  fell  to  45.3%  in  2023  and 
remains  below  the  EU  average  of  55.6%. 

digital 

Improving 
'green 
competencies' thus remains crucial to address 
labour and skills shortages. 

literacy 

and 

in 

and 

Despite  reform  efforts,  reskilling  and 
upskilling  are  insufficient  to  provide  the 
required  talent  and  to  meet  national 
targets. In line with its recovery and resilience 
plan, Latvia  will  undertake  significant  reforms 
to  establish  a  sustainable  and  socially 
responsible  adult 
learning  framework  and 
improve digital skills in businesses and society. 
This  includes  regulation  to  improve  access  to 
upskilling  and  reskilling  by  creating  more 
opportunities and  incentives for employees to 
participate 
training. 
education 
Nevertheless, at 34.1% in 2022, the proportion 
of  adults  in  education  and  training in  the  last 
12  months  remains  well  below  the  national 
target  of  60%  by  2030  and  has  been  in 
decline  since  2016.  Furthermore,  spending  on 
active labour market policies remains low, with 
limited  participation  in  training  and  activation 
measures  among  those  seeking  employment. 
While  recent  reforms  in  vocational  education 
have  made  vocational  education  and  training 
more flexible and attractive, continued efforts 
are needed to expand  work-based learning  as 
a  way  of  making  graduates  more  employable 
and  supporting  Latvia’s  competitiveness  and 
productivity.  Aligning  workforce  skills  through 
reskilling 
in 
upskilling 
collaboration  with  social  partners  remains 
crucial (see Annex 12). 

initiatives 

and 

Regional  disparities  in  access  to  quality 
education  continue  to  hamper  skills 
development.  While  the  education  system 
performs comparatively well overall, indicators 
such  as  the  number  of  STEM  graduates  and 
the share of early leavers from education and 
training  show  marked  differences  between 
urban  and  rural  areas.  Larger  urban  schools 
are  also  outperforming  smaller  rural  ones  in 
basic  skills proficiency (see  Annex  12).  Access 
to quality education depends somewhat on the 

15 

 
 
place  of  residence,  reflected  in  significant 
differences  in  school  sizes,  student  numbers 
and the ability to attract and retain teachers. 

a 

is 

remains 

teaching 

compounded  by  persisting 
This 
challenges 
in  renewing  the  teaching 
workforce.  37.5%  of  the  teaching  workforce 
are  older  than  55  years  and  approaching 
shortages  are 
teacher 
retirement  and 
becoming  apparent.  Despite  government 
efforts, 
relatively 
unattractive career option for young graduates 
to  salary  and  workload  concerns. 
due 
Retraining  programmes  for  future  teachers 
have proven successful and continue to attract 
new  participants,  but  they  are  unlikely  to  be 
sufficient to replenish the teaching workforce. 
Continued 
and 
consolidate  the  large  and  inefficient  school 
network  and  attract  and  retain  new  teachers 
could help reduce geographical disparities and 
improve quality. 

streamline 

efforts 

to 

Strengthening social fairness 

The social protection system fails to lift a 
considerable proportion of the population 
out of poverty or social exclusion. Despite 
some  positive  developments  in  recent  years, 
the  rate  of  people  at  risk of  poverty  or  social 
exclusion  remains  well  above  the  EU  average 
and  is  the  highest  among  the  Baltic  states. 
Income  inequality  is  high  (the  income  of  the 
wealthiest  20%  of  the  population  was  6.28 
times  higher  than  that  of  the  least  affluent 
20%  in  2024,  vs  4.66  times  in  the  EU),  while 
general government social protection spending 
remains  among  the  lowest  in  the  EU.  The 
impact of social transfers (excluding pensions) 
on poverty reduction is the lowest in the Baltic 
states,  falling  to  21.5% in  2024 (vs  34.4% in 
the EU). 

Ensuring  adequate  income  support  for 
older people remains a key challenge. Old-
age  poverty  remains  particularly  high,  with 
42.9%  of  people  over  the  age  of  65  deemed 
at  risk  of  poverty  in  2024  (vs  19.4%  in  the 
EU).  This  contributes  significantly  to  the 
above-EU-  average  general  at  risk  of  poverty 
or social exclusion rate. A gradual introduction 

could 

include 

of  a  base  pension  system  could  help improve 
pension  adequacy  and 
reduce  old-age 
poverty (19).  Developing  a  long-term  strategy, 
which 
the 
(second-pillar)  pension  base, 
occupational 
would be another major step towards pension 
adequacy.  Measures  in  this  area  would  help 
Latvia  reach  its  2030  national  target  on 
poverty reduction. 

strengthening 

regions,  affecting 
services. 

Significant  socio-economic  disparities 
exist  across 
the 
The 
social 
of 
provision 
unemployment  rate,  the  risk  of  poverty  or 
social  exclusion  and  the  level  of  early  school 
leavers  are  all  higher  in  rural  areas  than  in 
more  urbanised  areas.  For  instance,  29.4%  of 
the  rural  population  are  at  risk  of  poverty  or 
social  exclusion,  compared  to  23.3%  of  those 
living in towns and suburbs and 19.3% in cities 
in 2024. The eastern border region of Latgale, 
which  shares  a  long  border  with  Russia  and 
Belarus,  faces  particularly  high 
levels  of 
unemployment and poverty, as well as a more 
pronounced demographic decline than the rest 
of  the  country.  As  responsibility  for  providing 
social 
lies  predominantly  with 
municipalities,  the  socio-economic  differences 
and  local  budgets  determine  the  level  of 
support  provided.  In  this  respect,  a  reform  on 
the  provision  of  minimum  services  (20)  was 
adopted in  early  2025;  it will  be  important  to 
implement 
it  effectively,  with  adequate 
funding (see Annex 12). 

services 

The need for quality long-term care (LTC) 
is  rising  and  requires  attention.  The 
number  of  people  of  retirement  age  requiring 
municipal  LTC  services  is  rising.  At  the  same 
time,  public  spending  on  LTC  and  home  care 
remains  below  the  EU  average  and  remains 
inadequate 
trends. 
Municipalities  show  limited  interest  in  taking 
up  projects  to  develop  new  services.  Home 
care  remains  underdeveloped,  although  the 
share  of  the  population  in  need  of  LTC  and 
who  use  formal  home  care  services  is  high. 

demographic 

given 

(19)  With current policies, public pension spending is 

projected to decline by 1.7 pps of GDP in 2024-2070 
(see Annex 1). 

(20)  Called the ‘minimum services basket’. 

16 

 
 
Latvia would benefit from full implementation 
of the actions outlined in the Latvian recovery 
and  resilience  plan  to  promote  access  to  and 
development  of  LTC  services  for  2024-2029, 
the  creation  of  a  new  and 
including 
sustainable  LTC  financing  model.  Investing  in 
LTC  could  help  create  new  jobs,  relieve  the 
care  burden  for  family  members  and  make  it 
easier  for  them  to  work,  thus  enhancing 
competitiveness.  The  European  Social  Fund 
Plus  will  help  with  the  development  of  a 
multidisciplinary  palliative  home  care  system 
for  social  service 
and  provide 
professionals. 

training 

Ensuring access to quality housing 

is 

inclusion. 

The  shortage  of  housing  impacts  labour 
mobility  and 
The 
social 
overcrowding rate remains among the highest 
in the EU, at 39.3% in 2024, and the share of 
the  population  without  a  bath  or  shower  in 
their  dwelling  is  the  second  highest  in  the  EU 
(9% in 2020). The existing housing stock is of 
poor quality, and the supply of affordable new 
limited.  While  above  the  EU 
housing 
average,  housing  affordability  deteriorated 
significantly  from  2022  to  2023,  in  line  with 
high  inflation  in  that  period.  The  shortage  of 
is  primarily  explained  by 
quality  housing 
low 
historically 
in  housing, 
stemming 
levels  of  private 
from  high 
ownership combined with low levels of wealth 
in the middle class. The stock of social housing 
and  municipal  low-rent  housing  is  also  low, 
with  recurring  reports  of  quality  issues.  In 
addition,  a  strategy  to  combat  homelessness 
would lead to better inclusion and improve the 
chances  of  finding  work  for  one  of  the  most 
vulnerable groups in society (see Annex 11). 

investment 

The  need  for  investment  in  housing  is 
high.  With  the  support  of  the  Recovery  and 
Resilience  Facility,  Latvia  has  launched  an 
affordable  housing  fund,  for  the  construction 
of at least 467 low-rent apartments by 2026. 
The  country  has  also  invested  significant 
amounts  in  support  programmes  to  improve 
energy  efficiency  under  the  cohesion  funds 
and  the  Recovery  and  Resilience  Facility. 
Nevertheless,  further  investment  is  needed  to 

17 

raise  the  quality  of  housing,  given  the 
magnitude of the challenge. This would reduce 
the  financial  pressure  on  households  from 
rising  energy  costs  and 
for 
refurbishing and maintenance. 

the  need 

Investing in a healthier population 

Latvia  faces  significant  challenges  in 
improving  the  health  of  its  population, 
with  low  life  expectancy,  high  mortality 
rates and wide health inequalities posing 
a  major  concern.  People  in  Latvia  tend  to 
have  shorter  and  less  healthy  lives  compared 
to  other  EU  countries.  This  results  in  a 
significant  loss  of  productive  years,  hindering 
the  country’s  economic  growth.  The  rate  of 
preventable mortality is among the highest in 
the  EU, 
linked  to  a  high  prevalence  of 
behavioural  risk  factors.  Furthermore,  the 
proportion  of  the  population  reporting  unmet 
medical  needs  is  increasing,  with  8.4%  of  the 
population affected in 2024, up from 7.8% in 
2023  compared  to  an  EU  average  of  2.4%  in 
2023. 
are 
underscoring 
disproportionately 
inequality  in  access  to  health  services  (see 
Annex 14). 

Lower-income 

households 

affected, 

limiting 

financing, 

is  hindered  by 
The  health  system 
insufficient 
the 
adequacy  of  healthcare  services.  Latvia 
allocates  one  of  the  lowest  percentages  of 
GDP to healthcare in the EU (4.9% vs 8.4% in 
the  EU  in  2022).  Out-of-pocket  payments 
account  for  a  greater  proportion  of  health 
spending than the average across the EU, and 
this  is  related  to  the  limited  scope  of  the 
state-funded  healthcare  benefits  package. 
Moreover, according to Ministry of Health data 
on  January  2025,  government  spending  on 
healthcare is set to decrease from 5% of GDP 
in  2024  to  4.8%  in  2025,  falling  short  of  the 
national commitment to allocate 6% of GDP to 
healthcare  by  2027.  The  government  has 
proposed  a  draft  law  to  reform  the  financing 
for healthcare by revising eligibility for access 
to  publicly  funded  healthcare  services  and 
improving  financial  management  through  the 
establishment  of  a  National  Health  Insurance 
Fund.  However,  the  proposed  law  stops  short 

 
expected to: (i) increase disposable income for 
most  households  and  especially  middle-
income earners; (ii) reduce the risk of poverty, 
particularly for older people, which is the most 
exposed group to poverty in Latvia; (iii) have a 
limited  impact  on  income  inequality  as  the 
lowest  income  groups  are  better  supported 
through  social  transfers;  and  (iv)  help  reduce 
the  labour  tax  wedge  both  for  low-income 
earners  and  those  earning  the  average  wage 
and above. 

Graph 4.1: Average personal income tax rates 
and income distribution, % 

Source: European Commission, Joint Research Centre, 
based on the EUROMOD model, J0.1+. 

improve 

to  result 

the  non-taxable  allowance 

While the immediate fiscal impact of the 
personal  income  tax  reform  is  projected 
to  be  negative,  the  reform  has  some 
potential  to 
labour  market 
participation. The higher personal income tax 
rates,  the  new  personal  income  tax  brackets 
for  all 
and 
employees  are  expected 
in  a 
substantial net negative fiscal impact. This has 
been  partly  financed  by  a  temporary  shift  of 
pension  contributions  between  pension  pillars. 
At  the  same time,  as  the reform is  estimated 
to lower the average personal income tax rate 
(personal  income  tax  divided  by  earnings)  for 
middle-income  earners  (see  Graph  4.1),  it 
could  encourage 
to 
transition into medium-income jobs as well as 
reduce 
to 
the 
underreport salaries. 

low-income  workers 

for  employers 

incentive 

of  committing  higher  allocations  of  GDP  to 
healthcare. 

The  persistent  shortage  of  health 
professionals  is  an  obstacle  to  providing 
adequate  healthcare.  Latvia  has  fewer 
doctors and nurses per 1 000 inhabitants than 
the  EU  average.  The  Ministry  of  Health  has 
estimated  that  the  health  sector  currently 
requires  around  4 900  additional  nurses  (see 
Annex  14).  Poor  working  conditions  and  low 
pay  are  deterrents  to  both  entering  and 
remaining  in  the  public  healthcare  sector, 
particularly  for  nurses.  The  ageing  of  medical 
practitioners  and 
regional 
distribution  pose  further  challenges  for  the 
sector.  As  part  of  Latvia's  recovery  and 
resilience  plan, 
in  2024,  the  government 
adopted  a  strategy  for  human  resources  in 
healthcare  for  2025-2029.  The  strategy  aims 
to improve recruitment and retention of health 
professionals by addressing key areas such as 
health  workforce  planning  and  financing, 
education and employment, as well as working 
conditions  and  performance.  Investment  from 
the European Social Fund Plus will be directed 
towards attracting and training medical staff. 

their  uneven 

Enhancing labour tax 
competitiveness 

The  recently  adopted  tax  reform 
is 
expected  to  increase  disposable  income, 
narrow  the  tax  wedge  (21)  and  reduce 
poverty. A major part of the 2025 tax reform 
involves  adjustments  to  the  personal  income 
tax  system  aimed  at  simplifying  taxation  and 
raising disposable income for most workers. A 
tax-benefit  simulation  with  EUROMOD  (22) 
shows that the personal  income tax reform is 

(21)  In 2023, the labour tax wedge (tax and social 

contributions relative to labour cost) for single person 
earning less than the average wage was higher than in 
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 and may incentivise low 
earners not to declare their (full) income. 

(22)  Estimations performed by the European Commission, 

Joint Research Centre, based on the EUROMOD model, 
J0.1+.  

18 

0510152025051015202501000200030004000500060007000Percent of income distributionAverage tax rate in percentMonthly gross incomeIncome distributionATR before tax reformATR after tax reform 
 
  
 
KEY FINDINGS 

To  foster  competitiveness,  sustainability  and 
social fairness, Latvia could benefit from: 

REPowerEU 

•  accelerating the implementation of the 
recovery  and  resilience  plan,  including 
swiftly 
the 
implementing  cohesion  policy, 
taking 
advantage  of  the  opportunities  under  the 
mid-term  review  and  making  optimal  use 
of EU instruments, including InvestEU and 
STEP, to improve competitiveness;  

chapter; 

•  broadening  taxation  to  sources 
detrimental to economic growth; 

less 

• 

improving  public  spending  reviews  by 
redirecting  expenditure  savings  to  priority 
areas,  such  as  defence,  healthcare  and 
social protection; 

•  facilitating  private 

investment 

in 
research  and  innovation,  including  by 
in  higher 
pursuing 
education 
cooperation 
between businesses and academia; 

reforms 
strengthen 

further 
to 

• 

improving  access  to  finance  for  small 
medium-sized 
enterprises, 
and 
especially 
and 
scaling-up 
for 
commercialisation of innovations; 

•  reducing  the  administrative  burden 
and  simplifying  regulations  to  remove 
barriers  to  investment  in  sectors  like  real 
estate; 

•  continuing  to  improve  tax  compliance 
informal  or  undeclared 

and  moving 
activities into the formal economy; 

•  strengthening 

and 
the 
economic  resilience  of  the  regions, 
to  Latvia’s 
paying  particular  attention 
eastern borders; 

societal 

•  accelerating  the  deployment  of  wind 
and  solar  energy  by  improving  permit-
granting  procedures  and 
implementing 
smart grid queue management solutions; 

•  upgrading 
electricity 
the 
promoting 
storage, 
energy 
response  and  market-based 
solutions; 

grid, 
demand 
flexibility 

•  further 

the 

road 
decarbonising 
transport  sector,  by  promoting 
the 
uptake  of  electric  vehicles  in  public  and 
private  fleets  and  the  production  and 
distribution  of  renewable  transport  fuels, 
and by expanding recharging infrastructure; 

•  stepping  up  efforts  for  sustainable 
land management and use, especially by 
promoting a transition to more sustainable 
practices  in  the  agricultural,  forestry  and 
peat extraction sectors; 

•  supporting  the  transition  to  a  circular 
waste 

improving 

economy 
management policies; 

and 

•  addressing labour and skills shortages,  
particularly in STEM, research as well as the 
green  and  digital  transitions, 
including 
through targeted upskilling and reskilling; 

• 

improving social outcomes by increasing 
the  adequacy  of  social  transfers  and  of 
old-age pensions, and by improving access 
to  quality  social  services,  especially  home 
care; 

•  addressing  the  housing  shortage,  by 
increasing  the  availability  and  quality  of 
social  and  affordable  energy-efficient 
housing, including through renovations; 

health 

by 
improving 
broadening  the  statutory  benefits  package 
and reducing out-of-pocket payments. 

outcomes 

• 

19 

 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Fiscal 

A1.  Fiscal surveillance and debt sustainability 

A2.  Taxation 

Productivity 

A3. 

Innovation to business 

A4.  Making business easier 

A5.  Capital markets, financial stability and access to finance 

A6.  Effective institutional framework 

Sustainability 

A7.  Clean industry and climate mitigation 

A8.  Affordable energy transition 

A9.  Climate adaptation, preparedness and environment 

Fairness 

A10.  Labour market 

A11.  Social policies 

A12.  Education and skills 

A13.  Social Scoreboard 

A14.  Health and health systems 

Horizontal 

A15.  Sustainable development goals 

A16.  CSR progress and EU funds implementation 

A17.  Competitive regions 

LIST OF TABLES 

General government balance and debt 
Net expenditure growth 
Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation 
Defence expenditure and the national escape clause 

A1.1. 
A1.2. 
A1.3. 
A1.4. 
A1.5.  Macroeconomic developments and forecasts 
A1.6. 
A1.7. 
A1.8. 
A1.9. 

General government budgetary position 
Debt developments 
RRF – Grants 
RRF - Loans 

23 

26 

26 

32 

34 

34 

39 

44 

52 

57 

57 

62 

68 

73 

73 

77 

82 

86 

87 

90 

90 

92 

99 

26 
26 
27 
27 
27 
28 
28 
29 
29 

 
 
 
Financial indicators 
Selected indicators on administrative burden reduction and simplification 
Key Digital Decade targets monitored through the Digital Economy and Society Index 
Key clean industry and climate mitigation indicators: Latvia 
Key Energy Indicators 
Key indicators tracking progress on climate adaptation, resilience and environment 

A1.10.  Projected change in age-related expenditure in 2024-2040 and 2024-2070 
A1.11.  Fiscal Governance Database Indicators 
A2.1. 
Taxation indicators 
A3.1. 
Key innovation indicators 
A4.1.  Making Business Easier: indicators. 
A5.1. 
A6.1. 
A6.2. 
A7.1. 
A8.1. 
A9.1. 
A13.1.  Social Scoreboard for Latvia 
A14.1.  Key health indicators 
A16.1.  Selected EU funds with adopted allocations - summary data (million EUR) 
A16.2.  Summary table on 2019-2024 CSRs 
A17.1.  Selection of indicators at regional level in Latvia 
A17.2.  Socio-economic indicators by degree of urbanisation, 2024 

LIST OF GRAPHS 

A2.1. 
Tax revenue shares in 2023 
A2.2. 
Tax wedge for single and second earners, % of total labour costs, 2024 
A3.1. 
R&D intensity in the Baltic countries 
A3.2. 
Number of doctoral entrants and graduates 
A4.1.  Making Business Easier: selected indicators. 
A5.1. 
Net savings-investment balance 
A5.2. 
International investment position 
A5.3. 
Capital markets and financial intermediaries in Latvia 
A5.4. 
Composition of NFC funding in % of GDP 
A5.5. 
Composition of household financial assets per capita and as % of GDP 
A6.1. 
Trust in justice, regional / local authorities and in government 
A6.2. 
Indicators of Regulatory Policy and Governance (iREG) 
A7.1. 
GHG emission intensity of manufacturing and energy-intensive sectors, 2022 
A7.2.  Manufacturing industry production: total and selected sectors, index (2021 = 100), 2017-2023 
A7.3. 
A8.1. 
A8.2.  Monthly average day-ahead wholesale electricity prices and European benchmark natural gas prices (Dutch TTF) 
A8.3. 
A9.1. 
A9.2. 
A10.1.  Key labour market indicators for Latvia 
A11.1.  Share of population aged 65 or over, on 1st January and by sex, 2023, 2030, 2040, and 2050. 
A12.1.  Unemployment rate by educational attainment (annual) - Latvia 
A12.2.  Participation in education and training by educational attainment level, 2022 
A14.1.  Life expectancy at birth, years 
A14.2.  Treatable mortality 
A15.1.  Progress towards the SDGs in Latvia 
A16.1.  Distribution of RRF funding in Latvia by policy field 
A16.2.  Distribution of cohesion policy funding across policy objectives in Latvia 

Latvia's installed renewable capacity (left) and electricity generation mix (right) 
Direct dependency(1) on ecosystem services(2) of the gross value added generated by economic sector in 2022 
Investment needs and gaps in EUR million, in 2022 constant prices 

Greenhouse gas emissions in the effort sharing sectors, 2005 and 2023 
Retail energy price components for household and non-household consumers, 2024 

LIST OF MAPS 

A17.1.  GDP per head (in purchasing power standard), NUTS 3, 2022 

24 

30 
30 
32 
37 
42 
50 
52 
54 
60 
66 
71 
85 
87 
94 
95 
98 
100 

31 
31 
33 
36 
39 
43 
43 
44 
46 
48 
51 
51 
57 
58 
58 
61 
61 
63 
69 
69 
72 
78 
82 
84 
86 
86 
89 
92 
92 

98 

 
 
 
 
FISCAL 
ANNEX 1: FISCAL SURVEILLANCE AND DEBT SUSTAINABILITY 

This  Annex  contains  a  series  of  tables  relevant  for  the  assessment  of  the  fiscal  situation  in  Latvia, 
including  how  Latvia  is  responding  to  Council  recommendations  issued  under  the  reformed  Economic 
Governance Framework. 

The  reformed  framework,  which  entered  into  force  on  30  April  2024(23),  aims  to  strengthen  debt 
sustainability  and  promote  sustainable  and  inclusive  growth  through  growth-enhancing  reforms  and 
priority investments. The medium-term fiscal-structural plans (hereinafter, MTPs or plans) constitute the 
cornerstone  of  the  framework,  setting  the  budgetary  commitment  of  Member  States  over  the  medium 
term. The latter is defined in terms of net expenditure growth, which is the single operational indicator for 
fiscal surveillance.   

Latvia submitted its plan on 15 October 2024. The plan covers the period until 2028, presenting a fiscal 
adjustment  over  four  years.  On  21  January  2025,  the  Council  adopted  the  Recommendation  endorsing 
Latvia’s plan(24).   

The assessment of the implementation of the Council Recommendation endorsing Latvia’s plan is carried 
out  on the basis  of  outturn  data  from  Eurostat  and  the Commission’s  Spring 2025  Forecast  and taking 
into account the Annual Progress Report (APR), that Latvia submitted on 29 April 2025. Furthermore, given 
Latvia’s  request  to  activate  the  National  Escape  Clause  (NEC)(25)  in  accordance  with  the  Commission 
Communication  of  19  March  2025(26),  the  assessment  also  considers,  as  appropriate,  the  projected 
increase in defence expenditure based on the Commission Spring 2025 Forecast.  

The Annex is organised as follows. First, developments in government deficit and debt are presented 
based  on  the  figures  reported  in  Table  A1.1.  Then,  the  assessment  of  the  implementation  of  the 
Council  Recommendation  endorsing  the  plan  follows,  based  on  the  relevant  figures  presented  in 
Tables A1.2 to A1.9, including data on defence expenditure.  The Annex also provides information on the 
cost of ageing and the national fiscal framework. Fiscal sustainability risks are discussed in the Debt 
Sustainability Monitor 2024.(27) 

Developments in government deficit and debt  

Latvia’s government deficit amounted to 1.8% of GDP in 2024. Based on the Commission’s Spring 2025 
Forecast,  it  is  projected  to  increase  to  3.1%  in  2025.  The  government  debt-to-GDP  ratio  amounted  to 
46.8% of GDP at the end of 2024 and, according to the Commission, it is projected to increase to 48.6% 
end-2025. The increase in the debt ratio mainly reflects stock-flow adjustments and the projected primary 
deficit. 

(23)  Regulation (EU) 2024/1263 of the European Parliament and of the Council (EU) on the effective coordination of economic policies 
and on multilateral budgetary surveillance, together with the amended Regulation (EC) No 1467/97 on the implementation of the 
excessive deficit procedure, and the amended Council Directive 2011/85/EU on the budgetary frameworks of Member States are the 
core elements of the reformed EU economic governance framework. 

(24)  OJ C, C/2025/652, 10.02.2025, ELI: http://data.europa.eu/eli/C/2025/652/oj 

(25)  On  28 April 2025,  Latvia  requested  to  the  Commission  and  to  the  Council  the  activation  of  the  National  Escape  Clause. On  this 
basis, the Commission adopted a Recommendation for a Council Recommendation allowing Latvia to deviate from, and exceed, the 
net expenditure path set by the Council, COM(2025)610. 

(26)  Communication  from  the  Commission  accommodating  increased  defence  expenditure  within  the  Stability  and  Growth  Pact of  19 

March 2025, C(2025) 2000 final. 

(27)  European Commission (2025) ‘Debt Sustainability Monitor 2024,’ European Economy-Institutional Papers 306. 

25 

 
 
 
 
 
 
Table A1.1:  General government balance and debt 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

Developments in net expenditure  

The  net  expenditure(28)  growth  of  Latvia  in  2025  is  forecast  by  the  Commission(29)  to  be  within  the 
recommended  maximum.  Considering  2024  and  2025  together,  the  cumulative  growth  rate  of  net 
expenditure is also projected within the recommended maximum cumulative growth rate. 

Table A1.2:  Net expenditure growth 

* The cumulative growth rates are calculated by reference to the base year of 2023. 
Source: Council Recommendation endorsing the national medium-term fiscal-structural plan of Latvia (Rec.), Annual Progress 
Report (APR) and Commission's calculation based on Commission Spring 2025 Forecast (COM). 

General  government defence  expenditure in  Latvia amounted to  2.5%  of  GDP  in  2021,  2.4%  of  GDP in 
2022 and 3.1% of GDP in 2023 (30). According to the Commission 2025  Spring Forecast, expenditure on 
defence is projected to amount to 3.0 % of GDP in 2024 and 3.3% of GDP in 2025. 

(28)  Net expenditure is defined in Article 2(2) of Regulation (EU) 2024/1263 as government expenditure net of (i) interest expenditure, 
(ii) discretionary revenue measures, (iii) expenditure on programmes of the Union 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-off and other temporary measures.  

(29)  Commission Spring 2025 Forecast, European Economy-Institutional paper 318, May 2025.]. 

(30)  Eurostat, government expenditure by classification of functions of government (COFOG).  

26 

2024OutturnAPRCOMAPRCOM1General government balance% GDP-1,8-3,1-3,1n.a.-3,12General government gross debt% GDP46,849,048,6n.a.49,3Variables20252026RECAPRCOMRECAPRCOM2024n.a.3.9%4.5%n.a.n.a.n.a.20255.9%5.7%5.7%15.5%9.8%10.4%20263.6%n.a.4.4%19.7%n.a.15.2%AnnualCumulative*Growth rates 
 
                                   
 
 
  
 
 
 
 
Table A1.3:  Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the 
recommendation 

* The growth rate for 2024 is not a recommendation but serves to anchor the base, as the latest year with outturn data when 
setting the net expenditure path is year 2023. 
Source: Commission Spring 2025 Forecast and Commission's calculation. 

Table A1.4:  Defence expenditure and the national escape clause 

Source:  Eurostat (COFOG), Commission Spring 2025 Forecast and Commission's calculation 

Table A1.5:  Macroeconomic developments and forecasts 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

27 

2023202420252026OutturnOutturnCOMCOM1Total expenditurebn NAC17.218.420.020.92Interest expenditurebn NAC0.30.40.50.63Cyclical unemployment expenditurebn NAC0.00.00.00.04Expenditure funded by transfers from the EUbn NAC0.70.81.31.45National co-financing of EU programmesbn NAC0.20.10.20.26One-off expenditure (levels, excl. EU funded)bn NAC0.00.00.00.07=1-2-3-4-5-6Net nationally financed primary expenditure (before discretionary revenue measures, DRM)bn NAC16.017.018.018.68Change in net nationally financed primary expenditure (before DRM)bn NAC1.01.00.79DRM (excl. one-off revenue, incremental impact)bn NAC0.30.0-0.110=8-9Change in net nationally financed primary expenditure (after DRM) bn NAC0.71.00.811Outturn / forecast net expenditure growth% change4.47%5.7%4.4%12Recommended net expenditure growth*% change9.1%5.9%3.6%13=(11-12) x 7Annual deviationbn NAC-0.70.00.114 (cumulated from 13)Cumulated deviationbn NAC-0.7-0.8-0.615=13/17Annual balance% GDP-1.8-0.10.316=14/17Cumulated balance% GDP-1.8-1.9-1.417p.m. Nominal GDP  bn NAC39.440.242.044.0Variables2021202220232024202520261Total defence expenditure% GDP2,52,43,13,03,33,82of which: gross fixed capital formation% GDP1,00,20,50,81,01,53Flexibility from increases in defence expenditure% GDP0,81,34Cumulated balance after flexibility% GDP-2,7-2,82024OutturnAPRCOMAPRCOM1=7+8+9Real GDP% change-0,41,20,5n.a.2,02Private consumption% change0,51,31,0n.a.1,93Government consumption expenditure% change7,64,61,7n.a.1,54Gross fixed capital formation% change-6,70,8-1,2n.a.2,65Exports of goods and services% change-1,61,71,8n.a.2,06Imports of goods and services% change-2,32,82,1n.a.2,1Contributions to real GDP growth 7- Final domestic demandpps0,22,60,7n.a.2,08- Change in inventoriespps-1,2-0,60,0n.a.0,09- Net exportspps0,6-0,8-0,2n.a.-0,110Output gap% pot GDP-0,5-1,5-1,3n.a.-0,711Employment % change-0,9-0,1-0,4n.a.-0,412Unemployment rate%6,96,76,8n.a.6,613Labour productivity% change0,51,30,9n.a.2,414HICP % change1,32,53,0n.a.1,715GDP deflator% change2,63,13,9n.a.2,816Compensation of employees per head% change9,15,85,5n.a.4,517Net lending/borrowing vis-à-vis the rest of the world% GDP-1,7n.a.-1,9n.a.-1,420252026Variables 
 
  
 
 
 
       
 
 
 
                                   
 
 
Table A1.6:  General government budgetary position 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

Table A1.7:  Debt developments 

* End of period. 
** The 'snow-ball' effect captures the impact of interest expenditure on accumulated general government debt, as well as the 
impact of real GDP growth and inflation on the general government debt-to-GDP ratio (through the denominator). The stock-flow 
adjustment includes differences in cash and accrual accounting (including leads and lags in Recovery and Resilience Facility grant 
disbursements), accumulation of financial assets, and valuation and other residual effects. 
Source: Commission Spring 2025 Forecast and Commission's calculation (COM), Annual Progress Report (APR) 

28 

2024OutturnAPRCOMAPRCOM1=2+3+4+5Revenue43,943,944,4n.a.44,4of which:2- Taxes on production and imports14,514,814,6n.a.14,83- Current taxes on income, wealth, etc.9,38,78,6n.a.8,64- Social contributions11,612,111,9n.a.11,95- Other (residual)8,58,39,3n.a.9,18=9+16Expenditure 45,747,147,6n.a.47,5of which:9- Primary expenditure44,645,846,3n.a.46,1of which:10- Compensation of employees 13,213,213,4n.a.13,311- Intermediate consumption6,46,86,4n.a.6,412- Social payments15,114,615,2n.a.15,313- Subsidies0,70,90,7n.a.0,714- Gross fixed capital formation5,76,07,0n.a.7,215- Other3,54,33,4n.a.3,116- Interest expenditure1,11,31,3n.a.1,418=1-8General government balance-1,8-3,1-3,1n.a.-3,119=1-9Primary balance-0,7-1,8-1,8n.a.-1,720Cyclically adjusted balance-1,6n.a.-2,6n.a.-2,921One-offs0,00,00,0n.a.0,022=20-21Structural balance-1,6-2,6-2,6n.a.-2,923=22+16Structural primary balance-0,5-1,2-1,3n.a.-1,4Variables (% GDP)202520262024OutturnAPRCOMAPRCOM1Gross debt ratio* (% of GDP)46.849.048.6n.a.49.32=3+4+8Change in the ratio (pps. of GDP)2.12.31.9n.a.0.6Contributions**3Primary balance0.71.81.8n.a.1.74≈5+6+7'Snow-ball' effect0.2-0.6-0.7n.a.-0.8of which:5- Interest expenditure1.11.31.3n.a.1.46- Real growth effect0.2-0.5-0.2n.a.-0.97- Inflation effect-1.1-1.4-1.8n.a.-1.38'Stock-flow' adjustment1.31.10.7n.a.-0.320252026Variables 
 
                                   
 
 
 
 
  
 
 
 
Table A1.8:  RRF – Grants 

Source: Annual Progress Report 

Table A1.9:  RRF - Loans 

Source: Annual Progress Report 

Cost of ageing  

Total age-related spending in Latvia is projected to decrease from about 16% of GDP in 2024 
to around 15% by 2070 (see Table A1.10). The overall decrease by 2070 is driven by pension and, to 
a lesser extent, education spending, which together more than offset the expected increase in healthcare 
and  long-term  care  spending.  The  pension  expenditure-to-GDP  ratio  would  fall  by  1.7  pps,  of  which  0.6 
pps  by  2040,  from  7.1%  of  GDP  in  2024  to  5.4%  in  2070,  the  lowest  projected  level  of  all  Member 
States.   At  15.4%  of  GDP  in  2070,  Latvia  would  be  spending  the  least  of  all  Member  States  on  age-
related items. 

29 

Revenue from RRF grants (% of GDP)20202021202220232024202520261RRF grants as included in the revenue projectionsn.a.0,00,00,40,91,81,52Cash disbursements of RRF grants from EUn.a.0,70,60,00,90,72,020202021202220232024202520263Total current expenditure0,00,00,00,10,30,60,64Gross fixed capital formation0,00,00,00,30,61,21,05Capital transfers0,00,00,00,00,00,00,06=4+5Total capital expenditure0,00,00,00,30,61,21,020202021202220232024202520267Reduction in tax revenue0,00,00,00,00,00,00,08Other costs with impact on revenue0,00,00,00,00,00,00,09Financial transactions0,00,00,00,00,00,00,0Expenditure financed by RRF grants (% of GDP)Other costs financed by RRF grants (% of GDP)Cash flow from RRF loans projected in the Plan (% of GDP)20202021202220232024202520261Disbursements of RRF loans from EUn.a.0,00,00,00,00,00,02Repayments of RRF loans to EUn.a.0,00,00,00,00,00,020202021202220232024202520263Total current expenditure0,00,00,00,00,00,00,04Gross fixed capital formation0,00,00,00,00,00,00,05Capital transfers0,00,00,00,00,00,00,06=4+5Total capital expenditure0,00,00,00,00,00,00,020202021202220232024202520267Reduction in tax revenue0,00,00,00,00,00,00,08Other costs with impact on revenue0,00,00,00,00,00,00,09Financial transactions0,00,00,00,00,00,00,0Expenditure financed by RRF loans (% of GDP)Other costs financed by RRF loans (% of GDP) 
 
                                   
 
 
 
                                   
 
Public healthcare (31) expenditure is projected at 5.3% of GDP in 2024 (below the EU average 
of 6.6%) and is expected to increase by 0.4 pps by 2040 and by a further 0.1 pp by 2070. 

Public  expenditure  on  long-term  care (32)  is  projected  at  0.5%  of  GDP  in  2024  (below  the  EU 
average  of  1.7%)  and  is  expected  to  increase  by  0.1 pp  of  GDP  by  2040  and  by  a  further 
0.2 pps of GDP by 2070.  

Table A1.10:Projected change in age-related expenditure in 2024-2040 and 2024-2070 

Source: 2024 Ageing Report (EC/EPC). 

National fiscal framework 

The Latvian Fiscal Discipline Council (FDC) is a relatively small independent fiscal  institution 
with  a  rather  narrow  mandate.  It  serves  as  endorser  of  macroeconomic  forecasts  and  monitors 
compliance with fiscal rules. It is not involved in any budgetary forecast assessments but does some work 
on long-term fiscal projections. With only three full-time staff, the FDC reports a need for more resources. 
Its  autonomy  could  be  enhanced  by  allowing  it  to  reallocate  funds  between  expenditure  types  (for 
example  wages  for  services),  which  would  put  it  on  a  similar  level  as  other  Latvian  independent 
institutions,  such  as  the  Audit  office.  The  FDC  appears  regularly  in  mainstream  national  TV/radio/daily 
papers throughout the year and has an explicit communication strategy. 

Table A1.11:Fiscal Governance Database Indicators 

The Country Fiscal Rule Strength Index (C-FRSI) shows the strength of national fiscal rules aggregated at the country level based 
on i) the legal base, ii) how binding the rule is, iii) monitoring bodies, iv) correction mechanisms, and v) resilience to shocks. The 
Medium-Term Budgetary Framework Index (MTBFI) shows the strength of the national MTBF based on i) coverage of the 
targets/ceilings included in the national medium-term fiscal plans; ii) connectedness between these targets/ceilings and the 
annual budgets; iii) involvement of the national parliament in the preparation of the plans; iv) involvement of independent fiscal 
institutions in their preparation; and v) their level of detail. A higher score is associated with higher rule and MTBF strength. 
Source: Fiscal Governance Database 

(31)  Key performance characteristics, recent reforms and investments are discussed in Annex 11 ‘Health and health systems’.   

(32)  The quality and the accessibility of the long-term care system are covered in Annex 9 ‘Social policies’. 

30 

LV16.4-0.60.40.1-0.3-0.416.0LVEU24.30.50.30.4-0.30.925.2EULV16.4-1.70.50.3-0.3-1.115.4LVEU24.30.20.60.8-0.41.325.6EUage-related expenditure 2024 (% GDP)change in 2024-2040 (pps GDP) due to:age-related expenditure 2040 (%GDP)pensionshealthcarelong-term careeducationtotalage-related expenditure 2024 (% GDP)change in 2024-2070 (pps GDP) due to:age-related expenditure 2070 (%GDP)pensionshealthcarelong-term careeducationtotal2023LatviaEU AverageCountry Fiscal Rule Strength Index (C-FRSI)12.5814.52Medium-Term Budgetary Framework Index (MTBFI)0.780.73 
 
   
 
 
     
 
 
ANNEX 2: TAXATION 

This  annex  provides  an 
indicator-based 
overview  of  Latvia’s  tax  system.  It  includes 
information on: (i) the tax mix; (ii) competitiveness 
and  fairness  aspects  of  the  tax  system;  and  (iii) 
tax collection and compliance. 

Latvia’s  tax  revenues  remain  relatively  low 
in  relation  to  its  GDP.  Table  A2.1  shows  that 
Latvia’s  tax  revenues  were  still  below  the  EU 
average  in  2023  (equivalent  to  about  32.7%  of 
GDP compared with 39% for the EU). In 2023, tax 
revenues  from  labour  taxation  were equivalent  to 
16.4%  of  GDP  (below  the  EU  average  of  20%), 
while  revenues  from  consumption  taxes  were 
equivalent  to  13.5%  of  GDP  (higher  than  the  EU 
average  of  10.5%).  In  2023,  revenues  from 
property  taxes  were  equivalent  to  0.8%  of  GDP, 
significantly  higher  than  in  Baltic  peers  Lithuania 
(0.4%)  and  Estonia  (0.3%),  but  far  below  the  EU 
average of 1.9%. 

Graph A2.1: Tax revenue shares in 2023 

is  somewhat  less  progressive  than  in  the  EU  on 
average. This is also reflected in the relatively low 
effect  of  taxes  and  social  transfers  on  inequality. 
These programs reduced the Gini index of income 
inequality  by  5.5  points  in  Latvia  as  compared  to 
7.7 points in the EU average (Table A2.1). 

changes 

Latvia’s  2025  tax  reform  provides  for 
in  personal-income 
significant 
taxation. Latvia’s 2025 tax reform introduced: (i) 
two  progressive  income-tax  rates  (25.5%  for 
annual  earnings up to EUR 105 300 and 33% for 
incomes greater than this); (ii) an additional tax of 
3%  on  total  income  exceeding  EUR 200 000  per 
year;  (iii)  an  increase  in  the  non-taxable  amounts 
of  monthly  income  for  employed  and  retired 
persons  (the  tax-free  allowance);  and  (iv)  an 
increased  tax  rate  of  25.5%  on  capital  gains.  In 
addition,  the  2025  tax  reform  provides  for:  (i)  an 
increase in gambling taxes, excise taxes and taxes 
on  vehicles;  (ii)  a  decreased  VAT  rate  for  fresh 
fruits and vegetables; (iii) an exemption from VAT 
for  certain  medical  services;  and 
the 
introduction  of  a  temporary  solidarity  levy  on 
credit  institutions  for  the  years  2025-2027.  The 
costs  of  the  personal-income-tax  reform  will  be 
also  partially  compensated  by  shifting  one 
percentage  point  of  tax  from  the  second  to  the 
first ‘pillar’ of the pension system from 2025 until 
2028 (i.e. reducing tax on the second pillar by one 
percentage  point  and  increasing  tax  on  the  first 
pillar by one percentage point). 

(iv) 

Source: Taxation Trends Data, DG TAXUD 

Graph A2.2: Tax wedge for single and second 
earners, % of total labour costs, 2024 

In  2024,  Latvia’s  labour  tax  burden  was 
higher  than  the  EU  average for  low  earners. 
The  labour  tax  wedge  (33)  for  Latvia  in  2024 
exceeded the EU average for single people earning 
the average wage or less. For instance, it was 35% 
for  single  workers  earning  50%  of  the  average 
wage,  as  compared  to  31.8%  in  the  EU  average. 
The tax wedge at higher earnings levels increased 
in  2024,  but  still  it  was  slightly  below  the  EU 
average. This means that labour taxation in Latvia 

(33)  The tax wedge is defined as the sum of personal income 

taxes and employee and employer social-security 
contributions net of family allowances, expressed as a 
percentage of total labour costs (the sum of the gross wage 
and social-security contributions paid by the employer). 

31 

The tax wedge for second earners assumes a first earner at 
100% of the average wage and no children. For the full 
methodology, see OECD, 2016, Taxing Wages 2014-2015. 
Source: European Commission 

51.226.921.950.141.29.4Tax revenue shares in 2023, Latvia (outer ring) and EU (inner ring)Taxes on labourTaxes on consumptionTaxes on capital35.038.441.743.138.42025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - LVSingle earner - EU averageSecond earner -  LVSecond earner -  EU average 
 
      
 
 
      
 
 
 
Table A2.1:  Taxation indicators 

(1) Forward-looking effective tax rate (KPMG).       
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average. 
(**) Forecast value for 2023. For more details on the VAT gap, see European Commission, Directorate-General for Taxation and 
Customs Union, VAT gap in the EU - 2024 report,  https://data.europa.eu/doi/10.2778/2476549  
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, OECD 

system 

business-taxation 

Latvia’s 
is 
attractive  for  foreign  investors.  It  ranked 
second in the Tax Foundation’s 2024 International 
Tax Competitiveness Index Rankings (34) due to the 
strengths of Latvia's corporate-income-tax system, 
which  only  taxes  distributed  earnings,  allowing 
companies to reinvest their profits tax-free.  

The  size  of  Latvia’s  shadow  economy  is 
decreasing.  Surveys  of  company  owners  and 
managers  indicate  that  Latvia’s  shadow  economy 
was  equivalent  to  22.9%  of  its  GDP  in  2023  (a 
decrease  from  26.5%  in  2022).  The  biggest 
component  of  the  shadow  economy 
is  the 
underreporting  of  salaries  (estimated  to  account 
for  48.2%  of  Latvia’s  shadow  economy),  with  an 
average  of  23.6%  of  total  salaries  being  paid 
informally  (‘envelope  wages’).  The  construction 
(34.2%)  and  retail  (27%)  sectors  had  the  highest 
estimated shares of shadow activity in 2023 (35).  

(34)  Tax Foundation (2024): International Tax Competitiveness 

Index 2024.  

(35)  Stockholm School of Economics Riga, Shadow Economy Index 
for the Baltic Countries, Shadow Economy Index for the Baltic 
Countries | Stockholm School of Economics in Riga. 

32 

Latvia’s  VAT  gap  continues  to  decrease.  In 
2022,  the  VAT  compliance  gap  was  estimated  at 
EUR  193  million  or  5.0%  of  the  VAT  total  tax 
liability  (VTTL),  a  decrease  of  5.2  percentage 
points  compared  with  2021.  With  an  EU  VAT 
compliance  gap  of  approximately  7.0%,  Latvia 
ranked  11th  among  the  EU  Member  States  in 
2022.  Between  2018  and  2022,  Latvia’s  VAT 
compliance  gap  decreased  from  13.3%  to  5.0%. 
The  actionable  VAT  policy  gap (36)  was  11.5%  in 
2022  -  a  decrease  of  1.0  percentage  points 
compared  with  2021.  Between  2018  and  2022, 
the  actionable  VAT  policy  gap  decreased  from 
15.5% to 11.5% (37). 

(36)  The actionable VAT policy gap refers to the portion of the 
VAT policy gap that can be influenced by Member States. 
Specifically, it relates to the foregone VAT revenues that can 
be attributed to reduced rates and exemptions that could 
potentially be discontinued or eliminated. 

(37)  https://taxation-customs.ec.europa.eu/taxation/vat/fight-

against-vat-fraud/vat-gap_en#paragraph_1530 

LVMedian (EU-27)2010202120222023202420102021202220232024Tax structureTotal taxes (including compulsory actual social contributions) (% of GDP)28.932.032.832.737.840.239.739.0Taxes on labour (% of GDP)14.615.515.716.419.820.520.120.0of which, social security contributions (SSC, % of GDP)8.89.910.010.412.913.012.712.7Taxes on consumption (% of GDP)11.513.614.213.510.911.210.910.5of which, value added taxes (VAT, % of GDP)6.89.010.19.76.87.37.47.1Taxes on capital (% of GDP)2.82.92.93.17.18.58.78.5Personal income taxes (PIT, % of GDP)6.36.26.36.58.69.69.49.3Corporate income taxes (CIT, % of GDP)1.01.11.11.42.22.93.23.2Total property taxes (% of GDP)1.01.00.90.81.92.22.11.9Recurrent taxes on immovable property (% of GDP)0.70.70.60.61.11.11.00.9Environmental taxes (% of GDP)3.03.02.42.42.52.42.12.0Effective carbon rate in EUR per tonne of CO2 equivalentsNA73.8NA62.2NA86.0NA84.8Tax wedge at 50% of average wage (single person) (*)42.435.333.533.735.033.931.831.531.531.8Tax wedge at 100% of average wage (single person) (*)44.040.540.441.041.740.939.939.940.240.3Corporate income tax - effective average tax rates (1) (*)11.916.516.516.521.319.319.118.9Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5.85.55.55.58.68.27.97.7Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)9.97.035.532.6VAT gap (% of VAT total tax liability, VTTL) (**)10.25.18.96.67.0Progressivity & fairnessTax administration & complianceBy tax baseSome tax typesLatviaEU-27 
 
 
 
 
      
 
PRODUCTIVITY 
ANNEX 3: INNOVATION TO BUSINESS  

of 

the 

Latvia’s 

European 

Latvia  is  an  ‘emerging  innovator’  and  its 
innovation 
increases 
performance 
relatively  slowly.  According  to  the  2024 
Innovation 
edition 
Scoreboard (38), 
innovation 
performance  stands  at  only  53.6%  of  the  EU 
average  and  has  improved  at  a  slower  rate 
than the EU average over the last years. This is 
caused by a very low R&D intensity, which has 
stagnated  at  around  0.82%  of  GDP;  this  is 
about  a  third  of  the  EU  average  (2.24%)  and 
well  behind  that  of  the  other  Baltic  countries 
(see Graph A3.1). Latvia has one of the lowest 
business  expenditure  on  R&D  (BERD)  rates  in 
the  EU  (0.30%  of  GDP).  Moreover,  the  lack  of 
highly  skilled  human  capital  is  a  major  barrier 
to  both 
the  science  base  and  business 
innovation, and private R&D is held back by the 
lack  of  access  to  finance and  low  government 
support for business R&D. 

Graph A3.1: R&D intensity in the Baltic countries 

institutions.  Latvia  performs  significantly 
below  the  EU  average  in  terms  of  quality  of 
research  outputs.  This  is  demonstrated  by  the 
percentage  of  its  scientific  publications  within 
the  top  10%  most  cited  scientific  publications 
worldwide, which is substantially below the EU 
average (4.55% in Latvia vs 9.64% in the EU in 
2021)(39).  This  is  caused,  among  other  things, 
by  long-standing  public  underinvestment  in 
R&D,  which  has  stagnated  since  2018  and 
stood at 0.53% in 2023, vs the EU average of 
0.72% (40). While both the Latvian recovery and 
resilience plan (RRP) and its cohesion policy can 
positively  contribute  to  improving  the  research 
and  innovation  (R&I)  ecosystem  over  the  next 
years,  the  country  needs  to  further  increase 
public  R&D  spending 
its  own 
target (41).  In  addition,  the  consolidation  of 
universities  and  the  creation  of  an  innovation 
governance model, both part of the RRP, aim to 
address fragmentation and increase efficiency. 
While  these  are  seen  as  positive  steps,  their 
impact remains to be seen and there is a need 
for continuous monitoring and evaluation going 
forward. Latvia could benefit from a long-term 
holistic vision for R&I and a centralised body to 
coordinate  and  monitor  policy  actions  and 
investments.  In  addition,  Latvia  could  consider 
strengthening  performance-based  funding  for 
research  performing 
to  foster 
excellence,  internationalisation  and  translating 
research outputs into innovation (42). 

institutions 

reach 

to 

Source: Eurostat 

Science and innovative ecosystems 

The public research base in Latvia is weak 
overall,  with  only  a  few  high-performing 

(38)  2024 European Innovation Scoreboard, Country profile, 

Latvia: https://projects.research-and-
innovation.ec.europa.eu/en/statistics/performance-
indicators/european-innovation-scoreboard/eis-
2024#/eis/countries/LV. 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). 

fragmented.  National  R&I 

State support for research and innovation 
funding 
is 
programmes  are  mostly  managed  by  the 
Latvian  Council  of  Science  and  the  Latvian 
Investment and Development Agency, but other 
ministries  are also involved in a small number 
of  thematic  R&I  programmes.  Cohesion  policy 
funds,  however,  are  managed  by  the  Central 

(39)  Based on fractional count in a 2-year citation window 

(40)  OECD Economic Surveys: Latvia 2022 
https://doi.org/10.1787/c0113448-en 

(41)  Target of 1.5% of GDP is set for GERD in the National 

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

(42)  OECD Economic Surveys: Latvia 2022 
https://doi.org/10.1787/c0113448-en 

33 

0.0%0.5%1.0%1.5%2.0%2.5%EELTLVEELTLVEELTLVEELTLVEELTLVEELTLV201220172020202120222023Percentage of GDPPublic expenditure on R&DPrivate expenditure on R&DEU GERD 
 
 
       
 
 
 
Finance and Contracting Agency,  which  reports 
to the Ministry of Finance. This division led to a 
misalignment  of  funding  calls  depending  on 
their source, undermined the development of a 
critical  mass  and  reduced  the  quality  of  R&I 
outputs  (43).  The  new  innovation  governance 
system,  including  the  Innovation  &  Research 
Governance Council  set  up  as  part  of  the  RRP, 
this  fragmentation,  but 
aims  to  address 
continuous  assessment  and  finetuning  should 
be envisioned to optimise coordination between 
funding  sources.  Better  coordination  and 
strategic  planning  could  allow  measures  such 
as  follow-on  funding  and  plug-in  schemes  to 
be  put  in  place  in  order  to  provide  holistic 
support throughout the innovation life-cycle. 

Business innovation 

to  support  business 

businesses (45).  Encouraging  businesses  to  hire 
more  researchers  and  fostering  R&D  activity 
could help Latvia strengthen high-tech sectors, 
boost productivity and retain talent through the 
creation  of  attractive  job  opportunities.  Latvia 
does not currently have any corporate R&D tax 
incentives  in  place,  but  uses  mostly  direct 
funding 
innovation. 
However,  the  low  level  of  business  innovation 
in  Latvia  suggests  that  the  current  support  is 
insufficient.  Consideration  could  be  given  to 
increasing 
funding  and 
introducing indirect funding, such as refundable 
tax credits, and to using public procurement to 
stimulate  broader  R&D  activity  in  businesses 
and  improve  monitoring (46).  Moreover,  Latvia 
should  use  grants  for  business  innovation 
strategically  to  encourage  capacity  building 
and future innovation activities, for example by 
from 
demanding  a 
private stakeholders or employing researchers. 

financial  contribution 

the  volume  of 

it 

the 

and 

is  also 

economy 

Latvia’s 
innovation  potential  remains 
largely  unexploited,  with  low  output  and 
is 
productivity, 
dominated  by  low-tech  sectors.  Business 
R&D  expenditure  is  critically  low  at  0.3%  of 
GDP,  significantly  below  the  EU  average  of 
1.49%  in  2023;  and  unlike  in  other  Member 
States 
lower  than  public  R&D 
expenditure.  The  high-tech  sectors  are  limited, 
as many international firms conduct their R&D 
activities  in  other  countries,  and  the  low-tech 
sectors  are  dominant  in  Latvia,  both  of  which 
contribute to the poor performance (44). All this 
is  reflected  in  a  very  low  innovation  output  in 
terms  of  patents  and  trademarks,  with  only 
1.0 patent application per billion GDP compared 
to  the  EU  average  of  2.8  in  2022,  and  a  low 
by 
researchers 
number 

employed 

of 

(43)  European Commission (2018), Specific Support to Latvia: 

The Latvian Research Funding System 
https://projects.research-and-
innovation.ec.europa.eu/sites/default/files/rio/report/H20
20%2520PSF_Specific%2520Support%2520Latvia_Fin
al%2520report.pdf 

(44)  Added value in high-tech and medium-high-tech 

manufacturing accounts for only 3% (EU average: 6.8%), 
and low to medium-low tech manufacturing accounts for 
87% of the total manufacturing labour force. Source: 
Eurostat. 

34 

technologies. 
in 

Low basic digital intensity among Latvian 
SMEs  hinders  their  ability  to  adopt 
advanced 
Despite 
improvements 
take-up  of  cloud 
the 
computing  and  data  analytics,  Latvia  lags 
behind  in  basic  digital  intensity  for  SMEs  and 
such  as  AI (47). 
advanced 
Moreover, basic digital skills declined by 5% in 
2023 (48).  While  some  promising  measures 
have  been  introduced  under  the  RRP,  such  as 
the Digital Innovation Hubs (DIHs) and financial 
digitalisation (49), 
support 
SME 
complemented  by  other  EU  programmes (50), 

technologies 

for 

(45)  Researchers employed by businesses make up only 

1.4 per thousand active population (EU average: 7.0). 

(46)  OECD Economic Surveys: Latvia 2022 

https://www.oecd.org/en/publications/oecd-economic-
surveys-latvia-2022_c0113448-en.html. 

(47)  Adoption of cloud computing stood at 29%, data 

analytics usage at 36.9%, basic digital intensity for 
SMEs at 48.2% and advanced technologies at 4.5% in 
2023 (vs the EU averages of 38.9%, 33.2%, 57.5% and 
8%, respectively). 

(48)  Digital Economy and Society Index 
https://digital-decade-desi.digital-
strategy.ec.europa.eu/datasets/desi/charts. 

(49)  Latvia aims to support 3 500 SMEs through DIHs by 

2026. 

(50)  Latvia participates as an indirect partner in the IPCEI on 
Next Generation Cloud Infrastructure and Services. 

 
 
 
their  scope  may  be  insufficient  to  address 
existing  gaps.  More  ambitious  national 
initiatives are needed to achieve the EU Digital 
Decade  targets (51).  Higher  uptake  of  these 
to 
technologies  could  also  help  Latvia 
transition 
towards  high-tech  sectors  and 
increase its competitiveness. 

industry 

However, 

Innovation  Fund’s 

Science-business  linkages  are  improving, 
but  continued  support  for  applied  and 
collaborative  research 
is  needed.  The 
country has been performing relatively well on 
relevant 
indicators  such  as  public-private 
scientific  co-publications (52)  and  contractual 
research (53). 
science-business 
in  Latvia  are  hampered  by  an 
linkages 
underdeveloped 
low 
research  base  and 
innovation activity in the private sector (54). The 
new 
research 
programme (55)  supporting applied science and 
commercial-oriented 
research,  which  was 
launched in 2024 and will run until 2032, could 
bring  further  improvements.  Going  forward,  it 
will  be  important  to  systematically  improve 
collaboration between businesses and research 
institutions,  for  instance  by  increasing  private-
sector representation in university councils (56). 
Ties  could  be  strengthened  by  incorporating 
financial  incentives  into  university  funding  for 
commercialisation 
private-sector 
collaboration.  Other  options  to  be  considered 
include increasing researchers’ share of patent 
royalties and highlighting private cooperation in 

and 

the  evaluations  of  universities  and  public 
research institutions (57). 

Financing innovation 

Access  to  finance  for  innovation  is  still 
limited  in  Latvia.  Despite  efforts  by  the 
government  to  increase  investments,  Latvia’s 
start-up  ecosystem  still  faces  a  shortage  of 
venture  capital  (with  current  levels  about  a 
fourth  of  the  EU  average (58)).  Also,  most 
investments  are  made  at  the  earlier  stages 
while funding at later stages is scarce, which is 
perceived as a barrier to scaling up innovation 
(59).  Encouragingly,  the  start-up  ecosystem  is 
becoming  less  reliant  on  government  funding, 
with  the  proportion  of  government-sourced 
capital  now  comparable  to  that  of  the  other 
Baltic  countries (60).  The  2022-2025  start-up 
ecosystem  development  strategy (61)  includes 
various activities to address the needs of start-
ups,  such  as  training,  mentoring  programmes 
and  conferences.  However,  these  initiatives 
have  yet  to  bear  fruit  and  could  encounter 
barriers  such  as  the  lack  of  highly-skilled 
talent. 

(51)  The Digital Decade policy programme sets out a 

pathway for the EU’s digital transformation, including 
concrete commitments from Member States to jointly 
achieve objectives (e.g. competitiveness, resilience, 
sovereignty) and digital targets by 2030. 

(52)  8.6% of total publications were public-private scientific 

co-publications in 2023. EU average: 7.7%. 

(53)  As indicated by public expenditure on R&D financed by 

business enterprises as a percentage of GDP. 

(54)  Innovation Diffusion in Latvia, OECD, 2021 

https://www.oecd.org/en/publications/innovation-
diffusion-in-latvia_7d6d0ffc-en.html. 

(55)  https://www.researchlatvia.gov.lv/en/long-term-research-
program-will-develop-least-45-technologies-until-2032. 

(57)  OECD Economic Surveys: Latvia 2022 

https://www.oecd.org/en/publications/oecd-economic-
surveys-latvia-2022_c0113448-en.html. 

(58)  LV average 0.019% of GDP in 2023  
EU average is 0.078% of GDP. 

(59)  Innovation Diffusion in Latvia, OECD, 2021 

https://www.oecd.org/en/publications/innovation-
diffusion-in-latvia_7d6d0ffc-en.html. 

(60)  From 2018 to 2023 government funding still accounted 

for 27% of capital raised; it was 20% in 2023. 
Source: KPMG, LTVC, LVCA, ESTVCA, Baltic Private Equity 
and Venture Capital Market Overview 2023 
https://www.balticpevcmarket.com/s/2024_KPMG_report
_0514.pdf. 

(56)  OECD Economic Surveys: Latvia 2024 

https://www.oecd.org/en/publications/oecd-economic-
surveys-latvia-2024_dfeae75b-en.html. 

(61)  Strategy for the development of the start-up ecosystem 
https://www.em.gov.lv/lv/jaunuznemumu-ekosistemas-
attistibas-strategija. 

35 

 
 
 
Innovative talent 

and 

performance, 

and  mathematics 

The lack of human capital is holding back 
research 
skills 
shortages are considered one of the main 
barriers  to  innovation  in  Latvia.  The  low 
number of researchers both in business and in 
the  public  sector  (1.5  and  3.2  per  thousand 
active  population,  respectively,  vs  the  EU 
average of 5.7 and 4.2) limits Latvia’s research 
innovation  capacity  and  could  also 
and 
negatively  impact  the  R&I  system’s  ability  to 
absorb funds going forward (62). The number of 
doctoral graduates (63) and science, technology, 
(STEM) 
engineering 
graduates (64)  is  low,  and  the  rate  of  increase, 
is  insufficient  to  address  the  shortage  of 
researchers  in  the  short  to  medium  term (65). 
The  new  doctoral  model,  part  of  the  RRP,  has 
already increased  the  number  of  new  doctoral 
students but the number of doctoral graduates 
is yet to grow, and the dropout rate is still high 
(see Graph A3.2). The effect of these measures 
on  the  workforce  will  therefore  only  become 
significant  in  the  long  term.  Going  forward,  it 
will  be  necessary  to  continue  to  improve 
working conditions for researchers, increase the 
number  of  doctoral  students  and  tenured 
positions,  and  ensure  predictable  financing (66) 
to  retain  talent  in  Latvia.  The  draft  human 

(62)  OECD Economic Surveys: Latvia 

https://www.oecd-ilibrary.org/economics/oecd-economic-
surveys-latvia_25222988 

(63)  3 254 doctoral students enrolled, 158 doctoral 

graduates and 822 new entrants in 2023 according to 
Latvia Statistical office 
https://data.stat.gov.lv/pxweb/en/OSP_PUB/START__IZG_
_IG__IGA/IGA010/table/tableViewLayout1/. 

(64)  8.3 new STEM graduates per thousand population in 

2022. 

(65)  Moreover, the drop-out rate in STEM and ICT fields is 

high due to low funding for living and weak qualitative 
skills of students. 
Source: Education at a Glance 2023: OECD Indicators, 
https://doi.org/10.1787/e13bef63-en. 

capital  development  action  plan (67)  includes  a 
number  of  initiatives,  aimed  at  e.g.  increasing 
the  number  and  graduation  rate  of  STEM 
students,  that  could  help  tackle  this  problem. 
However,  it  could  be  expanded  with  measures 
to  attract  and  retain  PhD  students  and 
researchers.  In  the  short  term,  facilitating 
skilled  migration  could  ease  the  high-skilled 
labour shortages (68). 

Graph A3.2: Number of doctoral entrants and 
graduates 

Source: Central Statistical Bureau of Latvia 

education 

Entrepreneurship 
is  well 
developed  in  Latvia,  thanks  to  its  policy 
prioritisation  in  recent  years.  Since  2014, 
fostering students’ creative and entrepreneurial 
skills has been a priority of Latvia’s educational 
policies,  e.g.  through  the  new  skills-based 
curriculum.  Also,  entrepreneurship  education 
has been embedded into national and regional 
education  policies  and  initiatives,  and  the 
2021-2027  education  development  guidelines 
integration 
(EDG) 
of 
entrepreneurial  skills 
the  education 
system.  Some  challenges  persist,  such  as 
cultural attitudes linked to a fear of failure. 

emphasise 

into 

the 

(67)  Draft human capital development action plan 2025-

2027: https://tapportals.mk.gov.lv/legal_acts/2d477536-
f88c-439c-a768-7f9cb025f7d9#. 

(66)  OECD Economic Surveys: Latvia 2024 

(68)  OECD Economic Surveys: Latvia 2022 

https://www.oecd.org/en/publications/oecd-economic-
surveys-latvia-2024_dfeae75b-en.html 

https://www.oecd.org/en/publications/oecd-economic-
surveys-latvia-2022_c0113448-en.html 

36 

020040060080010002020202120222023Number of studentsDoctoral graduatesDoctoral entrants 
 
        
 
Table A3.1:  Key innovation indicators 

(1) EU average for the last available year or the year with the highest number of country data 
Source:  Eurostat, DG JRC, OECD, Science-Metrix (Scopus database), Invest Europe, European Innovation Scoreboard. 

37 

R&D intensity (gross domestic expenditure on R&D as % of GDP)0.690.530.760.770.810.82:2.243.45Public expenditure on R&D as % of GDP0.540.390.490.480.520.53:0.720.64Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 3.543.643.944.55:::9.6412.29Researchers (FTEs) employed by public sector (Gov+HEI) per thousand active population3.303.003.473.783.363.15:4.24:International co-publications as % of total number of publications31.1341.1151.4548.7449.0248.74:55.9239.34Business enterprise expenditure on R&D (BERD) as % of GDP0.160.140.260.290.290.30:1.492.70Business enterprise expenditure on R&D (BERD) performed by SMEs as % of GDP0.110.100.150.160.12::0.400.30Researchers employed by business per thousand active population0.640.680.911.311.391.46:5.72:Patent applications filed under the Patent Cooperation Treaty per billion GDP (in PPS €)1.070.871.080.961.00::2.82:Employment share of high-growth enterprises measured in employment (%)16.7518.6912.23::::12.51:SMEs with at least a basic level of digital intensity% SMEs (EU Digital Decade target by 2030: 90%)::::52.27:59.1872.91:Data analytics adoption% enterprises (EU Digital Decade target by 2030: 75%):::::36.87:33.17:Cloud adoption% enterprises (EU Digital Decade target by 2030: 75%):::22.21:29.04:38.86:Artificial intelligence adoption% enterprises (EU Digital Decade target by 2030: 75%):::3.72:4.538.8313.48:Public-private scientific co-publications as % of total number of publications4.305.917.578.789.048.55:7.718.90Public expenditure on R&D financed by business enterprise (national) as % of GDP0.050.030.040.040.06::0.050.02Total public sector support for BERD as % of GDP0.020.03:0.050.03::0.200.25 R&D tax incentives: foregone revenues as % of GDP0.000.000.000.000.000.00:0.100.14BERD financed by the public sector (national and abroad) as % of GDP 0.020.03:0.050.03::0.100.11Venture capital (market statistics) as % of GDP, total (calculated as a 3-year moving average)0.010.020.010.020.020.02:0.08:Seed stage funding share (% of total venture capital)0.0019.9018.1013.0019.8018.90:7.30:Start-up stage funding share (% of total venture capital)66.4073.9079.4081.7067.3066.50:44.00:Later stage funding share (% of total venture capital)33.606.202.505.2012.9014.60:48.70:New graduates in science and engineering per thousand population aged 25-3414.358.428.448.738.30::17.58:Graduates in the field of computing per thousand population aged 25-342.932.622.653.013.17::3.63:20222021Latvia201220172020Headline indicatorScience and innovative ecosystemsR&D investment & researchers employed in businessesPublic support for business innovationInnovative outputsDigitalisation of businessesAcademia-business collaborationFinancing innovationInnovative talent2023EU average (1)USA2024 
 
 
 
 
 
        
 
ANNEX 4: MAKING BUSINESS EASIER 

hinder 

sectors,  which 

Latvia  has  brought  forward  reforms  to 
its  business  environment,  but 
improve 
several  structural  challenges  remain.  The 
economy  faces  labour  shortages,  especially  in 
long-term 
strategic 
investment.  Financial  constraints  persist  due  to 
restrictive  lending  and  late  business-to-  business 
(B2B)  payments,  although 
is 
investment  by 
improving.  Latvia  could  boost 
enhancing  public  transport 
infrastructure  and 
expanding  digital 
infrastructure.  Administrative 
and  regulatory  barriers  are  higher  than  in  Baltic 
peers.  Digital  infrastructure  remains  weaker  in 
rural areas. 

the  situation 

Economic framework conditions 

to 

the  EIB 

Non-availability  of  skilled  staff  and  labour 
shortages  weigh  on  long-term  investment  in 
Latvia.  According 
Investment 
Survey (69),  83%  (the  EU  average  is  77%)  of 
Latvian businesses report a lack of skilled staff as 
a primary obstacle to long-term investment – this 
is higher than in Latvia’s Baltic peers. Only 15% of 
firms  in the industrial  sector  overall  report labour 
shortages as limiting production (the EU average is 
20%),  but  some  economic  sectors  are  heavily 
affected.  For  example,  37%  of  firms  within  the 
textile  sector  are  constrained  by  labour  shortages 
(the  EU  average  is  16%).  Strategically  important 
sectors  which  are  relevant  for  the  twin  transition 
also face a lack of skilled workers (70), especially in 
STEM and ICT professions (71)  (see Annex 12). The 
Latvian  authorities  have  started  to  address  the 
issue  by  implementing  structural  reforms  which 
aim  to  increase  mobility  from  regions  with  high 
unemployment  (see  Annex  17).  Latvia’s  recovery 
and  resilience  plan  (RRP)  includes  reforms  to 
improve  higher  education  and  adult  learning  (see 
Annex 10). 

Restrictive  lending  and  late  B2B  payments 
are  financially  constraining  Latvian  firms, 
but  the  situation 
improving.  The  gap 
is 
between the payment terms offered to businesses 
and  actual  payments  is  one  of  the  largest  in  the 
EU.  According  to  the  most  recently  available 

(69) EIB Investment Survey 2024: European Union overview. 
(70) Republic  of  Latvia:  2024  Article 

IV  Consultation-Press 

Release; and Staff Report. 

(71) OECD Economic Surveys: Latvia 2024 | OECD. 

data (72),  the  average  gap  for  B2B  payments  was 
16.2 days  in  2023  –  above  the  EU  average  and 
one  of  the  highest  in  the  EU.  The  public  sector 
payment  gap  has  improved  significantly  since 
2022  and  stood  at  12  days  in  2023,  the  second 
best  in  the  EU.  Overall  performance  is  still  far 
from  that  in  2019,  when  the  average  gaps  were 
only  two  days  and  four  days  respectively (73). 
Moreover,  18.2%  of  Latvian  businesses  report 
payment  delays  from  the  public  sector  (EU 
average  16.6%)  and  59.4%  report  that  they 
experienced  late  payments  in  B2B  activities  (EU 
average 47.9%, see Graph A4.1). According to the 
EIB Investment Survey, 58% of Latvian enterprises 
reported  the  non-availability  of  finance  as  an 
obstacle to long-term investment in 2024 (the EU 
average  was  45%).  This  is  a  slight  improvement 
on  2023  (62%)  but  is  also  the  highest  value 
among the three Baltic Member States and is one 
of  the  highest in  the  EU  (see  Annex  5).  According 
to the EIF loan index, Latvia ranks 25th in the EU 
when  it  comes  to  the  accessibility  of  loans  for 
SMEs. 

report 

transport 

long-term 

Latvia could boost private-sector investment 
by  improving  public  transport  infrastructure 
and  continuing  the  expansion  of  digital 
infrastructure.  According  to  the  World  Bank’s 
Logistics  Performance  Indicator,  Latvia  has  room 
to improve its transport infrastructure, where it is 
lagging behind its Baltic peers (74). 48% of Latvian 
infrastructure  as  an 
firms 
impediment  to 
investment,  trailing 
Lithuania  (42%)  and  Estonia  (26%) (75).  Given  its 
geopolitical  situation,  the  Latvian  economy  could 
profit  from  and  attract  more  investments  by 
deepening its connections with the rest of the EU. 
The  RRP  is  supporting  the  completion  of  the 
southern  part  of  Riga  Railway  Central  Station  in 
order  to  ensure  connectivity  by  rail  between  Riga 
Airport and the main Rail Baltica line (76). This is a 
significant  opportunity  to  address  substantial 
investment  shortfalls  in  transport  infrastructure 
(including  complementary  investments  in  inland, 

(72) European  Payment  Report  2023  |  Key  findings  on  late 

payments, inflation & business growth. 

(73) European  Payment  Report  2023  |  Key  findings  on  late 

payments, inflation & business growth. 

(74) International  Scorecard  Page  |  Logistics  Performance  Index 

(LPI) 

(75) EIB Investment Survey 2024 - European Union overview 
(76) Annex  to  the  Council  Implementing  Decision  amending 
Implementing  Decision of  13  July  2021  on  the  approval  of 
the  assessment  of  the  recovery  and  resilience  plan  for 
Latvia. 

38 

 
 
 
 
 
airport  and  seaport  links)  as  well  as  digital 
infrastructure  (e.g. the  fibre  optic  cable  line  along 
the  railway) (77).  Digital  infrastructure  has  been 
improving, but Latvia is still lagging behind the EU 
when  it  comes  to  meeting  the  Digital  Decade 
(although  business  digitalisation  has 
targets 
recently accelerated (78). 

Graph A4.1: Making Business Easier: selected 
indicators. 

the year. 5G coverage remained low at 53.1% (the 
EU average was 89.3%) but grew quickly (26.5%). 
Public  investment  is  taking  place,  but  strong 
regional disparities persist and challenges such as 
low  population  density  are  hampering  private 
investment  in  digital  infrastructure  in  rural  areas. 
When 
it  comes  to  cyber-security,  awareness 
among  enterprises  is  increasing  and  89%  of 
companies deploy ICT measures (the EU average is 
92.8%). 

Regulatory and administrative 
barriers 

in 

in  Latvia 

Reforms  are  being  brought  forward  to  ease 
the administrative and regulatory burden for 
businesses,  but  it  is  still  perceived  to  be 
higher  than  in  Latvia’s  Baltic  peers (80).  40% 
of  businesses 
reported  business 
regulation as a major obstacle to investment (the 
EU average was 22%) (81), by far the highest value 
among  the  Baltic  Member  States  (Estonia:  15%; 
Lithuania: 13%).  As  concerns  the  OECD’s  Product 
indicators,  Latvia  performs 
Market  Regulation 
below  the  OECD  average 
the  areas  of 
competition  assessment  of  new  regulation  and 
market  entry  barriers  in  service  sectors.  The 
procedures for obtaining licences and permits can 
improved (82).  The  construction  sector 
is 
be 
especially  suffering  from  unnecessarily  long  and 
complex  procedures.  According 
to  a  survey 
conducted  by  the  Bank  of  Latvia  among  real 
estate developers, acquiring all the documentation 
needed  for  the  construction  process  takes  much 
more 
in  Estonia  or 
Lithuania (83).  To  tackle  these  issues,  the  Latvian 
their 
authorities  have 
medium-term  fiscal-structural  plan 
to  detect 
excessive  overall  administrative  burden  and  to 
streamline regulatory processes in the real estate 
sector (84). 

included  measures 

in  Latvia 

than 

time 

in 

The  costs  of  ensuring  tax  compliance  are 
aligned  with  the  EU  average  or  slightly 
below,  pointing to  an  efficient  tax collection 

Share of (1) enterprises, (2) average intra-EU exports and 
imports in GDP, (3) firms, (4) SMEs. 
Sources: (1) EIB IS, (2) Eurostat, (3) ECFIN BCS, (4) SAFE 
survey. 

Digital  infrastructure  is  catching  up  quickly 
with  EU  average 
levels  but  challenges 
remain,  especially  in  rural  areas.  Latvia’s 
connectivity  has  rapidly  improved  in  recent  years 
but  still  falls  short  of  EU  averages (79).  Very  high 
capacity network (VHCN) coverage reached 71.5% 
in  2023.  This  was  still  below  the  EU  average  of 
78.8%, but grew strongly that year by 13.9% (the 
EU  average  was  7.4%).  Similarly,  fibre  to  the 
premises  coverage  was  61.9%  (slightly  below  the 
EU average of 64%) but grew only slightly during 

(77) OECD Economic Surveys: Latvia 2024 | OECD. 
(78) Report  on  the  state  of  the  Digital  Decade  2024  |  Shaping 

Europe’s digital future. 

(79) Latvia  2024  Digital  Decade  Country  Report  |  Shaping 

Europe’s digital future. 

(80) Responsive  administration and  burden of  regulation |  Single 

Market Scoreboard. 

(81) EIB Investment Survey 2024 - European Union overview 
(82) Latvia_PMR country note. 
(83) Financial Stability Report 2023. 
(84) Latvijas Fiskāli strukturālais plāns 2025.-2028. gadam. 

39 

59.418.21149.141.847.916.61041.624.5010203040506070from private entitiesfrom public entitiesMaterial shortages as afactor limiting productionEU Trade IntegrationRegulation as a majorobstacle to investment(4) Late payments(3) Shortages(2) SingleMarket(1) RegulatoryburdenShare (%)EU27LV 
     
 
 
system.  The  costs  of  complying  with  direct  and 
indirect  tax  requirements  represent  between  1% 
and  2%  of  businesses’  turnover.  This  is  close  to 
the  EU  average  of  1.9%.  In  terms  of  absolute 
numbers, 
lower 
compliance  costs  than  the  EU  average,  for 
corporate income tax and value added tax (85) (see 
Annex 2). 

enterprises 

Latvian 

face 

The  transposition  of  EU  legislation 
into 
national  law  is  an  opportunity  to  further 
accelerate  business  dynamism.  According  to 
the  OECD, Latvia’s  insolvency  framework  involved 
costly and inefficient procedures that impeded the 
productive  reallocation  of  resources (86).  Since 
the  Latvian  authorities  have 
March  2023, 
Insolvency 
the  Restructuring  and 
transposed 
Directive  (EU)  2019/1023  into  Latvian  laws  that 
now apply to all proceedings which have been filed 
since  September  2023.  The  overall  churn  rate  of 
Latvian  businesses  was  already  quite  high  and 
above  the  EU  aggregate  in  recent  years,  which 
indicates a higher level of business dynamism (87). 
The new insolvency framework is expected to have 
a  positive  impact,  so  this  development  could  be 
enhanced even further. 

environment 

entrepreneurial 

The  entrepreneurial  environment  has  faced 
significant  challenges  in  recent  years.  The 
Global Entrepreneurship  Monitor 2024 shows that 
Latvia’s 
has 
stagnated  with  downward  tendencies.  Latvia’s 
National  Entrepreneurial  Context  Index  score  fell 
from 5.3 in 2022 to 5.1 in 2024 (88). In particular, 
the  rankings  for  entrepreneurial  education  at 
school  (see  Annex  12),  ease  of  market  entry  and 
government  policy  support  have  fallen  sharply (89) 
since  2022.  Latvia  nevertheless  still  ranks  14th 
among GEM economies. 

(85) Tax  compliance  costs  for  SMEs  -  Publications  Office  of  the 

EU. 

(86) OECD Economic Surveys: Latvia 2024 | OECD. 
(87) DG ECFIN Productivity fiche, 2025. 
(88) Global Entrepreneurship  Monitor 2024/2025 Report:  Fear  of 
failure  and  slow  AI  adoption  holding  back  entrepreneurs  in 
Latvia | Stockholm School of Economics in Riga. 

(89) Entrepreneurship  in  Latvia  -  GEM  Global  Entrepreneurship 

Monitor. 

Single market 

Latvia  is  well  integrated  into  the  single 
market,  with  its  average  total  trade  with 
other EU countries accounting for more than 
half  of  its  GDP  in  2023.  The  share  of  single 
market directives which are incorrectly transposed 
into  national  law  equals  the  EU  average  of  0.8% 
and Latvia is the best performer when it comes to 
the conformity of its transpositions (it has a deficit 
infringement 
of  zero).  There  were  only  10 
proceedings pending in 2023, which was the joint 
best value in the EU (Estonia and Luxembourg also 
had  10  proceedings pending;  the  EU  average  was 
26).  Moreover,  the  Latvian  SOLVIT  centre  has 
managed  to  resolve  100%  of  its  cases  (the  EU 
average is 84.9%). 

Public procurement  

The  public  procurement  framework  faces 
several  structural  challenges,  but  reforms 
are  being  made.  Latvian  public  procurement 
institutions face significant staff-related problems, 
including  suboptimal  staff  resources,  low  and 
uncompetitive  salaries,  and  insufficient  training 
opportunities.  These  issues  can  lead  to  delays, 
in 
inefficient  public  spending  and  difficulties 
attracting  and  retaining  skilled  professionals.  The 
procurement planning process suffers from issues 
of  planning,  allocated  time  for  procurements,  the 
workload  distribution  for  procurers,  and  short 
contract 
public 
procurement  system  could  benefit  from  greater 
centralisation. The purchase of standardised goods 
(e.g. ICT,  software  services  and 
and  services 
medical  drugs)  is  currently  still  being  done  by 
multiple  municipalities (91).  Latvia  has  introduced 
an  advisory  council  for  public  procurement  to 
tackle  these  issues  and  continues  to  implement 
measures  from  its  RRP  that  aim  to  enhance  the 
professionalisation  of  procurers  as  well  as  the 
centralisation of public purchasing (92). 

durations (90). 

Latvian 

The 

(90) 29780-OFPKvdMM5yj8IVWkSjikQc1NAGv2VsPS.pdf 

(machine translation). 

(91) OECD Economic Surveys: Latvia 2024 | OECD. 
(92) OECD Economic Surveys: Latvia 2024 | OECD. 

40 

 
 
 
Significant  progress  has  been  achieved  in 
implementing  socially  responsible  public 
procurement  (SRPP)  in  recent  years.  Latvia 
has  produced  a  wide  range  of  resources  to  help 
procurement  officers in  effectively  applying  SRPP. 
These  resources 
include  the  development  of 
guidelines,  the  creation  of  training  materials,  the 
compilation of international best practices in SRPP, 
and  the  provision  of  practical  models  to  inspire 
and guide efforts.  

Few  professions  appear  to  be  more  strictly 
regulated  than  in  other  OECD  countries. 
Latvia  has  stricter  regulatory  barriers  for  lawyers 
and notaries. These take the form of total bans on 
lawyers and notaries engaging in multidisciplinary 
activities (93).  Latvia  could  foster  competition  by 
reducing  regulatory  barriers,  particularly  in  retail 
sale of medicine, air transport and natural gas (94). 

(93) eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52021DC0385. 

(94) Latvia_PMR country note. 

41 

 
 
Table A4.1:  Making Business Easier: indicators. 

*Change in methodology in 2024: reporting late payments from public and private entities separately. 
**Data on single bids for 2024 is provisional and subject to revision. Due to missing data, the EU average of direct awards data is 
calculated without Romania. 
Sources: (1) ECFIN BCS, (2) Eurostat, (3) EIB IS, (4) Digital Decade Country reports, (5) Intrum Payment Report, (6) SAFE survey, 
(7) OECD, (8) up to 2023: Single Market and Competitiveness Scoreboard, 2024: Public procurement data space (PPDS). 

42 

POLICY AREA20202021202220232024EU-27 average7.816.122.912.911.010.012.121.422.717.315.320.22.02.72.72.42.22.323.225.425.529.925.213.4-62.562.771.4-78.8-60.760.961.9-64.0-0.042.053.1-89.3Regulatory environment34.750.325.939.841.824.515.810.816.016.2-15.618.48.713.312.0-15.1from public or private entities in the last 6 months36.536.538.150.6--from private entities in the previous or current quarter----59.447.9from public entities in the previous or current quarter----18.216.643.548.257.750.549.141.60.0470.0350.0350.0350.0390.0500.82.01.20.50.80.81.01.00.80.40.00.910010010010010084.922.017.012.010.010.024.42526372822-8118877.0LatviaINDICATOR NAMEInvestment climateShortagesMaterial shortage, firms facing constraints, %1Labour shortage, firms facing constraints, %1Vacancy rate, vacant posts as a % of all available ones (vacant + occupied)2InfrastructureTransport infrastructure as an obstacle to investment, % of firms reporting it as a major obstacle3VHCN coverage, %4FTTP coverage, %45G coverage, %4Reduction of regulatory and administrative barriersImpact of regulation on long-term investment, % firms reporting business regulation as a major obstacle3Late paymentsPayment gap - corporates B2B, difference in days between offered and actual payment5Payment gap - public sector, difference in days between offered and actual payment5Share of SMEs experiencing late payments, %*6Single MarketIntegrationEU trade integration, % (Average intra-EU imports + average intra EU exports)/GDP2EEA Services Trade Restrictiveness Index7ComplianceTransposition deficit, % of all directives not transposed8Conformity deficit, % of all directives transposed incorrectly8SOLVIT, % resolution rate per country8Number of pending infringement proceedings8Competition and transparency in public procurementSingle bids, % of total contractors**8Direct awards, %**8Public procurement 
 
 
 
 
 
       
 
ANNEX 5: CAPITAL MARKETS, FINANCIAL STABILITY AND ACCESS TO FINANCE 

leaves 

lending 

Latvian  firms  do  not  have  access  to  the 
relatively  low  savings  of  households,  as 
direct  retail  participation  in  capital  markets 
is  extremely  low.  At  the  same  time,  the 
institutional 
investment  policies  of  domestic 
investors  are  conservative  and  oriented  abroad. 
Moreover, longstanding structural issues constrain 
bank 
internal 
in  Latvia.  This 
financing as the main alternative for Latvian firms. 
However,  over  the  last  decade,  the  private  equity 
and venture capital sector has played a key role in 
diversifying 
this 
relatively well-developed local venture and growth 
capital market, Latvia is currently among the most 
start-up friendly countries in the world, and strives 
to  further  develop  its  strategy,  with  a  unique  role 
for  FinTech  in  it.  Latvia’s  banking  sector  is  very 
small,  highly  concentrated,  and  partly  dependent 
on  developments  in  foreign  parent  banks. Overall, 
it exhibits high resilience to risks and low exposure 
to vulnerabilities. 

financing.  With 

corporate 

Availability and use of domestic 
savings 

its 

In  2021,  Latvia  switched  from  a  net  foreign 
lender to a net borrower. Over the last decade, 
the  private  savings  ratio,  net  of  fixed  capital 
ten-year 
fluctuated  around 
consumption, 
average of 6.2% of GDP, reaching a maximum of 
10%  in  2021  (see  Graph  A5.1).  The  net  private 
investment 
the  net 
ratio,  which  measures 
contribution  of  the  private  sector  to  capital 
accumulation  in  the  country,  exhibited  a  ten-year 
average of 3.0% of GDP and reached a maximum 
of  5.4%  in  2021.  At  the  same  time,  during  the 
same  period  the  government  balance  was  in 
regular  surplus,  averaging  0.8%  of  GDP.  Until 
2020,  the  balance  between  net  domestic  savings, 
net  investment,  and  the  structural  government 
deficits  was  positive,  resulting  in  net  lending  by 
Latvia  averaging  0.8%  of  GDP,  with  a  peak  of 
4.8% in 2020. Hence, some of Latvian net savings, 
i.e.  after  accounting  for  the  investments  that  are 
necessary  to  merely  maintain  the  existing  capital 
structure  of  the  economy,  were  used  to  finance 
projects  abroad  until  2020.  In  2021  the  situation 
changed  and  Latvia  became  a  net  borrower  from 
the rest of the world. 

Graph A5.1: Net savings-investment balance 

Source: AMECO. 

improvement 

reflecting  an 

The Latvian economy exhibits a negative net 
international  investment  position.  Between 
2009  and  2023,  the  NIIP  strengthened  almost 
every  year, 
in 
international  competitiveness,  however  remaining 
in  negative  territory.  As  of  Q3-2024,  total  assets 
on  foreigners  reached  141%  of  GDP,  while 
liabilities  to  foreigners  stood  at  163%  of  GDP, 
resulting  in  a  NIIP  equivalent  to  -22.1%  of  GDP 
(see  Graph  A5.2).  The  accumulated  net  portfolio 
investment, which reached 25.5% of GDP as of Q3 
2024  and  the  stock  of  official  foreign  reserve 
assets amounting to 12.1% of GDP did not suffice 
to  counterbalance  a  negative  accumulated  net 
foreign  direct  investment  balance  of  -48.8%, 
together  with  net  other  investments  of  -10.8%. 
Thus,  the  Latvian  economy  has  systematically 
been  a  net  capital  importer,  notably  mainly  by 
means  of  direct  foreign  investments  into  the 
country. 

Graph A5.2: International investment position 

Source: ECB. 

43 

-10-50510152025302017201820192020202120222023% of GDPPrivate investment, netLending to the governmentPrivate saving, netPrivate saving, grossBorrowing from the rest of the world-250-200-150-100-5005010015020020172018201920202021202220232024-Q3% of GDPForeign Direct Investment, AssetsPortfolio Investment, AssetsOther investment, AssetsOfficial reserve assetsForeign Direct Investment, LiabilitiesPortfolio Investment, LiabilitiesOther investment, LiabilitiesNIIP 
 
  
  
 
 
Structure of the capital markets and 
size of the financial sector 

In  terms  of  capital  market  development, 
Latvia  lags  behind  not  only  the  rest  of  the 
EU, but also neighbouring countries. Despite a 
similar  economic  structure  and  size,  stock 
exchanges  of  Estonia  and  Lithuania  have  been 
able  to  achieve  a  higher  level  of  development. 
Whereas the market capitalisation of listed stocks 
in Estonia reached 12.2% at the end of Q3-2024, 
and 5.9% in Lithuania, it was only 1.2% of GDP in 
Latvia,  among  the  smallest  percentage  in  the  EU. 
In  comparison,  the  EU  average  is  69.3%  of  GDP. 
Whereas  state  and  local  government-controlled 
companies  account  for  slightly  more  than  a  third 
of  market  capitalisation  Lithuania  and  Estonia, 
Latvia has only listed bonds for three state-owned 
enterprises.  The  situation  is  similar  in  the  debt 
securities  market:  the  corporate  bond  market  is 
very  thin  and  activity  there  was  very  weak  even 
when  low  interest  rates  prevailed  in  financial 
markets over the previous decade. 

Graph A5.3: Capital markets and financial 
intermediaries in Latvia 

opportunities,  low  interest  from  institutional  and 
retail investors, and thus few local opportunities to 
raise  share  capital.  Lacking  market  activity  by 
institutional 
for 
corporate  stocks  and  bonds.  In  terms  of  the 
international  market,  projects  developed  in  Latvia 
are  relatively  low  value,  which  makes  them  less 
attractive to international investors. 

investors 

demand 

lowers 

have 

following 

operations 

non-residents 
their 

Latvia’s  monetary  financial  sector  is  very 
small  compared  with  the  EU  average  and 
concentration  is  high.  At  the  end  of  Q3-2024, 
banks’  total  assets  were  equivalent  to  71.2%  of 
GDP,  significantly  below  the  EU  average  of 
248.1% and also below the level reached in 2017 
(105%).  The  sector  has  been  shrinking  as  banks 
significantly 
servicing 
downsized 
the 
introduction  of  stricter  anti-money 
laundering 
rules.  Consequently,  their  business  volumes  and 
deposits  have  notably  decreased.  This  has  led 
them  to  transform  their  business  models.  The 
banking  sector 
is  highly  concentrated,  and 
borrowing  costs  are  among  the  highest  in  the  EU 
in  almost  all  lending  segments.  The top  five  MFIs 
represent  more  than  88%  the  sector,  vs.  an  EU 
average  of  54%.  The  Latvian  banking  sector  is 
dominated  by  subsidiaries  and  branches  of  banks 
from  Nordic  and  Baltic  countries.  Notably, 
Swedbank  (95)  and  SEB  Banka,  which  are  the  two 
largest banks in Latvia, are Swedish owned. Due to 
its  integration  with  the  Nordic  and  Baltic  banking 
systems,  the  financial  sector  of  Latvia  depends 
partly  on  developments in  parent  banks  and  their 
strategic decisions. Latvia’s banking sector may be 
exposed  to  spillover  risks  from  these  regions.  In 
Sweden and other Nordic countries, imbalances on 
the real estate market, as well as high private debt 
levels are potentially destabilising elements. 

The  role  of  the  non-bank  financial  sector  in 
the  financial  sector  and  the  economy  is  still 
considerably  less  important  as  compared  to 
other euro area countries. This is primarily due 
to  the  low  level  of  long-term  savings  of  the 
population  and  the  low  financial  literacy  level. 
Total assets of insurance corporations against GDP 
amounted to 4.1% at the end of Q3-2024, vs. an 

(95)  In October 2021, the ownership of the subsidiary banks in 
Estonia,  Latvia  and  Lithuania  was  placed  in  the  holding 
company  Swedbank  Baltics  AS  which  is  wholly  owned  by 
Swedbank  AB,  and  which  is  under  the  supervision  of  the 
European Central Bank. 

Source: ECB, EIOPA, AMECO. 

prospects 

The 
capital  market 
for 
development  are  limited  by  the  low  number 
of  listed  enterprises.  Latvia  has  established  a 
good market infrastructure, as well as a regulatory 
framework  that  meets  international  standards, 
ensuring  adequate  market 
transparency  and 
investor protection.  Nevertheless,  local  businesses 
tend  to  rely  for  external  funding  on  bank 
intermediation  rather  than  attracting  investments 
through stock and bond issues or from alternative 
sources.  This  results  in  few  local  investment 

44 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds01020304050607080     Listed equity                           Bonds                        Assets by sector% of GDP 
   
 
EU  average  of  54.8%.  Most  of  the  pension  fund 
assets  in  Latvia  consist  of  funds  accumulated  in 
state-funded  pension  plans,  which  at  the  end  of 
2023  had  accumulated  to  about  half  of  the  total 
assets of the non-bank financial sector.  According 
to Latvijas Banka’s financial accounts statistics, in 
2023  the  assets,  respectively  liabilities,  of  the 
participants  of  Latvia's  non-bank  financial  sector 
accounted for 12.3%, respectively 10.7%, of those 
of credit institutions.  

Resilience of the banking sector 

Overall,  the  Latvian  banking  sector  exhibits 
high  resilience  to  risks.  Latvia’s  banking  sector 
has coped relatively  well with the multiple shocks 
in  recent  years,  from  the  pandemic  crisis  to 
Russia’s  aggression  against  Ukraine  and  the 
energy crisis. The sector’s resilience is bolstered by 
strong  capitalisation  and  asset-quality  metrics, 
with  a  capital  adequacy  ratio  of  23.8%  in  Q3-
2024,  well  above  the  EU  average  of  20.1%  (see 
Table  A5.1).  The  improvement  came  through  the 
accumulation  of  high-quality 
loss-absorption 
capital, as the CET1 ratio increased from 20.5 % in 
2023  to  22.5%  in  Q3-2024,  significantly  above 
the  EU  average  of  16.6%.  The  three  institutions 
that were subject to the 2023 EU-wide stress test 
(Swedbank  AS,  AS  Citadele  banka,  and  AS  SEB 
banka) passed successfully even the most adverse 
scenario.  According  to  Latvijas  Banka,  despite 
dividend  pay-outs,  significant  credit  institutions 
maintain sufficiently high voluntary capital buffers 
to  absorb  shocks.  Given  the  current  level  of 
voluntary  buffers  of  credit  institutions  and  their 
ability to still  capitalise profits, it is expected that 
no  credit 
in 
in  2024.  Additionally, 
meeting  MREL  targets 
capital  buffers  are  supported  by  the  decision  of 
the  Latvian  Central  Bank  in  December  2023  to 
implement  a  positive  neutral  Countercyclical 
Capital Buffer rate. This rate has been set at 0.5% 
starting in December 2024 and will increase to 1% 
in  June  2025.  The  stress  test  results  for  other 
credit institutions have generally improved, with a 
decline in the level of non-performing loans on the 
balance sheets of some institutions. The resilience 
to  market  risk, 
including  the  revaluation  of 
securities held to maturity at current market value, 
has 
important 
systemic  risks  to  the  stability  of  the  financial 
sector  remain  related  to  the  persistently  weak 
tight  credit 
economic  activity  and  generally 

institution  will  have  difficulties 

improved.  Overall, 

the  most 

conditions,  which  may  affect  bank  customers, 
especially non-financial corporations, and limit the 
recovery of economic growth in the medium term. 

The profitability of credit institutions is high. 
In Q3-2024 Latvian banks have achieved a record-
high  return  on  equity  ratio  (18.1%),  significantly 
exceeding the EU average (10%). The sharp rise in 
market  interest  rates,  the  dominance  of  floating-
rate  loans,  together  with  the  still  resilient  quality 
of  the  loan  portfolio  have  led  to  this  significant 
increase 
in  banks'  profitability.  Although  the 
positive  factors  have  more  than  offset  the 
latter  have  also  been 
negative  ones, 
considerable,  namely  an 
in  bank’s 
expenses  over  2023  (driven  by  staff  pay  rises, 
inflation  and  expenditures  on  consultancy  and 
other  services  in  some  credit institutions),  as  well 
as  the  amendment  to  the  Corporate  Income  Tax 
Law,  the  first  payment  of  which  was  made  in 
In  2024,  profits  have  been  affected 
2023. 
somewhat by the mortgage protection fee (96), but 
still  stood  well  above  the  EU  average.  The  return 
on equity ratio as of end Q3-2024 stood at 18.1%, 
vs. an EU average of 10%. 

increase 

the 

financial 

situation 

Banks’  balance  sheets  show  improved  asset 
quality.  With  an  aggregate  non-performing  loan 
(NPL) ratio of 1.2% in Q3-2024, which is below the 
EU  average  of  1.9%,  credit  quality  has  improved 
significantly  over  the  past  decade.  With  inflation 
easing  and  income  growth  remaining  strong, 
is  gradually 
households' 
improving.  Additionally,  mortgage  protection  is 
also  reducing the default risks.  At  the  same  time, 
the  solvency  and  debt-servicing  capacity  of  non-
financial  corporations  has  weakened  somewhat 
due to weak economic activity and sharply  higher 
labour  and  financing  costs.  Nevertheless,  NPLs 
have remained low, partly thanks to renegotiations 
and 
prevent 
(sometimes pro-actively) the problems from taking 
root,  avoiding  as  far  as  possible  a  further 
migration  of  some  distressed  loans  to  NPLs.  Yet, 
banks’  aggregate  coverage  ratio  of  NPLs  by 

financial  hardship 

relief 

to 

(96)  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  for  a  given 
period.  The  measure  is  broad-based  and  aimed  at  short-
term  relief  (for  a  period  of  one  year).  To  finance  the 
measure,  a  one-off  fee  of  0.5%  of  the  total  amount  of 
mortgage loan balances will skim profits from banks and 
credit providers operating in Latvia in 2024. 

45 

 
 
existing  provisions  remains  short  of  the  EU 
average  by  almost  13  percentage  points,  even 
though it increased from 26.2% in 2021 to 29% in 
Q3-2024, 
improving  the  resilience  of  credit 
institutions in the event of a potential deterioration 
in loan quality.  

Funding  risk  remains  low  in  general  and 
liquidity  ratios  remain  at  a  good  level.  The 
loan-to-deposit ratio is low (74.5% in Q3-2024 vs. 
106.7%  for  the  EU)  as  domestic  deposits  exceed 
issued  loans  significantly.  Thanks  to  the  strong 
and stable domestic customer-deposit base, credit 
institutions  do  not  need  to  draw  on  additional 
funding  from  financial  markets  nor  do  they  rely 
heavily  on  their  cross-border  parent  banking 
groups.  The  liquidity  coverage  ratio  amounted  to 
167%  in  Q3-2024,  well  above  the  minimum 
requirement.  Banks  have  accumulated 
large 
amounts  of  liquid  assets.  This  is  partly  driven  by 
moderate lending growth.  

Resilience of the non-bank financial 
intermediaries 

Overall, the ability of insurance corporations 
to  absorb  potential  shocks  remains  good,  as 
their  solvency  capital  ratios  remain  high.  A 
source of uncertainty to insurers is the purchasing 
power of consumers, particularly as the frequency 
of  natural  disasters  increases  and  the  scope  of 
policy  coverages  widens.  Cross-border  operations 
insurance  companies, 
are  crucial  for  Latvian 
similar to those in other small markets, as they aid 
in  risk  diversification  and  management.  Although 
non-life  insurers  have  managed  to  pass  on  the 
cost  increases  to  their  customers,  the  declining 
contributions  and  the  attractiveness  of  other 
investment  products  in  times  of  rising  interest 
rates  put  the  sustainability  of  the  life  insurance 
business under pressure.  

Sources of business funding and the 
role of banks 

Firms in Latvia rely less than the EU average 
on  funding  from  capital  markets  and  bank 
lending. The relative significance of bank credit to 
businesses continues to decline, with companies in 

Latvia utilising bank loans less than any other EU 
country. At the end of 2023, MFI credit accounted 
for  merely  15%  of  the  total  corporate  debt 
portfolio, down from 34% in 2010, and among the 
lowest 
in  the  EU.  Listed  shares  and  bonds 
represented  only  1.3%  of  all  funding  sources  for 
Latvian  non-financial  corporations.  The  equivalent 
figures for the EU average are 27.2% and 23.8%, 
with the overall levels also substantially higher as 
a  share  of  GDP  (as  the  overall  level  of  non-
financial corporations funding was 137% in Latvia 
and  230%  of GDP  for  the  EU  average,  see Graph 
A5.4). The market funding ratio (97) as of end 2023 
was 21.2%, compared to an EU average of 49.6%.  

Graph A5.4: Composition of NFC funding in % of 
GDP 

The sum of NFC liabilities only reflects the total for the NFC 
liabilities considered. Reference period 2023. 
Source: Eurostat and FISMA E2 calculations 

At  the  same  time,  24%  of  all  Latvian  firms 
believed that their investment activities over 
the  last 3  years  were not  sufficient.  This  is  -
together  with  the  other  two  Baltic  countries-  one 
of  the  highest  levels  of  underinvestment  among 
the EU (EU average of 14%), suggesting that there 
is a financing gap relative to investment demand, 
especially  for  SMEs.  Moreover,  the  country  has  a 
high  share  of  finance-constrained  firms  (14%). 
State  guarantees,  e.g.  from  the  public  investment 
agency ALTUM, help  bridge the financing gap, but 

(97)  i.e. the volume of corporate bonds and listed shares of NFCs 
relative to the volume of those two and bank loans to NFCs. 

46 

050100150200250LVEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
       
 
collateral  requirements  imposed  by  banks  remain 
stringent.  This  leaves  internal  financing  as  the 
main alternative to bank funding for Latvian firms. 
According  to  the  2024  EIB  Investment  Survey, 
74%  of  Latvian  firms’  investment  needs  are 
covered  by  internal  funding,  compared  to  an  EU 
average of 66%.  

The  financial  cycle  in  Latvia  slowed  down  in 
2023,  and  corporate  credit  growth  went 
negative.  Credit  growth  has  been  on  a  general 
downward  path,  both  for  households  (since  June 
(since 
2022)  and  non-financial  corporations 
November  2022).  Demand 
from  borrowers 
declined  as  a  result  of  higher  interest  rates,  and 
heightened  uncertainty.  Over  2024  credit  growth 
recovered, as lending standards eased on the back 
of  expectations  of  monetary  policy  easing.  For 
households,  the  annual  credit  growth  rate  for 
adjusted loans has gradually edged up from 2.6% 
in  June  2024  to  5.9%  in  November  2024.  For 
NFCs,  annual  credit growth  recovered  from  -3.4% 
in  November  2023  reaching  4%  in  November 
2024.  Nevertheless,  lending  in  Latvia  remains 
sluggish,  with  outstanding  loans  to  NFCs  and 
households fluctuating around 27% of GDP. This is 
nearly 3 times below the euro area average.  

Beyond  the  cyclical  factors  and  monetary 
policy  tightening, 
longstanding  structural 
issues  further  constrain  lending  in  Latvia. 
These  issues  are  reflected  in  high  lending  rates 
and  stringent  collateral 
requirements,  most 
notably  in  the  corporate  lending  segment  where 
interest  rate  markups  have  remained  high  and, 
combined  with  a  large  share  of  variable  interest 
rate loans, have resulted in very high lending rates. 
Concentration  is  amongst  the  highest  in  the  EU 
according  to  the  five-firm  concentration  ratio.  To 
reduce  high  credit  costs,  it  is  key  to  foster 
competition 
in  financial  markets  by  reducing 
information  asymmetries  and  switching  costs  for 
bank  customers  and  strengthening  competition 
enforcement. 

This  reduces  corporate  demand  for  bank 
loans  and  forces  them  to  rely  on  their  own 
funds  as  well  as  other  alternatives  (other 
equity).  Limited  access  to  finance  coupled  with 
high  informality  is  reflected  in  the  2024  SAFE 
survey results. In that survey 30% of Latvian SMEs 
indicate  that  bank  loans  are  relevant  for  them, 
compared to an EU average of 45%, and 29% of 

SME’s  indicated  that  equity  (other  than  shares)  is 
relevant  for  them  vs.  an  EU  average  of  12%  (98). 
Internal  financing accounted for the largest  share 
of finance for firms in Latvia in 2023. Alternative 
financial  service  providers  are  competing  and 
often  outcompeting  the  traditional  ones  at  high 
speed.  Conducted  empirical  analysis  shows  that 
the  most  available  financing  sources  in  Latvia, 
apart  from  banking  products,  are  friends  and 
family, venture capital, business angels, as well as 
diverse  state  support  programmes  (including  EU 
grants,  Altum).  However,  Altum’s  loan  portfolio  is 
total  value  of 
relatively  small  against 
outstanding loans (a mere 2.5% as of mid-2023).  

the 

Capital markets and the participation 
of retail investors 

SMEs  find  it  difficult  to  access  and  take 
advantage of Latvia’s capital markets. In the 
2024  SAFE  survey  41%  of  SMEs  indicated  that 
internal funds (retained earnings or sale of assets) 
are relevant for them, compared to an EU average 
of  30%  (99).  While  the  Nasdaq  First  North  Market 
offers  a  trading  facility  with  reduced  reporting 
requirements,  targeting  primarily  smaller  cap 
issuances, SMEs and start-ups seeking to list on it 
face a significant challenge due to the mandatory 
biannual  audit  of  their  financial  statements. 
Moreover,  Latvia  cannot  take  advantage  of  this 
SME market because there are no established SME 
growth  markets  in  Latvia,  nor  in  the  other  Baltic 
states.  Recently,  work  started  on  setting  up  an 
SME Initial Public Offering Fund in the Baltics, with 
the  help  from  ALTUM  for  Latvia  and  ILTE  for 
Lithuania.  

target 

The  government  is  currently  reviewing  its 
strategy  for  activating  capital  markets, 
including several lines of action to meet the 
stock  market 
ambitious 
capitalization  of  9%  of  GDP  by  2027.  This 
initiative is part of a broader strategy to leverage 
over  10  billion  EUR  in  household  savings  across 
towards  vital 
Latvia,  directing 
investments  that  can  spur  sustainable  economic 

funds 

these 

of 

(98)  Data  and  surveys  -  SAFE  -  European  Commission,  2024, 

Results by country, T23, T27. 

(99)  Data  and  surveys  -  SAFE  -  European  Commission,  2024, 

Results by country, T20. 

47 

 
 
reach  a  sufficient 

first  need 
to 
level  of 
large  state-owned 
capitalisation.  Listing  of 
enterprises  and  facilitating  greater  exposure  of 
pension  funds  to  domestic  securities  could  help 
attract investors and raise access to finance. 

The role of domestic institutional 
investors 

The  role  of  the  non-bank  financial  sector  in 
the  financial  sector  and  the  economy  is  still 
considerably  less  important  as  compared  to 
other  EU  countries.  The  Latvian 
insurance 
market  is  relatively  small  compared  to  the  EU. 
Total assets of insurance corporations against GDP 
amounted  to  4%  end  of  Q2-2024  (vs.  53.4%  EU 
average).  Although  the  state  funded  pension 
scheme  is  still  in  the  phase  of  the  build-up  of 
savings, household savings for retirement account 
for  the  largest  share  of  the  non-bank  financial 
sector's assets. Data show that in relation to GDP, 
at the end of Q2-2024, Latvia's pension savings in 
all  types  of  pension  products  (22.3%)  exceeded 
Lithuania's (11%), and also slightly Estonia’s (19% 
in 2019). Most of the pension fund assets in Latvia 
consist  of  funds  accumulated  in  state-funded 
pension  plans,  which  at  the  end  of  2023  had 
accumulated to almost half of the total assets  of 
the  non-bank  financial  sector. Due  to  the  growing 
contributions to the 2nd pillar pension scheme, the 
high return on investment, as well as the licensing 
of  investment  platforms  in  2021,  the  role  of 
Latvia’s  institutional  investors  has  been  growing 
over recent years.  

Pension  funds  have  contributed  to  the 
development of the Latvian capital markets, 
but  their  domestic  investment  remains  low. 
About  half  of  the  portfolio  of  Latvian  pension 
assets  is  bills  and  bonds,  indicating  a  more 
conservative and mostly foreign investment profile 
as  the  local  corporate  bond  market  is  shallow. 
Although  the  investment  rules  of  second-pillar 
pensions  have  already  been 
relaxed,  equity 
investment  limits  for  plans  registered  before  the 
end  of  2017,  and  private  investment  fund  limits 
are  still  50%  and  25%,  respectively.  Moreover, 
second-pillar  pension  management  companies 
cannot  invest  directly  in  real  estate  and  face  low 

to  meet 

growth. Government  decisions  made  earlier  in 
2021  and  2022  foresee  specific  instruments  to 
increase the capitalisation of the stock market and 
promote  capital  attraction  and  the  entry  of  new 
issuers into the stock exchange. From the 10-step 
programme,  concrete  action  plans  were  derived 
and  included  in  the  National  Financial  sector 
Development  Plan  for  2021-2023.  In  May  2023 
the  government  of  Latvia  approved  the  initiative 
“On  further  development  of  the  Latvian  capital 
market” 
stock 
the 
market capitalization of 9% of GDP by 2027. Since 
then, progress has been made, but clearly there is 
potential  for  further  improvement.  More  work  is 
needed  to  open  possibilities  for  domestic  and 
foreign capital flows to fund business investment, 
to  provide  investors  with  an  opportunity  to  invest 
in  the  development  of  the  Latvian  economy.  In 
February 2025 the Bank of Latvia updated the 10-
step programme stating that measures should be 
taken  to  promote  the  entry  of  large  state-owned 
or municipalities-owned companies into the capital 
market, notably by including shares in the market. 

target 

of 

Graph A5.5: Composition of household financial 
assets per capita and as % of GDP 

The sum of household assets only reflects the total for the HH 
assets considered. Reference period 2023. 
Source: Eurostat and FISMA E2 calculations. 

One reason the level of activity in the capital 
markets is so low is that the levels of income 
and  savings  are  relatively  low.  It  is  also 
important to note that the outstanding deposits at 
banks  significantly  exceed  the  outstanding  loans 
from banks, which may point to untapped potential 
since  those  savings  could  be  redirected  towards 
capital  markets. Another 
the 
development  of  the  capital  markets  has  been 
weak is that there is little, or at times no, interest 
from  international  investors.  For  the  local  capital 
markets  to  come  onto  their  radars,  they  would 

reason  why 

48 

050100150200250020406080100LVEULVEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
   
and depends on public co-funding. According to 
the  Capital  Market  Union  Dashboard,  Latvia  lags 
Europe  in  annual  venture  capital  investments 
relative  to  GDP,  with  0.02%  on  average  annually 
over  the  period  2021-23  (vs.  an  EU  average  of 
0.08%).  Equally,  the  country  lags  in  terms  of 
annual  private equity  investments relative to GDP 
(0.01% of GDP per year on average over 2021-23 
vs. an EU average of 0.06%). However, Latvia is an 
outlier  in  terms  of  making  use  of  crowdfunding 
platforms.  They  represent  0.7%  of  GDP  according 
to the latest data available (EU average 0.1%). In 
2023,  Latvian  start-ups  raised  EUR  758  million 
which was predominantly driven by venture capital 
(103). The establishment of venture capital funds in 
Latvia, as in the other Baltic countries, takes place 
through co-investments from the state budget, EU 
funds,  the  EBRD  and  the  European  Investment 
Fund, pension funds, and private investment funds. 
There is also high level  of cross-border activity in 
private  equity  and venture  capital  industry,  where 
fund  managers  operate  across 
the  Baltic 
countries.   

Latvia is currently working on a strategy for 
streamlining  the  development  of  start-ups, 
and  a  unique  role  in  this  strategy  will  be 
given to FinTech companies. The memorandum 
of  cooperation  between  the  Ministry  of  Economy 
and  a  couple  of  organisations  representing  the 
Latvian  start-up  ecosystem  "On  Latvian  Start-up 
Ecosystem Development Strategy for 2022-2025” 
was signed in 2022. Following a legislative change 
to the country’s stock options policy, Latvia is now 
ranked  by  Index  Ventures  as  the  most  start-up-
friendly  country  globally,  and  the  country  is 
striving  to  continue  this  trend.  The  strategy  will 
serve  as  a  roadmap  for  the  next  steps,  both  in 
improving the legal framework and developing the 
necessary support instruments (see Annex 3). 

limits  on  equity  holdings 

(100). 
concentration 
Encouraging  the  build-up  of  universal  funded 
supplementary  pension  schemes  would  positively 
contribute to (i) the sustainability and adequacy of 
pension  benefits;  (ii)  investment  in  equity;  (iii) 
access to finance; (iv) growth; and (v) innovation.  

invests 

insurance  sector  mainly 

Strengthening  insurance  markets  could  also 
help  deepen  capital  markets  and  close  the 
funding  gap  of  insurance  companies.  The 
Latvian 
in 
collective  investment  schemes,  at  40%  of  total 
assets by end 2023 (compared to 19% for the EU 
as a whole), with another 38% held in government 
bonds,  8%  in  corporate  bonds,  8%  held  in  cash 
and deposits (101). However, the pool of premiums 
collected by  insurance  companies is  very  small  in 
Latvia,  which  limits  their  contribution  as  potential 
buyers  of  securities  in  private  capital  markets. 
Health  insurance  coverage  is  weak,  and  life 
insurance  funds  are  also  small  compared  to  EU 
countries  due  to  low  household  savings  and 
competition  from  voluntary  contribution  (third 
pillar)  pension  funds,  which  are  mostly  managed 
by large bank subsidiaries.  

The  participation  of  domestic  institutional 
investors  in  providing  funding  for  start-ups 
and  venture  capital  investors  is  increasing. 
Funds  raised  from  pension  funds  have  increased 
considerably,  while  capital  is  also  being  raised 
from  less  traditional  sources  such  as  endowment 
funds  and  general  partners  commitments.  Recent 
data show that pension funds in Latvia accounted 
on average for 15% of private equity and venture 
capital funds raised over 2023, a figure that is in 
line  with  the  one  for  the  other  Baltic  states  and 
close to +20% shares for Nordic states (102).  

The depth of venture and growth 
capital  

Although  the  venture  capital  sector  has 
developed rapidly, it still lags the EU average 

(100) OECD (2023), Annual Survey of Investment Regulation of 

Pension Providers 2023,  

(101) Source: Latvijas Banka (2024), Key numbers of the Latvian 

insurance sector Q4-2023. 

(102) Source: Closing the gaping hole in the capital market for EU 

start-ups – the role of pension funds – CEPS.  

(103) Source: KPMG, LTVC, LVCA, ESTVCA, 2024, Baltic Private 
Equity and Venture Capital Market Overview 2023. 

49 

 
 
 
Table A5.1:  Financial indicators 

Source: ECB, ESTAT, EIOPA, DG FISMA CMU dashboard, AMECO. 

Financing the green transition  

investors 

Sustainable  finance  in  Latvia  is  still  in  the 
initial  stages  of  development.  The  average 
issuance  over  2021-2023  of  bonds  with 
environmental,  social,  and  governance  objectives 
as  a  share  of  total  bond  issuance  was  the  fifth 
lowest  in  Latvia  of  all  EU  member  states  (104). 
However,  recently  in  Latvia  there  have  been 
positive examples of local companies managing to 
offer 
sustainable  and  attractive 
investment projects. For example, Latvenergo, AST 
and  Altum  have  issued  green  bonds,  and  in 
December  2021,  the  Treasury  issued  its  first 
Sustainability  Bond  with  a  maturity  of  8  years, 
raising EUR 600 mn. In May 2021, Finance Latvia 
Association, 
and  Capital  Market 
Commission, Latvijas Banka, Nasdaq Riga, Latvian 
Leasing 
Insurers 
Association have agreed to work together to raise 
public awareness of the concept and principles of 
sustainability  and  sustainable  finance,  as  well  as 

association 

Financial 

Latvian 

and 

to  promote  their 
environment and everyday life. 

implementation 

in  business 

Financial literacy 

is  still  below  the  EU 
Financial  literacy 
average,  despite 
initiatives  to  promote 
financial  education.  Financial  literacy  is  crucial 
for promoting retail investor participation in capital 
markets  but  also  to  familiarise  SMEs  with 
alternatives to bank financing. The Eurobarometer 
survey  (105)  shows  that  only  11%  of  Latvian 
citizens  display  a  high  level  of  financial  literacy, 
65%  a  medium  level,  and  the  remaining  24%  a 
low level, compared to the EU average of 18% for 
high  literacy,  64%  for  medium,  and  18%  for  low. 
This  results  in  a  composite  financial  literacy  level 
of 36% in 2023, vs. an EU average of 45.5% (see 
Table A5.1). 

(104) Source: AFME CMU Key Performance Indicators, Seventh 

(105) Source: Monitoring the level of financial literacy in the EU - 

Edition, November 2024. 

July 2023 - Eurobarometer survey 

50 

20172018201920202021202220232024-Q3EUTotal assets of MFIs (% of GDP)108.881.076.882.476.874.971.371.2248.4Common Equity Tier 1 ratio18.420.322.025.729.223.620.522.516.6Total capital adequacy ratio20.622.323.426.829.724.121.623.820.1Overall NPL ratio (% of all loans)5.65.33.94.62.11.41.31.21.9NPL (% loans to NFC-Non financial corporations)10.49.17.35.93.12.62.01.83.5NPL (% loans to HH-Households)5.95.24.23.71.30.80.91.02.2NPL-Non performing loans coverage ratio35.933.030.328.826.228.428.829.042.1Return on Equity17.69.29.65.24.510.220.318.110.0Loans to NFCs (% of GDP)22.619.818.317.115.415.113.813.630.0Loans to HHs (% of GDP)20.217.616.917.116.715.614.815.144.5NFC credit annual % growth2.73.9-0.8-1.0-0.810.0-1.52.30.8HH credit annual % growth0.50.81.30.56.33.82.95.20.7Stock market capitalisation (% of GDP)4.82.72.83.33.12.11.91.269.3Initial public offerings (% of GDP)0.090.000.000.000.380.120.06-0.05Market funding ratio12.913.715.616.521.120.721.2-49.6Private equity (% of GDP)0.670.030.040.090.060.130.09-0.41Venture capital (% of GDP)0.000.010.020.010.030.020.01-0.05Financial literacy (composite)------36.0-45.5Bonds (as % of HH financial assets)1.00.90.90.80.60.61.0-2.7Listed shares (as % of HH financial assets)0.90.70.71.01.41.11.2-4.8Investment funds (as % of HH financial assets)1.11.11.21.11.41.21.2-10.0Insurance/pension funds (as % of HH financial assets)18.218.221.822.122.620.122.4-27.8Total assets of all insurers (% of GDP)2.72.94.85.14.73.94.04.154.8Pension funds assets (% of GDP)--17.219.520.917.620.223.323.41-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States.1 Annualized data.Credit growth and pension funds EU data refers to the EA average.Banking sectorNon-banks sector 
 
 
 
 
 
  
 
ANNEX 6: EFFECTIVE INSTITUTIONAL FRAMEWORK 

Latvia’s  institutional  framework  influences 
its competitiveness. Trust in Latvia’s institutions 
is around the EU average. Latvia has improved its 
legislative  process  and is  working  to  increase  use 
of  evidence  in  policymaking.  There  is  scope  to 
simplify  procedures  and  reduce  administrative 
burdens.  Latvia  has  a  well-educated  civil  service, 
however  high  turnover  rates  and  lack  of  digital 
skills  are  concerns.  The  country  is  working  to 
improve  the 
justice 
system continues to perform efficiently. 

integrity  framework.  The 

Graph A6.1: Trust in justice, regional / local 
authorities and in government 

Quality of legislation and regulatory 
simplification 

in  developing  and 
Overall  performance 
evaluating  legislation  has  improved,  getting 
close to the EU average (108). Use of regulatory 
tools  like  ex  ante  impact  assessment,  public 
consultations and reviews of existing regulations is 
broadly  similar  for  primary  laws  and  subordinate 
regulations.  Latvia  has  more  developed  impact 
assessment  and  stakeholder  engagement  than  ex 
post  evaluation,  which  is  also  weaker  relative  to 
the EU average. Overall, there is scope to improve 
methodology  of  impact  assessments  of  both 
primary  and  secondary  legislation,  as  well  as  the 
methodology,  transparency,  oversight  and  quality 
controls of ex post evaluations (Graph A6.2).  

Graph A6.2: Indicators of Regulatory Policy and 
Governance (iREG) 

(1) EU27 from 2019; EU28 before 
Source: Standard Eurobarometer surveys 

in  government 

Trust 
is  around  the  EU 
average,  achieving  its  highest  score  since 
2014.  However,  trust  in  the  justice  system  lags 
behind the EU average (Graph A6.1). Aspects which 
could  increase  public  trust  in  Latvia’s  public 
administration  are  lower  bureaucracy,  and  more 
transparency about decisions and the use of public 
money.  Clearer  information  about  procedures  and 
services  and  increased  user  friendliness  of  the 
administration’s digital services could also improve 
public 
citizen’s 
(106).  The  perceived  quality  of 
administration 
government  has  improved  but  remains  below  the 
EU average (107). 

interactions  with 

Latvia’s 

Source: OECD (2025), Regulatory Policy Outlook 2025 and 
Better Regulation across the European Union 2025 
(forthcoming). 

Latvia’s 

The  recovery  and  resilience  plan  focuses  on 
regulatory 
streamlining 
environment, 
reducing  bureaucracy,  and 
making it easier to do business and innovate. 
In  2024,  the  government  approved  amendments 
The 
to 

several  building 

regulations 

(109). 

(106) Understanding Europeans’ views on reform needs - April 
2023 - - Eurobarometer survey, Country Fact Sheet. 

(108) Latvia's Fifth National Open Government Action Plan 2022-

2025. Mid-term assessment. Available at: link 

(109) National medium-term fiscal-structural plan Latvia 2025-

(107) Inforegio - European Quality of Government Index 

2028, 15 October 2024, link  

51 

00.10.20.30.40.50.60.7AutumnSpringAutumnSpringAutumnSpringAutumnSpringAutumnSpringAutumnSummerWinterSummerWinterSpringAutumnSpringAutumn2014201520162017201820192020202220232024Justice,  legal system EU27Justice,  legal system LVRegional or local public authorities EU27Regional or local public authorities LVGovernment  EU27Government  LV0.00.51.01.52.02.53.03.54.0Primary lawsSubordinateregulationsPrimary lawsSubordinateregulationsPrimary lawsSubordinateregulationsLV_StakeholderengagementLV_Regulatory ImpactAssessmentLV_Ex-post evaluation oflegislationMethodologySystematic adoptionTransparencyOversight and quality control2021EU-27 
 
       
 
      
 
 
 
Table A6.1:  Selected indicators on administrative burden reduction and simplification 

(1) This table presents a subset of iREG indicators focusing on regulatory costs. The indicators refer to primary legislation. 
Source: OECD (2025), Regulatory Policy Outlook 2025 [https://doi.org/10.1787/56b60e39-en] and Better Regulation across the 
European Union 2025 (forthcoming). 

amendments aim to eliminate duplication of data 
documents (110). 
in  mandatory 
construction 
Progress  was  made  in  leveraging  technology  to 
reduce  the  administrative  burden  to  citizens  and 
businesses  of  complying  with  tax  obligations. 
Furthermore,  Latvia  has  planned  measures 
planned  for  calculating  administrative  burdens 
using  the  extended  standard  cost  model.  Other 
recent  reforms  promote  the  use  evidence  in 
policymaking(111),  citizen  participation(112),  and 
transparency.  All  draft  laws  and  regulations  to  be 
examined  by  the  government  can  be  accessed 
online free of charge via the TAP portal (113) which 
enables  citizens  to  monitor  every  stage  of  the 
legislative process, from drafting to adoption, and 
provide opportunities for public input.  

Mechanisms for simplifying regulation can be 
further  strengthened.  For  example,  when 

(110) https://www.em.gov.lv/lv/jaunums/mazinas-administrativo-

slogu-buvniecibas-joma?utm_source  

(111) Ministru kabinets, 2024.   Valsts kancelejas Analītiskais 
dienests – praktisks atbalsts datos pamatotas politikas 
veidošana.   Available at  link  

(112) Ministru kabinets (2024). Noteikumi nr. 639 “Sabiedrības 
līdzdalības kārtība attīstības plānošanas procesā”.  Rīgā 
2024. gada 15. oktobrī (prot. Nr. 44 1. §). link   

(113) The TAP portal, https://tapportals.mk.gov.lv/  

requirement 

developing or evaluating primary legislation, there 
is  no 
to  quantify  or  assess 
administrative  burdens  and  substantive  costs  of 
compliance  of  such  legislation.  Moreover,  periodic 
ex  post  evaluation  of  existing  regulations  is  not 
mandatory (table A6.1).  

regulation 
The  OECD  product  market 
indicators  show  that  Latvia’s 
licensing 
system is slightly more burdensome than the 
EU-27  average  and  could  be  further  aligned 
with  best  practices.  For  example,  although  the 
government  keeps  an  up-to-date  online  inventory 
of  all  permits  and  licences  required/issued  to 
is  no 
businesses  by  public  bodies, 
requirement for it to regularly review it and assess 
whether  such 
licences  and  permits  are  still 
required  or  should  be  withdrawn.  Moreover,  most 
licences  and  permits  issued/required  by  public 
bodies  at  any  other  level  of  government  than 
central  level  have to be periodically  renewed (see 
also  Annex  4).  Furthermore,  according  to  a  report 
the  speeding  up  permit-granting 
monitoring 
procedures  for  renewable  energy  and  related 
infrastructure  projects (114)  there  is  clearly  scope 

there 

(114) European Commission: Directorate-General for 

Energy, Monitoring the implementation of the Commission 
recommendation and guidance on speeding up permit-
granting procedures for renewable energy and related 

52 

Ex ante impact assessment of legislationEx post evaluation of legislationIdentify and assess the impacts of the baseline or ‘do nothing’ option.Is required to consider the consistency of regulations and address areas of duplication.Identify and assess the impacts of alternative non-regulatory options.Is required to contain an assessment of administrative burdens.Quantify administrative burdens of new regulations.Is required to contain an assessment of substantive compliance costs.Quantify substantial costs of compliance of new regulations.Compares the impact of the existing regulation to alternative options.Assess macroeconomic costs of new regulations. Periodic ex post evaluation of existing regulations is mandatory.Assess the level of compliance.Government uses stock-flow linkage rules when introducing new regulations (e.g., one-in one-out).Identify and assess potential enforcement mechanisms.A standing body has published an in-depth review of specific regulatory areas in the last 3 years.In the last 5 years, public stocktakes have invited businesses and citizens to assess the effectiveness, efficiency, and burdens of legislation.When developing new legislation, regulators are required to …Yes /  For all primary laws For major primary laws For some primary lawsNo / Never 
 
 
 
 
   
 
for  further  aligning  national  practices  in  Latvia 
with  the  guidance  to  support  faster  and  shorter 
procedures  for  the  licensing  of  renewable  energy 
projects. 

85.4%).  While  there  was  little  change  in  overall 
performance  of  digital  public  services  between 
2021  and  2023,  access  to  e-health  records  did 
improve (see Table A6.2).  

Social dialogue 

Latvia  has  a  well-functioning  national 
tripartite  social  dialogue,  although  some 
challenges  remain  regarding  representation 
and  consultation.  The  National  Council  for 
Tripartite  Cooperation  (NTSP)  provides  the  forum 
for  national  tripartite  dialogue  since  1993.  It 
brings  together  representatives  of  the  state 
institutions,  with  the  Employers’  Confederation  of 
Latvia (LDDK) and the Free Trade Confederation of 
Latvia  (LBAS).  There  are  several  sub-councils  in 
the  NTSP,  including  for  budget,  labour  affairs, 
social  protections  and  healthcare,  which  work 
effectively.  Nevertheless,  representation,  notably 
of  workers,  is  limited  as  there  are  only  two 
national  level  social  partners  and  trade  union 
density declined to only 11.6% in 2018 according 
to  the  OECD  (115).  Collective  bargaining  coverage 
also  continues  to  decline  (27.1%  in  2018)  (116). 
Most  negotiations  continue  to  take  place  at 
company 
level  as  collective  agreements  at 
industry  level  remain  rare.  The  ESF+  supports 
social  dialogue  in  the  2021–2027  programming 
period  with  around  EUR  1,5  million  through 
capacity  building, 
informative  campaigns  and 
support for collective agreements (117). 

Digital public services 

Latvia  has  a  high  rate  of  eID  use  (70.2%) 
compared  to  the  EU  average  (41.1%).  The 
Digital  Decade  Strategic  Roadmap  for  Latvia  until 
2030 (118)  and  Latvia’s  recovery  and  resilience 
plan (119)  include  specific  measures  for  improving 
the  digital  skills  of  students  and  adults  aimed  at 
overcoming 
digital 
transformation  of  society  and  the  labour  market 
including public administration (120).  

challenges 

the 

for 

The country has made progress in digitalising 
businesses  but  still  needs  to  improve  digital 
capabilities of SMEs (121). To tackle these issues, 
Latvia  is  using  funds  from  its  recovery  and 
resilience plan and from cohesion policy. Key steps 
include  setting  up  digital  innovation  hubs  and 
providing  financial  support  for  SME  digitalisation. 
By  2026,  Latvia  plans  to  assist  entities,  including 
SMEs, through these hubs by issuing 2 000 digital 
transformation roadmaps and increase funding for 
the adoption of AI and data analytics. 

is 

the 

developing 

Latvia 
necessary 
infrastructure  towards  seamless,  automated 
exchange  of  authentic  documents  and  data 
across the EU. There are still additional  steps to 
be taken to become technically ready to connect to 
the  Once-Only  Technical  System,  part  of  the  EU 
Single  Digital  Gateway (122). 
In  2019,  Latvia 
notified 
the  eIDAS 
Regulation  (123).  Since  legal  persons  in  Latvia  are 
identified  through  a  natural  person,  the  scheme 
may  eventually  be  used  for  legal  persons  once 
integrations  into  public  services  are  made.  This 

the  eID  scheme  under 

The  share  of  digital  public  services  exceeds 
the  EU  average  for  both  citizens 
(88.2% 
compared  to  the  EU  average  of  79.4%)  and 
businesses (87.2% compared to the EU average of 

infrastructure projects – Final report, Publications Office of 
the European Union, 2025, link.   

(115) OECD Data Explorer on Trade union density, link. 

(116) OECD Data Explorer on Collective bargaining coverage, link. 

(117) For an analysis of the involvement of Latvia’s social partners 
at national level in the European Semester and the Recovery 
and Resilience Facility, see Eurofound (2025), National-level 
social  governance  of  the  European  Semester  and  the 
Recovery and Resilience Facility. 

(118) Digital Decade strategic Roadmap for Latvia 2030 link  

(119) Latvia’s RRP supports the digital transition with investments 
in the digitalisation of public administration and public 
services. The modified plan has further strengthened the 
focus on the digital transition, devoting 23% of the available 
funds to measures that support digital objectives (up from 
21% in the original plan). link  

(120) https://digital-skills-jobs.europa.eu/en/actions/national-

initiatives/national-strategies/latvia-digital-decade-strategic-
roadmap-2030  

(121) European Commission. Digital Decade 2024: Country reports 

(122) European Commission, Once-Only Technical System 

Accelerometer, Ec.europa.eu. 

(123) European Commission, eIDAS Dashboard. 

53 

 
 
 
Table A6.2:  Key Digital Decade targets monitored through the Digital Economy and Society Index 

Source: State of the Digital Decade report 2024 

means  that  Latvian  businesses  can  authenticate 
themselves  to  access  public  services  provided  by 
other  Member  States,  including  those  enabled  by 
the Once-Only Technical System (124). 

redeployment  to  new  tasks (128).  This  came  amid 
efforts  to  balance  public  expenditure,  including  a 
freeze on creating new posts at national and local 
levels  in  2025.  Public  sector  pay  increases  for 
2025 have been capped at 2.6% (129).  

Civil service  

Latvia  continues  to  have  a  well-educated 
civil  service.  The  share  of  public  administration 
employees  with  higher  education  qualifications 
(71%) and of those pursuing adult learning (24.9% 
points to a relatively high-skilled workforce. Latvia 
also has one of the youngest public administration 
workforces  in  the  EU  with  less  than  30%  of  the 
civil  servants  above  the  age  of  49 (125).  In  2024, 
the  proportion  of  women  in  senior  civil  service 
posts  was  58.7%,  above  the  EU-27  average  of 
46.5% (126).  

Staff  turnover  is  a  challenge,  particularly 
among skilled professionals and managers in 
public administration.  This  impacts  institutional 
memory,  quality  and  effectiveness  of  public 
policies  (127).  In  late  2024,  the  State  Chancellery 
launched a ‘vacancy bank’, a virtual  pool  of posts 
unfilled for over 12 months which are available for 

(124) European Commission, The Once Only Principle System: A 

breakthrough for the EU’s Digital Single Market 

(125) Eurostat. 2025. European Union Labour Force Survey. 

(126) European Institute for Gender Equality (EIGE), ‘Gender 

Statistics Database’, available at: link 

to  drive 

innovation 

Latvia  is  implementing its  2023-2027  public 
administration  modernisation  plan (130). 
In 
2024,  the innovation lab of  the  State  Chancellery 
implemented six initiatives under the recovery and 
resilience  facility (131) 
in 
healthcare,  justice,  bio-region  management  and 
local  competitiveness.  Moreover,  Latvia’s  Single 
Service  Centre  became  fully  operational  on 
1 January 2025 (132).  Its  aim  is  to  bring  together 
public  service  provision  under 
the  Central 
Resources’  Management  System  and  its  self-
service portal for accounting and human resources 
management.  By  2025,  under  the  recovery  and 
resilience  plan,  training  is  due  to  be  delivered  to 
16 000  public  officials  on  ethics,  anti-corruption 
and  conflict  of  interest,  and  to  20 000  public 
officials  on  customer  service,  leadership,  public 

(128) Valsts kanceleja (2024). Valsts pārvaldē samazinās ilgstoši 
vakanto amata vietu skaitu. Available at: link (accessed 
29/12/2024) 

(129) Ministru kabinets (2024). Publiskajā pārvaldē 2025. gadā 
atlīdzības pieaugumu samazinās līdz 2,6%. Available 
at: link  (accessed 29/12/2024) 

(130) In January 2025 the Crises Management Centre was 

established under the supervision of the Prime Minister 
mandated to monitor and manage civil security risks 24/7. 

(131) State Chancellery (2024). Sešus valsts un pašvaldību iestāžu 
izaicinājumus šogad risinās Valsts kancelejas Inovācijas 
laboratorijā. Available at: link (accessed 29/12/2024) 

(132) Atveseļošanas fonda plāna Darbības kārtība, par kuru 

(127) OECD (2024), OECD Economic Surveys: Latvia 2024, OECD 
Publishing, Paris, https://doi.org/10.1787/dfeae75b-en. 

vienojas Eiropas Komisija un Latvija. Available 
at: link (accessed 29/12/2024)  

54 

Digital Decadetarget by 20302022202320242024EU-27Digitalisation of public services187878879100Score (0 to 100)20212022202320232030286868785100Score (0 to 100)202120222023202320303na798579100Score (0 to 100)20212022202320232030Digital public services for businessesAccess to e-health recordsLatviaEU-27Digital public services for citizens 
 
 
 
  
 
procurement,  human  resources  management  and 
policy planning and implementation.  

Integrity 

implementation  will  help  increase  transparency 
and ensure a level playing field for companies. The 
need  to  introduce  sanctions  for  breaches  of  the 
law  will  be  examined  once  the  system  is  up  and 
running. 

in 

risks 

consider 

corruption 

corruption 

Businesses 
to  be 
widespread, despite measures being taken to 
mitigate 
public 
procurement.  In  Latvia,  63%  of  companies 
consider that corruption is widespread (EU average 
64%), while only 20% consider that corruption is a 
problem  when  doing  business 
(EU  average 
36%) (133).  Moreover,  only  23%  of  companies 
believe  that  people  and  businesses  caught  for 
bribing a senior official are appropriately punished 
(EU  average  31%)  (134).  Corruption-related  cases 
are 
investigated  and  prosecuted  efficiently, 
including  as  regards  various  high-level  corruption 
cases and foreign bribery (135). Public procurement 
is an area at high risk of corruption in Latvia. 29% 
of  companies  (EU  average  27%)  think  that 
corruption  has  prevented  them  from  winning  a 
public  tender  or  a  public  procurement  contract  in 
practice in the last three years  (136). On 5 October 
2023,  amendments  were  adopted  to  align  public 
procurement rules with EU legislation. The Latvian 
Ministry of Finance also published a handbook for 
the Implementation of Risk Management, in order 
to  increase  transparency  and  integrity  in  public 
procurement (137). 

Justice 

time 

The  justice  system  is  continuing  to  perform 
efficiently.  The  length  of  court  proceedings  and 
number of pending cases was among the lowest in 
the  EU.  The  disposition 
in  civil  and 
commercial  cases  at  first  instance  courts  has 
decreased  slightly,  from  209 days  in  2022  to 
in  2023.  The  disposition  time  for 
204 days 
administrative  cases  at  first  instance  increased 
slightly,  from  200 days  in  2022  to  205 days  in 
is 
2023.  The  quality  of  the 
considered  to  be  good  overall.  The  level  of 
digitalisation  of  the  justice  system  remains  high, 
with  digital  technology  being  widely  allowed  in 
court  proceedings  and  well  used  in  courts  and 
prosecution.  In  2023,  national  stakeholders  rated 
positively  the  usability  of  the  judiciary’s  ICT 
systems.  As  regards  judicial  independence,  no 
systemic deficiencies have been reported. (138) 

justice  system 

is  underway 

Work 
in  Latvia  to  adopt 
implementing rules on lobbying and to set up 
a  lobbying  register  by  2028.  Implementing 
rules  from the  legislation in  order  to  regulate  the 
promotion  of  corporate  interests  and  create  an 
interest  representation  registry  and  declaration 
system,  were  delayed  and  are  still  under 
discussion. The interest representation registry and 
declaration  system  are  expected  to  become  fully 
Their 
operational 

1 September 2028. 

by 

(133) Flash Eurobarometer 543 on businesses’ attitudes towards 
corruption in the EU (2024).   

(134) Ibid. 

(135) See the 2024 country-specific chapter for Latvia of the Rule 

of Law Report, pp. 12-13. 

(136) Flash Eurobarometer 543 on businesses’ attitudes towards 

corruption in the EU (2024).   

(137) See the 2024 country-specific chapter for Latvia of the Rule 

of Law Report, p. 17. 

(138) For more detailed analysis of the performance of the justice 

system in Latvia, see the upcoming 2025 EU Justice 
Scoreboard and the 2024 Rule of Law Report. 

55 

 
 
 
 
SUSTAINABILITY 
ANNEX 7: CLEAN INDUSTRY AND CLIMATE MITIGATION 

lacks  a  strong 

Latvia faces significant challenges regarding 
its  clean  industry  transition  and  climate 
mitigation: Its net-zero manufacturing capacity is 
industrial  policy 
limited  and 
framework, while  the adoption of electric vehicles 
is  hindered by insufficient  charging infrastructure. 
from 
Addressing  greenhouse  gas  emissions 
buildings  appears  particularly  exigent.  The 
dependence  on  imported  critical  raw  materials 
needs  diversification,  and 
energy 
efficiency and circular material use rate lag behind 
EU averages. This annex reviews the areas in need 
of  urgent  attention  in  Latvia’s  clean  industry 
transition  and  climate  mitigation, 
looking  at 
different dimensions. 

Latvia's 

Strategic autonomy and technology 
for the green transition  

interest 

Despite  the  growing 
in  electric 
vehicles  (EVs),  their  market  share  remains 
comparatively  low,  with  only  6.4%  of  newly 
registered  passenger  cars  being  battery 
electric vehicles (BEVs) in 2024. This figure is 
significantly  lower than  the  EU  average  of  14.5% 
(140). Moreover, the share of BEVs in the passenger 
car  fleet  was  0.7%  in  2024  (EU  average:  2.2%). 
The limited adoption of EVs in Latvia can partly be 
attributed  to  the  country's  insufficient  charging 
lowest 
infrastructure.  Latvia  has  one  of  the 
charging capacities in the EU, both per kilometre of 
road  and  per  inhabitant.  Although  the  number  of 
publicly  accessible  charging  points  has  doubled 
since 2023, the absolute number remains very low 
(1  for  every  5  cars,  or  1  on  every  1 300  km  of 
highway).  This  lack  of  charging  infrastructure 
serves  as  a  significant  barrier  to  the  widespread 
adoption of EVs(141). 

Net zero industry 

Critical raw materials  

Latvia’s  net-zero  manufacturing  capacity 
remains  very  modest,  focusing  on  wind  and 
hydrogen (139).  The  main  relevant  production 
facility  is  Naco  Technologies’  plant  in  Riga,  which 
produces  nano  coatings  for  electrolysers.  Latvia 
holds  a  competitive  edge  in  the  production  and 
export  of  grid  technology  components,  mainly 
switchgears, circuit breakers and electronic control 
panels. Additionally, Latvian industry is competitive 
when  it  comes  to  the  production  and  export  of 
steel  structures  are  used  in  wind  turbines.  The 
absence  of  industrial  policy  and  a  dedicated 
regulatory framework for net-zero industry means 
there  are  few  signals  to  support  the  scale  up  of 
manufacturing in net-zero industry. 

Given  the  dominance  of  road  transport  in 
Latvia  and  the  country's  low  EV  market 
share,  there  is  considerable  potential  to 
reduce  greenhouse  gas  emissions  in  the 
sector.  In  Latvia,  most  transport  goes  via  road, 
with cars accounting for the largest share of both 
passenger  transport  (74.8%)  and  freight  traffic 
(84%).  

When  it  comes  to  critical  raw  materials, 
market  operators  are  dependent  on  imports, 
but  diversification  is  high.  Latvian  industry 
imports the vast majority of raw materials it needs 
as  production  inputs.  In  2023,  roughly  28.6%  of 
direct material input in the economy was imported 
(EU  average  of  22%)(142).  Especially,  coking  coal, 
copper, titanium and borates are imported, mainly 
from  non-EU  countries  in  Europe  and  Asia.  Major 
trade  partners  are  Turkey,  Kazakhstan  as  well  as 
Russia.  Especially  the  latter  remains  a  threat  to 
Latvia’s  economic  security,  as  Russia  is  its  sole 
titanium(143).  Here, 
the  Latvian 
supplier  of 
economy  can  benefit  from  further  diversification. 
Nevertheless,  Latvia’s  import  concentration  index 
is comparably low with 0.17 (EU average 0.22). 

(140) Statistics | Eurostat 

(141) Latvia | European Alternative Fuels Observatory. 

(139) European Commission: Directorate-General for Energy, The 
net-zero manufacturing industry landscape across the 
Member 2025, https://data.europa.eu/doi/10.2833/2181110   

(142) Statistics | Eurostat. 

(143) RMIS - Country Profiles. 

56 

 
 
 
 
 
 
 
Climate mitigation 

Industry decarbonisation 

in 

In  2022, 

the  EU (144). 

Latvia’s  manufacturing  industry  is  making 
progress  in  reducing  its  greenhouse  gas 
emissions.  With  11%,  industry’s  share  of  total 
greenhouse  gas emissions  in Latvia  is  among  the 
lowest 
industrial 
production  in  Latvia  emitted  360  g  CO2eq  of 
greenhouse  gases  per  euro  of  gross  value  added 
(GVA),  one third  higher  than  the  EU  average  (270 
g).  Between  2017  and  2022,  the  emissions 
intensity of Latvia’s industry declined by 11%, less 
than  in  the  EU  overall  (20%).  A  major  part  of 
emissions in Latvia’s manufacturing, 59% in 2023, 
is  related  to  processes  and  product  use,  and  only 
41%  relate  to  energy  use;  in  the  EU  as  a  whole, 
the shares are the opposite, 57 to 43. 

lags  behind  the  EU,  and 

Latvia’s  manufacturing  sector  is  benefitting 
from  cleaner  energy  supplies,  but  its  energy 
its 
efficiency 
process-related  emissions  have  increased. 
Between  2017  and  2022,  the  energy-related 
emissions 
intensity  of  Latvia’s  manufacturing 
industry declined by 14% since 2017, slightly less 
than  in  the  EU  overall  (16%) (145).  In  the  same 
period,  the  share  of  electricity  and  renewables  in 
final  energy  consumption 
in  manufacturing 
increased by 8 percentage points, to 74% in 2022, 
the  third  highest  share  in  the  EU.  In  parallel,  the 
energy  intensity  of  manufacturing  in  Latvia  has 

(144) In 2023. Manufacturing includes all divisions of the “C” 
section of the NACE Rev. 2 statistical classification of 
economic activities. In the remainder of this section, unless 
indicated otherwise, data on manufacturing refer to the 
divisions of the NACE section C excluding division C19 
(manufacture of coke and refined petroleum products), and 
the year 2022. The source of all data in this section is 
Eurostat; data following the UNFCCC Common Reporting 
Framework (CRF) are from the European Environment Agency 
(EEA), republished by Eurostat. 

(145) For the GHG emissions intensity of GVA related to energy use 
and industrial processes and product use respectively, GHG 
emissions are from inventory data in line with the UNFCCC 
Common Reporting Format (CRF), notably referring to the 
source sectors CRF1.A.2 –  fuel combustion in manufacturing 
industries and construction and CRF2 – industrial processes 
and product use. The CRF1.A.2 data broadly correspond to 
the NACE C and E sectors, excluding C-19. GVA data (in the 
denominator for both intensities) are aligned with this 
sectoral coverage. Therefore, they are not fully consistent 
with the data referred to in other part of this section. 

slightly increased, to 2.9 GWh per euro of GVA, and 
it  remains  among  the  highest  in  the  EU.  Between 
the  process  and  product 
2017  and  2022, 
use-related  emissions 
intensity  of  Latvian 
manufacturing increased by 7%, in contrast with a 
decline by 23% in the EU overall.  

Graph A7.1: GHG emission intensity of 
manufacturing and energy-intensive sectors, 
2022 

Source: Eurostat. 

shows 

elevated 

intensity. 

Among  Latvia’s  energy-intensive  industries, 
the  manufacture  of  non-metallic  mineral 
greenhouse 
products 
emissions 
Energy-intensive 
industries (146)  account  for  11%  of  Latvia’s 
manufacturing  gross  value  added  (2022).  Among 
these,  the  manufacture  of  non-metallic  mineral 
products  had  a  relatively  high  emissions  intensity 
of  production,  3.9  kg  CO2eq/€  of  GVA,  above  the 
EU value of 2.2 kg. In the other sectors, emissions 
intensity is comparatively low. The manufacture of 
non-metallic  minerals  dominates  Latvia’s  energy-
-intensive  industries  together,  providing  6%  of 
GVA  in  the  manufacturing  sector.  After  a  peak  in 
2022,  production  in  energy-intensive  sectors  has 
declined  in  2023  more  than  in  manufacturing 
overall (see graph A7.2).  

Latvia has put in place some specific policies 
to support the decarbonisation of industries. 
Examples  include  its  Green  Industry  Fund,  which 
to  adopt  energy-efficient 
helps 
renewable  energy  sources  and 
technologies, 

companies 

(146) Notably, the manufacture of paper and paper products 

(NACE division C17), of chemicals and chemical products 
(C20), “other” non-metallic mineral products (C23; this 
division includes manufacturing activities related to a single 
substance of mineral origin, such as glass, ceramic products, 
tiles, and cement and plaster), and basic metals (C24). To 
date, these industries are energy-intensive – i.e. consuming 
much energy both on site and/or in the form of purchased 
electricity – and greenhouse gas emissions intensive, in 
various combinations. 

57 

00.511.522.533.544.5C-C19C17C20C23C24KG CO2eq / €LatviaEU-27 
 
   
 
sustainable  materials (147).  Further  efforts  are 
needed to accelerate decarbonisation. 

Graph A7.2: Manufacturing industry production: 
total and selected sectors, index (2021 = 100), 
2017-2023 

Swift  action  on  decarbonising  buildings 
in  Latvia. 
appears  particularly  needed 
Between  2005  and  2023,  greenhouse  gas 
emissions  from  buildings  decreased  by  10%  in 
Latvia, much less than by the 33% seen in the EU 
overall.  Speeding  up  climate  mitigation  in  this 
sector  would  help  protect  households  and 
businesses  in  Latvia  from  the  impact  of  the 
forthcoming carbon price.  

Graph A7.3: Greenhouse gas emissions in the 
effort sharing sectors, 2005 and 2023 

Source: Eurostat 

Reduction  of  emissions  in  the  effort  sharing 
sectors 

Latvia  is  projected  to  reach  its  2030  effort 
sharing  target  if  it  adopts  and  implements 
the  planned  additional  climate  mitigation 
measures (148). In 2023, GHG from Latvia’s effort 
sharing  sectors  are  expected  to  have  been  4% 
below those of 2005. By 2030, current policies are 
projected  to  reduce  them  by  12.7%  relative  to 
2005.  Additional  policies  considered  in  Latvia’s 
final  updated  NECP  are  projected  to  entail 
reductions  by  a  further  7.8  percentage  points. 
Hence Latvia is projected to overachieve its effort 
sharing target, -17%, by 3.5 percentage points (149) 
once 
and 
implemented.  

those  measures 

adopted 

are 

(147) Notably under the EEA-Norvegian grants project, see EEA and 

Norwegian financial instruments. 

(148) The national greenhouse gas emission reduction target is set 

out in Regulation (EU) 2023/857 (the Effort Sharing 
Regulation). It applies jointly to buildings (heating and 
cooling); road transport, agriculture; waste; and small industry 
(known as the effort sharing sectors). 

(149) The effort sharing emissions for 2023 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) and additional policies (“with additional 
measures”, WAM) as per Latvia’s final updated NECP. 

Source: European Environment Agency 

Sustainable industry 

Circular economy transition 

fully 

rate, 

implement 

faces  significant  challenges 

Latvia 
in 
transitioning to a circular economy, requiring 
urgent  action  to  boost  its  circular  material 
use 
its  policy 
framework  and  adopt  upstream  circularity 
measures. In 2023, Latvia’s circular material use 
rate  (5%)  was  less  than  half  the  EU  average  of 
11.8%  and  far  behind  the  EU  leaders.  Resource 
productivity, too, was well below the EU average in 
2023, with EUR 1.26 per kg of material consumed 
vs.  EUR  2.23  per  kg  as  the  EU  average.  Latvia’s 
resource  productivity  has  been  slightly  improving 
since  2020.  The  2021-2027  action  plan  ‘Towards 
a Circular Economy’ (150) adopted in 2020 makes a 
positive  step  towards  circularity  and  shifting 
consumption  and  production  patterns.  However,  it 

(150) Cabinet Regulations No. 489, Par Rīcības plānu pārejai uz 

aprites ekonomiku 2020.-2027. Gadam, Link. 

58 

7075808590951001051102017201820192020202120222023ManufacturingManufacture of paper and paper productsManufacture of chemicals and chemical productsManufacture of other non-metallic mineral products012345678920052023MtCO2eDomestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
       
 
       
 
in 

investment 

the 
insufficient. 

Current 
circularity 
is 
transition  has  been 
It 
estimated (152)  that  Latvia  will  need  additional 
investment worth at least EUR 67 million per year 
for  the  circular  economy  transition,  including 
waste management. Of the circular economy gap, 
EUR 15 million relates to recent initiatives, such as 
eco-design  for  sustainable  products,  packaging 
and  packaging  waste,  labelling  and  digital  tools, 
critical  raw  materials  recycling,  as  well  as 
measures  proposed  under  the  amended  Waste 
Framework  Directive.  The  remainder  (EUR  43 
million) covers further investment needs to unlock 
Latvia’s circular economy potential.   

Zero pollution in industry  

Air  emissions  intensity  from  industry  in 
Latvia  is  below  the  EU  average  and  Latvia 
meets  its  emissions  reduction  commitments 
for  all  air  pollutants  except  ammonia. 
Currently,  the  emissions  reduction  commitments 
under  the  2020-2029  National  Air  Pollution 
Control  Programme  are  not  fully  met,  while  the 
commitments  for  the  year  2030  are  projected  to 
be  all  met.  In  2024,  Latvia  met  its  emissions 
reduction  commitments  for  air  pollutants  NOx, 
non-methane  volatile  organic  compounds,  sulphur 
dioxide  and  PM2.5,  but  did  not  meet  the  ammonia 
reduction  commitment.    The  main  reason  for  not 
meeting ammonia limit values can be attributed to 
agricultural  practices,  particularly  pollution  from 
livestock farming and the use of fertilisers. 

into 

integrated 

remains  quite  general  lacking  quantified  concrete 
actions and targets and clear strategies to ensure 
these initiatives extend beyond niche activities and 
are  effectively 
the  broader 
economy  and  society.  Despite  progress  with 
like  a  beverage  packaging  deposit 
initiatives 
system  and  updates to  green  public  procurement, 
weaknesses  persist  in  separate  collection,  notably 
bio-waste collection, municipal waste recycling and 
high reliance on landfilling. There is a need to raise 
public  awareness  about  the  circular  economy  and 
promote  the  use  of  reusable,  environmentally 
friendly  materials  in  production.  This  includes 
adopting  "safe  by  design"  technological  solutions, 
implementing  eco-design  principles,  developing 
innovative  circular  business  models  with  eco-
efficient  technologies  and  eco-innovations,  and 
promoting  industrial  symbiosis  where  industries 
and businesses exchange waste materials, energy 
or by-products to improve their resource efficiency 
and reduce environmental impact. 

Latvia is struggling with waste management 
and  has  a  significantly  higher  material 
footprint  per  capita  compared  to  the  EU 
average.  Although  with  464  kg  in  2022,  Latvia 
produces  less  waste  per  capita  than  the  EU 
average,  513  kg,  waste  generation  increased  by 
14%  since  2018.  With  a  recycling  rate  of  50.8%, 
Latvia has improved its municipal waste recycling, 
but it is at risk of falling short of the 2025 reuse 
landfill 
and  recycling  targets  and  the  2035 
reduction  goal  of  10%,  with  44%  of  municipal 
waste  still  being  landfilled.  In  2022,  Latvia’s 
recycling  rate  for  plastic  packaging  of  47%  was 
above  the  EU  average  of  41%.  In  2022,  87%  of 
construction  and  demolition  waste  was  recycled, 
excluding  backfilling,  above  the  EU  average  of 
79.8%. At the same time, the material footprint of 
19.6 tonnes per capita is considerably higher that 
the EU average of 14 tonnes per person. In 2024, 
Latvia  introduced  bio-waste  collection,  providing 
residents  with  separate  bio-waste  containers,  but 
local  governments 
not  yet  sufficiently,  and 
continue to work on this issue.  Additionally, as of 
July 2024, Latvia introduced an extended producer 
responsibility  system  for  new  and  used  textile 
products (151),  thus  contributing  to  their  recycling 
practices. 
and 

sustainable 

promoting 

(151) Cabinet Regulations No. 359 dd., Noteikumi par ražotāja 
paplašinātās atbildības sistēmas izveidi un piemērošanu 
tekstilizstrādājumiem, Link. 

(152)European Commission, DG Environment, Environmental 

investment needs & gaps assessment programme, 2025 
update. Expressed in 2022 prices. 

59 

 
 
 
 
Table A7.1:  Key clean industry and climate mitigation indicators: Latvia 

Source:  Net zero industry: European Commission: The net-zero manufacturing industry landscape across Member States: final 
report, 2025. Automotive industry transformation: Eurostat. Critical raw materials: Eurostat. Climate mitigation: See 
footnotes in the "climate mitigation" section; reduction of effort sharing emissions: EEA greenhouse gases data viewer; European 
Commission, Climate Action Progress Report, 2024. Sustainable industry: Years of life lost due to PM2.5: Eurostat and EEA, 
Harm to human health from air pollution in Europe: burden of disease status, 2024. Air pollution damage: EEA, EU large industry 
air pollution damage costs intensity, 2024. Emissions covered: As, benzene, Cd, Cr, Hg, NH3, Ni, NMVOC, NOX, Pb, dioxins, PM10, 
PAH, SOX. Water pollution intensity: EEA, EU large industry water pollution intensity, 2024. Releases into water covered from 
cadmium, lead, mercury, nickel. Other indicators: Eurostat. 

60 

Strategic autonomy and technology for the green transitionNet zero industryOperational manufacturing capacity 2023- Solar PV (c: cell, w: wafer, m: module), MW-- Electrolyzer, MW-- Wind (b: blade, t: turbine, n: nacelle), MW-- battery, MWh-Automotive industry transformation201720182019202020212022202320182021Motorisation rate (passenger cars per 1000 inhabitants), %356369381390404409418539561New zero-emission vehicles, electricity motor, %0.240.450.632.563.286.408.831.038.96Critical raw materials201720182019202020212022202320182021Material import dependency, %32.931.532.031.431.728.624.222.6Climate mitigationTrendIndustry decarbonisation201720182019202020212022202320172022GHG emissions intensity of manufacturing production, kg/€0.410.440.420.390.350.36 0.340.27Share of energy-related emissions in industrial GHG emissions52.653.554.156.856.857.258.844.842.5Energy-related GHG emissions intensity of manufacturing143.2149.2131.8130.7127.4123.3-158.4132.9and construction, kg/€Share of electricity and renewables in final energy consumption65.464.066.768.769.873.672.843.344.2in manufacturing, %Energy intensity of manufacturing, GWh/€2.863.032.852.882.692.892.931.291.09Share of energy-intensive industries in manufacturing production10.77.3GHG emissions intensity of production in sector [...], kg/€- paper and paper products (NACE C-17)0.170.150.130.100.140.14--0.730.68- chemicals and chemical products (NACE C20)0.560.430.360.240.230.20--1.251.26- other non-metallic mineral products (NACE C23)3.404.063.874.033.273.89--2.532.24- basic metals (NACE C24)1.340.180.080.060.130.08--2.793.49Reduction of effort sharing emissions20182019202020212022202320182023GHG emission reductions relative to base year, % 1.0-1.9-4.0- domestic road transport7.77.10.03.81.00.11.45.2- buildings-6.7-8.3-7.6-4.2-6.0-10.121.432.92005202120222023TargetWEMWAMEffort sharing: GHG emissions, Mt; target, gap, %8.68.78.48.3-17.0-4.33.5Sustainable industryTrendCircular economy transition20182019202020212022202320182021Material footprint, tonnes per person17.217.317.018.719.319.614.715.0Circular material use rate, %4.7        4.8        5.2        5.0        4.5        5.0        11.611.1Resource productivity, €/kg1.0        1.1        1.1        1.1        1.3        1.3        2.12.3Zero pollution industryYears of life lost due to PM2.5, per 100,000 inhabitants808      567      457      720      645      -702571Air pollution damage cost intensity, per thousand € of GVA    9.6            27.5      Water pollution intensity, kg weighted by human factors per bn € GVA    0.1   0.9LatviaEU-27LatviaEU-27LatviaEU-27 
 
 
   
 
ANNEX 8: AFFORDABLE ENERGY TRANSITION 

This  annex  outlines  the  progress  made  and 
the  ongoing  challenges  faced  in  enhancing 
energy  competitiveness  and  affordability, 
while advancing the transition to net zero. It 
examines  the  measures  and  targets  proposed  in 
the  final  updated  national  energy  and  climate 
plans (NECPs) for 2030. 

in  gas  prices 

an  EU  average  of  15.4%.  The  same  trend  is 
for  non-household 
observed 
consumers,  with  a  taxes  and  levies  component 
representing  only  2.3%  of  the  total  price,  9.3pp 
below 
this  component, 
supporting  a  price  lower  to  the  EU-average  by 
7.7%. 

the  EU-average 

for 

on 

its 

building 

Latvia  is  progressing  towards  clean  energy 
production, 
already 
extensively  decarbonised  electricity  mix.  The 
country  has  progressed  notably  in  solar  power 
the 
development 
synchronisation 
remain 
regarding  high  energy  prices,  grid  capacity  and 
permitting length.  

Challenges 

completed 

project. 

and 

has 

Energy prices and costs 

Graph A8.1: Retail energy price components for 
household and non-household consumers, 2024 

(i) For household consumers, consumption band is DC for 
electricity and D2 for gas. Taxes and levies are shown 
including VAT. 
(ii) For non-household consumers, consumption band is ID for 
electricity and I4 for gas. Taxes and levies are shown 
excluding VAT and recoverable charges, as these are typically 
recovered by businesses. 
Source: Eurostat 

Latvian  retail  energy  prices  decreased  in 
2024, both for household and non-household 
consumers,  and  remained  below  EU-average 
levels. Prices for household consumers decreased 
by  14%  for  electricity  and  32%  for  gas, 
respectively lower to the EU average by 10% and 
non-household 
28%. 
consumers  were  35%  below  the  EU  average  and 
supported  by  a  low  taxes  and  levies  component 
amounting to 1.4% of the total price, compared to 

Electricity 

prices 

for 

Graph A8.2: Monthly average day-ahead wholesale 
electricity prices and European benchmark 
natural gas prices (Dutch TTF) 

(i) the Title Transfer Facility (TTF) is a virtual trading point for 
natural gas in the Netherlands. It serves as the primary 
benchmark for European natural gas prices. 
(ii) Baltics and CWE respectively provide average prices in the 
Baltic market (Estonia, Latvia, and Lithuania) and central-
western European market (Belgium, France, Germany, 
Luxembourg, the Netherlands, and Austria). 
Source: S&P Platts and ENTSO-E 

registered 

With  an  average  of  87.43  EUR/MWh  in  2024 
(153),  on  a  par  with  the  other  Baltic  states, 
Latvia  faced  wholesale  electricity  prices 
above the EU average (84.7 EUR/MWh). While 
prices  in  Latvia  declined  early  in  the  year 
amid  falling  natural  gas  costs,  they  surged 
during the spring/summer, diverging from the 
in  Central  Western 
levels 
European 
(CWE)  markets.  Prolonged  and 
warmer  summer  heatwaves  in  the  region  led  to 
higher  electricity  consumption  (+5%  in  June-
August  2024  vs  same  period  in  2023),  while  a 
strained  net  importing  position  and  limited  non-
fossil  flexibility  exacerbated  the  supply-demand 
gap.  This  gap  was  mainly  covered  by  increased 
hydro  output  and  costly  natural  gas-fired 
generation  (respectively  +45%  (154)  and  +13%  in 
June-August  2024  vs  same  period  in  2023), 
ramping up especially during peak demand hours. 

(153) Fraunhofer (ENTSO-E data). 
(154) ENTSO-E. 

61 

 
 
 
 
 
 
 
Consequently, and more frequently in 2023, these 
conditions  drove  concentrated  price  spikes  in  the 
evening  hours  (18h-21h),  when  solar  output 
declined, and demand remained high. On the other 
hand,  average  daytime  hourly  prices  throughout 
the  year  were  lower  compared  to  2023,  likely 
owing  to  the  penetration  of  newly  installed  solar 
power in Latvia, which generated 0.4 TWh in 2024, 
as  well  as  the  uptake  of  solar  output  in  both 
Estonia and Lithuania (+20% and +103% in 2024) 
(155).  Prices  in  the  Baltics  then  stabilised  in  the 
winter,  supported  by  stronger  wind  generation 
compared to 2023(156), particularly from Lithuania 
(157),  while  Central  Western  European  markets 
faced  strong  price  spikes  due  to  considerable 
fluctuations in the generation of low renewables. 

requirement, with reductions only occurring during 
maintenance of individual direct current links. The 
synchronisation,  as  well  as 
the  planned 
reinforcements  of  the  national  grid,  will  make  it 
possible to boost  the country’s cross-border trade 
capacity. 

Latvia’s  energy  infrastructure  (generation, 
distribution, transmission) permitting system 
involves  a 
integrated 
structured  and 
approach  throughout  the  process.  Latvia  has 
recently dedicated and set up a one-stop-shop for 
energy  infrastructure  permitting.  However,  the 
permitting  procedure  is  not  subject  to  any  set 
maximum  time  limits  and  could  be  significantly 
delayed by the environmental impact assessment. 

Flexibility and electricity grids 

the  Latvian 

To strengthen the resilience of the electricity 
system,  the  Baltic  states  have  successfully, 
as  of  9 February  2025,  connected  to  the 
Central  Europe  synchronous  area  and 
desynchronised  from  the  BRELL  system.  In 
addition  to  the  support  received  under  the 
Connecting  Europe  Facility  (CEF)  for  Energy,  the 
support  activities  are  also 
synchronisation 
supported  under 
recovery  and 
resilience  plan.  Latvia  is  expected  to  carry  out 
some  major  grid  reinforcements,  including  the 
refurbishment 
electricity 
the 
interconnection between Latvia and Estonia in the 
coming years. Furthermore, plans for 2040 include 
the  implementation  of  a  Latvia-Sweden  and  a 
Baltic-German  electricity  interconnection  project. 
Latvia is part of the Baltic (158) capacity calculation 
region (CCR). Member States should ensure that a 
minimum  of  70%  of 
technical  cross-border 
capacity is available for trading. The general trend 
in  this  CCR  is  that  direct  current  bidding  zone 
the  70%  capacity 
borders  generally  meet 

existing 

of 

In November-December 2024, electricity generation 

(155) Fraunhofer (ENTSO-E data). 
(156) 
from wind power amounted to 0.07 TWh in Latvia (+73% vs 
same period in 2023), 0.37 TWh in Estonia (+210%) and 0.8 
TWh in Lithuania (+53%). 
(157) 
increased by +195% compared to the same period in 2023, due 
to higher imports from Lithuania. 
(158) 
among which the tasks of capacity calculation are coordinated 
by transmission system operators. Finland, Sweden, Estonia, 
Latvia, Lithuania and Poland are part of the Baltic CCR. 

In November-December 2024, Latvia’s net imports 

A CCR lays down the set of bidding zone borders 

system 

transmission 

The  connection  of  new  large  renewable 
generation  facilities  remains  blocked  due  to 
virtual  overcapacity  of  the  grid.  The  Latvian 
operator 
electricity 
Augstsprieguma  Tīkls  has  refrained  from  issuing 
new  grid  connection  permits  since  July  2023. 
Under  the  REPowerEU  chapter  of  its  recovery  and 
resilience  plan,  Latvia  set  out  to  prepare  a 
regulatory  framework  which  would  make 
it 
possible for existing electricity networks to be used 
more effectively in order to support the connection 
of  additional 
renewable  generation  facilities. 
Moreover, Latvia committed to realising significant 
investments to upgrade the capacity and flexibility 
of its electricity grid. Latvia is also about to adopt 
its  electricity  market  law,  in  particular  to  address 
grid overbooking. 

Latvia  is  taking  steps  to  support  non-fossil 
flexibility, including promoting electricity storage 
and  expanding 
renewable  energy  capacities 
through the deployment of wind and solar power. 

in  the 

Despite significant regulatory action taken in 
the  areas  of  self-consumption  and  energy 
communities, 
legal 
improvements 
framework  governing  demand-response  and 
storage  would  be  beneficial.  Rules 
for 
aggregation would be useful to allow for demand-
side  response  (DSR)  and  storage  to  participate  in 
day-ahead  and  intraday  markets,  as  well  as 
ancillary  services.  On  the  other  hand,  Latvia  took 
significant  regulatory  steps  in  the  areas  of  self-
consumption  and  electricity  sharing  in  2024,  by 
amending  the  Electricity  Market  Law  and  the 
norms  on  the  trade  in  and  use  of  electricity. 
Additional  steps  were  also  taken  in  the  area  of 
energy  communities,  through  the  adoption  of  the 

62 

 
 
Regulation  on  rules  for  the  registration  and 
operation  of  energy  communities.  These  reform 
aspects  were  carried  out  as  part  of 
the 
‘Transforming  the  Energy  Sector’  reform  package 
of Latvia’s recovery and resilience plan. Latvia has 
also  launched  the  first  small-scale  demonstration 
projects  for  energy  communities  within 
the 
municipality of Marupe (159). 

Additional  efforts  would  be  beneficial 
empower  consumers  to  actively  participate 
in the energy market. In Latvia – while access to 
dynamic-price contracts is ensured – the share of 
fixed-price  contracts 
for  electricity  held  by 
households increased from about 65% in 2022 to 
about 85% in 2023 (160). Only 15% of households 
had  a  dynamic-price  contract  in  accordance  with 
Directive  (EU)  2019/944.  The  share  of  dynamic-
price  contracts  in  the  meaning  of  the  Directive 
remains  significantly  lower  than  the  share  of 
fixed-price  electricity  contracts  among  household 
customers.  This  increase  of  fixed-price  contracts 
for households of about 20 pps compared to 2022 
may  be  correlated  to  the  share  of  renewable 
the  different  national  wholesale 
energy 
electricity  markets  (approx.  8%  in  Latvia)  (161). 
Switching  rates  in  electricity  contracts  decreased 
slightly  from  around  6%  to  about  4%  for 
household  customers  and  from  around  29%  to 
about  27%  for  non-household  customers 
in 
2023(162). The coverage of households with smart 
meters  increased  slightly  from  98%  to  99% 
compared to 2022(163). 

in 

final 

energy 

In  2023,  electricity  accounted  for  14.3%  of 
consumption, 
Latvia’s 
considerably below the EU average of 22.9%, 
and this share has remained largely stagnant 
in  the  last  decade  (164).  When  it  comes  to 
households, electricity accounts for 13.2% of final 
energy consumption, while in industry it represents 

16.3% (see also Annex 9). For the transport sector, 
this  share  remains  negligible  at  0.9%.  Further 
progress 
is 
required  for  cost  effectively  decarbonising  the 
economy  and  bringing  the  benefits  of  affordable 
renewable generation to consumers. 

in  electrification  across  sectors 

Renewables and long-term contracts 

Renewable  sources  in  Latvia  represented 
78%  of  electricity  generation  over  2024, 
compared to 47% in the EU overall (165). 

in 
The  total  renewable  energy  capacity 
Latvia  in  2024  stood  at  2312 MW,  up  6.8% 
from  2023.  Latvia  increased  its  long-term 
ambition  for  deployment  of  renewable 
energy.  In  other  words,  it  increased  its  target 
contribution  for  renewable  energy  to  61%  for 
2030 (share of gross final energy consumption) in 
its final updated national energy and climate plan 
(up  from  the  57%  in  the  draft  NECP),  which  is  in 
line  with  the  level  based  on  the  Governance 
Regulation.  It  is  important  to  ensure  that  efforts 
across sectors are coordinated in order to achieve 
the more ambitious goals for 2030 and implement 
the requirements of the revised Renewable Energy 
Directive,  which  is  due  to  be  transposed  by  May 
2025. 

Graph A8.3: Latvia's installed renewable capacity 
(left) and electricity generation mix (right) 

(159) https://www.interregeurope.eu/good-practices/first-energy-
communities-in-latvia-small-scale-demonstration-projects-
at-marupe-municipality  

(160https://www.acer.europa.eu/sites/default/files/documents/Publi

cations/ACER-CEER_2024_MMR_Retail.pdf  

(161)https://www.acer.europa.eu/sites/default/files/documents/Pub

lications/ACER-CEER_2024_MMR_Retail.pdf  

(162) Idem 

(163) Idem 

(164)CAGR (compound annual growth rate) of -0.6% between 
2013 and 2023 and minimum/maximum share of 14.2% and 
15.1%, respectively. 

“Other” includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Ember 

Some  efforts  have  been  taken  in  recent 
years  to  accelerate  the  deployment  of  solar 
and  wind  energy.  In  2024,  Latvia  recorded  an 
steep  increase  in  the  installed  capacity  for  solar 

(165) Yearly electricity data, Ember. 

63 

 
 
 
 
(+46%, from 319 MW to 466MW) but not in wind 
power  (128  MW).  However,  these  capacities  still 
remain  significantly  below  the  levels  installed  in 
Estonia and Lithuania. Transport is an area where 
considerable efforts are still needed given the low 
level  of  renewables  uptake  and  high  greenhouse 
gas  emissions  intensity  in  this  sector.  The  new 
Transport  Energy  Law,  which  still  awaits 
its 
adoption  in  2025,  would  pave  the  way  for  the 
action needed to decarbonise the sector. 

On  permitting,  the  Latvian  framework  is 
moderately  aligned  with  the  Commission’s 
Recommendation.  The  government  introduced 
legislation  enabling  a  one-stop  shop  to  centrally 
streamline  renewable  energy  installations.  This 
institutions 
includes  reducing  the  number  of 
involved in permit-granting, launching cross-border 
cooperation  with  neighbouring  countries,  and 
revisiting  exclusion  zone  regulations  to  improve 
renewable  energy  projects. 
land  access  for 
to  be  seen,  while 
Implementation 
room 
additionally, 
further 
for 
improvement 
the  permit-granting 
procedure for renewable energy sources, especially 
for  larger  onshore  wind  and  solar  installations. 
This  can  be  achieved,  for 
instance,  through 
simplified  procedures  for  energy  communities  as 
well as authorities jointly respecting deadlines and 
extensions,  and  taking  into  consideration  the 
guidance 
permit-granting 
speeding  up 
procedures. 

there 
to  shorten 

remains 
is 

on 

Energy efficiency 

In 2023, there was a slowdown in the energy 
efficiency  gains  achieved  in  Latvia.  In  2023, 
primary energy consumption (PEC) decreased by a 
mere  0.1%  to  4.27  Mtoe,  while  final  energy 
consumption (FEC) decreased only by  0.8% to 3.9 
in 
Mtoe.  Compared  to  2022,  FEC 
transport by 2.4% and in industry by 1.6%, while it 
decreased in residential by 3.3% and in services by 
5.4%.  According  to  the  recast  Energy  Efficiency 
Directive,  Latvia  is  encouraged  to  reach  a  PEC  of 
3.8 Mtoe and an FEC of 3.46 Mtoe by 2030. In its 
NECP, Latvia aims for a slightly higher target, with 
3.85 Mtoe for FEC. 

increased 

implementing 

In 
savings 
the 
obligation  for  the  period  2021-2030,  Latvia 
has  chosen  alternative  measures  to  the 

energy 

64 

energy  efficiency  obligation  scheme  to 
achieve the targets. However, the information in 
the  Latvian  final  updated  NECP  is  incomplete, 
making  it  impossible  possible  to  assess  the 
adequacy  of  the  planned  measures  against  the 
achievement of the required amount of cumulative 
end-use  energy  savings  by  2030.  Furthermore, 
Latvia  has  not  notified  the  Commission  of  its 
comprehensive assessment of heating and cooling 
identifying  the  potential  for  the  application  of 
high-efficiency  cogeneration  and  efficient  district 
heating and cooling as required by Article 25(1) of 
Directive (EU) 2023/1791.  

additional 

leveraging 

Latvia  has  the  potential  to  make  more 
improvements,  namely 
energy  efficiency 
private 
through 
funding.  Latvia’s  national  financing  framework 
mobilising  investments  in  energy  efficiency  is 
mostly composed of grants and different financial 
instruments,  including  in  the  form  of  technical 
assistance and guarantees. These schemes largely 
target  the  building  sector,  covering  all  main 
segments  such  as  commercial,  public  and 
residential. For instance, in 2024 Latvia continued 
to  implement  not  only  the  investment  schemes 
supporting  the  refurbishment  of  municipal  and 
educational  buildings, but also  the  grant schemes 
promoting  energy  efficiency  improvements  and 
the installation of renewable electricity generation 
in private residential buildings. Most of the energy 
efficiency schemes in the country are (co)financed 
by the Recovery and Resilience Facility and by EU 
cohesion funds. Additional private funding could be 
leveraged,  in  particular  by  deploying  dedicated 
financial  instruments  for  energy  efficiency  and 
supporting the development of the energy services 
sector  as  a  key  market-enabler  for  energy 
efficiency improvements. 

Despite  the  progress  made 
in  building 
renovations,  additional  efforts  would  be 
needed for Latvia to achieve its goals set out 
in the long-term renovation strategy. Latvia’s 
efforts  in  the  residential  sector  to  achieve  a 
meaningful  contribution  to  its  2030  reduction 
target for energy consumption by buildings are on 
residential  final  energy 
the 
consumption  fell  by  around  13% 
in  2022 
compared  to  2018.  Latvia  has,  for  example, 
introduced  regulatory  adjustment  with  a  view  to 
facilitating  energy  efficiency  renovations in multi-
apartment  buildings.  However,  greater  efforts  will 
be  needed  to  implement  the  national  long-term 
renovation  strategy,  i.e.  achieve  a  reduction  of 

track,  as 

right 

 
average of 0.49%. Tax measures accounted for 
81%  of  this  volume,  while  the  remaining  share 
were  income/price  support  measures.  However, 
Latvia’s 2023 Effective Carbon Rate (171) averaged 
EUR  62.15  per  tonne  of  CO₂,  below  the  EU 
weighted mean of EUR 84.80(172). 

long-term 

23%  by  2030. Latvia’s 
renovation 
strategy  is  to  achieve  the  renovation  of  30%  of 
multi-apartment  buildings  by  2030.  To  facilitate 
this,  a  new  support  programme  worth  EUR 171 
million  will  be  available  in  2025  to  implement 
energy  efficiency  measures  in  multi-apartment 
residential buildings, as well as EUR 147 million of 
support  from  the  ERDF.  In  2022,  heating  and 
cooling 
the  country’s 
residential  final  energy  consumption.  There  are 
approximately  400 000  households  –  slightly 
below half of total households – using gas to heat 
their homes, while the heat pump market remains 
limited. 

represented  83%  of 

Security of supply and diversification 

Latvia  has  made  significant  efforts  to 
diversify  energy  imports,  notably  by  fully 
cutting  its  dependence  on  Russian  energy, 
natural  gas,  petrol  and  electricity.  However, 
Latvia’s energy mix saw little change in 2023 
compared  to  2022,  with  fossil  fuels  still 
making  up  more  than  half  of  the  country’s 
energy  consumption.  Oil  accounted  for  36.8% 
inland 
and  natural  gas  15.9%  of  gross 
consumption(166),  while  renewables  (and  biofuels) 
maintained a considerable share (45.8)%(167). 

Fossil fuel subsidies 

In  2023,  environmentally  harmful  (168)  fossil 
fuel  subsidies  without  a  planned  phase-out 
before  2030  represented  0.32%(169)  of 
Latvia’s  GDP(170),  below  the  EU  weighted 

(166) Electricity and heat are excluded to avoid double-counting, 

focusing on primary energy sources 

(167) Gross inland consumption (Eurostat). 
(168) Direct fossil fuel subsidies that incentivise maintaining or 
increasing in the availability of fossil fuels and/or use of 
fossil fuels 

(169) Numerator is based on volumes disclosed by the Latvian 
authorities via the 2025 NECPR reporting. For all Member 
States, it includes public R&D expenditures for fossil fuels as 
reported by the IEA (Energy Technology RD&D Budgets) and 
excludes, for methodological consistency, excise tax 
exemption on kerosene consumed in intra-EU27 air traffic. 

(171) The Effective Carbon Rate is the sum of carbon taxes, ETS 
permit prices and fuel excise taxes, representing the 
aggregate effective carbon rate paid on emissions. 

(170) 2023 Gross Domestic Product at market prices, Eurostat 

(172) OECD (2024), Pricing Greenhouse Gas Emissions 2024 

65 

 
 
 
Table A8.1:  Key Energy Indicators 

Source: Eurostat, ENTSO-E, S&P Platts 

66 

20212022202320242021202220232024Household consumer - Electricity retail price (EUR/KWh)0.1628          0.2632              0.3040              0.2617          0.2314              0.2649          0.2877          0.2879          Energy & supply [%]44.5%60.3%58.7%49.7%36.6%54.3%55.6%47.8%Network costs29.2%19.7%23.8%32.6%26.7%25.3%24.8%27.2%Taxes and levies including VAT26.3%20.0%17.5%17.7%36.7%20.3%19.6%25.0%VAT17.4%17.4%17.4%17.3%14.5%13.4%13.8%14.6%Household consumer - Gas retail price0.0351          0.0977              0.1288              0.0880          0.0684              0.0948          0.1121          0.1128          Energy & supply47.0%71.4%70.7%59.0%43.7%61.0%64.5%53.9%Network costs30.8%11.4%10.3%21.4%22.5%17.3%17.1%18.3%Taxes and levies including VAT22.2%17.2%18.9%19.7%33.8%21.7%18.4%27.8%VAT17.4%15.5%17.4%17.4%15.5%11.6%10.2%13.6%Non-household consumer - Electricity retail price0.1052          0.1658              0.1351              0.1222          0.1242              0.1895          0.1971          0.1661          Energy & supply52.9%65.7%71.1%67.7%43.0%66.5%63.0%55.8%Network costs19.2%12.1%10.1%13.9%15.8%10.7%11.9%15.5%Taxes and levies excluding VAT12.8%5.9%1.0%1.4%30.4%9.9%11.2%15.4%Non-household consumer - Gas retail price0.0234          0.0877              0.0781              0.0480          0.0328              0.0722          0.0672          0.0517          Energy & supply64.4%77.5%75.7%69.7%66.2%77.3%77.3%68.7%Network costs14.9%4.2%5.8%11.0%7.7%3.8%5.3%7.1%Taxes and levies excluding VAT4.7%1.4%1.4%2.3%12.5%6.1%7.3%11.6%Wholesale electrity price (EUR/MWh)88.6225.994.187.2111.0233.299.184.7Dutch TTF (EUR/MWh)n/an/an/an/a46.9123.140.534.420172018201920202021202220232024Gross Electricity Production (GWh)7 531             6 725                6 438                5 725             5 846                5 031             6 388             -Combustible Fuels3 000         4 170             4 174             2 940         2 990             2 016         2 083         -Nuclear-              -                 -                 -              -                 -              -              -Hydro4 381         2 432             2 108             2 603         2 708             2 750         3 794         -Wind150             122                154                177             141                190             271             -Solar0                 1                     3                     5                 7                    75               239             -Geothermal-              -                 -                 -              -                 -              -              -Other Sources-              -                 -                 -              -                 -              -              Gross Electricity Production [%]Combustible Fuels39.8%62.0%64.8%51.4%51.1%40.1%32.6%-Nuclear0.0%0.0%0.0%0.0%0.0%0.0%0.0%-Hydro58.2%36.2%32.7%45.5%46.3%54.7%59.4%-Wind2.0%1.8%2.4%3.1%2.4%3.8%4.2%-Solar0.0%0.0%0.0%0.1%0.1%1.5%3.7%-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)-649091 1181 6261 7732 312804-As a % of electricity available for final consumption -1.0%13.6%16.8%24.3%25.6%34.2%12.3%-Electricity Interconnection [%]45.3%46.1%53.9%42.1%47.2%82.4%69.4%67.0%Share of renewable energy consumption - by sector [%]Electricity54.4%53.5%53.4%53.4%51.4%53.5%54.3%-Heating and cooling54.6%55.4%57.7%57.1%57.4%61.0%61.4%-Transport2.3%4.7%4.6%6.7%6.4%3.1%1.4%-Overall39.0%40.0%40.9%42.1%42.1%43.7%43.2%-20202021202220232020202120222023Import Dependency [%] 45.5%38.3%38.2%32.7%57.5%55.5%62.5%58.3%of Solid fossil fuels 89.6%93.1%193.2%87.1%35.8%37.2%45.9%40.8%of Oil and petroleum products 105.6%93.7%101.5%99.1%96.8%91.7%97.8%94.5%of Natural Gas 100.1%100.0%99.8%100.1%83.6%83.6%97.6%90.0%Dependency from Russian Fossil Fuels [%]of Natural Gas 100.0%100.0%22.6%0.0%41.0%40.9%20.7%9.3%of Crude Oil#DIV/0!#DIV/0!#DIV/0!#DIV/0!25.7%25.2%18.4%3.0%of Hard Coal97.0%40.1%39.9%0.0%49.1%47.4%21.5%1.0%2017201820192020202120222023Gas Consumption (in bcm)1.2                 1.4                     1.4                     1.1                 1.2                    0.8                 0.8                 Gas Consumption year-on-year change [%]-11.7%17.5%-5.4%-17.7%6.6%-29.0%-5.0%Gas Imports - by type (in bcm)1.2                 1.4                     1.4                     1.1                 1.2                    0.8                 0.8                 Gas imports - pipeline1.2                 1.4                     1.4                     1.1                 1.2                    0.8                 0.7                 Gas imports - LNG0.00.00.00.00.00.00.1Gas Imports - by main source supplier [%]Lithuania0.0%0.0%0.0%0.0%0.0%75.4%80.0%Estonia0.0%0.0%0.0%0.0%0.0%1.0%20.0%Russia100.0%100.0%100.0%100.0%100.0%22.6%0.0%LatviaEU 
 
     
 
ANNEX 9: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT 

Latvia  is  at  a  transitional  stage  in  terms  of 
climate adaptation governance and action on 
climate  risk  assessment.  Further  action  is 
essential  to  boost  the  level  of  preparedness 
and reduce the impact of economic activities 
on 
the  natural  environment.  Degraded 
ecosystems pose significant risks to the prosperity 
and  competitiveness  of  the  country.  Latvia  has 
started  its  transition  towards  more  sustainable 
agriculture  practices,  but 
the  climate  and 
environmental impacts of its agri-food system still 
warrant additional action. 

Climate adaptation and preparedness 

Climate  change  poses  significant  risks  to 
Latvia, mainly due to changes in precipitation 
patterns and more frequent extreme weather 
events.  Climate  change  in  Latvia  affects  not  just 
the  environment  but  also  people’s  health,  safety 
and  businesses.  Key  risks  include  seasonal  shifts, 
wildfires, the spread of pests and disease and new 
invasive species. These changes can lead to more 
respiratory  and  infectious  diseases,  heat  strokes 
and  floods  from  heavy  rain.  Other  issues  are 
power  disruptions,  variations  in  hydropower,  less 
frequent  frost  without  snow,  droughts  and 
damage to infrastructure. There is also less water 
flow in summer, causing further challenges (173). In 
2023,  11%  of  Latvia’s  total  area  suffered  from 
drought. 

impacting  public  health.  This 

In  the  Baltic  region,  climate  change  might 
also  be 
is 
particularly due to rising sea surface temperatures 
and the rise in eutrophication, which is expected to 
increase the spread of waterborne diseases. Vibrio 
infections  are  examples  of  this  happening,  and 
they  have  already  been  linked  to  the  warming  of 
the Baltic Sea (174). 

At  national  level,  Latvia  has  made  some 
progress  in  integrating  climate  adaptation 
into  its  institutional  set-up  and  planning.  It 
developed  a  national  plan  for  adaptation  to 
climate change that will be revised in 2026. In its 

(173) EEA, 2024, Climate ADAPT, Latvia/Overview of Existing 

Pressures. 

final  updated  2024  national  energy  and  climate 
climate 
Latvia 
plan, 
vulnerabilities 
power 
fluctuations, 
infrastructure  vulnerabilities  and 
biodiversity degradation (175). 

analysed 

including 

partially 

risks, 

and 

a 

is 

to 

lack 

need 

improve 

There 
the 
comprehensive  risk  assessments.  Adaptation 
financing, 
details 
measures 
implementation,  scheduling  and  scalability.  A 
closer  alignment  to  the  modelling  could  be 
beneficial  as  would  preparations  to  manage  the 
potential  impacts  of  rising  sea  levels  on  coastal 
ecosystems, fisheries and aquaculture in the Baltic 
region.  

on 

regions  and 

cities  are  also 
Latvian 
developing  their  own  adaptation  policies, 
although  there  is  limited  information  on 
review  processes  and  progress.  Since  2018, 
municipalities  have  created  civil  protection  plans 
that  include  climate  impact  assessments.  Latvia 
also established procedures for climate monitoring 
and managing flood risks in high-risk areas. 

Latvia  draws  on  a  range  of  funding  sources 
for  climate  change  adaptation.  Funded  by  the 
the  European 
the  EU  and 
state  budget, 
Environment  Agency,  investments  are  focused  on 
reducing  flood  and  coastal  erosion  risks,  with  an 
emphasis  on  ‘green  and  blue’  solutions.  Disaster 
management  is  a  priority,  with  funding  allocated 
to  rescue  services,  environmental  monitoring  and 
upgrades  to  infrastructure.  The  ongoing  recovery 
and resilience plan includes investments in climate 
reduction 
adaptation 
infrastructure and disaster management centres.  

such  as 

flood 

risk 

Water resilience 

Despite  a  wealth  of  water  resources  and 
some  improvements  made  to  the  ecological 
status of surface water bodies, Latvia would 
benefit from additional measures to monitor 
both surface and groundwater bodies and to 
boost  its  water  resilience.  Latvia  has  780 
surface water bodies and 25 groundwater bodies. 
In  2022,  Latvia’s  water  productivity  was  EUR 137 
per  m3  of  abstracted  water,  on  a  slight  increase 

(174) EEA, 2024, European Climate Risk Assessment (p.156). 

(175) Latvia - Final updated NECP 2021-2030, 2024, Link. 

67 

 
 
 
 
 
 
their 

chemical 

over  a  five-year  period.  The  Water  Exploitation 
Index Plus (WEI+) is low, at 0.2 in 2022 (176). Latvia 
has  a  99%  compliance  rate  with  the  EU  Urban 
Wastewater Treatment rules. Recent data from the 
third  river  basin  management  plan  for  the  period 
2022-2027  show  improvements  in  the  ecological 
status of surface waters, with 32.5% now in good 
condition.  However, 
status 
assessment  has  worsened  since  the  last  report 
with  100%  of  surface  water  bodies  now  reported 
as failing to achieve good chemical status, due to 
changes  in  methodology.  Only  12%  of  surface 
waters  are  monitored  to  assess  their  chemical 
status  due  to  limited  monitoring  capacities,  and 
grouping is used to determine the chemical status 
for  the  remainder.  Failure  to  meet  good  chemical 
status is largely due to the presence of ubiquitous 
toxic  substances,  often 
transboundary 
sources. Groundwater bodies are still classified as 
having good quantitative status, but their chemical 
status  assessment  has  also  declined.  The  main 
forms  of  pressure  on  water  bodies  are  point 
sources  from  urban  and  to  a  lesser  extent 
industrial  waste  water,  diffuse  sources  from 
agriculture  and  hydro-morphological  changes  and 
point  sources  from  urban  and  to  a  lesser  extent 
industrial  wastewater.  The  current 
level  of 
financing  for  water  management  in  Latvia  is 
around EUR 171 million per year (see Graph A9.2). 
However, 
to  be 
the  needs  are  estimated 
substantially  higher,  leaving  a  gap  of  EUR 171 
million  and  undermining  the  country’s  water 
resilience.  Additional  investments  are  needed  to 
improve  monitoring  and  support  nature-based 
solutions,  flood  prevention  and  river  restoration. 
The  ongoing  recovery  and  resilience  plan  includes 
investments in flood risk reduction infrastructure. 

from 

available  data,  less  than  10%  of  the  country’s 
protected  habitats  have  a  good  status, the  fourth 
worse  result  in  the  EU  and  below  the  EU-27 
average  of  14.7%.  By  contrast,  39.5%  of  species 
are reported as having a good conservation status, 
above  the  EU  average  of  27%.  Having  most 
protected habitats in an unfavourable conservation 
status  impacts  Latvia’s  climate  resilience,  as  the 
loss  of  biodiversity  impairs  ecosystems’  ability  to 
provide  services  that  help  mitigate  the  effects  of 
climate  change,  such  as  regulating  water  cycles, 
maintaining soil health and storing carbon. 

Nature degradation presents significant risks 
to  the  economy  and  to  competitiveness  as 
Latvia  has  one  of  the  highest  supply  chain 
dependencies  on  ecosystem  services  in  the 
EU. The Latvian economy’s supply chain is heavily 
dependent on ecosystem services, with 32% of its 
gross  value  added  showing  a  high  degree  of 
dependency  (against  the EU-27  average  of  22%). 
In  particular, 
forestry  and 
the  agriculture, 
electricity  sectors  have  a  high  degree  of  supply 
chain dependency on ecosystem services. In terms 
of  overall  direct  dependency  on  ecosystem 
services (37%)  Latvia is below the EU  average of 
44%. However, several sectors such as agriculture, 
forestry,  fisheries  and  construction  (see  Graph 
A9.1).  are  particularly  dependent  on  ecosystem 
services. 100% of the gross value added of these 
sectors 
is  directly  dependent  on  ecosystem 
services.  This  means  that  failure  to  maintain  the 
capacity  of  ecosystems  to  deliver  services  could 
entail  significant  costs  or  even  stop  production  in 
these  sectors.  Protecting  and 
restoring  key 
ecosystems  would  help  maintain  the  long-term 
competitiveness of these sectors. 

Biodiversity and ecosystems 

The state of nature and ecosystems in Latvia 
affects  the  country’s  climate  resilience. 
Latvia  has  rich  biodiversity  –  it  is  home  to  61 
types  of  natural  habitats  and  109  species  of  EU 
importance  (177).  However,  according  to  the  latest 

(176) Values above 20% are generally considered to be a sign of 
water scarcity, while values equal or greater than 40% 
indicate situations of severe water scarcity. 
Seasonal data for Latvia show that there is no water scarcity 
even during summer months. 

(177) EEA, 2019, Number of habitats and species per Member 

State, Link. 

68 

 
 
Graph A9.1: Direct dependency(1) on ecosystem 
services(2) of the gross value added generated by 
economic sector in 2022 

(1) Dependency based on the sector’s own operations, 
excluding value chain operations within countries and across 
international value chains. A high dependency indicates a high 
potential exposure to nature-related shocks or deteriorating 
trends, which means that the disruption of an ecosystem  
service could cause production failure and severe financial 
loss. 
(2) Ecosystem services are the contributions of ecosystems to 
the benefits that are used in economic and other human 
activity, including provisioning services (e.g. biomass 
provisioning or water supply), regulating and maintenance 
services (e.g. soil quality regulation or pollination), and cultural 
services (e.g. recreational activities). 
Source: Hirschbuehl et al., 2025, The EU economy's 
dependency on nature, Link. 

Targeted  action  on  nature  protection  and 
restoration  is  needed  for  Latvia  to  meet  its 
nature  restoration  targets.  In  2022,  18.1%  of 
its  land  was  protected,  below  the  EU-27  average 
of  26.1%.  Latvia  would  need  to  restore  up  to 
3 141  km2  of  habitats  listed  in  Annex  I  to  the 
Habitats Directive, corresponding to up to 4.9% of 
its  land  (178).  Latvia  requires  EUR 1  billion  of 
investment  per  year  to  effectively  protect  and 
restore its natural capital, mitigate the impacts of 
climate  change,  and  maintain  the  country’s  rich 
biodiversity  (see  Graph  A9.2).  The  current level  of 
ecosystem 
biodiversity 
financing 

and 

for 

conservation  in  Latvia  is  around  EUR 119  million 
per  year.  It  has  a  substantial  investment  gap  of 
EUR 894  million,  which  undermines  the  country’s 
commitment  to  global  biodiversity  agreements 
and 
social 
development. 

long-term 

economic 

and 

its 

Graph A9.2: Investment needs and gaps in EUR 
million, in 2022 constant prices 

Source: European Commission, DG Environment, 
Environmental investment needs & gaps assessment 
programme, 2025 update. 

Sustainable agriculture and land use 

Latvia’s  carbon  removals  fall  short  of  its 
2030  target  for  land  use,  land-use  change 
and  forestry  (LULUCF).  Latvia’s  LULUCF  sector 
has  become  a  net  greenhouse  gas  (GHG)  emitter 
in recent years. Net carbon removals through land 
use have fluctuated widely each year since 2017, 
with  emissions  from  the  sector  doubling  in  the 
most  recent  GHG  inventories.  Increased  logging 
and  high  emissions  from  organic  soils  (degraded 
peatlands)  are  the  main  driving  force  behind  the 
country’s  LULUCF  emissions.  To  meet  its  2030 
LULUCF target, additional carbon removals of -0.6 
million  tonnes  of  CO2  equivalent  (CO2eq)  are 
needed (179). The latest available projections show 
a gap to target of 5.5 million tonnes of CO2eq for 

(178) European Commission (2022), Impact assessment 

accompanying the proposal for a Regulation on nature 
restoration. 

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

Regulation (EU) 2023/839. 

69 

0%20%40%60%80%100%AgricultureForestryFishery and acquacultureMining and metalsConstructionWater utilitiesHealthcare deliveryAviation travel and tourismFood beverages and tobaccoSupply chain and transportPublic services and othersElectricityChemical and materials industryElectronicsOil and gasReal estateHeat utilitiesAutomotiveRetail consumer goods and…Information technologyBanking and capital marketsInsurance and asset…Digital communicationsHighMediumLow - 200 400 600 800 1 000 1 200BiodiversityWaterBaselineGap 
     
 
     
 
both  the  rural  development  and  direct  payments 
budget  for  this  purpose.  Under  seven  different 
eco-schemes,  farmers  may  receive  support  for 
agricultural  practices  that  are  beneficial  for  the 
environment  and  climate,  for  ecological  focus 
areas and to carry out agro-ecological practices in 
organic  farms.  Under  the  rural  development 
heading,  funding  is  allocated  to  different  agri-
environmental 
support 
the  achievement  of 
measures 
environmental  and  climate  objectives.  Latvia  will 
also prioritise the development of organic farming, 
supporting  the  aim  to  have  18.8%  of  agricultural 
land  under  organic  farming  by  2027  (in  2022 
15.9% of UAA was under organic farming). 

schemes  and  other 

related 

to 

Latvia  plans  to  cover  over  70%  of  the 
utilised agricultural area by commitments to 
protect  and  improve  soil  quality,  and  over 
24%  by  commitments  to  protect  water 
quality.  For  example,  support  will  be  paid  to 
reduce  the  use  of  pesticides  in  682 000  hectares 
and  thus  reduce  their  negative  impacts  on  the 
environment. About 24% (or 460 000 hectares) of 
utilised  agricultural  area  is  planned  to  contribute 
to the aim of protecting and restoring biodiversity, 
including 
agricultural 
practices  such  as  buffer  strips,  environmentally 
friendly  horticulture  and  grassland  biotope 
management. 

high-quality 

through 

2030  (180).  Latvia  should  prioritize  protecting  its 
natural  capital  by  implementing  sustainable  land 
management  practices 
that  enhance  carbon 
sequestration, as this not only mitigates emissions 
but 
economic 
development  by  preserving  the  natural  resources 
vital to its economy (181). 

long-term 

supports 

also 

Although  Latvia’s  overall  greenhouse  gas 
emissions  from  agriculture  are  relatively 
moderate,  agriculture  is  still  a  source  of 
emissions  and  continues  to  have  an  impact 
on  air,  water  and  soils.  In  2022,  agriculture 
generated 2.3 million tonnes of CO2eq, accounting 
for around 21.3% of the country’s total emissions 
(excluding  LULUCF).  This 
includes  1.1  million 
tonnes of CO2eq from livestock farming. Wetlands 
(including  peatlands)  are  an  important  driver  of 
GHG  emissions 
in  Latvia’s  LULUCF  sector 
comprising  about  38%  according  to  the  latest 
available  data.  Large  majority  of  the  specific 
wetland-related emissions are attributable to peat 
extraction for horticulture. The utilised agricultural 
area  (UAA)  in  Latvia  increased  by  5.2%  from  1.9 
million  hectares  in  2014  to  2  million  hectares  in 
2023. The country’s nitrogen balance is 15.1 kg of 
nitrogen  per  hectare  of  UAA  and  nitrates  in 
groundwater  do  not  exceed  the  healthy  threshold 
for  human  consumption.  As  the  livestock  density 
has fallen to the index level of 0.24 in 2020, three 
times  below  the  EU  average  of  0.75,  ammonia 
fallen,  dropping  6.7% 
emissions  have  also 
between  2018  and  2022.  Between  2017-2022, 
pesticides  were  detected  at  levels  exceeding  the 
set  thresholds  in  almost  half  of  the  rivers  (47%) 
(182). 

Support  under  the  common  agricultural 
policy  (CAP)  in  Latvia  is  designed  to  help 
achieve  the  environmental  and  climate 
objectives.  The  CAP  strategic  plan  contains 
different measures contributing to climate change 
mitigation, 
biodiversity 
conservation  and  sustainable  forestry.  The  plan 
will  allocate  significant  financial  resources  from 

reduction, 

pollution 

(180) Climate Action Progress Report 2024, COM/2024/498. 

(181) A recent JRC study highlights that a 10% increase in natural 
capital results in a 0.7% rise in the gross value added (GVA) 
within EU regions. 
https://publications.jrc.ec.europa.eu/repository/handle/JRC139
761 

(182) EEA, 2024, Pesticides in rivers, lakes and groundwater in 

Europe, Link. 

70 

 
 
 
 
Table A9.1:  Key indicators tracking progress on climate adaptation, resilience and environment 

(1) The data show the average for the timespan 2006-2023 based on EFFIS - European Forest Fire Information System. 
(2) Scale: 0 (no protection gap) – 4 (very high gap). EIOPA, 2024, Dashboard on insurance protection gap for natural catastrophes. 
(3) van Daalen, K. R. et al., 2024, The 2024 Europe report of the Lancet Countdown on health and climate change: unprecedented 
warming demands unprecedented action, The Lancet Public Health. 
(4) This indicator measures total water consumption as a percentage of the renewable freshwater resources available for a given 
territory and period. Values above 20% are generally considered to be a sign of water scarcity, while values equal or greater than 
40% indicate situations of severe water scarcity. 
(5) European Commission, 2024, 7th Implementation Report from the Commission to the Council and the European Parliament on 
the implementation of the Water Framework Directive (2000/60/EC) and the Floods Directive (2007/60/EC) (Third River Basin 
Management Plans and Second Flood Risk Management Plans). 
(6) For this indicator, the EU average includes figures for the UK under the previous configuration, EU-28. 
(7) European Commission, 2023, EU Bioeconomy Monitoring System dashboards. 
(8) Nitrates can persist in groundwater for a long time and accumulate at a high level through inputs from anthropogenic sources 
(mainly agriculture). The EU drinking water standard sets a limit of 50 mg NO3/L to avoid threats to human health. 
(9) 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. 
Source: Eurostat, EEA. 

71 

Climate adaptation and preparedness:20182019202020212022202320182021Drought impact on ecosystems7.3519.151.614.830.9910.716.772.76[area impacted by drought as % of total]Forest-fire burnt area (1)177          177          177          177          177          177          [ha, annual average 2006-2023]Economic losses from extreme events120          -           -           -           -           17            24 142       62 981       [EUR million at constant 2022 prices]Insurance protection gap (2)----1.75         1.75         [composite score between 0 and 4]Heat-related mortality (3)33            33            33            33            33            [number of deaths per 100 000 inhabitants in 2013-2022]Sub-national climate adaptation action59            60            60            61            60            67            4144[% of population covered by the EU Covenant of Mayors for Climate & Energy]Water resilience:20182019202020212022202320182021Water Exploitation Index Plus, WEI+ (4)0.20.20.20.20.2-4.54.5[total water consumption as % of renewable freshwater resources]Water consumption63            61            63            64            63            -           [million m3]Ecological/quantitative status of water bodies (5)[% of water bodies failing to achieve good status]Surface water bodies---68%---59%Groundwater bodies---0%---93%Biodiversity and ecosystems:20182019202020212022202320182021Conservation status of habitats (6)9.8-----14.7-[% of habitats having a good conservation status]Common farmland bird index103.291.892.297.287.8-72.274.42000=100Protected areas---1818--26[% of protected land areas]Sustainable agriculture and land use:20182019202020212022202320182021Bioeconomy's added value (7)2 262       2 405       2 655       3 324       634 378     716 124     [EUR million]Landscape features----4              -[% of agricultural land covered with landscape features]Food waste------[kg per capita]Area under organic farming14.514.814.815.315.97.99-[% of total UAA]Nitrogen balance26.613.310.915.1--[kg of nitrogen per ha of UAA]Nitrates in groundwater (8)3.33.63.33.4--[mgNO3/l]Net greenhouse gas removals from LULUCF (9)388-          1 969-       758          2 202       4 944       -           256 077-     240 984-     [Kt CO2-eq]LatviaEU-27LatviaEU-27LatviaEU-27LatviaEU-27 
 
  
 
FAIRNESS 
ANNEX 10: LABOUR MARKET 

The  Latvian  labour  market  is  performing 
well,  but  shows  structural  challenges,  such 
as  growing  labour  and  skills  shortages. 
Investments in labour market support in Latvia are 
low with spending on active labour market policies 
(ALMP)  among  the  lowest  in  the  EU,  negatively 
including  young 
affecting  vulnerable  groups, 
people,  persons  with  disabilities  and  women. 
Likewise,  further  support  to  improving  workplace 
safety and working conditions would be beneficial 
in helping improve labour market productivity and 
economic competitiveness. Fair working conditions, 
decent  wages,  work-life  balance,  and  having 
access  to  affordable  and  quality  childcare  and 
long-term  care  can  all  contribute  to  increased 
labour  market  participation  and  productivity,  as 
established  in  the  EU  Competitiveness  Compass. 
Wage growth is catching up with the high inflation 
in  2022  and  2023,  However, 
levels  seen 
disposable household income in Latvia still has to 
catch  up  with  the  EU  average  for  the  country's 
market  to  be  attractive  for  highly  skilled  workers. 
in  helping  mitigate 
Migration  shows  promise 
shortages. 

Graph A10.1: Key labour market indicators for 
Latvia 

Source: Eurostat, LFS 

The  Latvian  labour  market  continues  to 
perform  well,  but  structural  challenges 
persist.  In  2024,  the  employment  rate  reached 
77.4% 
(vs  EU:  75.8%),  surpassing  the  pre-
pandemic  high  of  77.3%  in  2019  (vs  EU:  72.7%), 

72 

remaining  consistently  above  the  EU  average  At 
the  same  time,  the  unemployment  rate  increased 
by 0.4 percentage points(pps) to 6.9% in 2024 (vs 
EU:  59%).  The  long-term  unemployment  rate 
increased  by  0.4pps  2.2%  in  2024  and  is  now 
above the 1.9% recorded in the EU. Despite these 
positive  labour  market  developments,  there  are 
indications that the market suffers from structural 
issues,  including  an  outflow  of  highly  qualified 
workers  and  regional  inequalities  due  to  lower 
economic  activity  outside  of  Riga  (e.g.  in  2022, 
65.6%  of  Latvia’s  GDP  came  from  Riga  vs  only 
6.7% from Latgale). The ageing of the population 
is  also  leading  to  a  decline  in  the  working-age 
population.  The  activity  rate  remained  relatively 
stable at 76.7% in 2024 (vs EU: 75.4%). The crude 
rate(183) of  total  population  change  was  negative 
at  -5.9  in  2023.  This  was  partly  due  to  a  lower 
birth rate than death rate, which in turn was partly 
due  to  a  decline  in  the  temporary  settlement  of 
Ukrainian  citizens.  The  impact  of  Russia’s  war  of 
aggression  against  Ukraine  continues  to  be  felt 
strongly  in  Latvia,  as  it  significantly  reduced  the 
country's  trade  with  Russia  and  Belarus  (for  both 
exports  and  imports) (184).  The  resulting  shift  in 
economic  activity  has  negatively  affected  specific 
industries and the workers employed in them (185). 
There is  a growing need for reskilling to facilitate 
the  reallocation  of  workers  to  new  jobs  and  to 
reduce  the growing  skills mismatches  including in 
the  green  and  digital  sector (186).  Addressing  the 
structural  challenges  will  help  Latvia  reach  its 
2030  national  target  of  having  at  least  80%  of 
adults in employment. 

Labour shortages and skills mismatches pose 
challenges  in  the  context  of  the  digital  and 
low  and 
green  transition.  The 
decreasing  level  of  digital  competency  in  Latvia 
poses  a  significant  risk  to  increasing  productivity. 

relatively 

(183) The crude rate of total change is the ratio of the population 

change during the year (the difference between the 
population sizes on 1 January of two consecutive years) to 
the average population in that year. The value is expressed 
per 1 000 people. 

(184) Exports and imports by countries (CN at 2-digit level) – Unit, 
Flow, Commodity CN at 2-digit level, Countries and Time 
period. Piwe. 

(185) E.g. the transit, the agriculture, the manufacturing and the 

education sectors. 

(186) Autumn 2024 Economic Forecast: A gradual rebound in an 

adverse environment - European Commission. 

7677787980818283848505101520253035402009201020112012201320142015201620172018201920202021202220232024%%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) 
 
 
  
 
 
 
Contrary to the EU trend, the number of individuals 
with  basic  or  above  basic  digital  skills  decreased 
from 50.8% in 2021 to 45.3% in 2023, well below 
the EU average of 55.6%. At the same time, Latvia 
experiences  shortages  in  key  sectors  relevant  to 
the  green  transition,  including  refuse  sorters, 
forestry  labourers,  and  insulation  workers (187). 
Latvia  has  taken  steps  to  address  the  growing 
challenge of skills shortages with the development 
of  the  human  capital  development  strategy. 
However, adoption of the strategy is pending, and 
systematic green skills development appears to be 
lagging. 

Migration can help address demographic and 
labour  market  challenges,  but  the  risk  of an 
outflow of skilled workers remains. While  the 
country's accession to the EU in 2004 has brought 
many  advantages,  including  free  movement  of 
people,  Latvia  also  has  experienced  a  significant 
brain  drain  over  the  years,  with  the  heaviest 
emigration  waves  witnessed  at  the  start  of  the 
previous decade. This occurred on the back of the 
global  recession,  which  had  a  particularly  sharp 
effect on the Latvian labour market. Following the 
subsequent  economic  recovery,  net  migration 
began  to  stabilise  gradually  and  in  2022  was  net 
positive for the first time since its accession to the 
EU,  largely  explained  by  the  arrival  of  Ukrainian 
citizens fleeing from Russia’s war of aggression in 
their  homeland.  In  fact,  by  2024,  the  number  of 
foreign workers in Latvia reached 15 558, which is 
more than double the amount in 2015 (188). On the 
other  hand,  it  is  also  increasingly  obvious  that 
third-country  nationals  are  overqualified,  often 
occupying vacancies requiring lower qualifications, 
regardless  of  their  education  status.  For  example, 
38.7%  of  Ukrainians  are  hired  in  low-skilled 
occupations (189). The share of people with a higher 
educational  attainment  level  is  rising,  yet  the 
emigration  of  well-educated  and  highly  skilled 
workers  could  pose  significant  challenges  for 
Latvia’s  ability  to  respond  to  changing  skills 

(187) Source: European Labour Authority 2025 EURES Report on 
labour shortages and surpluses 2024, based on data from 
EURES National Coordination Offices. Skills and knowledge 
requirements align with the European Skills, Competences, 
Qualifications and Occupations (ESCO) taxonomy on skills for 
the green transition, with examples analysed using the ESCO 
green intensity index. 

(188) Number of Foreign Workers in Latvia Has Doubled Since 

demand. In 2022, 24.71% of emigrants were aged 
20-29  years  old.  Young  professionals  continue  to 
emigrate  due  to  high  costs  for  housing,  limited 
opportunities and low wages. The share of people 
with  at  least  upper  secondary,  post-secondary, 
non-tertiary  and  tertiary  education  was  84.0%  in 
2023  vs  75.3%  in  the  EU.  Likewise  the  share  of 
tertiary graduates was 34.0% vs 30.9% in the EU, 
demonstrating  the  high  educational  attainment 
level in the labour force. 

labour 

shortages  and 

The activation of vulnerable groups can help 
benefit 
tackle 
productivity.  The  disability  employment  gap  in 
Latvia  stood  at  21.3%  in  2024,  almost  3 pps 
below the EU  average but has been increasing by 
almost 3 pps since 2023, which calls for increased 
activation of this group, which faces a high risk of 
social exclusion and poverty (Annex 11). According 
to  2022  data,  34.3%  of  young  persons  with 
disabilities  in  Latvia  were  not  in  employment, 
education or training. As for adults with a disability 
60% were in employment (190), vs 77.4% for adults 
overall. Latvia has set a national target of at least 
in 
50%  of  persons  with  disability  being 
employment  by  2027,  based  on  national  data 
(41.4%  in  2022).  Latvia  has  progressed  well  in 
recent  years  in  terms  of  implementing  a  social 
economy (191).  For  example,  the  Social  Enterprise 
Law  (192)  has  led  to  a  significant  increase  in  the 
number  of  persons  with  disabilities  working  in 
social  enterprises,  from  53  in  2020  to  152  in 
2024. To support activation of this group, it would 
be  beneficial  if  Latvia  also  continued  to  invest  in 
workplace  adaptations,  and  the  improvement  of 
accessibility to public and private buildings and to 
support  subsidised  employment 
to  activate 
persons  with  a  disability,  which  has  so  far  had  a 
high  success  rate.  In  support  of  this,  EUR 40 
million  under  the  European  Social  Fund  Plus  has 
been  allocated  for  promoting  the  integration  of 
disadvantaged  unemployed  and  economically 
inactive  people  into  the  labour  market  though, 
among  other  things,  subsidised  jobs,  measures  to 
develop  work  skills,  promotion  of  job  mobility  as 
well  as  support  services 
for  people  with 
disabilities.  EUR 10.2  million  from  the  ESF+  will 
also support social entrepreneurship. Compared to 

(190) European comparative data on persons with disabilities - 

Publications Office of the EU. 

2015, Exceeding 15 500 This Year. 

(191) Latvijā sievietes darba tirgū sliktākā stāvoklī nekā vīrieši / 

(189) Latvia izglītojas 4 tūkstoši, Strada 8,7 tūkstoši Ukrainas 

valstspiederīgo | Oficiālās statistikas portāls. 

Rakst. 

(192) Social Enterprise Law (Sociālā uzņēmuma likums), 2018. 

73 

 
 
 
the EU, Latvia has a high share of people 65 and 
over,  who  are  active  participants  in  the  labour 
market  due  to  poor  social  security  and  pensions. 
Their  activity  rate  increased  from  13.5%  in  2022 
to 14.8% in 2023 (vs EU: 6.6%). Health outcomes 
are poor (see Annex 14). Old-age poverty in Latvia 
is among the highest in the EU. 

high 

share 

of  women 

is  high,  yet 

the 
Female  employment 
difference  in  earnings  between  men  and 
women  remains  substantial.  Latvia  has  a 
comparatively 
in 
employment and the gender employment gap (193) 
only  slightly  increased  3.3 pps  in  2024,  very  low 
compared  to  EU  average  (10.0 pps).  Despite  this, 
women 
remain 
underrepresented,  with  a  participation  rate  of 
74.6%  compared  to  78.9%  for  men.  This  can  be 
attributed  at  least  partly  to  the  very  high  gender 
pay  gap  (19.0%  vs  EU:  12.0%  in  2024),  which  is 
due to the widespread presence of women in low-
paying sectors. 

(15-64 

years 

old) 

Large  wage  increases  have  raised  some 
concerns  about  competitiveness,  but  wage 
levels remain low. Nominal wages in Latvia grew 
by more than 9% in 2022, 2023 and 2024, which 
led  to  real  wages  growing  by  6.5%  in  2023  and 
7.9% in 2024 (after having decreased by 3.6% in 
2022 due to high inflation) (194). However, average 
wage levels and the standard of living still remain 
well below the EU average. At the same time, unit 
labour  costs  increased  significantly  more  than  in 
most  EU  Member  States,  namely  by  11.3%  in 
2022, 13.9% in 2023 and 8.9% in 2024, pointing 
to  competitiveness  issues.  A  recent  tax  reform 
aims  to  boost  competitiveness  and  purchasing 
power.  To  raise  competitiveness  and  reduce  the 
tax 
low-income 
households, the government adopted a labour tax 
reform  in  2024  with  changes  in  personal  income 
tax  and  non-taxable  minimums,  including  for 
pensioners,  coming  into  force  as  of  2025.  The 
reform  provides  for  the  easing  of  the  tax  wedge 
(the  taxation  of  earnings  from  labour)  on  low-
income  earners  and  even  more  so  for  medium-
income  earners.  This  should  help  increase  the 
levels  of  net  disposable  incomes  and  reduce 
the  Gini  coefficient 
income 

inequality,  with 

particularly 

burden, 

for 

(193) For those aged 20-64 years old; calculated on basis of the 
employment rate of men/ the employment rate of women. 

(194)Based on the European Commission Autumn 2024 economic 

disposable income to drop from 0.3304 to 0.3286 
in 2025 (195). 

Poor  healthcare  indicators  and  a  rapidly 
ageing  population  particularly  strain  the 
labour  market.  The  total  population  declined  by 
0.59%  (vs  0.37%  growth  in  the  EU),  while  the 
natural  change  in  population,  excluding  migration, 
declined  even  faster  at  -0.72%  from  2022  to 
2023.  At  the  same  time,  Latvia  has  continuously 
deteriorated  since  2015  and  is  now  recording  its 
lowest  birth  rates  since  1920.  The  median  age 
stood at 43.9 years old (vs EU:  44.5 years old) in 
2023 and the share of the population aged 65 and 
over  rose  from  18.8%  in  2013  (vs  EU:  18.3%)  to 
(vs  EU:  21.3%) (196).  Life 
21.0% 
expectancy remains amongst the lowest in the EU 
at 75.9 years and the share of the population with 
unmet  needs  for  medical  care  is  one  of  the 
highest  in  the  EU  (see  Annex  14).  The  projected 
gradual increases in the old-age dependency ratio 
and in skills shortages (197) are expected to put an 
additional  strain  on  the  labour  market,  the  social 
security  system  and  economic  growth  in  the 
coming  decades.  It  is  therefore  important  for 
Latvia  to  strengthen  labour  market  and  social 
resilience, including by boosting the  coverage  and 
the quality of healthcare and social services. 

in  2023 

Latvia is taking steps to improve job quality. 
The  quality  of  work  depends  on  several  factors, 
notably  employment  security,  work-life  balance, 
health  and  safety  at  work,  access  to  training, 
career  development  and  pay.  Latvia  has  taken 
several steps in recent years with a view to create 
fairer working conditions, in line with the principles 
of  the  European  Pillar  of  Social  Rights.  The 
government  has  transposed  the  Minimum  Wage 
Directive 
introducing  a  transparent 
minimum  wage  setting  mechanism.  Collective 
bargaining  remains  low,  hindering  quality  of  jobs. 
During  the  early  1990s,  trade  union  density 
exceeded 50% of the workforce, but it dropped to 
just  11.6%  in  2018 (198).  Similarly,  the  collective 
bargaining  coverage  is  also  low  at  27.1% (199). 
Successful 
level  agreements  have 
recently been made in the construction, long-term 

in  2024, 

industrial 

(195) Based on a Euromod simulation in 2024. 

(196) Population structure and ageing - Statistics Explained. 

(197) Darba tirgus ziņojums | Ekonomikas ministrija. 

(198) OECD Data Explorer • Trade union density. 

forecast. 

(199) OECD Data Explorer • Collective bargaining coverage. 

74 

 
 
 
the  green  transition,  is  below  the  EU  average 
(2.8%  vs  3.8%  in  2023).  The  greenhouse  gas 
emission  intensity  of  Latvia’s  workforce  has  only 
slightly improved, decreasing from 11.7 tonnes per 
worker in 2015 to 10.8 in 2022 (EU: 12.3 tonnes). 
The share of workers (aged 25 to 64) with at least 
basic digital skills is at 53.9%, well below the 65% 
in the EU. Latvia’s initiatives under its recovery and 
resilience  plan  focus  on  improving  ICT  skills  and 
increasing the country's number of ICT specialists. 
These 
in 
advanced  digital  skills  by  2027,  implementing 
targeted programmes to promote STEM education, 
i.e., 
technology,  engineering  and 
mathematics, and increasing regional job mobility. 
Despite these efforts, the country’s envisaged ICT 
specialist  share  of  9.8%  by  2030  remains 
ambitious. 

training  3 000  specialists 

in  science, 

include 

care  and  fibreglass  sectors,  but  further  industry-
to 
level  agreements  should  be  encouraged 
improve working conditions and wages.  

A  further  strengthening  of  workplace  safety 
and prevention of preventable mortality and 
health  of  the  workforce  would  improve  job 
quality. Latvia has some of the highest numbers 
of fatal accidents at work, with 2.98 incidents per 
100 000  employed  in  2022  (vs  EU:  1.66  per 
100 000  employed).  Moreover, 
in  2021,  the 
number  of  preventable  causes  of  mortality  stood 
at 439 per 100 000 (standardised rate for people 
aged under 75) vs 212 per 100 000 in the EU and 
the  number  of  treatable  causes  of  mortality  at 
205 per 100 000 (standardised rate for population 
under  75)  vs  93  per  100 000  in  the  EU.  The 
number  of  healthy  working  years  is  one  of  the 
lowest  in  the  EU  with  the  health  expectancy 
standing  at  63  years  at  birth  (vs  EU:  73.0).  This 
highlights  the  usefulness  of  further  improving 
disease 
safety 
and  workplace 
adaptations 
in  Latvia,  given  that  a  healthy 
workforce,  in  addition  to  its  moral  added  value, 
increase 
has  a  much  higher  potential 
productivity, 
economic 
growth.  

supporting 

prevention 

therefore 

to 

is  relatively  high  with 
Job  satisfaction 
further  measures  supporting  good  working 
conditions  in  the  making.  While  general  job 
satisfaction  is  above the EU  average  (7.6  vs  7.4), 
low  skilled  people  (i.e.  those  who  attained  an 
education  below  upper  secondary  level)  show 
lower 
job  satisfaction  than  the  rest  of  the 
population (200).  Going  forward,  Latvia  is  expected 
to adopt a substantial package of amendments to 
the Labour Law (201) in 2025 for the improvement 
of  working  conditions,  incl.  improved  protection  in 
cases  of  a  sick  child  and  the  introduction  of  a 
flexibility  for  a  4-day  working  week  (maintaining 
40 hours). 

Further efforts to prepare the workforce for 
the green and digital transitions are needed. 
Between  2016  and  2021,  employment  in  the 
Latvian  environmental  goods  and  services  sector 
declined  by  0.2 pps  to  2.8%  of  total  employment 
but  remained  above  the  EU  average  (2.7%).  The 
job  vacancy  rate  in  construction,  a  key  sector  for 

(200) Statistics | Eurostat. 

(201) Plānoti apjomīgi grozījumi Darba likumā. Ko tie paredz? - LV 

portāls 

75 

 
 
ANNEX 11: SOCIAL POLICIES 

show 

social 

While 
some 
outcomes 
improvement,  Latvia  still  faces  persistently 
high  levels  of  inequality  and  still  significant 
risks  of  poverty  and  social  exclusion, 
impacting  older  people.  High 
particularly 
inflation in recent years has fallen, but the effects 
have yet to trickle down since households continue 
to  feel  the  pressure  in  meeting  their  essential 
needs.  The  population  is  ageing  and  there  is 
potential to activate the groups that are not yet in 
the  labour  market  to  meet  its  needs  including  in 
healthcare  and  social  care.  The  social  protection 
system  capacity  remains  limited  and  access  to 
quality 
across 
remains 
municipalities,  posing  risks  for  sustainable  and 
inclusive  economic  growth.  Moreover,  Latvia’s 
middle  class,  which  could  play  a  vital  role  in 
consumption  and  thus  contribute  to  economic 
prosperity, is one of the smallest in the EU. There 
is also low upward social mobility  for low-income 
groups. Addressing these challenges will contribute 
to inclusive growth and competitiveness. 

services 

uneven 

Poverty  and  social  exclusion  remain  high, 
despite  long-term  convergence  and  recovery 
from  the  COVID-19  pandemic.  The  rate  of 
people  at  risk  of  poverty  or  social  exclusion 
(AROPE)  stood  at  24.3%  in  2024,  standing  much 
above  the  EU  average  of  21.0%.  This  is  now  for 
the first time lower than the 2020 value (25.1% in 
Latvia  vs  EU:  21.5%).  The  severe  material  and 
social  deprivation  rate  has  fallen  from  a  spike  of 
7.8% in 2022 to 6.2% in 2023, and in 2024 was 
back  to  the  5.3%  low  of  2021.  This  correlates  to 
the negative socioeconomic impact of the COVID-
19  pandemic,  which  was  most  negatively  felt  in 
2022.  There  is  a  longer-term  downward  trend, 
with  poverty  or  social  exclusion  rates  in  Latvia 
falling from 30.0% in 2015 to 24.3% in 2024. This 
is  largely  attributed  to  the  above  EU  average 
economic  growth  and  the  continued  long-term 
convergence  process (with  real  GDP  per  capita  as 
a  percentage  of  the  EU  average  growing  from 
40.6% in 2015 to 45.4% in 2023) as well as some 
improvements in the income redistribution system 
over  this  period.  Nevertheless,  in  2022,  the  share 
of  general  government  expenditure  on  social 
protection was only 13.2% of GDP (EU: 19.4%). 

adequacy  of  minimum  income  was  very  low  in 
Latvia,  as  the  income  of  a  recipient  was  45%  of 
the  poverty  threshold  (EU:  55.6%)  and  37.8%  of 
the  income  of  a  low  wage  earner  (EU  46.1%). 
Sustained  efforts  will  be  needed  to  reach  the 
national poverty reduction target of 95 000 fewer 
people  at  risk  of  poverty  or  social  exclusion  by 
2030,  with  Latvia  so  far  having  achieved  about 
one  third  of  the  envisaged  reduction.  While  the 
minimum  income  reform  implemented  as  part  of 
(RRP)  has 
the  recovery  and  resilience  plan 
established  a 
for 
minimum  income  and  pensions  support,  Latvia 
could  consider  exploring  further  ways  to  enhance 
public  spending  on  social  protection  and  income 
support  mechanisms  with 
socio-economic 
developments (e.g. inflation or wage increases). 

transparent  methodology 

Persistent  high-income  inequality  continues 
to exacerbate poverty risks. The S80/S20 ratio 
at  6.28  remained  among the  highest in  the  EU  in 
2024  (EU:  4.66).  Thus,  the  income  of  the  richest 
20% of the population is more than six times that 
of those in the lower quintile. The reducing impact 
of taxes and transfers on income inequality is one 
of  the  lowest  in  the  EU  (31%  vs  49%  in  the  EU) 
(202).  In-work  poverty  however  has  fallen  by  one 
percentage  point  to  8.2%  in  2024  and  is  now  in 
line with  the EU average. A key factor influencing 
income inequalities is the high share of low wage 
earners  (in-market  income  inequality),  while  the 
coverage  of  collective  bargaining  is  low  (203).  The 
2025  labour  tax  reform  is  primarily  expected  to 
benefit  middle-income  households  but  will  also 
positively  contribute  somewhat 
reducing 
inequality  and  poverty(204).  The  reform  should  be 
carefully  monitored  in  the  coming  years,  in  line 
with income developments. 

to 

The  extent  of  work  intensity  and  type  of 
employment  impact  the  risk  of  poverty.  The 
at-risk-of-poverty rate for  households with a very 
low work intensity is very high, standing at 77.4% 
(EU:  62.9%),  compared  to  27.9%  (EU:  25.2%)  for 
those  with  middle-work  intensity  and  8.0%  for 
those  with  high-work  intensity  (EU:  9.4%).  Self-
employed, 
temporary  workers  and  part-time 
workers as well as all those in non-standard forms 

The  impact  of  social  transfers  (other  than 
pensions) on poverty reduction has increased 
in  the  longer  term  from  17.6%  in  2015  (EU: 
32.0%)  to  21.5%  in  2024  (EU:  34.4%)  but 
remains  one  of  the  lowest  in  the  EU.  The 

(202) European Commission, Economic inequalities in the EU, July 

2024. 

(203) European Commission, Economic inequalities in the EU, July 

2024. 

(204) Based on Euromod simulation 2024. 

76 

 
 
 
 
 
of  employment  are  at  a  significantly  greater  risk 
of poverty, given the more limited social protection 
coverage.  In-work  poverty  is  significantly  higher 
for employees with a temporary contract at 22.5% 
in  2022  and  10.7%  in  2023,  compared  to  those 
with  a  permanent  contract,  standing  at  7.2%  and 
7.1%  respectively.  On  the  upside,  the  Latvian 
labour market is characterised by a large share of 
full-time  and  permanent  employment  contracts 
(see Annex 10). 

While  inflation  has  stabilised,  food  and 
remain  high,  affecting 
energy  prices 
disproportionately  lower  income  households. 
General inflation has fallen from a peak of 17.2% 
in  2022  (EU:  9.2%)  to  1.2%  in  2024  (EU:  2.5%). 
Over  a  longer-term  perspective,  food  prices  were 
66.5%  higher  (EU:  44.8%)  and  the  energy  prices 
49.9% higher (EU: 49.2%) at the end of 2024 than 
in 2015, affecting disproportionately lower income 
households. In response, the Ministry of Economics 
is  exploring  potential  mechanisms  to  cap  food 
prices  in  grocery  stores  in  2024.  However,  no 
measures  have  so  far  been  adopted.  The 
continued  pressure  of  high  energy  costs  on  low-
income  households  is  partly  reflected  by  an 
increase in arrears on utility bills, rising from 5.9% 
in 2022 to 7.0% in 2023 (EU: 6.9%). Latvia could 
benefit  from  exploring  options  to  reduce  the 
energy  poverty  risk,  including  through  the  Social 
Climate Fund plan. 

Rural  areas  and  certain  population  groups 
are  particularly  vulnerable.  38.5%  of  persons 
with disabilities were at risk of poverty and social 
exclusion  in  2023,  19.4 pps  higher  than  those 
without  disabilities.  Moreover,  over  50%  of 
persons  with  severe  disabilities  were  at  risk  of 
poverty and social exclusion in Latvia in the same 
year, which was one of the highest rates in the EU. 
In 2024, the persons at-risk-of-poverty and social 
exclusion  (AROPE)  rate  in  rural  areas  was  29.4% 
(EU:  21.3%)  and  19.3%  (EU:  21.4%)  in  the  cities, 
highlighting  a  significant  rural-urban  divide  in 
Latvia.  This  is  due  to  lower  economic  activity, 
opportunities  and  average  income  in  the  rural 
areas,  which  also  result  in  higher  unemployment 
outside of the capital region of Riga (205). The risk 
of poverty risk has decreased significantly for low-
skilled  workers  (i.e.  with  qualifications  of  ISCED 
levels  0-2)  from  37.5%  in  2022  (EU:  29.0%)  to 
29.2%  in  2023  (vs  EU:  29.4%).  This  development 

(205) Bezdarba statistika | Nodarbinātības valsts aģentūra 

correlates with the increase in the minimum wage 
from  EUR 500  to  EUR 620  in  2023.  The  risk  of 
poverty  for  medium-skilled  workers  (i.e.  with 
qualifications  of  ISCED  levels  3-4),  however,  has 
increased  from  21.3%  in 2022  to  23.2% in  2023 
and  remains  much  above  the  EU  average  of 
14.4%.  The  two  groups  represent  16.0%  (EU: 
24.7%)  and  50.0%  (EU:  44.4%)  of  the  total 
population  respectively.  The  figures  highlight  the 
scale  of  the  need  for  both  upskilling  and  better 
working conditions. Women also face a higher risk 
of poverty  or social  exclusion than men at 26.3% 
vs  22.0%  in  2024  respectively.  This  is  probably 
due to women working in sectors with lower wages 
and  their  lower  participation  in  the  labour  market 
(74.4% for women vs 79.0% for men). 

The number of children at risk of poverty or 
social exclusion is rising. The at-risk-of-poverty 
and social exclusion rate for children remains well 
below the EU average at 17.9% vs 24.2% in 2024, 
which  is  below  the  2019  value  of  18.7%  (EU: 
22.8%).  Children  at  risk  of  poverty  and  social 
exclusion  are  facing  higher 
levels  of  unmet 
medical  needs  and  are  more  exposed  to  living  in 
overcrowded housing (206). In 2023, Latvia adopted 
a national action plan to implement the European 
Child Guarantee (ECG), highlighting its intentions to 
improve the monitoring and support of vulnerable 
children.  Further  work  is  needed  to  reduce  the 
gaps in support for the most vulnerable groups, as 
the  current  support  mechanisms  and  the  national 
ECG  action  plan  lack  a  targeted  approach  (207). 
Latvia  has  so  far  not  set  a  national  target  for 
2030  to  reduce  the  number  of  children  at  risk  of 
poverty. 

The  risk  of  poverty  is  especially  high  for 
older  people,  primarily  impacted  by  low 
pension  adequacy.  In  2024,  42.9%  of  persons 
over  the  age  of  sixty-five  were  at  risk  of  poverty 
(EU:  19.4%).  Pension  adequacy  is  relatively  low. 
The  aggregate  replacement  ratio  has  decreased 
from 0.50 in 2023 to 0.44 in 2024 with the gap to 
the  EU  average  now  markedly  widening.  By 
contrast 
the  aggregate 
replacement  ratio  for  pensions  is  by  0.04 pps 
higher  for  men  than  women,  it  is  0.04 pps  lower 

the  EU,  where 

to 

(206) Overcrowding rate by age, sex and poverty status - total 

population - Statistics | Eurostat. 

(207) Given that the support schemes for children in Latvia are 

universal and the income assessment and the provision of 
social services is with the municipalities. 

77 

 
 
 
to  women 

for  men  compared 
in  Latvia. 
Nevertheless, men have higher contributions based 
on  their  wages  throughout  their  careers  and  also 
receive higher old-age pensions, with the average 
standing at EUR 547.90 vs EUR 495.90 for women 
in  2023  (national  average  EUR 513.70).  Pensions 
as  share  of  GDP  is  one  of  the  lowest  in  the  EU, 
standing  at  7.9%  vs  EU  average  12.9%  in  2021. 
Latvia has taken steps in recent years to improve 
pension  adequacy  through  indexation,  raised  non-
taxable  minimums  and  the  reintroduction  of 
pension  supplements  for  those  who  retire(d) 
between  2012  and  2028  for  the  years  worked 
until  1996.  However,  it  would  be  beneficial  to 
continue  working  on  raising  pension  adequacy  in 
order  to  alleviate  the  very  high  old-age  poverty 
rate  (e.g.  through  the  acceleration  of  a  base 
pension  reform  or  a  strengthened  indexation 
mechanism). 

protection (down from 14.0% in 2022 to 13.6% in 
2023).  In  its  2025  budget,  Latvia  has  earmarked 
indicatively  3.45%  of  GDP  for  defence,  which 
might further increase the risk of cuts to the social 
protection budget in the years to come. The social 
is  nevertheless  crucial  for 
protection  budget 
improving  social  cohesion  and  resilience,  and 
particularly  needed  in  the  EU  external  border 
region  of  Latgale  as  it  has  been  disproportionally 
affected by the war. 

Graph A11.1: Share of population aged 65 or over, 
on 1st January and by sex, 2023, 2030, 2040, and 
2050. 

are 

services 

provided  mostly 

Social  services  remain  under-developed,  and 
their  quality  varies  across  municipalities. 
Social 
by 
municipalities  with  the  richer  ones  in  the  position 
to  offer  higher  quality  and  a  broader  range  of 
services  than  the  poorer  ones.  The  reform 
‘minimum  basket  of  social  services’,  of  which  the 
first  phase  entered  into  force  in  January  2025, 
aims  to  implement  a  minimum  set  of  social 
services  that  each  of  the  municipalities  must 
provide  in  order  to  allow  for  a  more  equitable 
access  to  social  services  across  the  country.  The 
the 
ESF+  and  ERDF  will 
implementation  of  the  minimum  services  basket 
with a combined allocation of EUR 97.5 million for 
the  development  of  community-based  services. 
The  success  of  the  reform  will  depend  largely  on 
the provision of the necessary financial support to 
all  municipalities.  Implementation  will  require  a 
thorough  consideration  of  the  needs  and  the 
regional disparities taking into account the current 
quality of offers at the individual municipality. 

contribute 

to 

Increasing  defence  spending  due  to  the 
geopolitical  situation  risks  weakening  the 
much-needed funding of the social protection 
system  further.  For  years,  Latvia  has  had  low 
levels of general government expenditure on social 
protection. This situation has been exacerbated by 
Russia’s  war  of  aggression  against  Ukraine,  as 
defence  spending  has  since  grown  significantly 
from  2.4%  of GDP  in  2022  to  3.1%  in  2023.  The 
required funds have been provided through cuts in 
government expenditure in both healthcare (with a 
budget  down  from  5.6%  in  2023)  and  social 

78 

Estimated/provisional values for the EU in 2023. Eurostat 
baseline projections of population for 2024 onwards. 
Source: (1) Eurostat (demo_pjangroup, proj_23np) 

Demographic  ageing  and  poor  healthcare 
indicators  indicate  a  growing  demand  for 
quality long-term care services. The population 
of Latvia is ageing, with the share of people aged 
sixty-five and above expected to increase by more 
than  45%  between  2023  and  2050.  Latvia  also 
shows  some  of the  weakest  healthcare  outcomes 
in the EU (see Annex 14). However, the number of 
people  aged  sixty-five  and  above,  who  actually 
receive  long-term  care  (LTC)  services,  stands  at 
only 9% of the total population in this age cohort, 
while  the  demand  for  residential  LTC  and  home 
care  is  growing.  In  the  capital  city  of  Riga,  the 
waiting  lists  for  residential  care  reached  more 
than  800  people  by  mid-2024,  while  the  number 
of  people  receiving  home  care  grew  substantially 
from  5 800  people  in  the  first  half  of  2023  to 
6 300 people in first half of 2024. To address the 
rising  challenge  of  LTC  needs  with  appropriate 
policies,  it  is  important  for  Latvia  to  develop  its 
data collection and monitoring system for LTC. The 
data  collection  should  provide  information  about 
existing  care  services  and  number  of  places 
available,  the  number  of  people  on  waiting  lists 
and average waiting times and also about regional 
disparities in offer, places and waiting times. This 

0%5%10%15%20%25%30%35%20232030204020502023203020402050EULVMalesFemales 
   
would be an important policy planning tool with a 
view to the strong expected increase in such cases, 
due to the ageing population. 

Access to affordable and quality LTC services 
are  limited,  and  healthcare  outcomes  are 
poor.  Public  spending  on  LTC  stood  at  0.5%  of 
GDP,  remaining  much  lower  than  the  EU  average 
of  1.7%  in  EU  in  2022.  Public  spending  on  home 
care is particularly low at 17% of total LTC public 
spending,  compared  to  28.8%  in  EU  in  2022.  The 
share of the older population (sixty-five or over) in 
need of LTC, who used formal home care services 
in  the  past  twelve  months  was  far  below  the  EU 
average  (14.6%  vs  28.6%  in  the  EU  in  2019). 
Considering this situation, the implementation of a 
the 
minimum 
development of a sustainable LTC financing model 
in the coming years remains vital. The situation is 
made  worse  by  formal  and  informal  LTC  worker 
shortages,  which  require  specific  policy  action  to 
attract and retain social care workers.  

services  basket  and 

social 

House prices have sharply increased over the 
last  decade.  House  prices  have  almost  doubled 
over the last decade in nominal terms. The growth 
in  house  prices  has  moderated  in  more  recent 
years  (+3.7%  in  2023,  following  two  years  of 
sharp increases with +10.9% in 2021 and +13.8% 
in  2022).  House  prices  are  estimated  to  be 
overvalued  by  around  15%  and  have  increased 
slightly further in 2024 (+5.4% in Q3-2024 year-
on-year).  House  sales  and  building  permits  have 
fallen  since  2021,  showing  adjustment  to  higher 
interest rates. 

Overall,  housing  affordability  has  remained 
stable over the last decade and new housing 
supply  remains  low.  Since  2015,  house  prices 
have grown slightly faster than household income 
and  the  standardised  house  price-to-income  ratio 
steadily  rose  until  2022  (13%  increase  between 
2015  and  2022)  but  corrected  in  2023,  with  the 
overall  increase  standing  at  6%  from  2015  to 
2023.  At  the  same time,  this  ratio  remains below 
its  long-term  average.  The  ratio  of  dwellings  per 
capita has increased by 6% since 2015, reflecting 
a  stable  number  of  dwellings  and  a  decrease  in 
population  (-5%  since  2015).  Despite  a  mild 
increase  over  the  past  years,  the  ratio  of  house 
completions per capita remains among the lowest 
in  the  EU.  Residential  building  permits  have  been 
stable  over  the  past  years.  Latvia’s  process  for 
issuing  building  permits  is  lengthy  and  includes 
excessive  red  tape  around  building  regulations. 

79 

Taking  into  account  the  cost  of  mortgages,  the 
borrowing  capacity  of  households  worsened  over 
the past decade since an average household needs 
a  significantly  higher  share  of  its  annual  income 
for mortgage repayments. While the rental market 
is  very  small,  the  ratio  of  new  rents  to  incomes 
has fallen over the last decade. 

There  is  a  shortage  in  quality  housing.  While 
the  housing  cost  overburden  was  lower  than  the 
EU  average  (6.7%  vs  EU 8.2%)  and  falling  in  line 
with the EU trend, the existing housing stock is of 
poor  quality  and  the  offer  for  affordable  new 
housing  is  very  limited  (208),  which  has  an  impact 
on labour mobility, especially in the regions. While 
Latvia  has  very  high  levels  of  property  ownership 
(70%  outright  and  10%  with  mortgage) 
investments  in  the  existing  properties  is  limited, 
due to high poverty and low wealth of the middle 
class. The overcrowding rate is the second highest 
in  the  EU  at  39.3%  in  2024,  the  share  of  the 
population  having  neither  a  bath  nor  a  shower  in 
their dwelling is the second highest in the EU (9% 
in  2020).  In  response  to  these  challenges,  Latvia 
has adopted an Affordability Housing Strategy for 
2023-2027  and  also  launched  an  Affordable 
Housing  Fund  for  the  development  of  low-cost 
municipal  rental  apartments  under  the  RRP.  The 
European  Regional  Development  Fund  (ERDF)  will 
also  invest  EUR 70  million  in  the  development  of 
social  housing.  Yet,  more  efforts  are  required  for 
the  construction  of  and  the  renovation  towards 
high quality housing, to meet the EU objectives of 
climate  neutrality  in  a  socially 
just  manner, 
protecting specifically the lower income and more 
vulnerable households. 

Social  housing  remains  inadequate  and  a 
comprehensive  national  strategy  to  address 
homelessness  is  lacking.  In  2023,  more  than 
5 000  people  were  on  a  waiting  list  for  social 
housing,  with  the  average  waiting  time  for 
municipal  housing  in  Riga  standing  at  six  and  a 
half  years.  The  existing  stock  of  social  housing  is 
small  (2%  from  total  number  of  dwellings  vs  EU 
7.5%)  and  of  poor  quality  (in  2018,  only  1 046 
free  municipal  apartments  out  of  3 286  were 
deemed  adequate  for  living).  At  the  same  time, 
data  collection  on  homelessness  is  limited  (with 
data  only  available 
in  municipal  shelters). 
According  to  the  latest  national  estimates  for 
homelessness (2022), 5 977 people are homeless, 

(208) see Housing Guidelines 2023-2027. 

 
 
representing  0.32%  of  the  total  population.  Of 
these,  19%  are  women  and  81%  are  men(209). 
There  is  also  no  targeted  strategy  to  address 
homelessness  at  the  national  level,  despite  both 
the  Ministry  of  Welfare  and  the  Ministry  of 
Economics working towards potential solutions. At 
municipal level, Latvia has successfully piloted the 
Housing  First  approach  in  Riga,  Valmiera  and 
Liepaja  with  the  support  of  the  European  Social 
Fund.  Latvia  could  benefit  from  further  upscaling 
its approach in other municipalities. 

(209) OECD Country Notes on Homelessness data. 

80 

 
 
 
ANNEX 12: EDUCATION AND SKILLS 

the 

Latvia’s 

throughout 

competitiveness. 

Skills  shortages,  unequal  access  to  quality 
education  and  low  levels  of  adult  learning 
hamper 
The 
education  system  performs  comparatively  well 
overall  but  faces  challenges  in  tackling  territorial 
gaps in basic skills proficiency and ensuring quality 
education 
country.  Rapidly 
changing  labour  market  needs,  including  those 
stemming  from  the  green  and  digital  transitions 
and  other  technological  changes,  together  with 
Latvia’s  shrinking  workforce,  put  pressure  on  the 
education  and  training  systems  to  better  equip 
young  people  and  adults  with  a  broad  range  of 
relevant  skills.  Higher  education  and  vocational 
education and training (VET) do not yet adequately 
respond  to  labour  market  needs,  leading  to  skills 
mismatches.  A  low  share  of  science,  technology, 
engineering and maths (STEM)  graduates and low 
levels  of  digital  skills  further  exacerbate  skills 
shortages.  Targeted  policies  are  in  place  and  key 
reforms  are  under  way  at  all  levels  of  education 
but  will  require  sustained  efforts  and  monitoring 
and evaluation to ensure their effectiveness. 

Ensuring  a  sufficient  supply  of  quality  early 
childhood education and care (ECEC) remains 
a priority.  In 2024, 96.1% of children from 3 to 
school age were enrolled in ECEC, and thus already 
surpassed  the  EU  target  of  96%  by  2030. 
However,  the  share  of  children  under  three 
enrolled  in  formal  ECEC  which  has  risen  steadily 
over the past decade, experienced a sharp decline 
in 2024, dropping by 10pps to now 24.9%.  This is 
far  below  both the  EU  average  of  39.2%  and  the 
Barcelona  target  of  41%  by  2030.  Latvia’s 
Education  Law  stipulates  that  all  children  are 
legally entitled to a place in ECEC from the age of 
18 months. However, there is a shortage of public 
places  in  ECEC  in  some  areas,  especially  in 
municipalities  close  to  Riga.  The  government’s 
guidelines  on  the  development  of  education  for 
2021-2027 include the goal to improve access to 
ECEC for 1-4-year-olds. The move to competence-
based  teaching  and  learning  has  been  under  way 
in preschools since 2019. 

in 

but 

basic 

skills, 

Latvia’s  education  system  produces  good 
further 
results 
improvement  would  sustain  future  skills 
development.  The  proportion  of  15-year-olds 
reading,  mathematics  and 
underachieving 
science, as measured by the OECD Programme for 
International  Student  Assessment 
(PISA),  has 
remained consistently below the EU average since 
2013, and Latvia is one of the top-performing EU 

in 

countries  in  science  proficiency.  Even  so,  more 
than  20%  of  15-year-olds  have  insufficient  basic 
skills  in  mathematics  and  reading  (22.2%  and 
22.8%  in  2022  vs  the  EU  average  of  29.5%  and 
26.2% respectively), which could harm future skills 
development.  The  proportion  of  top-performing 
students  is  below  the  EU  average  in  all  three 
domains and has been for the past decade. 

from 

in  mathematics 

the  bottom  quarter  of 

Students’  socio-economic  status  has  a 
limited  influence  on  learning  achievement, 
but  disparities  between  areas  and  types  of 
school  are  significant.  Latvia’s  proportion  of 
early  leavers  from  education  and  training  (ELET) 
among  18-24-year-olds  is  among  the  lowest  in 
the EU (7.9% in 2024) and is well below both the 
EU average of 9.3% and the EU target of less than 
9%  by  2030.  According  to  PISA  2022,  Latvia  has 
in 
one 
the  smallest  socio-economic  gaps 
underachievement 
(28.0 
percentage points (pps)  against an EU  average of 
37.1 pps).  The  rate  of  underachievement  among 
students 
the 
distribution  also  remains  well  below  the  EU 
average  (36.9%  vs  48.0%).  However,  basic  skills 
proficiency 
by 
vary 
geographical  area  and  type  of  school.  The  PISA 
2022  results  confirm  that  access  to  quality 
education  still  depends  on  place  of  residence: 
larger urban schools, particularly in Riga, continued 
to perform much better than smaller rural schools. 
The  differences  are  even  greater  between 
different types of school, with students from state 
‘gymnasiums’  scoring  significantly  higher  than 
students from high schools and basic schools, with 
differences of 52 and 72 score points respectively. 
The  government 
is  pursuing  a  policy  of 
streamlining the school network, which is expected 
to help overcome territorial disparities. 

significantly 

levels 

Renewing  the  teaching  workforce 
is  a 
challenge  with  long-term  consequences  for 
the  quality  of  education.  Despite  government 
efforts,  teaching  remains  a  relatively  unattractive 
option for young graduates, and teacher shortages 
are  becoming  apparent.  Retraining  programmes 
for  future  teachers  have  proven  successful  and 
continue to attract new participants, both with and 
without teaching experience. However, with 37.5% 
of 
(EU  average 
24.8%) (210),  the  number  of  new  participants  is 

teachers  older 

than  55 

(210) Eurostat. 

81 

 
 
 
 
 
uptake. Yet,  collective  bargaining  coverage  stands 
at  only  27.1%  of  all  employees(213),  and  its 
influence  on  the  dual  learning  development  and 
uptake is thus reduced. 

The  proportion  of  young  adults  with  a 
tertiary educational qualification is high, but 
a  wide  gender  gap  persists.  In  2024,  45%  of 
Latvian 25-34-year-olds had a tertiary educational 
qualification, above the EU average of 44.2% and 
in  line  with  the  EU-level  target  of  45%  by 
2030(214).  However,  while  the  tertiary  educational 
attainment (TEA) rate of young women (56.8%) is 
significantly  above  the  EU  average  of  49.9%,  the 
rate for men is well below (33.9% vs 38.7%). The 
resulting gender gap is one of the widest in the EU. 

Graph A12.1: Unemployment rate by educational 
attainment (annual) - Latvia 

unlikely  to  be  sufficient  to  replenish  the  teaching 
workforce. 

the 

Latvia  is  reforming  the  VET  system  and  has 
become  more  flexible,  but  the  employability 
of  VET  graduates  remains  low.  VET  reforms 
are  ongoing  and  aim  to  move  towards  a  more 
flexible  and  modular  approach.  In  2023,  Latvia 
passed regulatory amendments that improved VET 
qualification  recognition,  including  for  the  partial 
completion  of  a  professional  qualification.  The 
reform  has  also 
issuing  of 
introduced 
qualifications  in  digital  format.  In  2023,  all  VET 
institutions  were  assigned  a  role  to  lead  the 
coordination  of  the  design  and  revision  of  VET 
curricula  in  at  least  one  sector.  In  addition,  in 
2024,  Latvia  introduced  a  VET  graduate  tracking 
tool(211).  The  number  of  upper  secondary 
vocational  students 
from 
24 120 in 2021 to 24 885 in 2022, but the share 
of  vocational  students  at  upper  secondary  level 
remained well below the EU average (at 41.1% vs 
49.0% in the EU). While conditions for VET uptake 
are improving, the employment rate of recent VET 
graduates stood at 74.8% in 2023, well below the 
81% EU average, which poses a risk for attracting 
future  VET  students.  The  level  of  post-secondary 
non-tertiary 
education  graduates 
decreased from 1 670 in 2021 to 1 370 in 2022, 
in  line  with  the  fall  in  the  number  of  tertiary 
education graduates. The share of employees with 
upper  secondary  or  non-tertiary  vocational 
education  stood  at  just  27.4%  in  2023,  falling 
from 29.1% in 2022 and remaining far below the 
EU average of 35.5%.  

increased  slightly 

vocational 

introduced  apprenticeship-type 

Vocational  education  programmes  in  Latvia 
are  mainly  school-based  and  Latvia  could 
benefit  from  a  further  implementation  of  the 
work-based learning approach. Since 2015, Latvia 
has 
schemes 
learning (212),  which 
labelled  as  work-based 
provides  for  a  flexible  curriculum.  However,  the 
learning 
introduction  of  a  more  business-led 
process  could  benefit  employability  and  labour 
market  outcomes.  To  achieve  this,  it  would  be 
essential 
to  strengthen  cooperation  between 
educational  institutions  and  employers  and  to 
strengthen  social  partners’  capacity  for  a  more 
effective  collective  bargaining  and  dual  learning 

(1) Unemployment rates, ages 20-64 (% of labour force) 
Source: Eurostat, LFS [lfsa_urgaed] 

There is scope to improve green competences 
and  skills 
in  school,  VET  and  higher 
education.  Less  than  a  third  of  Latvian  schools 
offered  all  or  nearly  all  their  eighth  graders 
opportunities  to  take  part  in  activities  related  to 
environmental  sustainability  (EU-17:  48%) (215). 
Latvian students have one of the lowest levels of 

(213)  OECD Database on collective bargaining systems was 
published; OECD temporary archive 

(211) Education and Training Monitor 2024 

(214)  Eurostat: edat_lfse_03. 

(212) VET in Europe database | Vocational education and training 
in Europe | Latvia | CEDEFOP 

(215)  2022 International Civic and Citizenship Education Study 
(ICCS). The average in the 17 Member States surveyed was 48%. 

82 

05101520253035200720082009201020112012201320142015201620172018201920202021202220232024% labour force 20-64LVHigh skilledMedium skilledLow skilled 
 
  
 
knowledge about sustainable development among 
the  EU  countries  surveyed,  even  though  most 
teachers 
training  on 
environmental sustainability. 

(61%)  have 

received 

The number of higher education graduates in 
STEM remains low despite policy efforts.  The 
government has been promoting STEM subjects by 
gradually  increasing  the  proportion  of  publicly 
financed study places in STEM fields and reducing 
places in social sciences to steer demand to fields 
linked  to  high  added-value  economic  sectors.  The 
Latvian recovery and resilience plan (RRP) sets out 
various  reforms  of  the  higher  education  system 
that aim to align university courses with industrial 
needs  and  to  increase  the  attractiveness  of 
research  careers.  However,  the  number  of  STEM 
graduates  is  still  low,  especially  among  women: 
among  2022  graduates,  19.7%  were  STEM 
graduates,  one  of  the  lowest  shares  in  the  EU 
(average  26.6%).  Of  these,  only  about  a  third 
(33.1%)  were  women  (or  6.5%  of  all  graduates, 
compared to an EU average of 9.4%). At 14.7 per 
thousand,  the  proportion  of  STEM  graduates 
among  the  population  aged  20-29  has  not 
changed  significantly  over  the  past  decade  and 
remains  lower  than  the  EU  average  of  23  per 
thousand.  However,  the  share  of  ICT  graduates  is 
increasing  steadily  and  remains  above  the  EU 
average (5.4% vs 4.5% in 2022) (216). Only 43.9% 
of  all  medium-level  VET  pupils  were  enrolled  in 
STEM fields in 2022 (36.2% EU wide). 

Latvia is taking steps to boost its innovation 
potential  by  increasing  the  number  of  PhD 
graduates,  with  support  from  the  Recovery 
and  Resilience  Facility  (RRF).  A  new  doctoral 
model  was  launched  in  the  2024/2025  academic 
year.  The  new  model  ensures  adequate  pay  for 
doctoral students during their studies and provides 
for  a  unified  PhD  process.  Implementation  will  be 
gradual, with completion scheduled for early 2027. 
The  lack  of  researchers  and  PhD  graduates  is 
widely  perceived  as  a  barrier  to  strengthening 
Latvia’s  research and innovation system and as a 
threat to its competitiveness. In 2022, there were 
0.3 PhD graduates per  thousand inhabitants aged 
25-34  (EU  average:  1.3),  down  from  0.5  in  2015. 
In addition, the government is pursuing its efforts 
to  make  higher  education  funding  more  efficient 
and  performance  based.  A  new 
regulatory 
framework has been developed for allocating base 

(216) DESI indicators. 

funding  for  scientific  activities 
to  scientific 
institutions. The framework sets out a link between 
the  results  of  the  international  evaluations  of 
these  scientific  institutions’  activities  and  the 
scientific activity base funding they receive. 

jobs,  poverty 

The skills level plays a key role in the quality 
of 
rates  and  economic 
competitiveness.  Latvia  faces  some  of  the 
highest  levels  of  poverty  and  social  exclusion  in 
the  EU  (see  Annex  11):  low-skilled  workers  (i.e. 
with  qualifications  of  ISCED  levels  0-2)  are  much 
more at risk of poverty (29.2% in 2023 vs 29.4% 
in the EU) than those with tertiary education (7.5% 
vs7.2%  in  the  EU).  This  correlates  with  the  fact 
that  Latvia  has  very  high-income  inequality  (see 
Annex  11),  with  a  wage  distribution  system  that 
puts the lower-skilled at a significantly higher risk.  

The  Latvian 
labour  market  experiences 
considerable  skills  shortages  (see  Annex  10), 
which  hinders  economic  growth.  Real  GDP  per 
capita  has  been  catching  up  over  the  years, 
reaching EUR 13 300 in 2023, but it remains well 
below  the  EU  average  of  EUR 29 800.  This 
highlights the need for the continued development 
of  the  workforce  and  the  adult  learning  system, 
with a strong focus on upskilling the lowest skilled 
workers, which also helps reduce poverty. 

Skills  shortages  are  growing,  which  poses  a 
risk to labour market adaptability, in light of 
the  green  and  digital  transitions.  The  Latvian 
labour  market  is  facing  growing  labour  and  skills 
shortages,  with  the  general  job  vacancy  rate 
standing  at  2.7%  in  2023,  down  0.2 pps  from 
2022 but up from 2.2% in 2020. Broken down by 
sector,  the  job  vacancy  rates  show  that  Latvia 
faces significant shortages in construction (2.8%), 
and 
manufacturing 
communication  (2.5%)  and  healthcare  and  social 
work 
long-term 
forecasts (218)  these  shortages  will  only  intensify, 
occupations, 
particular  STEM 
affecting, 
construction,  social  care  and  healthcare  (see 
Annexes 11 and 13). Growing shortages can harm 
the  Latvian  labour  markets’  adaptability  to  the 
green and digital transitions.  

(2.6%) (217).  According 

information 

(2.5%), 

to 

in 

(217) Statistics | Eurostat 

(218) Darba tirgus ziņojums | Ekonomikas ministrija 

83 

 
 
 
 
The  number  of  individuals  with  basic  or 
above  at  least  basic  digital  skills  fell  from 
50.8%  in  2021  to  45.3%  in  2023,  which  is 
significantly below the EU average of 55.6%. 
The  rate  is  also  the  lowest  in  the  Baltics,  with 
62.6%  in  Estonia  and  52.9%  in  Lithuania  having 
basic  or  above  basic  digital  skills  in  2023.  Under 
the  RRF,  EUR 95  million  are  dedicated  for  digital 
upskilling. In  2025,  Latvia  will  launch  training 
programmes for climate neutrality for some 5 500 
workers,  affected  by  the  peat  sector  transition, 
with  support  from  the  Just  Transition  Fund  (JTF). 
At  the  same  time,  Russia’s  war  of  aggression 
against Ukraine has harmed trade and key sectors, 
such  as  transport  and  manufacturing.  This  will 
require  continued  investments  in  upskilling  and 
reskilling the workforce. 

Latvia  would  benefit  from  an  expansion  of 
the current adult learning and training offer, 
especially  for  groups  underrepresented  in 
training.  The  percentage  of  adults  who  reported 
having  participated  in education  or  training  in  the 
last  12  months (219)rose  from  47.5%  in  2016  to 
52.2%  in  2022.  However,  this  rise  was  due  to  an 
increase  in  guided-on-the-job  training  without 
which  the  percentage  of  adults  participating  in 
education or training in the last 12 months would 
have  fallen  from  39.0%  in  2016  to  34.1%  in 
2022, which is considerably short of Latvia’s 2030 
target  of  at  least  60%.  Certain  groups  (i.e.  men, 
those  aged  45  and  older,  low-skilled  people, 
unemployed  people, 
inhabitants)  show 
rural 
significantly  lower  participation  rates  than  the 
average. Only 26.5% of men, compared to 41.3% 
of  women,  took  part  in  education  or  training  in 
2022, while people in cities’ participation rate was 
2.9 pps higher (at 40.4%) than those living in rural 
areas.  Likewise,  only  13.6%  of  low-skilled  (ISCED 
levels  0-2)  compared  to  54.7%  of  high-skilled 
(ISCED  levels  5-8)  adults  took  part  in  education 
during  that  year  compared  to  54.7%  of  high-
skilled  (ISCED  levels  5-8).  This  is  reflected  in  the 
findings  of  the  State  Audit  Control  report  of 
2022 (220),  which  highlighted  that  adult  education 
in Latvia fails to reach those with lower skills, who 
are those most in need of it.  

training 

supporting 

employers’ 

Efforts  to  establish  a  sustainable  adult 
framework  are 
learning  and 
underway, with the support of the EU funds. 
On  the  other  hand,  Latvia  has  made  a  significant 
reform  commitment  in  the  context  of  the  RRP  to 
establish  a  sustainable  and  socially  responsible 
support  framework  for  adult  learning.  Measures 
needs-based 
include 
learning  accounts 
individual 
training,  piloting 
(ILAs),  launched  in  2024,  and  piloting  sectoral 
skills  funds  for  a  more  sustainable  financing 
model.  In  addition,  Latvia  put  in  place  a  common 
framework  for  assessing  basic  digital  skills  in 
formal,  non-formal  and  informal  education  in 
2024 (221). With the support of the European Social 
Fund  Plus  (ESF+),  Latvia  will  continue  to  support 
adult  education  based  on  the  individual  needs  of 
adults  for  28 000  employed  people  (with  funding 
of EUR 29.4 million). These people will be provided 
with support for acquiring and improving the skills 
or  qualifications  necessary  for  the  labour  market. 
This includes involving 14 000 employed residents 
with a low level of education in training. Latvia is 
also  expected  to  develop  a  systemic  approach  to 
monitoring the quality of adult education. 

Graph A12.2: Participation in education and 
training by educational attainment level, 2022 

(1) % of people aged 25-64; Formal and non-formal 
education and training (excluding guided-on-the-job training) 
Source: Eurostat - adult education survey (AES 2022) 

(219) Eurostat: Adult Education Survey- participation in education 
and training excluding guided on-the-job training 

(220) Vai pieaugušo izglītība sasniedz tai izvirzītos mērķus un 
atbilst darba tirgus vajadzībām? | Valsts Kontrole 

(221) A common framework for the assessment of basic digital 
skills, the identification and planning of training needs and the 
assessment based on DigComp | Izglītības un zinātnes ministrija 

84 

010203040506070All ISCED 2011 levelsLess than primary,primary and lowersecondary education(levels 0-2)Upper secondary andpost-secondary non-tertiary education(levels 3 and 4)Tertiary education(levels 5-8)EULatvia 
 
   
 
ANNEX 13: SOCIAL SCOREBOARD 

Table A13.1:Social Scoreboard for Latvia 

(1) Update of 5 May 2025. Members 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 2025 for details on the 
methodology (https://employment-social-affairs.ec.europa.eu/joint-employment-report-2025-0). 
Source: Eurostat 

85 

34,17,945,310,73,36,2877,46,92,2126,124,317,921,521,36,724,98,4Critical situationTo watchWeak but improvingGood but to monitorOn averageAdult participation in learning (during the last 12 months, excl. guided on the job training, % of the population aged 25-64, 2022)Equal opportunities and access to the labour marketSocial Scoreboard for LatviaBest performersBetter than averageEarly leavers from education and training(% of  the population aged 18-24, 2024)Young people not in employment, education or training(% of the population aged 15-29, 2024)Gender employment gap(percentage points, population aged 20-64, 2024)Income quintile ratio (S80/S20, 2024)Dynamic labour markets and fair working conditionsSocial protection and inclusionShare of individuals who have basic or above basic overall digital skills(% of the population aged 16-74, 2023)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2024)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2024)Self-reported unmet need for medical care (% of the population aged 16+, 2024)Disability employment gap (percentage points, population aged 20-64, 2024)Housing cost overburden (% of the total population, 2024)At risk of poverty or social exclusion (AROPE) rate (% of the total population, 2024)Employment rate(% of the population aged 20-64, 2024)Unemployment rate(% of the active population aged 15-74, 2024)Long term unemployment(% of the active population aged 15-74, 2024)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2023)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2024) 
 
 
 
  
 
 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Latvia’s  health  system  faces  significant 
challenges. These need to be addressed if the 
country  is  to  improve  the  health  of  its 
population  and 
fairness,  while 
social 
boosting the competitiveness of its economy. 
Key  challenges  include:  (i)  low  life  expectancy, 
linked to high preventable and treatable mortality; 
(ii)  limited  access  to  healthcare;  (iii)  suboptimal 
funding  and  cost-effectiveness  of  the  health 
system;  (iv)  an  insufficient  focus  on  disease 
prevention;  and 
(v)  shortages  of  healthcare 
workers.  

Life expectancy at birth in  Latvia rebounded 
close  its  pre-COVID-19  level  but  was  still 
among the lowest in the EU in 2023. Moreover, 
there are striking gender gaps in health outcomes. 
Women can expect to live around 10 years longer 
than  men,  one  of  the  widest  gender  gaps  in  life 
expectancy  in  the  EU.  However,  they  can  only 
expect to live around 2.4 years longer than men in 
good  health.  The  rate  of  treatable  mortality  is 
among 
the  EU,  suggesting 
in 
shortcomings  in  the  effectiveness  of  the  health 
system.  Diseases  of 
the  circulatory  system 
(‘cardiovascular  diseases’)  and  cancer  remain  the 
leading  causes  of  death,  with  mortality  rates 
higher than the EU  average. Latvia participates in 
several  joint  actions  funded  by  EU4Health  aimed 
at reducing the burden of cardiovascular diseases, 
cancer, diabetes and respiratory diseases.  

the  highest 

Graph A14.1: Life expectancy at birth, years 

Source: Eurostat (demo_mlexpec) 

productivity 

The weak health outcomes negatively impact 
and 
Latvia’s  workforce, 
competitiveness.  In  Latvia,  mortality  at  working 
age as a proportion of total mortality is among the 
highest  in  the  EU,  exacerbating  the  effects  of 
population ageing on a shrinking labour force. The 
rate  of  potential  productive  life  years  lost  due  to 
non-communicable  diseases,  such  as  cancer  and 
(2 512  per 
cardiovascular  diseases, 

is  high 

100 000 population) compared to the EU average 
of  1 017  (222).  Between  2022  and  2040,  the 
working  age  population  in  Latvia  is  forecast  to 
shrink  by  1.2%  every  year  as  a  result  of  lower 
birth rates (EU-level projection: 0.3%).  

Graph A14.2: Treatable mortality 

Age-standardised death rate (mortality that could be 
avoided through optimal quality healthcare) 
Source: Eurostat (hlth_cd_apr) 

2021-2027 

Health expenditure in Latvia remains low, as 
does the share of health spending covered by 
public  funds.  In  2022,  health  spending  per 
inhabitant  was  among  the  lowest  in  the  EU  and 
less than two thirds of it was funded by the public 
purse.  The  government’s  medium-term  forecast 
(data  from  January  2025)  suggests  that  public 
spending on healthcare as share of GDP will  drop 
each  year  between  2025  and  2028,  falling  from 
4.8%  in  2025  to  4.1%  in  2028.  This  implies  that 
public  spending  on  healthcare  will  remain  below 
the  target  of  6%  of  GDP  by  2027  set  out  in 
Latvia’s 
Policy 
Guidelines.  The  low  level  of  public  funding  for 
healthcare  limits  its  accessibility,  leading  to  high 
waiting times, high levels of unmet needs and high 
out-of-pocket  spending  for  healthcare.  In  relation 
to 
country-specific 
received  a 
this,  Latvia 
in  2024  to  strengthen  the 
recommendation 
adequacy of healthcare. Hospitals report that their 
allocated funding cannot cover either the growing 
demand  for  healthcare  or  the  planned  patient 
numbers,  and  signal  that  this  will 
lead  to 
postponed  surgeries  and  increased  waiting  times. 
Under its recovery and resilience plan (RRP), Latvia 
aims  to  develop  and  implement  new  service 
models  for  healthcare  in  order  to  use  health 
resources more efficiently.  

Public  Health 

(222) Update, with 2022 data, of analysis presented by Health at 

a Glance: Europe 2016 - © OECD 2016. 

86 

75.775.573.174.575.681.380.480.180.681.420192020202120222023LatviaEU196.4188.6185.5205.0200.791.389.291.793.389.720182019202020212022per 100 000 populationLatviaEU 
 
        
        
 
 
 
Table A14.1:Key health indicators 

*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 based on 2022 (or latest 2021) data except for Luxembourg (2017). Doctors’ density data refer to practising 
doctors in all countries except Greece, Portugal (licensed to practise) and Slovakia (professionally active). Density of nurses: data 
refer to practising nurses (EU recognised qualification) in most countries except France and Slovakia (professionally active) and 
Greece (hospital only). **‘Available hospital beds’ covers somatic care, not psychiatric care. ***The EU median is used for patents. 
Source:  Eurostat database; European Patent Office; ****European Centre for Disease Prevention and Control (ECDC) for 2023. 

list 

the 

goes 

Latvia 

towards 

expanded 

Out-of-pocket  payments  account  for  a  greater 
proportion  of  health  spending  in  Latvia  than  the 
EU  average.  The  largest  share  of  out-of-pocket 
outpatient 
payments 
pharmaceuticals.  To  improve  the  affordability  of 
medicines, 
of 
reimbursable  medicines,  raised  the  level  of  public 
reimbursement  and  put  in  place  a  new  pricing 
model  as  from  1 January 2025.  This  new  model 
aims  to  incentivise  pharmacies  to  sell  more 
affordable  medicines, 
imposes  price  caps  on 
manufacturers  (to  align  prices  with  those  in 
Lithuania  and  Estonia)  and  only  permits  price 
changes once per year. Furthermore, co-payments 
from  patients  for  prescriptions  will  only  be 
required  when  they  start  the  treatment,  with 
subsequent refills exempt from additional charges. 

As regards public health, Latvia has scope to 
step up its efforts on disease prevention. The 
share of spending  directed at prevention  stood at 
2.8%  of  total  spending  on  health  in  2022,  much 
lower  than  the  EU  average  of  5.5%.  The  rate  of 
preventable  mortality is  among  the highest in the 
EU, linked to a high prevalence of behavioural risk 
factors. Latvia is among the EU countries with the 
highest  alcohol  consumption,  highest  smoking 
rates, lowest consumption of fruit and vegetables, 
and  lowest  levels  of  physical  activity  outside 
working  time.  Latvia  plans  to  strengthen  health 
promotion and disease prevention with the support 
of  the  cohesion  policy  funds  in  2021-2027. 
Furthermore,  the  Ministry  of  Health  recently 
proposed an action plan for 2025-2029 to combat 
the  rise  of  obesity.  The  plan  includes:  (i)  public 
awareness 
state-funded 
consultations  for  obese  patients  with  nutrition 
for  healthcare 
specialists;  and 

campaigns; 

training 

(iii) 

(ii) 

professionals.  Several  measures  under  Latvia’s 
RRP  also  aim  to 
improve  the  planning  and 
implementation  of  public  health  policy,  for 
example,  the  development  of  guidelines  for 
epidemiologically  safe  healthcare,  and  studies  in 
the  areas  of  infectious  diseases,  vaccination  and 
antimicrobial resistance.  

While  several 
investments  and  reforms 
supported  by  the  Recovery  and  Resilience 
Facility and the cohesion policy funds aim to 
improve  the  quality  and  adequacy  of  health 
services,  access  to  healthcare  remains 
limited.  In  2023,  the  proportion  of  the  Latvian 
population reporting unmet needs for medical care 
was  significantly  higher  than  the  EU  average 
(7.8% vs 2.4%) and had increased since 2022. The 
most recent data show a further increase to 8.4% 
in  2024.  Such  unmet  needs  are  mainly  due  to 
financial  reasons  and  waiting  times,  with  lower 
income  groups  affected  the  most.  The  magnitude 
of differences between income groups in Latvia is 
among  the  highest  in  the  EU.  Furthermore,  and 
specifically  among  people  who  declared  having 
medical needs, the gap between people below and 
above  the  poverty  threshold  (defined  as  60%  of 
the median equivalised income) is higher in Latvia 
than  the  EU  average.  A  range  of  measures  under 
the  RRP  and  the  cohesion  policy  aim  to  improve 
include 
health 
investments  in:  (i)  hospital  infrastructure  and 
medical  equipment;  (ii)  healthcare  digitalisation; 
(iii)  new  service  delivery  models;  (iv)  setting  up  a 
network  of  hospitals  specialising in  the  treatment 
and  care  of  cancer  patients;  (v)  developing  and 
implementing  recommendations  for 
integrated 
care;  and  (vi)  improving  the  provision  of  human 
resources for healthcare. 

system  accessibility. 

These 

87 

20192020202120222023EU average* (latest year) Cancer mortality per 100 000 population292.6296.5283.6280.0n.a.234.7 (2022)Mortality due to circulatory diseases per 100 000 population 770.6 783.5 859.5 806.2n.a.336.4 (2022)Current expenditure on health, purchasing power standards, per capita1 4361 5632 1101 928n.a.3 684.6 (2022)Public share of health expenditure, % of current health expenditure 60.1 63.6 69.5 64.9n.a.81.3 (2022)Spending on prevention, % of current health expenditure 2.63.15.12.8n.a.5.5 (2022)Available hospital beds per 100 000 population** 423 416 406 394n.a.444 (2022)Doctors per 1 000 population*3.33.33.43.4n.a.4.2 (2022)*Nurses per 1 000 population*n.a.n.a. 4.2 4.2n.a.7.6 (2022)*Mortality at working age (20-64 years), % of total mortality22.021.222.122.122.114.3 (2023)Number of patents (pharma / biotech / medical technology)0232229 (2023)***Total consumption of antibacterials for systemic use,                    daily defined dose per 1 000 inhabitants****13.911.911.615.014.920.0 (2023) 
 
        
 
Latvia  faces  persistent  shortages  of  health 
professionals, which hamper the provision of 
healthcare.  The  number  of  practising  nurses  per 
1 000  population  (4.2  in  2022)  is  one  of  the 
lowest  in  the  EU.  The  Ministry  of  Health  has 
estimated that the health sector has a shortfall of 
around  4 900  nurses.  The  number  of  doctors  per 
1 000  population  is  also  below  the  EU  average 
(3.4  vs  4.2  in  2022).  Working  conditions  are  a 
major  deterrent  to  entering  the  national  health 
service, especially low pay. A significant proportion 
of  doctors  (46.9%)  and  nurses  (39.1%)  are  aged 
55 and over, raising concerns about the long-term 
accessibility  of  health  services.  In  2024,  Latvia 
received  a  country-specific  recommendation  to 
address  labour  and  skills  shortages  in  the  health 
sector.  Accordingly,  the  government  approved  a 
health workforce development strategy for 2025-
2029,  as  part  of  Latvia’s  RRP.  The  strategy  sets 
out  to  attract  and  retain  staff  in  the  national 
health  service  by  creating  better  and  more 
motivating  working  conditions,  and  by  introducing 
new  professions  and  roles,  as  well  as  new 
approaches 
(such  as 
to  medical  education 
simulation training). 

investments, 

digital  health  strategy  running  until  2029  was 
approved by the government. The strategy aims to 
improve  the  availability  and  interoperability  of 
health  data,  and  to  boost  the  development  and 
use  of  digital  services  in  the  health  sector.  The 
digitalisation of the health sector will also benefit 
from  broader  cross-sectoral  investments  in  the 
national  digital  space  under  the  RRP.  Thanks  to 
these 
the  envisaged  national 
centralised  data  management  platform  will  also 
be  in  a  position  to  provide  access  to  healthcare 
datasets.  The  RRP  also 
includes  a  specific 
investment to collect reference genome data from 
Latvian citizens as part of the European ‘1+ Million 
Genomes’  initiative.  The  aim  is  to  strengthen 
Latvia’s  genetic  research  and  digital  capacity. 
Furthermore, Latvia participates in the EU4Health-
funded  joint  action  TEHDAS2  (225),  which  aims  to 
facilitate  the  implementation  of  the  European 
Health Data Space. 

innovation  and 

largely  untapped.  According 

The  potential  of  Latvia’s  health  system  to 
industrial 
drive 
foster 
in  the  EU  medical  sector 
development 
remains 
to 
Eurostat  data, Latvia  does  not  report  any  specific 
research  and 
public  expenditure  on  health 
development.  This  is  reflected  in  the  very  low 
number  of  European patents  granted  (only two in 
2023,  among  the  lowest  in  the  EU)  in  the 
pharmaceuticals, 
combined 
biotechnologies  and  medical  technologies  (223). 
Latvia also reports low clinical trial activity (224). 

areas 

of 

Latvia  plans  to  accelerate  the  digitalisation 
of  its  health  system,  with  support  from  EU 
programmes. The shares of individuals accessing 
their personal health records online or using online 
health  services  (excluding  phone)  instead  of  in-
person  consultations  both 
increased  in  2024 
compared to 2020, although there is considerable 
room  for  further  deployment.  Investments  to 
advance  the  digital  transformation  of  Latvia’s 
health  sector  are  planned  under  the  cohesion 
policy  in  2021-2027.  As  part  of  Latvia’s  RRP,  a 

(223) European Patent Office, Data to download | epo.org. 
(224) EMA (2024), Monitoring the European clinical trials 

environment, p. 9. 

(225) Second Joint Action Towards the European Health Data 

Space – TEHDAS2 - Tehdas 

88 

 
 
 
 
 
HORIZONTAL 
ANNEX 15: SUSTAINABLE DEVELOPMENT GOALS 

dimensions 

This Annex assesses Latvia’s progress on the 
Sustainable Development Goals (SDGs) along 
competitiveness, 
of 
the 
and 
fairness 
social 
sustainability, 
macroeconomic stability. 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 
inequalities  and  tackle  climate 
poverty,  fight 
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 
the EU. 

Latvia  is  improving  on  SDGs  related  to 
competitiveness  (SDGs 4,  9)  but  needs  to 
catch up with the EU average on SDGs 8 and 
9.    Latvia  has  low,  albeit  slowly  increasing,  gross 

Graph A15.1: Progress towards the SDGs in Latvia 

domestic  expenditure  on  R&D  (SDG 9).  In  2023, 
this  stood  at  0.82%  of  GDP  (EU  average:  2.24%). 
The  share  of  households  with  a  high-speed 
internet  connection  (SDG  9)  was  71.4%  in  2023, 
below  the  EU  average  of  78.8%.  Sustainable 
economic growth indicators (SDG 8) are below the 
EU  average  and  moving  away  from  the  targets. 
The  material  footprint  increased  over  the  five 
years  from  2018  to  2023,  reaching  19.6  tonnes 
per  capita  in  2023  (EU  average:  14.2  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  2.98 
accidents  per  100 000  workers  in  2022  (EU 
average: 1.66). Strengthening digital skills (SDG 4) 
remains  a  challenge,  as  only  less  than  half  of 
adults  have  at  least  basic  digital  skills  (45.3%  in 
2023;  EU  average:  55.6%).  Reforms  and 
investment under the recovery and resilience plan 
(RRP) 
further  developing  digital 
infrastructure  and  equipment  and  on  improving 
digital skills at all levels. 

focus  on 

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 
five 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 28 April 2025. Data refer mainly to the period 2018-2023 or 2019-2024. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

89 

 
 
 
 
 
 
 
4.0%) and people at risk of monetary poverty after 
social  transfers  (22.5%  in  2023;  EU  average: 
16.2%).  As  regards  good  health  and  well-being 
(SDG  3),  Latvia  is  moving  away  from  its  targets 
and  needs  to  catch  up  with  the  EU  average.  The 
share  of  people  with  good  or  very  good  self-
perceived  health  has  not  considerably  improved 
over  the  years  and  stands  at  47.6%  of  the 
population, compared to the EU average of 67.9% 
in  2023.  Unmet  need  for  medical  care  has 
increased  over  the  years  and  stands  at  7.8%  of 
the  population,  compared  to  the  EU  average  of 
2.4%  in  2023  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 10.4% in 
2023, (EU average: 0.2%) while purchasing power 
adjusted  GDP  per  capita  was  71  in  2024  (EU  = 
100).  .  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  the  SDGs  related  to 
macroeconomic  stability  (SDGs  16,  17),  but 
still  needs  to  catch  up  with  the  EU  average 
on  SDGs  8  (Decent  work  and  economic 
growth)  and  16  (Peace,  justice  and  strong 
institutions).  In  recent  years,  Latvia’s  real  GDP 
per  capita  increased,  going  from  EUR 15  820  in 
2019  to  EUR 17  510  in  2024  (EU  average  was 
EUR 33  530  in  2024).  The  investment  share  of 
GDP  is  above  the  EU  average  (24.9%  of  GDP,  vs 
22.4%  for  the  EU  in  2023).  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  Corruption  Perception  Index  in  Latvia  is  59, 
slightly below the EU average of 62 (score scale of 
0  (highly  corrupt)  to  100  (very  clean)).  The  RRP 
includes  several  measures 
the 
transparency and integrity of public administration 
through  training  on  general  skills  like  ethics, 
integrity and anti-corruption. 

increase 

to 

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

is 

While Latvia performs well (SDGs 2, 7, 14) or 
is  improving  (SDGs 9,  11,  12,  13)  on  several 
SDGs  related  to  sustainability,  it  is  moving 
away  from  its  targets  for  SDG 6  and  15. 
Addressing SDG 7 (Affordable and clean energy) in 
particular,  the  share  of  renewable  energy  in  total 
energy consumption increased from 40% in 2018 
to  43.2%  in  2023,  and  was  well  above  the  EU 
average  (24.6%  in  2023).  Latvia’s  RRP  includes 
measures  to  address  some  of  the  energy-related 
challenges,  in  both  the  REPowerEU  chapter  and 
Component  1  (Climate  change  and  environmental 
improving  on 
sustainability).  While  Latvia 
SDG 13 (Climate action), it needs to catch up with 
the  EU  average,  in  particular  on  climate  change 
mitigation. Net greenhouse gas emission from the 
land  use,  land-use  change  and  forestry  sector 
(LULUCF) increased to 71.7 tonnes CO2 eq. per km2 
in 2023, it is far higher than the Latvian value five 
years  earlier  (-7.5  tonnes  in  2018).  Average  CO2 
emissions  from  new  passenger  cars  stand  at 
132.1 g CO2 per km, well above the EU average of 
107.6 g  in  2023.  Latvia  is  moving  away  from 
targets  for  SDG 6  (Clean  water  and  sanitation) 
while the status is better than the EU average. In 
particular, the share of inland water bathing sites 
with  excellent  water  quality  has  decreased  from 
87%  in  2018  to  69.2%  in  2023,  the  EU  average 
being  at  78.6%.  Drought  impact  on  ecosystems 
involves 10.7% of the country’s area, while the EU 
average stands at 3.6% in 2023. On SDG 15 (Life 
on  land),  Latvia  is  moving  away  from  its  targets 
for  the  SDG.  The  share  of  forest  area  stands  at 
52.9%  in  2022,  well  above  the  EU  average  of 
38.7%.  The  biochemical  oxygen  demand  in  rivers 
was  1.36 mg O2 per  litre in  2022,  well  below  the 
EU average of 2.73 mg O2 per litre. 

As  regards  the  SDGs  related  to  social 
fairness,  Latvia  performs  well  on  indicators 
related  to  quality  education  (SDG  4)  and 
affordable  and  clean  energy  (SDG  7),  and  is 
improving  on 
indicators  for  no  poverty 
(SDGs 1) and gender equality (SDG 5). At the 
same  time,  Latvia  is  moving  away  from  the 
targets  for  SDG  3  (Good  health  and  well-
being),  SDG  8  (Decent  work  and  economic 
growth)  and  SDG 10  (Reduced  inequalities), 
and  needs  to  catch  up  with  the  EU  average 
on  these  targets.  While  some  indicators  related 
to  poverty  (SDG  1)  are  improving,  Latvia  is  still 
underperforming  compared  to  the  EU  average. 
This  concerns  in  particular  the  severe  housing 
deprivation  rate  (11.6%  in  2023;  EU  average: 

90 

 
ANNEX 16: CSR PROGRESS AND EU FUNDS IMPLEMENTATION 

recommendations 

Latvia  faces  structural  challenges  in  a  wide 
range  of  policy  areas,  as  identified  in  the 
country-specific 
(CSRs) 
addressed  to  the  country  as  part  of  the 
European  Semester.    They  refer,  among  other 
things, 
taxation  policy,  social  protection, 
reduction  of  inequalities,  accessible  healthcare, 
affordable  housing,  skills,  education  and  training, 
and  research  and  innovation.  In  addition,  they 
cover 
in  energy,  renewables  and 
energy  efficiency,  sustainable  transport,  digital 
infrastructure and access to finance. 

investment 

to 

The Commission has assessed the 2019-2024 
CSRs  considering  the  policy  action  taken  by 
Latvia  to  date  and  the  commitments  in  its 
recovery  and  resilience  plan  (RRP).  At  this 
stage, Latvia has made at least ‘some progress’ on 
84%  of  the  CSRs  (226),  and  ‘limited  progress’  on 
12% (Table A16.2). 

to 

by 

competitiveness, 

EU funding instruments provide considerable 
resources 
supporting 
Latvia 
investments  and  structural  reforms  to 
increase 
environmental 
sustainability  and  social  fairness,  while 
helping  to  address  challenges  identified  in 
the  CSRs.  In  addition  to  the  EUR 1.969  billion 
funding  from  the  Recovery  and  Resilience  Facility 
(RRF) in 2021-2026, EU cohesion policy funds (227) 
are providing EUR 4.4 billion to Latvia (amounting 
to  EUR 5.2  billion  with  national  co-financing)  for 
2021-2027 (228) to boost regional competitiveness 
and  growth.  Support  from  these  instruments 
combined  represents  around  16.3%  of  2024  GDP 
(229).  The  contribution  of  these  instruments  to 
different  policy  objectives  is  outlined  in  Graphs 
A16.1  and  A16.2.  This  substantial  support  comes 
on  top  of  financing  provided  to  Latvia  under  the 
framework, 
2014-2020  multiannual 

financial 

which  financed  projects  until  2023  and  has  had 
significant  benefits  for  the  economy  and  Latvian 
society.  Project  selection  under  the  2021-2027 
cohesion  policy  programmes  has  accelerated, 
while significant volumes of investment are yet to 
be mobilised. 

in 

The  Latvian  RRP  contains  63  investments 
and  25  reforms  to  stimulate  sustainable 
growth  and  strengthen  social  protection, 
especially 
the  area  of  healthcare, 
education  and  skills.  A  year  before  the  end  of 
the  RRF  timespan,  implementation  is  well  on  its 
way with 56% of the funds disbursed. At present, 
Latvia  has  fulfilled  38%  of  the  milestones  and 
targets  in  its  RRP  (230).  Increased  efforts  are 
needed to ensure completion of all RRP measures 
by  31 August  2026.  While  the  implementation  of 
Latvia’s  RRP  is  well  underway,  challenges  remain. 
Latvia  could  benefit  from  strengthening 
its 
administrative  capacity  and  improving  execution 
strategies 
and 
help  mitigate 
administrative  hurdles.  EU-funded  construction 
projects are at risk of delayed delivery due to the 
construction  sector’s  strained  capacity,  caused  by 
competing  demands, 
regulatory  burden  and 
external factors.   

delays 

to 

the 

Latvia  also  receives  funding  from  several 
other  EU  instruments,  including  those  listed  in 
table  A16.1.  Most  notably, 
common 
agricultural policy (CAP) provides Latvia with an EU 
contribution  of  EUR 2.4  billion  under  the  CAP 
strategic  plan  for  2023-2027  (231).  Furthermore, 
operations amounting to EUR 39 million (232) have 
been signed under the InvestEU instrument backed 
by 
to 
financing for riskier operations in Latvia. 

the  EU  guarantee, 

improving  access 

(226) 7% of the 2019-2024 CSRs have been fully implemented, 
14% substantially implemented, and some progress has 
been made on 63%. 

(227) In 2021-2027, cohesion policy funds include the European 
Regional Development Fund, the Cohesion Fund, the 
European Social Fund Plus and the Just Transition Fund. The 
information on cohesion policy included in this annex is 
based on adopted programmes with the cut-off date of 5 
May 2025. 

(228) European territorial cooperation (ETC) programmes are 

excluded from the figure. 

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

(230) As of mid-May 2025, Latvia has submitted 3 payment 

requests. 

(231) An overview of Latvia’s formally approved strategy to 

implement the EU’s common agricultural policy nationally 
can be found at: https://agriculture.ec.europa.eu/cap-my-
country/cap-strategic-plans/latvia_en  

applicable. GDP figures are based on Eurostat data for 2024. 

(232) Data reflect the situation on 31.12.2024. 

91 

 
 
 
 
 
 
Graph A16.1: Distribution of RRF funding in Latvia 
by policy field 

individual  needs-based 

million)  and 
learning 
(EUR 29.4 million), targeting 48 000 employed and 
self-employed people by 2029. 

are 

contributing 

in  Latvia,  for 

Other 
funds 
to 
instance 
competitiveness 
through  open  calls.  The  Connecting  Europe 
Facility  has  financed  strategic  investments  in  rail 
transport such as the Rail Baltica, the development 
of  alternative  fuel  infrastructure  in  the  air  and 
maritime  sectors,  the  integration  of  the  energy 
market  including  the  synchronisation  of  the  Baltic 
States  with  the  EU’s  electricity  system  and  in  5G 
connectivity  along  transport  corridors,  along  Via 
Baltica.  Horizon  Europe  has  supported  research 
and  innovation,  from  scientific  breakthroughs  to 
scaling up innovations, with widening participation 
and spreading excellence and Climate, Energy and 
Mobility  as  top  priorities  in  Latvia.  The  Technical 
Support 
instance, 
supported the green transition through developing 
technological solutions and production possibilities 
for sustainable aviation fuel (SAF). It also indirectly 
contributed to the reform of enhancing the digital 
transition in the Latvian RRP through an enhanced 
understanding  of 
issues  of 
selected digital markets. 

the  competition 

(TSI)  has, 

Instrument 

for 

to 

the 

contains  ambitious 
Latvia’s  RRP  also 
measures 
business 
improve 
environment  and  competitiveness.  As  part  of 
the  measures  covered  by  payment  requests  over 
the  past  year,  major  reforms  and  investments 
have  been 
fuelling 
economic  growth.  This  includes,  for  instance,  the 
award of contracts to develop four industrial parks 
across Latvia, aiming to boost regional  growth by 
upgrading 
infrastructure,  attracting  businesses, 
and creating high-value jobs. 

implemented  aimed  at 

EU  funds  are  playing  a  significant  role  in 
promoting  environmental  sustainability  and 
green transition  in  Latvia during the  current 
seven-year  EU  budget  (multiannual  financial 
framework).  The  ERDF  is  investing  over  EUR 76 
million  in  systems  for  climate-related  disaster 
prevention  and  resilience,  as  well  as  resource 
efficiency,  creating  an  additional  capacity  of 
80 000  tonnes  a  year  for  waste  recycling.  ERDF 
investments are also expanding renewable energy 
production  capacity,  thereby  increasing  the  share 
of  renewables  in  final  energy  consumption  and 
reducing  dependence  on  fossil  fuels.  Furthermore, 
the CAP strategic plan allocates EUR 299.6 million 
from rural development and EUR 439 million from 

92 

(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 circle 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. 
Source: European Commission 

Graph A16.2: Distribution of cohesion policy 
funding across policy objectives in Latvia 

Source: European Commission 

Platform 

Cohesion  policy  funds  aim  to  increase  the 
productivity  and  competitiveness  of  Latvia’s 
firms and improve the business environment. 
The  European  Regional  Development  Fund  (ERDF) 
supports  nearly  1 700  small  and  medium-sized 
enterprises 
for  smart 
in  developing  skills 
specialisation,  innovation  and  entrepreneurship. 
Latvia is leveraging the Strategic Technologies for 
Europe 
its 
(STEP) 
competitiveness, allocating EUR 57 million to STEP 
priorities  focusing  on  clean  and  resource-efficient 
technologies, energy independence and renewable 
energy  capacity.  The  European  Social  Fund  Plus 
(ESF+) on the other hand, invests EUR 40.6 million 
in  active  labour  market  policies  to  improve  the 
qualifications  and  skills  of  44 000  unemployed 
people  by  2029.  An  additional  EUR 46.6  million 
from  the  ESF+  supports  adult  education,  split 
(EUR 17.2 
between  sector-based  programmes 

boost 

to 

Green transitionDigital transformationSmart, sustainable andinclusive growthSocial & territorial cohesionHealth & resilienceNext generationSmarter EuropeGreener EuropeConnected EuropeSocial EuropeEurope closer to citizensJTF specific objective 
      
 
      
affordable housing and enhancing labour mobility. 
Moreover, over 35,000 laptops have been provided 
to municipalities and schools, boosting educational 
quality  and  ensuring  that  students  from  socially 
vulnerable groups have access to digital solutions, 
enabling their participation in remote learning and 
improving  educational  equity.  The  Technical 
Support  Instrument  (TSI)  has  been  supporting 
Latvia  in  contributing  to  a  socially  fair  transition 
towards climate neutrality by addressing the social 
impacts  of  the 
inclusion  of  greenhouse  gas 
emissions  from  buildings  and  road  transport  into 
the  EU  ETS  by  supporting  Latvia  to  develop  a 
Social Climate Plan. 

eco-schemes  will 

direct  payments  to  environmental  and  climate 
objectives. 
support 
Six 
farming  practices, 
environmentally  beneficial 
including  ecological 
focus  areas  and  agro-
ecological  practices  in  organic  farms.  The  plan 
aims  to  increase  organic  farming  to  18.8%  of 
Latvia’s  agricultural  land  by  2027,  supported  by 
other 
agri-environmental 
environmental  measures under  rural  development 
funding. 

schemes 

and 

the  REPowerEU 
including 
Latvia’s  RRP, 
chapter, has a comprehensive set of reforms 
and  investments  for  the  green  transition. 
Measures  covered  by  the  payment  requests 
submitted  over  the  last  year  include,  among 
others,  measures  to  upgrade  the  electricity  grid 
and develop energy communities. This includes the 
entry  into  force  of  the  necessary  regulatory 
framework  for  a  timely  implementation  of  the 
REPowerEU  chapter's 
investments,  which  will 
contribute to overall energy security in the country 
and to the resilience of electricity networks in the 
context  of  increasing  needs  for  additional  grid 
capacity and for grid flexibility.  

Promoting  fairness,  social  cohesion  and 
improving  access  to  basic  services  are 
among  the  key  priorities  of  EU  funding  in 
Latvia.  The  ERDF  support  will  provide  access  to 
new  or  modernised  healthcare  facilities  for  the 
majority  of  the  Latvian  population  increasing  the 
capacity  of  the  healthcare  system.  It  will  also 
expand  classroom  capacity  in  education  facilities 
by more than 15 000 places. Complementing ERDF 
infrastructure investments, Latvia’s ESF+ allocates 
EUR 68  million  to  promoting  social  cohesion 
developing 
through 
care 
community-based 
services  for  children  and  adults  with  a  disability. 
The  programme  aims  to  set  up  over  250  service 
centres  by  2029,  supporting  2 800  individuals  at 
risk of social exclusion. 

deinstitutionalisation, 
and 

family-oriented 

Latvia’s  RRP  contains  several  reforms  and 
investments  related  to  fairness  and  social 
policies. As part of measures covered by payment 
requests  over 
the  past  year,  Latvia  has 
implemented  reforms  and  investments  in  the 
fields  of  education  and  affordable  housing.  This 
includes  agreements  between  the  development 
finance 
real  estate 
developers  which  will  deliver more  than  300  low-
rent  apartments  across  the  regions,  fostering 

institution  Altum  and 

93 

 
 
Table A16.1:Selected EU funds with adopted allocations - summary data (million EUR) 

(1) The cut-off date for data on disbursements under the RRF is 31 May 2025. 
(2) Cohesion policy 2014-2020 allocations include REACT-EU appropriations committed in 2021-2022. 
(3) These amounts relate only to disbursements made from 2021 onwards and do not include payments made to the Member 
State before 2021.  Hence the figures do not comprise the totality of payments corresponding to the 2014-2020 allocation. The 
cut-off date for data on disbursements under EMFAF and EMFF is 29 April 2025.  The cut-off date for data on disbursements 
under cohesion policy funds, AMIF, BMVI and ISF is 5 May 2025. 
(4) AMIF - Asylum, Migration and Integration Fund; BMVI- Border Management and Visa Instrument; ISF - Internal Security Fund. 
(5) Expenditure outside the CAP strategic plan is not included. 
(6) The cut-off date for data on EARDF disbursements is 5 May 2025. The information on EAGF disbursements is based on the 
Member State declarations until March 2025.  Disbursements for the Direct Payments (EAGF) started in 2024. 
Source: European Commission 

94 

Instrument/policyDisbursed since 2021   (1)             RRF grants (including the RepowerEU allocation)1094.3RRF loans0Instrument/policyAllocation 2014-2020 (2)Allocation 2021-2027 Disbursed since 2021 (3)    (covering total payments to the Member State on commitments originating from both 2014-2020 and 2021-2027 programming periods) Cohesion policy (total)4 640.74 434.32 604.5European Regional Development Fund (ERDF)2 665.82 565.51 477.9Cohesion Fund (CF)1 246.6 956.2 670.9European Social Fund (ESF, ESF+) and the Youth Employment Initiative (YEI) 728.2 721.0 393.3Just Transition Fund (JTF) 191.6 62.5European Maritime, Fisheries and Aquaculture Fund (EMFAF) and the European Maritime and Fisheries Fund (EMFF) 139.8 134.9102.2Migration, border management and internal security - AMIF, BMVI and ISF (4) 70.9 197.965.4The common agricultural policy under the CAP strategic plan (5)Disbursements under the CAP Strategic Plan (6)Total under the CAP strategic plan715.1European Agricultural Guarantee Fund (EAGF)631.4European Fund for Agricultural Development (EAFRD)83.7Allocation 2023-20272 409.11 722.1687.0Allocation 2021-2026 1 969.20FisheriesMigration and home affairs 
 
 
 
      
 
Table A16.2:Summary table on 2019-2024 CSRs 

(Continued on the next page) 

95 

LatviaAssessment in May 2025Relevant 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 anymoreSDG 8, 16Reducetaxationforlow-incomeearnersbyshiftingittoothersources,particularlycapitalandproperty,and by improving tax compliance. Some progressSDG 8, 10, 12, 16Ensure effective supervision and the enforcement of the anti-money laundering framework.Substantial progressSDG 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 progressSDG 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 progressSDG 4Increase the accessibility, quality and cost-effectiveness of the healthcare system.Some progressSDG 32019 CSR 3Some progressFocus investment-related economic policy on innovation, Some progressSDG 9, 10, 11the provision of affordable housing,Some progressSDG 1, 2, 8, 10, 11transport, in particular on its sustainability,Some progressSDG 10, 11resource efficiency  and energy efficiency, energy interconnectionsSome progressSDG 6, 7, 9, 10, 11, 12, 13and  digital infrastructure, taking into account regional disparities.Some progressSDG 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 progressSDG 9, 162020 CSR 1Some progressTakeallnecessarymeasures,inlinewiththegeneralescapeclauseoftheStabilityandGrowthPact,toeffectivelyaddresstheCOVID-19pandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositions and ensuring debt sustainability, while enhancing investment. Not relevant anymoreSDG 8, 16Strengthentheresilienceandaccessibilityofthehealthsystemincludingbyprovidingadditionalhumanand financial resources.Some progressSDG 32020 CSR 2Substantial progressProvide adequate income support to the groups most affected by the crisis Substantial progressSDG 1, 2, 10and strengthen the social safety net. Some progressSDG 1, 2, 10Mitigate the employment impact of the crisis, including through flexible working arrangements,Full implementationSDG 8 active labour market measures and skills. Some progressSDG 4, 82020 CSR 3Some progressEnsure access to liquidity support by firms and in particular small and medium-sized enterprisesSubstantial progressSDG 8, 9Front-load mature public investment projects Some progressSDG 8, 16and promote private investment to foster the economic recovery.Some progressSDG 8, 9Focus investment on the green and digital transition, in particular on research and innovation, Limited progressSDG 9clean and efficient production and use of energy, Some progressSDG 7, 9, 13sustainable transport Some progressSDG 11and digital infrastructures.Substantial progressSDG 92020 CSR 4Substantial progressContinue progress on the anti-money-laundering framework. Substantial progressSDG 8, 16 
 
 
  
 
Table (continued) 

(Continued on the next page) 

96 

2021 CSR 1Not relevant anymoreIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationallyfinancedinvestment.Keepthegrowthofnationallyfinancedcurrent expenditure under control. Not relevant anymoreSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositions and ensuring fiscal sustainability in the medium term.Not relevant anymoreSDG 8, 16Atthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasures,inordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Not relevant anymoreSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthe coverage, adequacy, and sustainability of health and social protection systems for all.Not relevant anymoreSDG 8, 162022 CSR 1Limited 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.Not relevant anymoreSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Not relevant anymoreSDG 8, 16Pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions.Not relevant anymoreSDG 8, 16Broaden taxation, including of property and capital,Limited progressSDG 8, 10, 12and strengthen the adequacy of healthcareLimited progressSDG 3and social protection to reduce inequality.Some progressSDG 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, 92022 CSR 4Some progressReduce overall reliance on fossil fuels and diversify imports of fossil fuelsSome progressSDG 7, 9, 13by accelerating the deployment of renewables,Some progressSDG 7, 9, 13ensuring sufficient interconnection capacity, diversifying energy supplies and routesSubstantial progressSDG 7, 9, 13and reducing overall energy consumption through ambitious energy efficiency measures.Some progressSDG 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 progressSDG 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 %.No progressSDG 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 implementationSDG 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.Some progressSDG 8, 16Broaden taxation, including of property and capital, andLimited progressSDG 8, 10, 12strengthen the adequacy of healthcare andLimited progressSDG 3social protection.Some progressSDG 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, 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. RRP 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. 
 
 
  
 
Table (continued) 

Source: European Commission 

97 

2023 CSR 4Some progressReduce overall reliance on fossil fuelsSome progressSDG 7, 9, 13by accelerating the deployment of renewable energy, in particular onshore and offshore wind energy and solar energy,Some progressSDG 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 progressSDG 7Ensure sufficient capacity of interconnections to increase security of supply and continue synchronisation with the Union electricity grid.Substantial progressSDG 7, 9, 13Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.Some progressSDG 42024 CSR 1Some progressSubmit the medium-term fiscal-structural plan in a timely manner.Full implementationSDG 8, 16 In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure in 2025 to a rate consistent with, inter alia, maintaining the general government deficit below the 3% of GDP Treaty reference value and keeping the general government debt at a prudent level over the medium term.Full implementationSDG 8, 16Broaden taxation, including of capital and property, and Limited progressSDG 8, 10, 12strengthen the adequacy of healthcare Limited progressSDG 3 and social protection.   Some progressSDG 1, 2, 102024 CSR 2Continue with the swift and effective implementation of the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026. Accelerate the implementation of cohesion policy programmes. In the context of the mid-term review continue focusing on the agreed priorities, taking action to better address persistent regional disparities and inequalities while considering the opportunities provided by the Strategic Technologies for Europe Platform initiative to improve competitiveness.  2024 CSR 3Some progressImprove the business environment by reducing the administrative and regulatory burden for companies and improving access to finance for small and medium-sized enterprises, including through public lending and guarantee schemes aimed at facilitating investments of strategic importance and boosting competition in the financial markets.  Some progressSDG 8, 9Address labour and skills shortages, in particular in STEM, and in other specialisations needed for the green and digital transition, as well as in the social and healthcare sectors,  including through targeted upskilling and reskilling,Some progressSDG 4 as well as improved working conditions.  Some progressSDG 82024 CSR 4Limited progressAccelerate the deployment of wind and solar energy by improving permit-granting proceduresSome progressSDG 7, 9, 13 and promoting demand-side flexibility. Some progressSDG 7Foster the transition to a circular economy through eco-innovation and sustainable resource management practices.No progressSDG 6, 12, 15RRP 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. Progress with the cohesion policy is monitored in the context of the Cohesion Policy of the European Union. 
 
  
 
ANNEX 17: COMPETITIVE REGIONS 

regional 

economic 

Latvia’s 
landscape 
presents  both  significant  challenges  and 
emerging  opportunities  for  development. 
While  substantial  disparities  exist  between  the 
capital  region  and  other  areas,  several  regions 
show promising growth trajectories based on a mix 
of  traditional  sectors  like  wood  processing,  food 
production  and  manufacturing  of  electronics  and 
pharmaceuticals, alongside emerging sectors such 
as information technology and electronics. 

Map A17.1:  GDP per head (in purchasing power 
standard), NUTS 3, 2022 

Source: Eurostat 

GDP  per  capita  varies  significantly  between 
Latvian  regions.  In  2022,  the  capital  region  of 
Rīga  had  a GDP  per  capita  the  EU  average (100), 
reaching  109%.  This  was  more  than  double  the 
GDP  per  capita  of  all  other  NUTS 3  regions  in 
Latvia.  In  2022,  GDP  per  capita  in  the  other 
NUTS 3  regions  ranged  from  34%  of  the  EU 
average in the easternmost region, Latgale (which 
is also a border region, bordering both Belarus and 
Russia),  to  51%  in  Pierīga  (Map  A17.1)  Between 
2013  and  2023,  GDP  per  head  in  Vidzeme  and 
Rīga  grew  annually  at  a  rate  of  4.6%  and  2.8% 
respectively.  Kurzeme 
(2.2%)  and  Pierīga, 
estimated  at  2.4%,  registered  the  lowest  growth 

rate  over  the  same  period.  Latgale  remains 
disadvantaged  both  in  terms  of  GDP  per  capita 
and moderate growth of GDP. 

Competitiveness 

variations 

in  Latvia 

competitiveness 

there  are  notable 

is 
Regional 
strongly  influenced  by  labour  productivity 
patterns,  which  reveal  both  challenges  and 
opportunities  for  economic  convergence. 
While  all  regions  currently  perform  below  the  EU 
average in productivity (measured as GDP per hour 
worked), 
in 
performance.  The  capital  region  Rīga  (71%)  and 
Pierīga  (84%)  show  relatively  strong  productivity 
levels, approaching EU averages and exceeding the 
average for less developed EU regions (64%). This 
suggests  potential  for  knowledge  spillovers  to 
other regions. However, the significant productivity 
gap  between these leading regions and areas like 
Latgale  (36%)  points  to  untapped  potential  for 
productivity gains through targeted investments in 
technology, 
capacity. 
Addressing  these  productivity  differences  would 
help  boost  regional  competitiveness  and  ensure 
more  balanced  economic  development  across 
Latvia. 

skills  and 

innovation 

The quality of the government in Latvia – as 
measured  by  the  European  Quality  of 
Government Index at the subnational level  – 
is  below  the  EU  average,  and  regions  have 
limited  fiscal  autonomy.  The  Quality  of 
Government  Index  (233)  has  improved  since  2010, 
driven  by  improvement  in  all  its  subcomponents 
(corruption,  quality  and 
impartiality  of  public 
services). The planning (NUTS 3) regions, however, 
have  limited  fiscal  autonomy  and  administrative 
capacity  –  their  revenue  depends  heavily  on 
earmarked  government  transfers.  This  lack  of 
fiscal  autonomy  affects  the  capacity  of  local 
governments  to  plan  and  implement  investments. 
Increasing 
the 
percentage  of  earmarked  transfers  (i.e.  better 
the 
multi-level  governance)  would 
planning  regions’  capacity  to  attract  investment 
(234).  Positive  developments  in  local  governance 

tax  autonomy  and 

reducing 

improve 

(233) European Quality of Government Index 2024| University of 

Gothenburg 

(234) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

98 

 
 
 
 
 
 
 
 
Table A17.1:Selection of indicators at regional level in Latvia 

Source: Eurostat and JRC 

include  improving  the  local  population's  ability  to 
participate  in  decision-making.  The  right  to  hold 
municipal  referendums  as  of  autumn  2024  and 
the new 'participatory budgets' for citizen projects 
in  municipalities  (mandatory  from  2025)  as  of 
2025 could improve the quality of governance and 
civic engagement in the regions. 

instruments 

There is lack of access to finance in Latvia’s 
lagging  regions  (Latgale,  Kurzeme,  Vidzeme 
and  Zemgale).  There  is  a  very  weak  uptake  of 
financial 
(such  as  guarantees) 
supported  by  cohesion  funding  (channelled  via 
institution), 
Altum, 
particularly  in  Latgale.  Enterprises  in  the  regions 
are  not  prepared  to  take  up  more  sophisticated 
financial  products.  This  creates  obstacles  to 
business  investment.  Offering  financial  literacy 
workshops  for  businesses  could  help  reduce 
information gaps. 

the  national  promotional 

lower 

differences 
socio-economic 
Significant 
between  urban  and  rural  areas  persist  in 
employment  and  skills.  People  living  in  rural 
areas  have  on  average  a 
level  of 
educational  attainment.  While  Latgale,  home  to 
Daugavpils  University  and  the  Rezekne  Academy 
of Technology, has a strong higher education offer, 
this has not translated into greater post-secondary 
educational  attainment 
its  population. 
Cooperation between higher education institutions 
and employers would help address skills gaps and 
develop a strong regional proposition for investors 

for 

in  high  value  added  sectors.  Also,  it  would  be 
helpful  to  develop  targeted  regional  programmes 
to attract and retain talent (235). 

Latvia faces significant transport challenges, 
with limited access to and within some of its 
lagging  regions,  which  significantly  hampers 
their  attractiveness.  Latgale’s  road  density  is 
the  second  lowest  in  the  country,  sitting  among 
the 2% of EU regions with the lowest road density 
(measured  by  km  per  km2).  Also  rail  transport 
performance in the region is poor, resulting in the 
lowest rail accessibility in Latvia(236), and putting it 
in the bottom 8% of all EU regions. More attention 
could be paid to developing strong foundations for 
good 
businesses 
infrastructure, 
railway 
connections.  In  particular,  improving  the  regional 
connectedness  of  the  lagging  regions  (notably  to 
Rīga) for businesses, talent and visitors would help 
strengthen 
and 
their 
competitiveness (237). 

thrive 
such  as 

attractiveness 

road  and 

providing 

by 

to 

(235) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

(236) The rail indicators capture the % of population within a 120 
km radius that can be reached in 90 minutes, as developed 
by Eurostat 

(237) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

99 

GDP (PPS)GDP per head (PPS)Real GDP growthReal GDP per head growthProductivity - GDP per person employed (PPS)Real productivity growth (per person employed)Productivity - GDP per hour worked (PPS)Real productivity growth (per hour worked)Net migrationmillionIndex EU-27 = 100Average annual % changeAverage annual % changeIndex EU-27 = 100Average annual % changeIndex EU-27 = 100Average annual % changeAverage annual net crude migration rate (%)202220222014-20232014-202320222013-202220222013-20222014-2023European Union (27 MS)159052801001.71.61000.71000.93.2Latvia48497692.43.1662.0642.6-1.3Kurzeme4061500.92.2591.1562.6-5.5Latgale2891341.63.3361.6360.7-6.0Rīga231331092.22.8741.2711.6-1.6Pierīga6959512.92.4882.8845.27.7Vidzeme3058483.34.6573.2555.0-5.8Zemgale3548453.04.1562.8543.2-3.8 
 
 
      
 
as 

by 

illustrated 

Rural  regions  are  also  lagging  behind  in 
patent 
innovation, 
applications  data.  Patent  applications  to  the 
European  Patent  Office  per  million  inhabitants 
were  nearly  10  times  higher  in  Rīga  and  Pierīga 
than  in  the  (rural)  rest  of  the  country.  Latgale 
registers  fewer  EU  trademark  patents  per  capita 
than  93%  of  EU  regions.  High-tech  patent 
applications per million inhabitants stood at 1.1 in 
2012, lower than the national average of 3.2 and 
significantly lower than the EU average of 17.4. All 
of  these  are  clear  signs  of  lack  of  innovative 
activity  in  Latvia’s  lagging  regions,  in  particular 
Latgale (238). 

With  GDP  per  capita  at  just  34%  of  the  EU 
average and despite a growth rate above the 
Latvian  average,  Latgale  is  struggling  to 
catch  up.  These  economic  challenges  are 
amplified  by  poor  transport  connectivity.  The 
region  also  faces  depopulation  and  ranks  among 
the  lowest  performing  regions  in  the  EU  for 
innovation  and  patent  activity.  However,  recent 
NATO  activities  and  the  new  action  plan  for  the 
eastern border of Latvia (2025-2027) could boost 
R&D  and  regional  development,  particularly  in 
dual-use goods and infrastructure (239). 

offer 

could 

projects 

The  recent  focus  on  eastern  border  regions, 
and Latgale in particular, thanks to a number 
of 
significant 
development  opportunities.  In  this  context,  the 
national action plan to develop the eastern border 
of  Latvia  from  2025  to  2027  lays  down  policy 
priorities  for  the  first  time  and  identifies  specific 
funding  for  the  region,  acknowledging  the  special 
challenges  for this  EU  external  border  region.  The 
EU,  together  with  partners,  has  also  stepped  up 
support 
structural 
underdevelopment  challenges.  The  OECD’s  project 
‘Rethinking regional attractiveness in the region of 
Latgale’  analyses  the  economic  and  tourism 
potential  of  the  region  as  it  undergoes  a  difficult 
transition away from the Russian and Belarussian 
markets.  The  World  Bank’s  ‘Catching-up  regions 
initiative’ 
in  all  Baltic 
countries  and  aims  to  develop  practical  project 

implemented 

is  being 

address 

more 

to 

(238) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

(239) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia 

pipelines  that  will  boost  the  local  economy  in 
Latgale.  

Social fairness 

regions  are  experiencing 

Latvian 
rapid 
depopulation.  Between  2014  and  2023  the 
Latvian  population  decreased  by  6.7%  (240).  In 
three regions (Kurzeme, Vidzeme and Latgale) the 
population  has  fallen  by  more  than  10%  since 
2013. The biggest loss was observed in Latgale (-
17.1%). In Rīga the population decreased by 5.7%, 
whereas  the  population  in  the  surrounding  region 
of Pierīga increased by 5.9%. 

Significant  disparities  exist  between  urban 
and  rural  areas  in  Latgale  in  providing 
(public) services.  There are major differences in 
the  quality  and  level  of  public  services.  The 
absence  of  common  standards  for  public  services 
across local governments results in uneven service 
quality, further driving depopulation in rural areas, 
where  local  budgets  are  generally  lower  (World 
Bank,  2024).  Although  the  2020  administrative 
territorial 
local 
government  budgets,  significant  differences  in 
budget allocation and debt levels persist. 

reform  has  helped  optimise 

Table A17.2:Socio-economic indicators by degree 
of urbanisation, 2024 

Source: Eurostat 

Lack  of  access  to  housing  in  the  regions 
undermines regional competitiveness efforts. 
Businesses  and  municipalities  in  Latvia’s  rural 
regions view lack of housing as a serious obstacle 
to  attracting  skilled  workers  who  require  quality 

(240) Average annual change per 1000 residents. 

100 

CitiesTowns and suburbsRural areasPopulation with high educational attainment (% of population aged 25-64)48.144.429.9Early leavers from education and training (% of population aged 18-24)4.47.711.4NEET: Neither in employment nor in education or training (% of population 15-34)10.812.314.3At-risk-of-poverty or social exclusion (% of total population)19.323.329.4Housing cost overburden (% of total population)7.67.25.7 
 
 
      
 
 
modern  housing (241).  The  construction  of  new 
dwellings  as  a  proportion  of  the  housing  stock  is 
lowest in Latgale – in 2024, only 3.3% of all new 
housing  in  Latvia  was  constructed  in  Latgale, 
compared  to  75%  of  new  builds  in  Rīga (242).  The 
key  reason  concerns  access  to  finance:  those 
wishing  to  settle  in  regions  more  than  100 km 
from  Rīga  face  difficulties  obtaining  mortgages, 
even  with  a  sufficient  and  stable  income  (as  the 
saving  rate  in  Latvia  is  one  of  the  lowest  in  the 
EU).  Latgale  has  the  lowest  rate  of  mortgages, 
standing  at  less  than  2%  of  municipal  GDP  in 
2023,  compared  to  over  30% 
in  the  Rīga 
metropolitan  area.  Conversely,  the  region  has 
considerably  higher  interest  rates  for  mortgages 
than Rīga and other regions (243). In 2023, around 
9%  of  the  population  in  Latvian  cities  were  living 
in  a  household  affected  by  housing  cost 
overburden (244),  while  the  corresponding  rate  for 
rural  areas with a majority  of private houses  was 
5.5%.  So,  while  housing  expenses  are  lower  in 
in  Rīga  and 
Latvia’s 
regions 
surroundings,  housing  conditions  seem 
less 
favourable  in  the  rural  regions  (such  as  Latgale). 
Expanding  the  range  of  rental  housing  providers 
(for  example  through  municipalities  playing  a 
more  active  role)  or  initiatives  like  the  Housing 
Affordability  Fund  could  help  to  increase  rental 
options as well as affordable housing (245). An RRP 
pilot  project  for  affordable  rental  housing  in  the 
regions aims to attract more private investment in 
this  sector,  but  more  focused  efforts  would 
accelerate  and  increase  the  scale  of  housing 
investments in the regions. 

lagging 

than 

Sustainability 

transition  and 
the 
The  green  energy 
in  renewables  offer 
associated 
increase 
unique  opportunities  for 
less  developed 
regions,  particularly  for  their  rural  areas. 
However,  while  Latvia  is  a  beacon  for  foreign 
direct  investment  in  renewable  energy,  there  is 
currently  a  moratorium  within  80 km  of  the 
eastern  border.  This  largely  prevents  the  lagging 
region of Latgale from benefiting from investment 
in renewables, notably wind (246). 

in 

sectors 

In  2023,  the  untapped  potential  of  solar, 
wind and hydro power in the Latvian regions 
was large, positioning all regions, except the 
capital region of Rīga, in the 10% bottom of 
all  EU  regions.  At  5.6%,  Latvia’s  green 
employment 
shows 
sustainable 
considerable room for expansion, particularly when 
compared  to  the  EU  average  of  15.1%.  In  2022, 
access  to  alternative  fuel  infrastructure,  at  43.15 
(247),  was  above  the  average  of  less  developed 
regions  (29),  but  still  far  from  the  EU  average 
(287)  (248).  Latgale,  like  most  non-capital  Latvian 
regions  (except  Pierīga),  has  much  room  for 
improvement  in  green  transport,  with  hybrid  and 
electric  vehicles  comprising  only  0.1%  of  the 
region’s fleet, well below the EU average of 2.6% 
(249). 

(241) Latvia’s Plan 2024-2027 for implementation of Housing 

Accessibility Guidelines (2024). 

(242) Central Statistics Bureau of Latvia, 2024, Ekspluatācijā 

pieņemto jauno dzīvokļu skaits reģionos, valstspilsētās un 
novados – Ēku veids, Laika periods un Teritoriālā vienība. 
PxWeb. 

(246) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

(243) Central Bank of Latvia (2024), Access to Finance Overview, 

(247) Measured as number of electric vehicle charging points 

Finanšu Pieejamības Pārskats 2024. 

within 10 km.  

(244) The housing cost overburden rate is the percentage of the 

(248) Indicators of access to alternative fuel infrastructure are 

population living in households where the total housing costs 
(‘net’ of housing allowances) represent more than 40% of 
disposable income (‘net’ of housing allowances). 

based on calculations by DG REGIO and the JRC, using data 
from the European Alternative Fuels Observatory (EAFO), 
Eurostat, TomTom and Eco-Movement. 

(245) OECD (2025): Rethinking Regional Attractiveness in the 

(249) OECD (2025): Rethinking Regional Attractiveness in the 

Region of Latgale, Latvia. 

Region of Latgale, Latvia. 

101