COMMISSION STAFF WORKING DOCUMENT 2026 Country Report – Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Latvia, budget policy, economic policy, economic recovery, economic reform, employment policy, investment, macroeconomics, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.6.2026  SWD(2026) 214 final  COMMISSION STAFF WORKING DOCUMENT 2026 Country Report – Latvia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Latvia          {COM(2026) 214 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC DEVELOPMENTS AND KEY POLICY 
CHALLENGES 

Latvia’s economy is recovering 
after some challenging years  

wage 

growth), 

In 2025, the economy recovered with GDP 
growth of 2.1% following weak economic 
performance  in  2023-2024.  In  2024,  the 
economy  stagnated  after  a  brief  recession  in 
2023  that  was  driven  largely  by  private 
consumption  and  exports. 
In  2025,  after 
several  years  of  weak  consumption  (despite 
pronounced 
private 
consumption  showed  some  signs  of  recovery 
(+0.8%).  After  a  sharp  decline 
in  2024, 
investment  growth  was  very  strong  in  2025 
(+9.8%),  fuelled  by  robust  corporate  lending 
and  lower  borrowing  costs,  alongside  solid 
(particularly  EU-funded 
public 
projects).  Goods  and  services  imports  grew 
faster  than  exports  in  2025,  widening  the 
trade balance. In 2025, inflation rebounded to 
3.8%  as  the  deflationary  impact  of  energy 
prices faded, while services and food inflation 
remained strong. 

investment 

Due  to  the  conflict  in  the  Middle  East, 
GDP growth is forecast to slow to 1.4% in 
2026  and  to  pick  slightly  to  1.6%  in 
2027.  Robust  wage  growth  is  expected  to 
further  boost  household  purchasing  power, 
aiding private consumption. Investment growth 
is  expected  to  remain  strong  at  3%  (albeit 
lower than in 2025) thanks to EU fund inflows 
and  increasing  spending  on  defence.  Exports 
are expected to grow modestly, hindered by an 
uncertain global outlook. Public consumption is 
likely  to  weaken,  partly  due  to  public  wage 
restraint  and the phasing-out  of the  Recovery 
and  Resilience  Facility  (RRF)  in  2027.  HICP 
inflation  is  expected  to  reach  3.6%  in  2026, 
due to energy inflation, before falling to 2.2% 
in 2027. 

Latvia’s  labour  market  is  improving.  The 
unemployment  rate  increased  to  7.2%  in 
Q1 2025 but then fell back slightly to 6.8% in 
Q4 2025.  The  employment  rate  (77.4%  in 
2024)  returned  to its  pre-pandemic  level  (see 
Annex 13).  As  the  economy  recovers,  the 
unemployment rate is set to decrease in 2026 
and this trend is expected to continue in 2027. 
In 2025, nominal  compensation per employee 
increased  by  8.4%.  Due  to  decreasing  public-
sector  wage  growth  and  minimum  wage 
growth,  nominal  wage  growth  is  predicted  to 
slow to 7.0% in 2026 and 5.8% in 2027. 

Ensuring funding for key priorities 
is challenging 

the 

Forecast 

forecast  horizon  due 

The budget deficit is forecast to increase 
over 
to 
increasing  defence  expenditure  and  the 
impact of the labour tax reform. In 2025, 
Latvia’s government deficit increased to 2.5% 
of GDP and the government debt-to-GDP ratio 
reached  46.9%.  The  Commission’s  Spring 
Latvia’s 
projects 
2026 
government  deficit  will  increase  to  3.3%  and 
4.3%  of  GDP  in  2026  and  2027,  respectively. 
The  lingering  effects  of  the  personal  income 
tax  reform  and  lower  property  income  are 
expected  to  weigh  on  tax  revenue.  On  the 
expenditure  side,  the  forecasted  increase  in 
defence  expenditure,  growing  social  transfers 
and  interest  payments  will  contribute  to  the 
widening deficit.  

that 

Ensuring  appropriate  financing  for  key 
fiscal 
priorities  while  maintaining 
sustainability  remains  a  challenge,  as 
highlighted  in  the  2025  country-specific 
recommendation  (CSR).  Under  its  2025-
2028  medium-term 
fiscal-structural  plan 
(MTP),  Latvia  made  a  commitment  to  limit 

2 

 
 
Box 1: 

UN Sustainable Development Goals (SDGs) 

Latvia  performs  well  or  is  improving  on  SDGs  related  to  quality  education  (SDG 4),  affordable 
and clean energy (SDG 7) and environmental sustainability (SDGs 6 and 15). 

Persisting inequalities, increasing unmet needs for medical care and a wide urban-rural gap for 
the risk of poverty or social exclusion are hampering economic growth and competitiveness. 11 
of the 17 SDGs remain below the EU average. These relate to competitiveness (SDGs 8 and 9), 
social fairness (SDGs 1, 3, 5, 8 and 10) and sustainability and climate action (SDGs 9, 11, 12 and 
13) (see Annex 17). Most of them show improvement, but Latvia’s performance is worsening on 
reduced inequalities (SDG 10) and climate action (SDG 13). 

(see  Annex 2). 

expenditure  growth  with  the  aim  of  keeping 
the deficit well below 3% of GDP by 2028 and 
maintaining public debt below the 60% of GDP 
threshold 
It  might  be 
challenging  for  Latvia  to  sustain  its  fiscal 
commitments  while  also  adequately  financing 
public  services,  strategic 
investment  and 
security.  The  current  annual  budget  and  the 
medium-term  budgetary  framework  include 
commitments to higher debt-financed defence 
spending but do not provide sufficient funding 
for  healthcare  and  social  protection.  Low 
public  spending  on  healthcare  continues  to 
negatively 
of 
healthcare  (see  Section 4).  Furthermore,  while 
is  fiscally 
the  pension  system 
sustainable,  pension  levels  are  expected  to 
remain very low (1). In this regard, Latvia could 
benefit  from  exploring  alternative  financing 
adequacy 
foster 
solutions 
(e.g. encouraging  greater  participation 
in 
voluntary  savings  funds  and  particularly  the 
III-pillar pension funds) (see Annexes 2 and 6). 

accessibility 

in  Latvia 

pension 

impact 

the 

to 

Latvia’s  defence  expenditure  is  steadily 
increasing  with  additional  support  from 
the  EU.  In  order  to  facilitate  an  increase  in 
public spending on defence, the Council of the 
European  Union  has  activated  the  national 
escape  clause  for Latvia (2).  Total  government 
expenditure  on  defence  amounted  to  3.2% 
is  forecasted  by  the 
GDP 

in  2025  and 

(1)  European Commission (2024), 2024 Ageing Report. 

(2)  The activation of the national escape clause gives 

Member States budgetary flexibility to increase defence 
expenditure without immediately requiring them to 
finance this increase with spending cuts or revenue-
raising measures. This flexibility gives Member States 
the time they need to accommodate higher defence 
expenditure within their national budgets. 

approved 

in  defence.  As  part  of 

Commission  to increase  to  4.1%  and  5.5%  of 
GDP  in  2026  and  2027,  respectively  (see 
Annex 2).  The  EU  is  also  supporting  Latvia’s 
investment 
the 
Commission’s  ReArm  Europe  Plan,  the  Council 
has 
for 
Latvia’s 
EUR 3.49 billion  in  EU  loans  under  Security 
Action 
for  defence 
procurement.  In  addition,  following  the  mid-
term  review  of  cohesion  policy,  Latvia  has 
allocated  EUR 391 million  to  defence-related 
priorities. 

for  Europe 

request 

(SAFE) 

based 

priorities 

Redirecting 
on 
expenditure 
spending  reviews  could  better  align  the 
(as 
policy 
budget  with 
highlighted  in  the  2025  CSR). 
In  the 
preparation  of  the  2026  budget,  most  of  the 
savings  identified  in  spending  reviews  were 
directed  towards  financing  the  government’s 
key  priorities  –  contrary  to  the  practice  in 
previous  years 
(see  Annex 2).  The  2026 
process was a welcome shift in approach, but 
further 
benefit 
could 
Latvia 
institutionalising 
future 
this  practice 
budgets  as  well  as  from expanding the  scope 
and  ambition  of  spending  reviews.  Further 
performance-based 
steps 
budgeting  may  also  help  to  strengthen  the 
quality and efficiency of public spending. 

implement 

from 

to 

in 

Shoring up tax revenue from sources that 
are less detrimental to growth could help 
finance policy priorities (as highlighted in 
the  2025  CSR).  Latvia’s  tax  revenue  was 
34.9%  of  GDP  in  2024  and  remained  below 
the EU average of 39.4% (see Annex 3). Latvia 
continues  to  rely  heavily  on  consumption  and 
labour  taxes  as  its  main  revenue  sources. 
Taxes  on  capital  (including  corporate  income 
tax) and property  account for a smaller share 

3 

 
 
 
2025 to bring informal or undeclared activities 
into  the  formal  economy.  It  is  continuing  to 
take  measures  under  the  shadow  economy 
restriction  plan  (2024-2027).  These  include  a 
phased-in  roll-out  of  mandatory  e-invoicing 
for  transactions  with  public  institutions  (from 
1 January 2025)  and  business-to-business 
transactions  (from  2028).  The  State  Revenue 
Service  is  continuing  to  develop  the taxpayer-
rating  system  (introduced 
in  2024  as  a 
measure under the RRF) to better detect non-
payment or evasion of taxes, and to encourage 
voluntary  compliance.  According  to  2024 
survey  data (5),  the  shadow  economy  remains 
high  at  21.4%  of  GDP,  where  undeclared 
wages  constitute  its  largest  component,  while 
significant  levels  of  shadow  economy  activity 
are  observed  in  the  construction  and  retail 
sectors.  Further  efforts  to  enhance  digital 
tools,  encourage  voluntary  compliance  and 
strengthen  enforcement  mechanisms  may 
help  to  formalise  economic  activity  and 
thereby broaden the tax revenue base.  

More efforts are needed to 
strengthen competitiveness and 
revive convergence  

Latvia’s  GDP  per  capita  is  significantly 
below  the  EU  average  and  the  pace  of 
convergence  with  other  EU  Member 
States is slowing. In 2025, Latvia’s GDP per 
the  EU  average, 
capita  was  71%  of 
significantly  below  that  of  its  Baltic  peers  (6). 
The  employment  rate  has  remained  high  in 
recent years, at 77.4% in 2024 (75.8% in the 
EU), and wages have grown strongly. However, 
productivity  growth  has  lagged  behind  and 
labour  productivity  reached  62.2%  of  the  EU 
average  (GDP  per  hour  worked)  in  2025, 
reducing cost competitiveness. 

Latvian  companies  face  hurdles  such  as 
limited  access  to  finance,  labour  and 

(5)  Stockholm School of Economics (2025), Shadow 

Economy Index for the Baltic Countries 2009-2024. 

(6)  GDP per capita for Estonia and Lithuania was, 

respectively, 79% and 88% of the 2025 EU average. 

of  the  tax  mix  than  in  other  EU  Member 
States.  Revenue 
taxes  on  capital 
from 
accounted for only 4.1% of GDP in 2024 (8.5% 
in  the  EU).  Among  these,  revenue  from 
corporate income taxes was among the lowest 
in  the  EU,  standing  at  2.0%  of  GDP  (1.1 pps 
below  the  EU  average)  while  revenue  from 
property  taxes  was  1.0% 
in  2024  and 
remained  0.8 pps  below  the  EU  average. 
Latvia  therefore  has  scope  to  raise  more 
revenue from taxes on capital (e.g. immovable 
property) and on legacies and donations, which 
are considered the least harmful to growth (3).  

such 

report 

Tax  changes  introduced  in  2025-2026 
have  only  modestly  increased  revenue 
from sources less harmful to growth. The 
2025  labour  tax  reform  lowered  the  tax 
burden  for  most  low-income  and  middle-
income  earners  and  has  slightly  boosted 
capital  tax  revenue,  but  it  has  also  created  a 
significant  revenue  gap  (see  Annex 3  and  the 
for  more  details). 
2025  country 
also 
were 
Revenue-raising  measures 
introduced, 
of 
shifting 
the 
as 
1 percentage  point  of  the  social  contributions 
from  the  second  to  the  first  pillar  of  the 
pension  system  for  2025-2028  and  the 
solidarity  contribution  on  banks  for  2025-
2027 (4).  Additionally,  since  2025,  Latvia  has 
been increasing various taxes on consumption 
that  are  less  harmful  to  growth  and  serve 
policy  goals  (including  excise  duties  on  fuels, 
tobacco,  alcohol  and  soft drinks;  company  car 
tax;  and  gambling  and  lottery  tax).  However, 
these  measures  will  only  partially  –  and 
temporarily – offset the reform’s fiscal costs. 

Latvia’s  shadow  economy  remains  a 
challenge,  despite  policy  efforts  and 
some improvement. Latvia received a CSR in 

(3)  The supply of land is fixed, so land tax is a tax on 

economic rents and does not discourage beneficial 
economic activity. Inheritance and gift taxes are 
generally seen as economically efficient because they 
target unearned wealth without penalising productive 
activity and promote social fairness. 

(4)  This payment, set for 2025-2027, finances national 

defence expenditure. It is calculated by applying a 60% 
rate to the base, which is the portion of the payer's 
calendar year net interest income that exceeds average 
annual net interest income (calculated over 2018-
2022) by more than 50%. 

4 

 
 
 
skills  shortages,  and  low  public  R&D 
spending.  These  weaken their  ability  to  grow 
and innovate (see Section 2 and Annexes 3, 4, 
5 and 6).  

Graph 1.1: GDP per capita purchasing power 
standard, % of the EU average 

Source: Eurostat 

competitiveness. 

New  sources  of  affordable  energy  could 
Faster 
enhance 
deployment  of  wind  and  solar  energy  and 
promoting  further  electrification  would  reduce 
greenhouse  gas  emissions  and  bring  the 
benefits of affordable renewable generation to 
consumers  and  companies  (see  Section 3  and 
Annexes 8, 9 and 10). 

Inadequate 

Addressing social challenges may support 
competitiveness. 
social 
protection  and  high  income-inequality  and 
poverty 
for 
vulnerable  groups.  The  healthcare  system  is 
underfunded, 
health 
outcomes  and  losses  of  working  time  (see 
Section 4 and Annexes 11, 12, 13, 14 and 15). 

opportunities 

resulting 

limiting 

poor 

are 

in 

funding 

instruments 

competitiveness, 

EU 
provide 
considerable  resources  to  Latvia.  They 
support investments and structural reforms to 
environmental 
increase 
sustainability,  skills,  social 
fairness  and 
security,  while  helping  to  address  challenges 
identified in the CSRs. Key instruments include 
the RRF (see Box 2) and Cohesion policy funds 
(see  Box  3). 
the  Common 
In  addition, 
Agricultural  Policy  (CAP)  provides  Latvia  with 
an EU contribution of EUR 2.4 billion under the 

CAP strategic plan for 2023-2027 (7). A further 
EUR  281.4  million  are  available  under  the 
Asylum, Migration and Integration Fund (AMIF), 
together  with  the  Border  Management  and 
Internal 
Visa 
Security Fund (ISF). Other EU programmes also 
support competitiveness in Latvia, for instance 
through  open  calls  under  Horizon  Europe  and 
the Connecting Europe Facility. 

(BMVI)  and  the 

Instrument 

Regional disparities and risks to 
economic security are holding back 
growth 

the 

are 

country 

regions  were  subject 

The disparities between Riga and the rest 
of 
hampering 
competitiveness.  The  Riga  region  has  led 
Latvia’s  economic  catch-up,  with  GDP  per 
capita  rising  from  43%  of  the  EU  average  in 
1995  to  101%  in  2024.  Other  regions  have 
also made some progress but their growth has 
recently  stalled,  leaving  all  non-Riga  regions 
below  50%  of  the  EU  average.  All  Latvian 
regions  had  a  negative  net  migration  figure, 
to 
but  non-Riga 
significantly  higher  depopulation  in  the  last 
decade (see Annex 18). The economies of non-
Riga  regions  suffer  from  low  productivity 
growth and innovation activity, with FDI largely 
concentrated  in  Riga  and  some  nearby  cities. 
Outside  the  capital,  businesses’  access  to 
finance 
limited  by  higher  collateral 
requirements,  higher  borrowing  rates  and  a 
weak  capital  market.  Low  regional  transport 
connectivity  as  well  as  limited  access  to 
affordable  and  quality  housing  and  social 
services  in  rural  areas  are  undermining  both 
economic  opportunities  and  residents’  ability 
to stay in non-Riga regions (see Section 4 and 
Annexes 9,  16  and  18).  There  is  scope  for 
Latvia  to  improve  cooperation  and  alignment 
between  local,  regional  and  national  level 
planning  to  better  attract  investments  and  to 
and 
efficiency, 
improve 
accessibility of public services. 

quality 

the 

is 

(7)  See Latvia – CAP Strategic Plan for an overview of 

Latvia’s formally approved strategy to implement the 
EU’s common agricultural policy nationally. 

5 

505560657075808590EstoniaLatviaLithuania 
  
 
security.  Latvia’s 

levels,  Russia  remains  one  of  Latvia’s  major 
trading  partner (9),  which 
is  a  threat  to 
economic 
cybersecurity 
ecosystem has shown resilience in the light of 
rising  threats  (10).  Latvia  has  been  one  of  the 
Member  States  most  affected  by  Russian 
cyber threats, such as IT disruptions in critical 
infrastructure and DDoS attacks (11). 

Graph 1.2: Population change in 2014-2023 
(average annual change per 1 000 residents), 
Latvia, NUTS 3 regions. 

Latvia  is  a  Member  State  on  the  EU’s 
eastern  external  border  and  therefore 
faces  additional  challenges  that  are 
impacting 
its  economic  and  social 
development (8).  Trade  disruptions  and 
diversion  of 
investment  has  particularly 
affected  municipalities  bordering  Belarus  and 
Russia,  thus  compounding  the  preexisting 
issues  described  in  the  paragraph  above. 
Challenges  related  to  the  war  in  Ukraine  are 
socio-economic 
preexisting 
exacerbating 
vulnerabilities. 
been 
Latgale  has 
experiencing the  highest  rate  of  depopulation, 
the 
convergence  and 
stagnating  growth  (see  Annex 18).  Security 
concerns for people and critical infrastructures 
have increased and require investment in civil 
protection, preparedness and military mobility. 
These  investments  could  have  the  double 
benefit  of  addressing  security  concerns  and 
regions’ 
providing  opportunities 
economies.  Latvia  could  also 
focus  on 
developing  tailored  local  solutions,  such  as 
fostering  existing  manufacturing  and  defence 
industry clusters in non-Riga regions. 

lowest  economic 

long 

the 

for 

Latvia  is  taking  steps  to  strengthen  its 
economic security.  In February 2025, Latvia 
successfully  disconnected  from  the  Russian-
operated  electricity  system  and  synchronised 
with  the  Continental  European  Synchronous 
Area  (CESA).  This,  in  combination  with  cutting 
dependence on Russian natural gas and petrol, 
constitutes  significant  progress  in  increasing 
energy  independence.  Increasing  deployment 
of  renewable  energy  (especially  wind  and 
solar)  could  further  increase  energy  security 
(see  Annex 8).  Industry  depends  mainly  on 
imports  for  critical  raw  materials,  but  supply 
import 
is  high  and 
diversification 
concentration 
low  (see 
index  is  relatively 
Annex 5).  However,  despite  decreasing  export 

the 

(8)  The Commission’s 2026 Communication on the EU’s 

eastern regions bordering Russia, Belarus and Ukraine 
defines eastern border regions as NUTS 2-level areas 
that are geographically proximate to Belarus, Russia or 
Ukraine. All Latvian regions are classified as eastern 
border regions, but the challenges differ between 
subregions, particularly between border-adjacent areas 
(e.g. Latgale) and other regions, as well as between 
rural and urban zones. The challenges faced by eastern 
border regions are multidimensional and include hybrid 
risks, disruption of cross-border economic activity and 
declining investment attractiveness.  

Source: Eurostat (see Annex 18) 

Upgrading the housing stock is an 
urgent priority 

issue 
Overcrowding  remains  a  significant 
in  the  EU). 
in  2024  vs  16.9% 
(39.3% 
Investment  in  dwellings  has  been  growing 
moderately since 2010 but remains lower than 
in  the  EU  (2.5%  of  GDP  vs  5.3%  in  the  EU  in 

(9)  Eurostat. 

(10)  Potapovs, M. and Kanasta, K., (2025), Cybersecurity in 
Latvia: Forging Resilience amidst Emerging Threats. 

(11)  A DDoS (distributed denial-of-service) attack is a 

malicious attempt to disrupt the normal functioning of 
a targeted server, service or network by overwhelming it 
with a flood of traffic from multiple sources. For more 
information, see CERT-EU (2023), Russia’s War on 
Ukraine: One Year of Cyber Operations. 

6 

 
 
 
 
Key achievements of the recovery and resilience plan (RRP) 

Latvia’s RRP has a total envelope of EUR 1.969 billion (corresponding to 5.04% of GDP). It aims 
to  support  the  green  and  digital  transitions;  strengthen  economic  resilience;  and  address  long-
standing structural challenges identified in the European Semester. 

As  of  8 May 2026,  EUR 1.46 billion  (around  74%  of  the  total  allocation)  had  been  disbursed 
following  the  satisfactory  fulfilment  of  131 milestones  and  targets.  Implementation  has 
progressed steadily. A growing number of reforms and investments has already been completed 
and is now delivering tangible results on the ground. 

•  Digitalising  public  services  to  allow  citizens  and businesses to  access  a  wider  range  of 
public  services  online,  and  to  reduce  administrative  burden  for  public  administration  and 
beneficiaries.  

•  Promoting  clean  energy  transition  through  reforms  of  the  regulatory  framework  to 
promote  energy-sharing  and  self-consumption, 
the  creation  of  energy 
communities,  accompanied  by  investments  in  the  electricity  grid  capacity  (70 MW)  and 
storage capacity (60 MW). 

including 

•  Strengthening the social  safety net through legislative reforms that link the minimum 
income  threshold  to  median  income  and  introduce  automatic  annual  indexation,  thus 
ensuring more adequate and stable income support for vulnerable households. 

•  Boosting  Latvia’s  innovation  capacity  through  research  collaboration  and  the 
internationalisation  of  businesses,  helping  companies  and  research  institutions  bring  new 
products and technologies to global markets. 
Improving  housing  affordability  with  a  dedicated  revolving  fund  for  low-rent  housing 
construction to support municipalities and developers in expanding the supply of affordable 
rental housing in Latvia outside the capital region. 

• 

•  Enhancing  the  capacity  of  Latvia’s  justice  system  by  setting-up  a  judicial  training 
centre  and  delivering  10 specialised  training  modules  to  support  continuous  professional 
development of judges and judicial staff. 

Highlights and impact of the plan 

Box 2: 
housing 
stock 
remains 
outdate
d and 
inadequ
ate 
(despite 
ongoing 
investm
ent in 
afforda
ble 
housing
) and 
this is 
hinderi
ng 
social 
well-
being 
and 
labour 
mobility
. Latvia 
receive
d a CSR 
in 2025 
to 
2024).  Housing  construction  and  renovation 
increas
remain  constrained  by  high  interest  rates  and 
e the 
rising 
the 
availabil
government 
numerous 
ity and 
measures  to  speed  up  lengthy  permitting 
quality 
processes,  it  is  too  early  to  gauge  their 
of social 
effectiveness.  Relatively  high 
income  and 
and 
wealth 
preventing  many 
is 
inequality 
afforda
households  from  investing  appropriately  in 
ble 
renovations  unless  they  receive  additional 
energy-
support.  Regional  disparities  are  exacerbating 
efficient 
the  issue:  housing  markets  are  thin  outside 
housing
major  economic  centres  and  this  is  limiting 
, 
access  to  finance  and  deterring  investment 
includin
(see  Annex 18).  The  rental  market  and  social 
g 
housing  markets 
remain  underdeveloped. 
through 
Social  housing  is  primarily  provided  on  the 
renovat
basis of income level  and is not well-adapted 
to  the  needs  of  persons  with  disabilities. 
ions. 
Housing units are often very small and not fit 
Decade
s of 
underin
vestme
nt have 
left 
many 
building
s in 
need of 

costs. 
undertaken 

construction 

Though 

has 

for  wheelchair  use (12).  Homelessness  remains 
a  persistent  social  challenge  and  is  not  being 
addressed  by  national  policies.  The  ‘housing 
first’  approach  is  limited  to  the  capital  city  of 
Riga.  Latvia  could  benefit  from  implementing 
innovative  models  to  support  social  housing 
that take into account the relatively high levels 
of  private  ownership.  This  could,  for  example, 
involve rent guarantees, financial incentives to 
landlords and renting out to vulnerable groups. 
Recently 
renovation  and  social 
housing  programmes  (supported  by  the  EU’s 
ERDF and RRF and the State finance institution 
ALTUM)  will  help  address  existing  challenges, 
but  their  scale  and  pace  are  not  sufficient  to 
improve  housing  availability, 
significantly 
quality  and  energy  efficiency  (particularly  for 
vulnerable groups). 

launched 

(12) 2025 stakeholder consultation. 

7 

 
 
 
 
Box 3: 

Contribution of cohesion policy funds 

EU  cohesion  policy  funding  is  supporting  Latvia’s  efforts  to  boost  competitiveness, 
environmental  sustainability,  skills  and  social  fairness.  In  the  2021-2027  programming 
period, EU cohesion policy funds (13) are providing EUR 4.4 billion (amounting to EUR 5.2 billion 
paired  with  national  co-financing)  or  11%  of  2024  GDP,  to  Latvia.  This  makes  cohesion  policy 
one  of  the  main  sources  of  public  investment  in  Latvia.  The  value  of  selected  projects 
corresponded to around 75.4% of the total allocation as of March 2026 and there are additional 
calls for projects in the pipeline. 

• 

Innovation, business environment and productivity.  Nearly EUR 790 million has been 
allocated  to  research  and  innovation,  SME  competitiveness  and  digitalisation.  Over  2  000 
firms have already had their projects approved. 

•  Decarbonisation,  energy  affordability  and  sustainability.  EUR  1.1  billion  has  been 
allocated  to  clean  transition  projects  (including  over  EUR  400  million  for  sustainable 
transport  –  notably  railways,  electric  vehicles and  cycling  infrastructure).  Nine  new  electric 
battery  trains  will  replace  old  Soviet-style  diesel  trains  and  improve  connectivity  with 
Latvia’s  eastern  border  regions.  A  further  EUR  173  million  is  being  invested  in  energy 
efficiency projects that are already benefiting 400 multiapartment buildings. 

•  Skills,  quality  jobs  and  social  fairness.  Under  the  ESF+,  EUR  260  million  has  been 
allocated  to  social  inclusion  (including  healthcare  measures),  EUR  235  million  to 
strengthening  education  and  skills,  EUR  131  million  to  employment-related  measures  and 
EUR  60  million  to  addressing  food  and  material  deprivation.  These  investments  focus  on 
supporting  the  development  of  community-based  social  care  services,  health  promotion, 
tailored adult learning and the provision of active labour market services. 

The  mid-term  review (14)  has  reinforced  cohesion  policy’s  contribution  to  emerging  strategic 
priorities by reallocating EUR 484 million. Over 80% of this reallocation aims to support defence 
infrastructure and military mobility. This includes a new defence investment fund, reconstruction 
of  a  strategic  bridge  in  Latvia’s  eastern  border  region  Latgale,  a  dual-use  road  for  a  military 
garrison, an upgrade of  port  infrastructure to  military-mobility standards and boosting Latvia’s 
cybersecurity.  Latvia  is  also  increasing  investment  in  civil  preparedness  by  supporting 
construction of 570 shelters and 10 new disaster risk management centres. The mid-term review 
will  strengthen  energy  security,  securing  back-up  energy  infrastructure  such  as  portable 
substations. In addition to cohesion policy funding, Latvia will be allocated up to EUR 463 million 
under  the  Social  Climate  Fund  over  2026-2032  to  support  vulnerable  households  and  small 
businesses by mitigating the social impact of the new emissions trading system (ETS2). 

(13)  ERDF, ESF+, CF and JTF. 

(14)  The mid-term review was carried out halfway through 
the 2021-2027 programming period. It is a formal 
assessment process required under Article 18 of the 
Common Provisions Regulation to assess the 
implementation of a programme; and, where necessary, 
propose adjustments to improve its performance, 
ensure its continuing relevance in the light of new and 
emerging needs and maintain consistency with other EU 
policies. 

8 

 
 
 
 
 
INNOVATION, BUSINESS ENVIRONMENT AND 
PRODUCTIVITY 

by 

for 

strengthening 

small 
(SMEs); 

More  effort  is  needed  to  enable  Latvia’s 
companies  to  thrive  and  innovate.  In 
2025,  Latvia 
received  a  country-specific 
recommendation  (CSR)  to  improve  access  to 
and  medium-sized 
finance 
enterprises 
private 
facilitate 
investment  in  research  and  innovation  (R&I) 
(including 
cooperation 
between business and academia); and simplify 
the  regulatory  framework  for  companies. 
Some  policy  measures  have  been  carried  out, 
but progress is not yet clearly  visible. Latvia’s 
innovation  performance  remains  weak  and 
access  to  finance  for  companies  remains 
restricted. 
are 
exacerbated  by  skilled-labour  shortages.  The 
take-up  of  digital  technologies  by  SMEs  is 
lagging.  However,  Latvia  has  taken  positive 
steps to decrease administrative burden. 

Investment 

challenges 

(2.81) 

compared  to  1.49%  of  GDP  in  2024  at  EU 
level).  Low  R&D  investment  translates  into 
fewer innovations, as shown by the number of 
patent  applications  per  EUR  billion  of  GDP  in 
Latvia (1.31), which was less than half the EU 
average 
(see  Annex 4). 
in  2022 
Strategically designed grants to build capacity 
and encourage future innovation (for example, 
by requiring private co-financing or mandating 
the  employment  of 
could 
stimulate  broader  R&I  engagement,  thereby 
improving productivity levels. Latvia could take 
additional policy measures, such as leveraging 
investments in the defence sector through the 
Latvian  Defence 
Innovation 
Strategy  (15),  which  aims  to  catalyse  defence 
R&I  and  create  a  EUR 50 million  Defence 
Innovation Fund. 

Industry  and 

researchers) 

Graph 2.1: R&D intensity in the Baltic countries 

Fostering innovation and 
investments could help revive 
productivity growth 

low  R&D 

investment 

is 
Persistently 
constraining  innovation  performance.  For 
Latvia, the 2025 CSRs highlighted the need to 
facilitate  private  investment  in  R&I.  While 
Latvia’s  R&D  spending  (0.92%  of  GDP  in 
2024) has increased, it remains less than half 
the  EU  average  (2.24%  of  GDP  in  2024,  see 
Annex 4). Most public support relies heavily on 
EU funding, such as two research programmes 
financed through the ERDF. While these led to 
many  approved  post-doctoral  projects  and 
industry  research  initiatives  in  2025-2026, 
they  remain  short-term  and  dependent  on  EU 
co-financing. Latvia could consider introducing 
structural  incentives  such  as  R&D  tax  credits 
engagement, 
private-sector 
to 
because it has a low level of business private 
R&D  expenditure  (0.34%  of  GDP  in  2024 

increase 

Source: Eurostat 

to 

the 

Links  between  business  and  academia 
have  remained  weak,  despite  policy 
efforts.  In  2025,  Latvia  received  a  CSR 
highlighting 
strengthen 
need 
cooperation  between  business  and  academia. 
Such cooperation nevertheless remains scarce, 
slowing knowledge-transfer. Companies report 
long  and  complex  procedures  when  working 
with  research  institutions.  Researchers  lack 
incentives  to  engage  in  applied  projects.  The 
situation  is  exacerbated  by  the  instability  of 

(15)  Ministry of Defence (2025), Latvian Defence Industry 

and Innovation Strategy. 

9 

0.0%0.5%1.0%1.5%2.0%2.5%EELTLVEELTLVEELTLVEELTLV2010201520202024Percentage of GDPPublic R&D expenditurePrivate R&D expenditureEU GERD 
 
   
 
public-private  research  funding  (see  Annex 4). 
Latvia  has  taken  some  positive  steps.  For 
example, as part of its Recovery and Resilience 
Plan (RRP), it is reforming the higher education 
introducing  performance-based 
system  by 
university  funding  to  encourage  collaboration 
with industry. In addition, work is ongoing on a 
new  commercialisation  regulation  to  simplify 
tech transfer. 

Labour shortages in the fields of science, 
technology, engineering and mathematics 
(STEM)  are  undermining  innovation  and 
long-term investment. Latvia has a growing 
need  to  address  such  labour  shortages.  90% 
of  its  firms  cite  skilled-labour  shortages  as  a 
barrier  to  long-term  investment  in  2025 (16). 
The skilled-labour shortage is limiting Latvia’s 
ability to develop new technologies and absorb 
R&I  funding.  Latvia  has  only  3.2 researchers 
per  1 000  active  people  in  the  public  sector 
(EU  average: 5.9)  and  1.6  per  1 000  in  the 
private sector (EU average: 4.3) (see Annex 4). 
A new doctoral model has been introduced as 
part of the RRP, but retention remains low due 
to  uncompetitive  salaries  and  unstable 
funding.  STEM  skills  gaps  persist,  with 
the  EU  average  of 
approximately  half 
graduates  per  capita  in  these  fields.  Digital 
skills  are  also  lagging  behind:  AI  adoption, 
cloud  computing  and  data  analytics  all  trail 
the EU averages, hindering the digitalisation of 
businesses.  Latvia  could  benefit  from  labour 
policies  that  respond  to  market  needs  (see 
Annex 11 and Section 4). 

and 

EU 
is 

Latvia’s  productivity  level  remains  well 
average 
below 
its 
the 
development 
stagnating.  Weak 
productivity  dynamics  can  be  linked  to  low 
capital  intensity,  limited  sectoral  reallocation 
and  productivity  gaps  in  manufacturing.  In 
addition,  Latvia’s  economic  structure  relies  on 
lower-technology  activities.  In  2025,  retail 
trade, real estate and transport accounted for 
more than 25% of value added, while higher-
technology  services  (notably  information  and 
communication)  accounted  for  6.9%  of  value 
added (see Annex 5). Latvia could benefit from 
policies encouraging business R&D spending in 

the  long  term,  including  private-sector  R&D 
employment to boost longer-term TFP growth. 

More effort is needed to 
strengthen key business enablers 

Latvia’s 

There  is  a  growing  need  to  improve 
connectivity  infrastructure  and  to  speed 
up  the  adoption  of  advanced  digital 
connectivity 
technologies. 
infrastructure  lags  behind  EU  standards  and 
this poses barriers for businesses, especially in 
rural  areas  (see  Annex 5).  More  than  half 
(58.54%)  of  Latvian  SMEs  showed  at  least  a 
basic level  on  the  digital  intensity  index (17)  in 
2025,  but  this  share  was  well  below  the  EU 
average  (71.39%)  (see  Annex 4).  To  address 
range  of 
this,  Latvia  has 
measures  to  improve  skills  under  its  Digital 
Decade  roadmap  and  the  RRF,  targeting 
thousands of SME employees and businesses. 
Latvia’s  participation  in  Important  Projects  of 
for  Cloud 
Common 
Infrastructure 
(IPCEI-CIS) 
demonstrates  that  policy  efforts  are  being 
made  in  cloud  and  data  analytics.  However, 
further  targeted  and  scaled-up  support  for 
SME  digital  uptake 
to 
economic  growth 
strengthening 
potential. 

European 
and 

Interest 
Services 

remains  crucial 

introduced  a 

Latvia’s 

Latvia has taken several steps to reduce 
administrative  burden  and  simplify  the 
regulatory  framework  for  businesses. 
Latvia  received  a  CSR  in  2025  to  simplify 
regulation and reduce administrative burden. It 
has  taken  several  policy  measures  to  address 
the fact that firms continue to report business 
and 
to 
investment.  Reforms  include  the  expansion  of 
for 
priority 
businesses  (the 
‘Green  Corridor’),  sectoral 
action  plans  to  reduce  administrative  burden, 
further  digitalisation  and  data-reuse  across 
measures 
public 
to 
complement  a  21-point  action  plan 

regulations  as  obstacles 

administrative 

authorities. 

procedures 

labour 

These 

(16)  European Investment Bank (2025), EIB Investment 

Survey. 

(17)  The Digital Intensity Index is a composite indicator that 

is, derived from the survey on ICT usage and e-
commerce in enterprises. 

10 

 
 
 
in  areas  such  as 
streamline  procedures 
business registration and construction, as well 
as  efforts  to  simplify  EU  funds  management. 
Easing  administrative  requirements 
in  the 
implementation  of  posting  of  workers  rules 
could  reduce  regulatory  fragmentation  within 
the  Single  Market,  facilitate  cross-border 
mobility  and  foster  competitiveness  –  without 
undermining worker protection. 

capping early repayment fees (19). Additionally, 
the  introduction  of  a  solidarity  contribution 
appears  to  have  spurred  lending  activity  and 
competition  within  the  financial  sector (20).  To 
reduce  collateral  requirements  as  an  obstacle 
to  lending,  the  provision  of  an  independent 
assessment of a company’s financial health by 
state  institutions  could  serve  as  a  useful 
benchmark  for  lenders  and  the  companies 
alike. 

further 

Latvia’s  public  procurement  framework 
could  be 
improved.  Several 
measures  have  been  taken  to  improve  the 
procurement  framework  under  the  RRP,  but 
Latvian  public  procurement  institutions  still 
face  challenges  (e.g. continuous  staff-related 
constraints  that  negatively  affect  the  quality 
and 
procurement 
procedures).  Latvia is developing a new public 
procurement 
improve  the 
law  to  further 
framework by simplifying nationally regulated 
procedures (see Annex 5). 

timeliness 

public 

of 

Boosting access to capital is 
necessary for firms to thrive and 
scale 

lending 

lending. 

continue 

rates  and 

requirements 

including 
the 

stringent 
High 
to 
collateral 
constrain  corporate 
In  2025, 
Latvia  received  a  CSR  to  improve  access  to 
finance 
by 
companies, 
for 
in 
financial 
stimulating  competition 
markets. 
corporations, 
non-financial 
For 
annual credit growth recovered from -1.5% in 
2023 to 15.4% in Q3 2025, outpacing nominal 
GDP  growth.  However,  Latvian  firms  still  use 
less external  financing than EU  peers and the 
outstanding  stock  of  bank  loans  and  other 
(see 
external 
Annex 6) (18).  Borrowing  conditions  for  SMEs 
have  not 
improved  greatly.  To  promote 
borrower  mobility  and  competition  in  the 
corporate  lending  market,  the  Bank  of  Latvia 
and  the  Ministry  of  Finance  have  proposed 

remains 

funding 

low 

(18)  Companies’ bank-loan-to-GDP ratio remains very low 

(14.8% of GDP in Q3-2025, EU: 29.3%). Additionally, in 
2024, loans, listed shares, trade credit and bonds 
constituted just 45.3% of GDP in Latvia (EU: 122.9%). 

11 

to 

facilitate 

Latvia  has  initiated  some  public  support 
strategic 
schemes 
investments,  but  more  effort  would  be 
beneficial. In 2025, Latvia received a CSR to 
promote  public 
lending  and  guarantee 
schemes  to  facilitate  strategically  important 
investments. Primarily, most State and EU co-
financed  support  mechanisms  to  facilitate 
through 
companies  have  been  allocated 
ALTUM 
(the  State  development  financial 
institution).  The  latest  developments  include 
amending  the  public  guarantee  framework  by 
increasing the maximum credit guarantee limit 
for  a  single  SME  from  EUR  5  million  up  to 
EUR 25 million;  launching  the  next  call  for  a 
programme (21); 
large 
providing new EU-funded support programmes 
for centralised heating supply and biomethane 
production (22);  and  some  upcoming  activities 
in the fields of innovation, economic resilience, 
military and dual-use products (23). 

investment 

loan 

The  Latvian  ecosystem  for  start-ups  and 
scale-ups  is  lagging  behind.  Fewer  new 

(19)  LETA (2025), Bank of Latvia: Domestic loan portfolio is 

likely to continue to grow this year. 

(20)  Latvia has temporarily increased payments from the 
financial sector while simultaneously providing banks 
with a discount model linked to the growth rate of their 
lending. According to the Bank of Latvia, the 
introduction of a solidarity contribution boosted recent 
lending activity (though the assessed impact remains 
within a rather wide margin). 

(21)  Loans are intended for SMEs that plan to invest at least 
EUR 10 million in technology, engineering and materials. 

(22)  The available funding for both programmes is EUR 77.3 

million. 

(23)  The Growth and Protection Fund has a planned volume 

of EUR 100 million to promote development by 
investing in the equity capital of Latvian companies. 
The ‘ReARM’ support programme aims to improve 
industrial capabilities. 

 
 
 
fees  and 

pension  assets  remain  invested  in  relatively 
low-yielding  bills  and  bonds, 
indicating  a 
conservative  strategy  and  preference  for 
foreign bonds due to a limited local corporate 
bond market. Enhanced risk management and 
governance  of  the  pension  funds  could  lower 
management 
returns, 
encouraging households to shift some of their 
liquid  investments  into  long-term  retirement 
savings. Pension funds could also benefit from 
more 
local 
and 
investment  options  (including  in  real  estate, 
infrastructure and equity). Overall, Latvia could 
explore ways to follow a coordinated approach 
that addresses both the regulatory framework 
and market development (25). 

diversified 

attractive 

increase 

(see  Annex 4). 

start-ups register annually than in other Baltic 
countries due to fragmented and low financial 
support 
Incubators  and 
accelerators  provide  limited  financial  support 
at  pre-seed  level  and  banks  remain  reluctant 
to  lend  to  SMEs  (see  Annex 5).  The  scale-up 
ecosystem  is  also  limited,  because  existing 
programmes  for  start-ups  are  often  not 
suitable  for  scale-ups  and  provide  no  or  only 
limited  prefinancing.  The  2022–2025  start-up 
ecosystem  development  strategy  is  a  positive 
step, because Latvia has provided training and 
funding for start-ups and created the Start-up 
House to bring the ecosystem together. 

Latvia’s  capital  and  venture  markets  lag 
behind  the  EU  and  its  Baltic  peers.  In 
Q3 2025, stock market capitalisation was just 
0.8%  of  GDP  (69.9%  in  the  EU,  6.2%  in 
Lithuania  and  10.7%  in  Estonia).  It  has  been 
decreasing  since  2020,  when  it  peaked  at 
3.3% of GDP. In Latvia, the listing of State and 
municipal enterprises on the stock exchange is 
still  under  consideration,  but  State  and  local 
government-controlled  companies  account  for 
about  a  third  of  market  capitalisation  in 
Lithuania  and  Estonia  (see  Annex 6).  The 
Ministry  of  Finance’s  February  2026  report 
proposed  measures 
capital 
markets.  However,  these  proposed  measures 
lack  an 
implementation  timeline  and  the 
potential  listing of the shares of a few State-
owned  companies  alone might  not  be  enough 
to  achieve  the  stock  market  capitalisation 
target  of  9%  of  GDP (24).  Meanwhile,  venture 
capital investment (0.03% of GDP on average 
annually  over  the  period  in  2022–2024)  has 
trailed  the  EU  average  (0.06%)  due  to  weak 
private funding – despite public co-investment. 
(0.7%  of  GDP) 
Crowdfunding 
remains  a  bright  spot,  outperforming  the  EU 
(0.1%). 

to  activate 

investment 

Latvia’s pension funds are playing a role 
in  developing  its  capital  markets,  but 
domestic  investment  and  returns  remain 
limited.  Pension  fund  assets  have  been 
growing  rather  vigorously  in  recent  years, 
reaching 25.2% of GDP in Q3 2025 (vs 23.0% 
in the EU) (see Annex 6). About half of Latvia’s 

(24)  Ministry of Finance (2025), Proposals for the 

development of the capital market. 

(25)  The ALTUM co-financed venture capital fund ‘FlyCap’ 

began financing companies in October 2025, including 
by attracting investments from Latvian pension fund 
managers. The EUR 42 million fund will be invested in 
the Baltic countries over the next five years. 

12 

 
 
 
DECARBONISATION, ENERGY AFFORDABILITY AND 
SUSTAINABILITY 

to  accelerate 

Continued efforts are needed to speed up 
the  green  transition. 
In  2025,  Latvia 
received  a  country-specific  recommendation 
(CSR) 
the  deployment  of 
renewable  energy;  promote  clean  flexibility 
solutions; 
resource 
increase  energy  and 
efficiency;  and  advance  decarbonisation  of 
transport.  Some  policy  areas  have  seen 
progress,  but  more  work  is  needed  to  fully 
address  the  recommendations.  Installed  solar 
energy  capacity  has 
increased,  but  grid 
constraints  and  lengthy  permitting  procedures 
continue to hinder the clean energy transition. 
New  storage  capacity  has  come  online,  but 
further  deployment  of 
flexibility 
solutions 
remains  key.  Attracting  private 
capital to support renovation efforts remains a 
priority 
in  the  buildings  sector.  Transport 
decarbonisation  is  progressing  slowly.  Little 
resource 
progress  has  been  made  on 
efficiency  and  greater  effort  is  needed  to 
enable  the  shift  to  a  circular  economy. 
Rewetting  peatland  could  unlock  more  carbon 
removal capacity. 

clean 

Powering an affordable low-
carbon future 

to  dominate 

Expanding  solar  and  wind  generation 
remains  a  priority,  despite  Latvia’s  solid 
renewable  energy  base.  Latvia  received  a 
CSR  in  2025  to  accelerate  the  deployment  of 
renewable energy (particularly wind and solar). 
Hydropower  continues 
the 
electricity  mix,  accounting  for  46.8%  of 
domestic  generation  in  2025.  Installed  solar 
capacity  has  grown  strongly  from  0.01 GW  in 
2020  to  0.47 GW  in  2024,  but  wind  capacity 
has increased only marginally and both remain 
significantly  below  the  other  Baltic  states’ 
for 
levels 
additional  hydropower  capacity  is  limited,  so 
scaling  up  wind  and  solar  energy  is  critical  if 

(see  Annex 9).  The  potential 

Latvia  is  to  meet  the  rise  in  clean  electricity 
demand 
necessary 
electrification and decarbonisation needs. 

associated 

with 

Grid  constraints  have  partly  eased,  but 
permitting  procedures  for  renewable 
lengthy  and 
energy  projects  remain 
spatial  planning  needs 
improvement. 
Amendments  to  the  Electricity  Market  Law 
have  helped  Latvia  mitigate  recent  grid 
bottlenecks  by 
incentivising  developers  of 
‘phantom  projects’ (26)  to  release  booked  grid 
capacity.  This  Recovery  and  Resilience  Facility 
(RRF)  measure  has  freed  up  approximately 
2 GW  of  booked  capacity.  Several  measures 
were  adopted  in  2025  to  reduce  permitting 
timelines  (see  Annex 9),  but  further  action  is 
needed  (particularly  to  shorten  environmental 
impact  assessment  procedures).  Repeated 
reshuffling of competences and administrative 
structures  (illustrated  by  the  Energy  and 
Environment  Agency’s 
in 
February  2025  and  its  absorption  into  the 
State  Environmental  Service  just  six  months 
later)  is  undermining  business  continuity  and 
making 
it  harder  to  manage  a  growing 
workload.  Institutional  stability  and  sustained 
in  administrative  capacity  are 
investment 
essential  for  a  well-functioning  permitting 
to  map 
framework.  Efforts  are  ongoing 
suitable 
energy 
renewable 
sites 
identification  of 
development,  but  faster 
priority  areas  and 
centralised 
planning  are  needed.  Rising  public  opposition 
to  new  wind 
could  hamper 
projects 
progress (27). 

establishment 

stronger 

for 

(26)  Phantom projects are renewable energy development 
applications that are submitted without a credible 
business case or any realistic prospect of reaching 
financial close. They crowd out viable projects by 
occupying slots in connection queues. 

(27)  LETA (2026), Cudars partially suspends spatial plans of 
Bauska and Preili municipalities due to restrictions on 
renewable energy production. 

13 

 
 
 
Latvia’s continuing exposure to electricity 
price  spikes  highlights  the  importance  of 
clean  flexibility  solutions.  In  2025,  Latvia 
received  a  CSR  to  promote  energy  storage, 
demand response and market-based flexibility 
solutions.  Latvia  lacks  sufficient  non-fossil 
flexibility  and  therefore  remains  exposed  to 
price  spikes  during  peak-demand  hours,  when 
costly fossil-based plants are required to ramp 
up  production 
(see  Annex 9).  Significant 
progress  has  nevertheless  been  made.  In 
2025,  two  battery  energy  storage  systems 
(60 MW  and  20 MW)  were  commissioned  and 
began  providing  key  flexibility  services.  These 
projects  benefited  from  EU  funding  through 
the recovery and resilience plan (RRP) and the 
Connecting  Europe  Facility  (CEF).  In  addition, 
some  regulatory  improvements  have  been 
made 
the  deployment  of 
additional storage capacity (28). Further efforts 
could  focus  on  promoting  demand-response 
tools  and  independent  aggregators  of  small-
scale demand, which can provide flexibility and 
balancing  services  throughout  the  day.  Latvia 
could also prioritise clean flexibility over fossil-
based  flexibility 
its  upcoming  national 
flexibility  needs  assessment (29).  In  response 
to the regional  crisis in  the  Middle  East,  as  of 
1 April 2026, the excise duty on diesel fuel has 
been reduced for both general and agricultural 
use.  The  measure  should  expire  on  1  June 
2030. 

facilitate 

to 

in 

On  9 February 2025,  Latvia  successfully 
synchronised 
its  electricity  grid  with 
continental  Europe’s  electricity  system. 
This was the culmination of a multiyear, cross-
border  project  that  received  funding  from  the 
CEF.  This  synchronisation  allows  the  Baltic 
states  to  operate  their  electricity  systems  in 
close coordination with the rest of continental 
Europe, ensuring stable and reliable frequency 
control  and  thereby  strengthening  regional 
energy  security.  The  Baltic  states  previously 
depended  on  the  Russian  and  Belarusian 

(28)  See Amendments to Cabinet Regulation No 821 of 

19 December 2023. 

(29)  The revised EU Electricity Market Regulation was 

adopted in 2024 and introduced mandatory national 
flexibility needs assessments (FNAs). Member States 
must submit their first national FNAs by July 2026. 

14 

into 

systems for frequency regulation but are now 
integrated 
the  continental  European 
synchronous grid and all electrical connections 
with  Russia  and  Belarus  have  been 
permanently  disconnected.  The  new  battery 
energy  storage  systems  that  have  been  in 
operation  since  October  2025  complement 
synchronisation 
efforts  by  guaranteeing 
fundamental system-balancing services. 

Ensuring energy efficiency in 
buildings 

and 

carbon 

intensity 

The building sector’s energy consumption 
has  decreased  in  recent  years,  but  it 
remains  a  major  energy  consumer  and 
further efforts are needed to achieve the 
2030  energy  efficiency  targets.  In  2025, 
Latvia  received  a  CSR  to  reduce  energy 
consumption 
by 
strengthening  energy  efficiency  measures, 
especially  in  the  buildings  sector.  Support  for 
energy  efficiency  measures  remains  heavily 
dependent  on  EU  funding.  The  RRF  and 
contribute 
cohesion 
significantly 
efficiency 
schemes 
target  private  and  public 
buildings  (as  well  as  industry)  and  these 
schemes generally experience high uptake. The 
pace  of  renovation  nevertheless  remains 
insufficient to meet national energy efficiency 
and 
(see  Annex 9). 
targets 
Attracting  more  private  finance  will  be 
essential,  particularly 
through  dedicated 
financial instruments for energy efficiency and 
by  supporting  the  development  of  the  energy 
services sector as a key market enabler.  

renovation 

currently 

through 

energy 

funds 

that 

renovation 

legislative  measures 

Latvia is taking positive regulatory steps 
to  accelerate  the  pace  of  renovation. 
to 
Regulatory  and 
rates  have  been 
accelerate 
implemented 
under 
are 
and  more 
consideration. These include revisions to voting 
and  decision-making  rules  in  multiapartment 
buildings  (the  large  share  of  old  Soviet-era 
apartment  blocks  in  Latvia’s  building  stock 
makes this particularly relevant). Latvia is also 
developing  standardised  construction  designs 
for  renovating  these  buildings,  aimed  at 

 
 
documentation 

reducing  the  time  and  cost  of  preparing 
technical 
enabling 
economies  of  scale.  Adoption  of  the  Energy 
Efficiency  Law  (expected  towards  the  end  of 
the  year)  will  set  Latvia  on  a  path  to  meet 
more ambitious energy efficiency targets. 

and 

Transport decarbonisation and 
electrification require more work 

The  transport  sector  remains  one  of 
Latvia’s  largest  sources  of  greenhouse 
gas  (GHG)  emissions  –  particularly  road 
transport.  In  2025,  Latvia  received  a  CSR  to 
accelerate  the  decarbonisation  of  transport 
(particularly  road  transport).  In  2024,  44%  of 
Latvia’s  effort-sharing  emissions  came  from 
road  transport,  having  decreased  by  only  6% 
from 2005 levels (see Annex 8). The Transport 
Energy  Law,  which  was  adopted  in  2025  and 
is 
entered 
expected  to  contribute  to  the  decarbonisation 
of  the  sector  and  help  reduce  transport  GHG 
emissions by at least 16% by 2030 compared 
with current levels.  

into  force  on  1 January 2026, 

purchasing.  However, 

Latvia  has  made  visible  progress 
in 
promoting  electric  mobility  (particularly 
for  private  electric  vehicles  (EVs)  and 
charging  infrastructure),  but  the  uptake 
of  electric  heavy-duty  vehicles  remains 
slow.  Registrations  of  new  EVs  are  rising, 
thanks  in  part  to  support  from  the  RRF, 
cohesion  funds  and  government  subsidies  for 
EV 
fleet 
penetration  remains  low,  having  increased 
from  0.8%  in  2024  to  only  1.05%  in  2025, 
while  around  92%  of  Latvia’s  road  transport 
fleet  consists  of  fossil  fuel-powered  vehicles. 
The  amount  of  charging  infrastructure  for 
light-duty vehicles doubled in 2025 (compared 
with  2024)  but  remains  concentrated  mostly 
around  Riga.  In  this  regard,  Latvia  could 
benefit from taking measures that build on the 
2025  study  on  developing  a  network  of 
electric charging stations along the TEN-T road 

overall 

corridor (30).  Such  measures  could 
include 
recharging 
for  buses  and 
infrastructure 
coaches,  because  the  number  of  electric 
heavy-duty vehicles is still limited. 

to 
interoperability 

Latvia’s rate of electrification of the rail 
network  is  well  below  the  EU  average, 
limiting  its  potential  to  cut  transport 
emissions  and  modernise  operations. 
Latvia  is  leveraging  EU  funds  for  major 
projects  such  as  Rail  Baltica  and  the  national 
electrification 
boost 
programme 
and 
decarbonisation, 
connectivity.  Its  conventional  rail  network  is 
only  14%  electrified 
(EU  average: 57%). 
Passenger  services  are  about  90%  electrified, 
but  freight  services  are  still  almost  entirely 
reliant  on  diesel  traction.  In  this  context, 
introducing  BEMU 
charging 
infrastructure  along  Krustpils–Rezekne and 
Riga–Lugazi–Valga  railway  lines  enables  a 
cheaper and flexible zero-emission alternative 
to  full  electrification  while  improving  regional 
connectivity  in  eastern  and  northern  Latvia 
and  ensuring  cross-border  service  to  Estonia. 
Advancing  Rail  Baltica  will  contribute  to 
strengthening  military  mobility,  security  and 
transport 
the 
infrastructure,  as  well  as 
strategically 
connecting Latvia with the rest of the EU. This 
measure  and  the  completion  of  Riga  Central 
Station’s  southern  section  with  RRF  support 
would  help  shift  transport  mobility  from  road 
to electric rail, thus reducing GHG emissions.  

trains  and 

resilience 

regional 

of 

Latvia’s 

Aviation and maritime transport generate 
about  19%  of 
transport 
emissions. Expanding production and the use 
of  sustainable  aviation  and  maritime  fuels 
could  boost  industry,  innovation  and  energy 
security.  Two  projects  for sustainable  aviation 
fuels were announced in the Port of Riga and 
Līepaja.  Additional  measures  could  involve 
promoting pilot projects, scaling up production 
facilities and continuing the study with Estonia 
into  the  viability  of  sustainable  aviation 

(30)  Ministry of Transport (2025), Research on the creation 
of a network of electric charging stations in the TEN-T 
road network in Latvia. 

15 

 
 
fuel (31).  In  ports,  onshore  power  supply  is  a 
key decarbonisation solution that allows ships 
to  plug  into  the  grid  instead  of  running  on 
diesel.  Investment  in  ports  is  needed  in  order 
to  avoid  losing  competitiveness.  Latvia  could 
also  ensure  its  alignment  with  the  European 
Maritime  Single  Window  environment  in  order 
improve  port  efficiency  and  support 
to 
the 
as 
decarbonisation 
competitiveness of the maritime sector. 

well 

as 

Accelerating the shift to a circular 
economy 

Latvia  has 
launched  some  promising 
initiatives,  but  the  shift  to  circular 
economy  remains  slow  and  resource 
productivity  is  only  about  half  the  EU 
average.  In  2025,  Latvia  received  a  CSR  to 
increase  its  transition  to  circular  economy 
through  eco-innovation.  This  transition  faces 
significant  hurdles,  despite  progress  in  waste 
recycling.  Latvia’s  recycling  rates  for  plastic 
packaging,  construction  waste  and  municipal 
waste are slightly higher than the EU average 
(see  Annex 8).  However,  its  circular  material 
use rate (6.8%) is half the EU average and has 
stagnated since 2016.  

initiatives 

Landfilling  remains  a  major  challenge. 
The share of municipal waste sent to landfills 
is  twice  the  EU  average,  so  Latvia  risks 
missing  the  EU  target  to  reduce  municipal 
landfill use to 10% by 2035. Latvia has taken 
some  recent  positive 
(e.g.  the 
introduction  of  separate  textile  collection  in 
2025  and  the  ongoing  implementation  of  an 
e-cigarette  deposit  system  in  2026)  but  has 
not  made  any  systemic  changes.  The  lack  of 
concrete  targets  in  the  2021-2027  circular 
economy  action  plan  has  resulted  in  slow 
tax 
implementation.  Latvia’s  high 
(EUR 120/tonne 
be 
2025) 
complemented  by  a  new  incineration  tax  to 
prevent  a  shift  from  landfills  to  incineration. 
recycling  and  biowaste 
Municipal  waste 

landfill 
could 

in 

(31)  Technical Support Instrument, 2021 project: Developing 
technological solutions and production possibilities for 
sustainable aviation fuel in Estonia and Latvia. 

16 

collection  could  be  improved  by,  for  example, 
providing all  residents with separate biowaste 
containers.  Public  awareness  campaigns  and 
expanding  green  public  procurement  could 
bolster these efforts. 

Strengthening climate resilience, 
biodiversity and investing in the 
bioeconomy 

its 

Latvia  has 
climate 
reinforced 
resilience  policy  framework  but  further 
steps  in  implementation  remain  to  be 
taken.  The  Climate  Resilience  and  Economic 
Sustainability  Law  was  adopted  in  2025  and 
creates  a  coordinated  framework  for  climate 
action  across  public  institutions.  However,  the 
scale  of  expected 
investment  needs  for 
climate adaptation (see Annex 10) means that 
more work is needed to effectively implement 
these  measures  across  all  sectors.  Latvia  has 
significant  untapped  potential  to 
leverage 
nature-based  solutions  for  climate  resilience 
and  biodiversity.  One  notable  opportunity  for 
Latvia  is  the  restoration  and  rewetting  of 
peatlands, which can effectively mitigate flood 
and  drought  risks  while  storing  carbon  in  the 
soil  and  preserving  Latvia’s  unique  peatland 
biodiversity (see Annex 10).  

Latvia’s  land  use,  land  use  change  and 
forestry  (LULUCF)  sector  has  become  a 
source  of  additional  carbon  emissions, 
instead  of  contributing  to 
its  2030 
carbon  removals  target.  In  2025,  Latvia 
received a CSR to increase resource efficiency. 
The  LULUCF  sector  has  historically  delivered 
significant  carbon  removals  –  even  achieving 
net-negative  emissions  in  the  early  2000s  – 
but its capacity has declined and it has been a 
net  emitter  since  2020.  While  the  energy 
the  most 
transport, 
sector, 
significant 
gas 
of 
emissions  in  the  country,  it  is  followed  by 
LULUCF  sector.  In  2020-2023  the  increase  of 
GHG emissions in the LULUCEF sector are the 
cumulative  result  of  higher  harvesting  rates 
and a higher mortality  rate in mature forests. 
carbon 
In  2025,  Latvia  advanced 
implementing 
sequestration 

greenhouse 

including 

efforts 

source 

its 

by 

is 

 
 
measures  from  its  updated  national  energy 
and climate plan (including peatland rewetting, 
afforestation  and  sustainable  reforestation). 
However, 
rewetting  of  drained  peatlands 
projects  could  accelerate  Latvia’s  carbon 
sequestration  efforts,  especially  where  it  can 
provide  multiple  benefits 
(e.g.  defence, 
biodiversity etc.). 

Investing  in  healthy  forests  and  soils 
could  increase  carbon  removal  capacity. 
Supporting the bioeconomy by focusing on the 
development  of  domestically  manufactured 
wood products with high added value (such as 
engineered  wood  products)  could  foster  the 
development  of  biobased  value  chains  and 
the  competitiveness  of  Latvia’s 
increase 
bioeconomy.  Replacing  the  outdated  Forest 
Development  Guidelines  2015-2020  with  a 
new  strategic  document  could  help 
in 
prioritising  sustainability,  nature  conservation 
and  restoration.  Strengthening  the  monitoring 
of  net  carbon  removal  data  is  essential  for 
timely  and  effective  climate  action  in  the 
financing  could  be 
sector.  Public-private 
boosted  by  attracting  private 
investment 
through transparent value-chain reporting and 
using the EU Carbon Removal, Carbon Farming 
Certification  Framework  and  biodiversity 
credits. 

17 

 
SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS 

(CSR) 

recommendation 

Latvia  can  do  more  to  boost  social 
convergence.  In  2025,  Latvia  received  a 
country-specific 
to 
address  labour  and  skills  shortages,  including 
through  improved  working  conditions,  and 
strengthen  social  protection  and  the  health 
system.  Latvia  has  taken  some  measures  to 
address 
labour  and  skills  shortages  (see 
Annexes 11  and  13),  but  further  efforts  are 
needed  to  strengthen  workforce  skills.  Latvia 
has  improved  social  protection  adequacy  (see 
Annex 12),  notably  by 
improving  social 
increasing  child  benefits. 
assistance  and 
Pension  adequacy  nevertheless  remains  low 
and some benefits (e.g. the care allowance for 
persons  with  disabilities)  require  immediate 
attention.  Despite  some  policy  efforts,  access 
to  healthcare  is  still  hampered  by  insufficient 
funding and staff shortages. 

Addressing  these  challenges  will  help 
Latvia  boost  upward  social  convergence. 
The  second-stage  analysis  in  line  with  the 
Social  Convergence  Framework 
identifies 
challenges  for  Latvia  that  may  affect  social 
convergence  in  relation  to  its  labour  market, 
education  and  skills  as  well  as  its  social 
situation (32). 

Challenges in general education 
are hampering basic skills 
attainment 

The  steps  taken  to  retain  teachers  are 
not  sufficient  to  reduce  geographical 
disparities  in  education  or  the  skills 
science, 
shortages, 
technology, engineering and mathematics 

particularly 

in 

(32)  European Commission, SWD(2026) 122 final. The 
analysis relies on all the available quantitative and 
qualitative evidence and the policy responses that have 
been undertaken or are planned. 

18 

shortages 

(STEM).  Teacher 
in  general 
education are acute, both in the capital and in 
rural  areas,  especially  in  STEM  and  foreign 
languages.  The  educational  workforce 
is 
ageing and more than half of young teachers 
intend to leave the profession within five years 
(33).  Latvia  has  taken  positive  measures  to 
increase  salaries,  attract  new  entrants  and 
improve  teacher  induction  training.  However, 
teachers’  salaries  remain  lower  than  those  of 
tertiary-educated  workers,  weekly  teaching 
working hours have risen, and teaching to non-
native speakers has increased (see Annex 13). 
Latvia  could  benefit  from  targeted  upskilling 
and  measures  to  improve  teachers’  working 
conditions,  as  well  as  continuing  actions  to 
increase the number of STEM graduates. 

Regional disparities in education continue 
to  hamper  skills  development.  The  initial 
education  system  performs  comparatively 
well,  but  ensuring  equal  quality  across  the 
country  is  crucial,  since  larger  urban  schools 
outperform  smaller  rural  ones  in  basic  skills. 
The  increasing  share  of  early  school  leavers 
and 
insufficient  number  of  STEM 
graduates – especially among women – shows 
marked  differences  between  urban  and  rural 
areas (see Annex 13). 

the 

Labour and skills shortages are 
being addressed, but there is still 
scope for further improvement 

Further work is needed to fill skills gaps. 
In  2025,  Latvia  received  a  CSR  on  addressing 
labour  and  skills  shortages  (particularly  in 
STEM  and  in  other  specialisations  needed  for 
the 
and 
green 
some 
digitalisation). 

transition, 
research 
Latvia  has  made 

(33)  OECD (2024), Results from TALIS 2024. 

 
 
 
 
through 

primarily 

the 
progress, 
implementation  of  support  measures  for 
reskilling  and  upskilling  of  workers  as  well  as 
improving the labour market attractiveness of 
vocational  education  and  training  (VET)  (see 
Annex 13), but further efforts are still needed. 
Latvia’s  skills  mismatch  rose  to  18.7%  in 
2024,  while  growing  shortages  for  specific 
(see 
still  being 
sectors  are 
Annexes 11  and  13).  This  highlights  the  need 
for  stronger  upskilling  and  reskilling, including 
in digital skills. 

forecast 

(the  draft 

fragmented 
could 

Latvia  is  continuing  to  strengthen  adult 
learning, with the support of EU funds, by 
increasing  both  individual  needs-based 
and  sectoral  needs-based  training.    The 
national  authorities  have  developed  a  single 
access  portal  for  adult  learners  (34)  and  have 
launched  a  promising  pilot  project  on 
individual learning accounts to increase adults’ 
learning  system 
digital  skills.  The  adult 
nevertheless 
and 
remains 
strengthen 
underdeveloped.  Latvia 
workforce  availability  and  long-term  planning 
by  adopting  the  national  strategy  for  human 
capital  development 
legislative 
proposal  for  this  was  adopted  in  2024) (35). 
Latvia’s  social  partners  have  called  for  the 
Public  Employment  Service  (PES)  to  become 
more  efficient  and  for  active  labour  market 
policies  (ALMPs)  to  be  more  closely  aligned 
with  actual  labour  market  needs,  in  close 
cooperation  with  employer  organisations  and 
unions (36).  Counterfactual 
trade 
impact 
evaluations  are  carried  out  to  assess  the 
effectiveness  of  ALMPs.  Latvia  could  improve 
ALMPs  by  exploring  ways  to  provide  more 
flexible  and  short-term  training  offers  and 
expanding  the  use  of  micro-credentials.  The 
capacities  of  sectoral  VET  expert  councils 
could 
improve 
strengthened 
collaboration  between  businesses  and  the 
education  institutions,  thereby  making  VET 
graduates  more  employable.  While  Latvia  is 
taking  measures 
strengthen 
to 
apprenticeships  in  VET,  the  approach  is  being 

further 

be 

to 

(34)  See stars.gov.lv. 

(35)  Human Capital Development Action Plan 2026-2027. 

(36)  Consultation of Latvian social partners in the context of 

the 2026 Semester’s structured dialogue. 

implemented within a national VET framework 
that  does  not  follow  a  dual  learning  model, 
remaining 
and 
underdeveloped. 

school-led 

primarily 

Job-quality challenges remain 

Working conditions are improving, but the 
low  and  decreasing  collective  bargaining 
coverage is slowing further progress.  The 
minimum  wage  increased  from  EUR 700  in 
2024  to  EUR 740  in  2025  and  EUR 780  in 
2026. This had a positive impact on the labour 
market in terms of upward social convergence 
and wage growth (particularly in sectors with a 
higher  share  of  minimum  wage  earners,  such 
as  social  care).  However,  productivity  has  not 
kept pace (see Annex 11) and there is a need 
for  continued  efforts  to  improve  the  skills  of 
workers,  increase  the  effectiveness  of  capital 
and raise returns on investments. The low and 
decreasing  level  of  collective  bargaining  (see 
Annex 11)  risks  limiting  further  progress  on 
wages,  employee  training,  employee  retention 
and  development, innovation  and  productivity. 
Low  trade-unionisation  (10.3%)  and  employer 
coverage  (56.4%)  remain  the  key  constraints 
on bargaining coverage (25.8%). A particularly 
low  level  of  agreements  has  been  concluded 
at  the  sectoral  level  (see  Annex 11).  The 
capacity of social partners is low, including as 
regards  their  ability  to  participate  in  the 
In  addition,  the 
sectoral  expert  councils. 
effectiveness  of  social  dialogue  shows  wide 
discrepancies  and 
in  some 
sectors,  such  as  healthcare.  Regarding  job 
quality,  Latvia  has  one  of  the  highest  shares 
of low-wage earners in the EU. It is also one of 
the  worst  performers 
in  terms  of  fatal 
accidents at work. 

ineffective 

is 

Social protection, services and 
housing remain underdeveloped 

Latvia  has  made  some  progress 
in 
improving  social  protection  adequacy 
(especially for child benefits), but further 
efforts are needed. In 2025, Latvia received 

19 

 
 
included 

a CSR to strengthen social protection to reduce 
inequality,  including  by  improving  access  to 
quality  social  services,  notably  home  care. 
Latvia  has  since  continued  to  improve  the 
adequacy of social assistance, building on the 
minimum  income  reform  of  2023  and  the 
2025  upward  revision  of  the  guaranteed 
minimum income from 20% to 22% of median 
income  (with  an  annual  revision).  In  2026,  as 
the  State  budget  prioritises  demographic 
support,  several  social  benefits  have  been 
significantly  improved,  with  a  focus  on  child-
related  benefits (37).  These 
the 
childcare allowance for children up to the age 
of 1.5 years, which increased from EUR 171 to 
EUR 298. However, the share of the population 
at risk of poverty or social exclusion remained 
high  at  24.7%  in  2025.  This  was  due  to 
Latvia’s  low  expenditure  on  social  protection 
and the low and deteriorating impact of social 
transfers  on  poverty  reduction  (21.5%  vs 
34.2%  in  the  EU  in  2024).  Vulnerable  groups 
(including  older  persons,  persons  with 
disabilities,  unemployed  persons  and  single-
parent households) are particularly exposed to 
poverty  and  social  exclusion  (see  Annex 12). 
According  to  a  EUROMOD  simulation (38),  both 
the  poverty  rate  and  the  extent  of  poverty 
after  social  transfers  (excluding  pensions) 
increased  for  several  vulnerable  household 
groups 
(i.e. households  with  persons  with 
disabilities,  with  elderly  members  and 
members  with  a  migration  background  –  see 
Annex 12)  between  2015  and  2025.  Some 
benefits  (e.g. the  care  allowance  for  persons 
with  disabilities)  remain  low  and  have  not 
been  adjusted  to  keep  pace  with  inflation  for 
several years.  

Social  services,  including  long-term  care 
(LTC)  services,  remain  underdeveloped 
despite  some  promising  developments. 
Some  progress  has  been  made  on  access  to 
quality  social  services.  Latvia  is  continuing  to 
implement  the  minimum  services  basket  and 
to  transition  towards  community-based  LTC 
services (see Annex 12). In the context of this 

(37)  Ministry of Welfare (2025), Summary of changes to 

social benefits in 2026. 

(38)  The simulation was performed by the European 

Commission, Joint Research Centre, based on the 
EUROMOD model, J2.0+. 

are 

there 

reform, all municipalities will have to provide a 
standard  set  of  social  services  from  2026 
onward (39).  This  transition  is  being  supported 
by  EU  cohesion  policy  funds,  with  over 
EUR 100 million  for  their  development  until 
2029.  Some  progress  has  been  made,  but 
social  services  and  formal  LTC  remain  largely 
underdeveloped, 
considerable 
differences  between  municipalities  and  there 
are  particular  shortages  in  the eastern  border 
region  of  Latgale  (see  Annex 12).  Latvia  is 
currently  developing  a  new  LTC  financing 
model  in  order  to  deal  with  the  growing  LTC 
needs and persistent funding constraints, but a 
political  agreement  on  this  is  still  pending. 
Latvia can ensure that the  needs of the most 
vulnerable  groups  are  adequately  supported 
by  ensuring  appropriate  resources  for  the 
development  and  provision  of  social  services 
(including for addressing material deprivation). 
There  is  still  scope  to  further  align  the 
provision  of  community-based  services  for 
persons  with  disabilities  with  the  right  to 
independent living. 

Workforce attraction and development as 
well as appropriate pay are essential for 
ensuring quality care. Latvia received a CSR 
in 2025 to address labour and skills shortages, 
including  in  the  social  sector.  In  2026,  Latvia 
adopted the 2026-2027 plan for development 
and  improvement  of  social  services (40).  This 
contains several measures to attract people to 
the  social  care  sector.  This  is  particularly 
important  given  the  growing  demand  for 
formal care and existing labour shortages (see 
Annex 12). Latvia has only 0.9 LTC workers for 
every  100 persons  aged  65  and  older  (below 
the  EU  average  of  3.3).  This  means  that  the 
care  burden  is  relatively  high  for  informal 
carers,  negatively  affecting  labour  market 
participation 
Latvia 
recognises  this  and  is  exploring  ways  to 
support  informal  caretakers.  In  2025,  a  study 
was  concluded  that  resulted  in  proposals  for 

productivity. 

and 

(39)  Day care services for people with severe functional 

impairments, respite services for children and people 
with severe disabilities, specialised workshops for 
persons with mental disability and social rehabilitation 
services at home for children and young people. 

(40)  Plan for the improvement and development of social 

services for 2026 and 2027. 

20 

 
 
 
informal  carers  support 
strengthening  the 
system  (including  through  increasing  support 
for  skills  acquisition).  Remuneration  in  State 
institutions  for  long-term  social  care  and 
social  rehabilitation  increased  in  2026  in  line 
with  the  growth 
in  the  minimum  wage. 
However,  wages  in  the  care  sector  remain 
below  average.  A  wide  gender  pay  gap  and 
it 
inefficient  collective  bargaining  make 
difficult 
the  profession  more 
attractive. 

to  make 

longer 

insurance  periods (41). 
those  with 
Nevertheless,  old-age  poverty  (for  persons 
aged  65  years  and  older)  was  41.1%  –  more 
than  double  the  EU  average  –  and  remains  a 
challenge. Pension adequacy remains low. The 
aggregate  replacement  ratio  decreased  from 
0.44  in  2024  (EU:  0.60)  to  0.43  in  2025.  A 
more  comprehensive  long-term  solution  is 
needed  to  ensure  pension  adequacy  and 
address  old-age  poverty  (see  Annexes 6  and 
12). 

Graph 4.1: Number of healthcare and LTC staff 

* per 100 people aged 65 and over 
** per 1 000 population 
Source: Eurostat, 2023 data 

The pension system needs a long-
term solution 

is 

to 
improving 

The  pension  system 
lacking  a 
sustainable  long-term  solution  to  ensure 
pension  adequacy  and  address  old-age 
poverty.  Latvia  received  a  CSR  in  2025  to 
reduce 
social  protection 
strengthen 
inequality, 
the 
including  by 
adequacy  of  old-age  pensions.  Latvia  has 
responded  by  continuing  with  the  gradual  re-
introduction 
pension 
the 
supplement  payments  and  strengthening 
pension  adequacy  through  annual  indexation 
procedures  (see  Annex 12).  In  October  2025, 
all  pension  amounts  up  to  EUR 1 488  were 
indexed,  with  higher  rates  of  indexation  for 

old-age 

of 

Poor healthcare accessibility is 
taking a toll on health outcomes 

The  Latvian  health  system  continues  to 
face  significant  challenges,  resulting  in 
poor  health  outcomes.  Latvia  received  a 
2025  CSR  to  improve  its  health  system, 
including  by  providing  additional  human  and 
financial  resources.  Some  efforts  have  been 
made,  but  progress  remains  limited.  Latvia  is 
among  the  least  well  performing  EU  Member 
States  on  indicators  such  as  life  expectancy, 
treatable  mortality,  unmet  medical  needs  and 
health  inequality  (see  Annex 15).  Poor  health 
outcomes result in a large loss in potential life 
years,  negatively  affecting  Latvia’s  workforce 
and productivity. 

and 

this 

especially 

The  level  of  healthcare  accessibility  is 
low 
impacts 
vulnerable  groups.  The  public  share  of 
health  spending  was  59.6%  in  2023,  among 
the lowest in the EU (see Annex 15). According 
to  Ministry  of  Health  data,  public  health 
spending  remained  at  only  4.7% of  GDP  in 
2025  and  is  set  to  decrease  to  just  4%  in 
2027.  Out-of-pocket  (OOP)  expenses  are  high 
as  a  result,  accounting  for  35.1%  of  health 
costs  in  2023  (more  than  double  the  EU 
payments 
average 
disproportionally 
low-income 
households and vulnerable groups, resulting in 
high 
in  access  to  healthcare. 
Accessibility  is  further  limited  by  long  waiting 

inequalities 

affect 

15%). 

OOP 

of 

(41)  Ministry of Welfare (2025), Pension indexation will take 
place again this year on October 1. Indexation amounts 
depend on insurance periods. 

21 

0.94.23.43.37.64.30.01.02.03.04.05.06.07.08.0Long-term careworkers*Nurses**Doctors**LatviaEU average 
     
 
the 

and 

list  of 
increased 

lists for public services. To address this, Latvia 
introduced  an  e-referral  solution  in  2025  to 
prevent  double-booking  of  appointments. 
Furthermore, to decrease OOP spending, Latvia 
reimbursable 
has  expanded 
medicines 
medicine 
Latvia  has  also 
reimbursement 
implemented  several  one-off 
investments, 
in  secondary  outpatient 
such  as  projects 
healthcare  service  providers  under  the  RRP. 
The 2026 budget allocated additional funds to 
maternal, child and palliative care. Latvia could 
from  additional  measures  and 
benefit 
financing  to  make  the  health  system  more 
accessible. 

rates. 

shortages 

is  being 
Provision  of  adequate  care 
hampered  by 
(as 
staff 
highlighted  in  the  2025  CSR).  Healthcare 
staff  shortages  are  among  the  highest  in  the 
EU (see Graph 4.1) and disproportionally affect 
rural  areas.  The  situation  is  likely  to  worsen 
due  to  the  age-profile  of  the  workforce 
(especially  nurses  and  general  practitioners). 
Challenging  working  conditions  (including  low 
remuneration  and  high  workloads)  are 
hindering  the  recruitment  and  retention  of 
staff  as  well  as  the  provision  of  high-quality 
care.  As  part  of  the  RRP,  Latvia  approved 
simulation-based  medical  education  and  has 
increased  the  minimum  wages  for  some 
newly 
healthcare 
staff 
introduced 
remuneration  model  channels 
funding  increases  to  staff  with  lower  wages 
but does not include structural pay increases. 

categories. 

A 

is 

smoking, 

(including 

Latvia’s  rate  of  preventable  mortality 
was one of the highest in the EU in 2022, 
while  public  spending  on  preventive 
limited.  High  preventable 
measures 
mortality  rates  are  linked  to  behavioural  risk 
factors 
alcoholic 
consumption  and  limited  physical  activity). 
Introducing  preventive  policy  measures  and 
strengthening  the  role  of  primary  care  could 
improve  health  outcomes  and  decrease  long-
term  costs  through  early  detection  and  early-
stage  treatment.  Strengthening  the  role  of 
primary 
could  also  help  prevent 
unnecessary  hospitalisation,  thereby  reducing 
pressure  on  the  healthcare  workforce  and 
limiting costs. 

care 

22 

 
KEY FINDINGS 

In  areas  covered  by  existing  CSRs,  Latvia 
would benefit from: 

the  use  of  financial 
renovations; 

instruments  for 

•  making public finances fit to cope with 
structural spending needs by redirecting 
savings  from  spending  reviews  to  priority 
areas, increasing tax revenue from sources 
less  detrimental  to  growth,  and  reducing 
the shadow economy; 

•  continuing  efforts  to  improve  access 
to finance for small and medium-sized 
enterprises,  by  increasing  competition  in 
the  financial  market,  promoting  public 
lending  and  guarantee 
to 
facilitate  investments  and  increasing  the 
size  of  the  capital  market  (by  considering 
the 
listing  of  shares  of  state-owned 
companies  and  fostering  the  development 
of markets in financial instruments); 

schemes 

•  continuing  efforts 

to  decarbonise 
transport,  by  promoting  the  uptake  of 
low-emissions and zero-emissions vehicles, 
expanding  charging 
infrastructure  and 
accelerating the completion of Rail Baltica; 

• 

resource  efficiency  by 
increasing 
adopting 
resource 
sustainable 
management  practices  and  improving  the 
waste management system; 

•  fostering  upward  social  convergence 
by  strengthening  social  protection, 
particularly  for  vulnerable  groups,  to 
decrease poverty and inequalities, including 
by 
to  high-quality 
services  (particularly  long-term  care)  and 
ensuring the adequacy of old age pensions; 

improving  access 

•  encouraging 
investment 
strengthening 
business and academia; 

public 
in  R&I, 

cooperation 

and 

including 

private 
by 
between 

•  decreasing labour and skills shortages, 
especially  in  STEM,  teaching  and  research, 
basic  digital  skills  and  the  social  and 
healthcare  sector,  and  promoting  human 
capital development, by better aligning VET 
with  labour  market  needs,  strengthening 
the adult learning system and effectiveness 
of 
improving  working 
conditions; 

ALMPs, 

and 

• 

• 

improving 
the  health  system  by 
increasing public funding to reduce out-of-
improving  working 
pocket 
conditions 
staff  and 
for  healthcare 
strengthening preventive policy measures; 

payments, 

increasing  the  availability  and  quality 
of  housing 
and 
(especially 
affordable housing), including by mobilising 
renovations  of 
for 
private 
housing, particularly in the regions. 

financing 

social 

In other areas, Latvia would benefit from: 

solar 

capacity  by 

•  accelerating  the  deployment  of  wind 
and 
improving 
permitting procedures, implementing smart 
solutions, 
grid 
designating  renewable  acceleration  areas 
and incentivising demand-side flexibility; 

queue  management 

of 

Latvia’s 

•  boosting the productivity, cohesion and 
resilience 
regions, 
particularly  those  on  the  Eastern  border, 
investment  and  by 
including 
strengthening  multilevel  governance  and 
place-based strategies; 

through 

• 

the 
improving  energy  efficiency 
buildings sector, including by strengthening 

in 

23 

•  accelerating the adoption of advanced 
by 
infrastructure 

technologies, 
connectivity 

digital 
improving 

including 

 
 
(especially  in  rural  areas)  and  targeting 
support 
increase  digital 
intensity; 

to  SMEs 

to 

•  stepping  up  efforts  for  sustainable 
land management and use, especially by 
investing  in  healthy  forests  and  soils  to 
enhance  carbon  removal,  resilience  and 
biodiversity. 

24 

 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

A1.  CSR implementation 

Fiscal 

A2.  Fiscal developments and debt sustainability 

A3.  Taxation 

Productivity 

A4. 

Innovation to business 

A5.  Single market and industry 

A6.  Savings, investment and access to finance 

A7.  Effective institutional framework 

Sustainability 

A8. 

Industry decarbonisation, circularity and climate mitigation 

A9.  Affordable energy transition 

A10.  Climate adaptation, preparedness and environment 

Fairness 

A11.  Labour market 

A12.  Social policies 

A13.  Education and skills 

A14.  Social scoreboard 

A15.  Health and health systems 

A16.  Housing 

Horizontal 

A17.  Sustainable development goals 

A18.  Competitive regions 

A19.  Transport 

LIST OF TABLES 

A1.1. 
A2.1. 
A2.2. 
A2.3. 
A3.1. 
A4.1. 

CSR implementation and Commission assessment 
Supplementary pension schemes - Scope for expansion 
Projected change in age-related expenditure in 2025-2040 and 2025-2070 
Fiscal Governance Database Indicators and Public Accounting Maturity 
Taxation Indicators 
Key innovation indicators 

27 

29 

34 

34 

39 

42 

42 

47 

54 

62 

68 

68 

74 

80 

87 

87 

91 

95 

99 

100 

104 

108 

108 

110 

116 

29 
36 
37 
38 
40 
46 

 
 
 
Single Market and Industry 
Savings and Investments Union summary diagnostic 
Financial sector indicators 
Latvia. Selected indicators on better regulation practices for primary legislation 
Digital Decade key performance indicators: availability of digital public services 
Key clean industry and climate mitigation indicators: Latvia 

A5.1. 
A6.1. 
A6.2. 
A7.1. 
A7.2. 
A8.1. 
A10.1.  Key Adaptation Indicators 
A14.1.  Social Scoreboard for Latvia 
A15.1.  Key health indicators 
A18.1.  Main development trends and challenges in Latvia 
A18.2.  Key regional indicators (at NUTS 3 level) for Latvia 
A18.3.  Selected socio-economic indicators by degree of urbanisation for Latvia 

LIST OF GRAPHS 

Composition of non-financial corporations' funding 
Capital markets and financial intermediaries 
Composition of households' financial assets 
Trust in the justice system, regional / local authorities and in government 

Greenhouse gas emissions in the effort sharing sectors, 2005, 2023, and 2024 
Electricity and gas prices for household and non-household consumers, first half of 2025 
Low-carbon electricity generation vs electricity wholesale prices, 2025 
Latvia’s installed renewable capacity vs electricity generation mix 

Contributions to the change in the general government balance (% of GDP) 
Public investment evolution and composition (% of GDP) 
Primary spending evolution and compositional change 
Tax revenue by economic function in 2024, LV (outer ring) and EU-27 (inner ring) 
Tax wedge for single and second earners as a percentage of total labour costs, 2025 
R&D intensity in the Baltic countries 

A2.1. 
A2.2. 
A2.3. 
A3.1. 
A3.2. 
A4.1. 
A5.1.  Manufacturing industry production: total and selected sectors, index (2021=100), 2015-2024 
A6.1. 
A6.2. 
A6.3. 
A7.1. 
A7.2.  Most time-consuming aspects of service delivery 
A8.1. 
A9.1. 
A9.2. 
A9.3. 
A11.1.  Nominal and real unit labour costs and components (compensation of employees and productivity), compared with 2007 
A11.2.  Unemployment rate by educational attainment (annual), Latvia 
A12.1. 
A15.1.  Potential gains in working-life years from prevention, between 2022 and 2040 
A15.2.  Out-of-pocket payments: share in healthcare spending and categories, 2023 
A16.1.  House prices, rents and price-to-income evolution in LV and EU27 since 2005 
A16.2.  House supply indicators in LV since 2005 
A16.3.  Housing affordability selected indicators 
A17.1.  Progress towards the SDGs in Latvia 
A18.1.  GDP per head (PPS, EU = 100) growth, NUTS-3, 2004-2024 
A18.2.  Productivity per hour worked: average annual growth and level, NUTS 3 
A18.3.  Share of engineering sector in the total value added in municipalities, 2022 
A19.1.  Latvia's road fatalities per million, 2024 

Impact of social benefits on poverty reduction (%) 

LIST OF MAPS 

A18.1.  GDP per head compared with the EU average 
A18.2.  Population change in 2015-2024 (average annual change per 1000 residents), Latvia, NUTS 3 regions 
A19.1.  TEN-T Cross-Border & National Priority Sections in Latvia 
A19.2.  Latvia's road safety map 

28 

53 
54 
61 
63 
64 
73 
86 
99 
102 
111 
112 
113 

34 
34 
35 
39 
41 
42 
52 
55 
56 
57 
62 
63 
69 
74 
75 
77 
89 
90 
92 
101 
101 
104 
105 
107 
108 
110 
111 
114 
117 

110 
112 
117 
118 

 
 
 
 
 
 
ANNEX 1: CSR IMPLEMENTATION  

Table A1.1:  CSR implementation and Commission assessment 

(Continued on the next page) 

29 

Latvia faces challenges in a wide range of policy areas, as identified in the country-specific recommendations (CSRs). Latvia was recommended, among other things, to strengthen defence and fiscal sustainability, boost competitiveness and innovation, accelerate the green transition and energy security, address labour shortages and upskill the workforce, and strengthen social protection and healthcare.   The Commission has assessed the degree of implementation of the 2025 CSRs considering the policy action taken by Latvia to date*. To do so, the Commission has taken into account the information provided by Latvia in its Annual Progress Report as well as other information sources. This annex provides summary information on the policy actions taken or planned by Latvia for each CSR. More detailed information on these actions is included in the relevant chapters and other annexes of the report. *CSR 2 is not assessed in CeSaR. 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. Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessment of progress  1.1 Reinforce overall defence and security spending and readiness while ensuring debt sustainability in line with the European Council conclusions of 6 March 2025. Total general government defence expenditure in 2026 is projected at 4.1% of GDP, corresponding to an increase of 1.4 pps compared to 2024. Total general government defence expenditure in 2027 is projected at 5.5% of GDP, corresponding to an increase of 2.8 pps compared to 2024. Substantial progress 1.2 Adhere to the maximum growth rates of net expenditure recommended by the Council on 21 January 2025, while making use of the allowance under the national escape clause for higher defence expenditure. Cumulated deviation in 2025 amounted to -1.9% of GDP   Cumulated deviation in 2026 projected at -0.6% of GDP Full Implementation 1.3 Make public finances fit to cope with rising structural spending needs including for defence, healthcare and social protection, • Approval of the Law on the 2026 State budget and the Budgetary framework 2026, 2027 and 2028 by the Saeima. • Activation of the national escape clause for defence expenditure (NEC). Defence spending projected to reach 4.2% of GDP in 2026 (Commission Autumn 2025 Forecast). • Additional financing of 0.2% of GDP allocated to education and social protection (demography support measures in the 2026 Budget).  Limited Progress 1.4 such as by broadening taxation to sources less detrimental to growth, • Increase of personal income tax rates on income from capital. • Introduction of temporary solidarity levy on credit institutions. • Increase in gambling tax, company car tax and excise duties on alcohol and tobacco. • Introduction of an additional 3% PIT rate on annual income • Increase in excise duty rates on soft drinks. • Extension of the new natural resources tax to roundwood  Limited Progress  
 
 
 
      
 
Table (continued) 

(Continued on the next page) 

30 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessment of progress  exceeding EUR 200,000. 1.5 moving informal or undeclared activities into the formal economy, and • Introduction of mandatory e-invoicing in transactions with public institutions and phased rollout for B2B e-invoicing. • Increased publication of data on taxes paid by enterprises by the State Revenue Service.  • Ongoing implementation of the Shadow Economy Restriction plan (2024-2027).  Some Progress 1.6 redirecting expenditure to priority areas based on public spending reviews. • Redirection of the savings generated in the spending reviews in the 2026 Budget towards government’s key priorities. • The requirement to prepare spending reviews to be expanded to local governments.  Some Progress 3.1 Simplify regulation, improve regulatory tools and reduce administrative burden on companies. • Introduction of the “request-once” principle for data exchange. • Introduction of risk-based approaches and the “green corridor”, providing accelerated administrative procedures. • Enhanced ex-ante and ex-post regulatory impact assessments, application of the proportionality principle, and continuous monitoring of administrative costs. • Adoption of the public procurement reform strategy by the Parliament. The reform to public procurement is under discussion in the Parliament. Substantial Progress 3.2 Improve access to finance for small and medium-sized enterprises, including by stimulating competition in the financial markets and promoting public lending and guarantee schemes to facilitate investments of strategic importance, in particular in the areas of the green transition, scaling-up and commercialisation of innovations, and regional development. • Government initiatives to improve mortgage lending conditions for households. • Introduction of the Baltic Capital Market Acceleration Fund, which provides financing to businesses before and during the listing stage. • State and EU co-financed support mechanisms allocated through the State development financial institution ALTUM, including the public guarantee framework, large investments loan programme, new support for green transitions (centralized heating supply and biomethane production). • A regulation to limit early repayment fees, aimed at promoting borrower mobility and enhancing competition. • A review of the strategy to activate capital markets. • Upcoming activities in the fields of innovation, economic resilience, military or dual-use products (The Growth and Protection fund to invest in the equity capital of Latvian companies; support programme ‘“ReARM’” for improving industrial capabilities). Limited Progress 3.3 Facilitate private investment in research and innovation, including by pursuing further reforms in the higher education system to strengthen cooperation between businesses and academia. • Introduction of a reform to include representatives of industry in the councils of universities. • Open calls for financing cooperation research projects between business and academia on the Research Innovation Platform. • A regulation to help commercialization of products from science institutions is in progress. Limited Progress 4.1 Reduce reliance on fossil fuels and increase • Entry into force of the Transport Energy Law to achieve the • Planned completion of several grid upgrade investments. Some Progress   
 
 
      
 
Table (continued) 

(Continued on the next page) 

31 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessment of progress  energy security Renewable Energy Directive III targets in the transport sector. • Modest growth in solar capacity and production. • Successful synchronisation with Continental Europe electricity network. • Commissioning of two new energy storage systems.   4.2 by accelerating the deployment of renewable energy, particularly wind and solar. Improve permit-granting procedures and electricity grid queue management, • Higher uptake of solar energy. • Amendments to Electricity Market Law freed up 2 GW of booked capacity in the electricity grid. • One-stop-shop for permitting established, and overall permitting procedures slightly simplified. • Ongoing work on mapping areas that could be designated as Renewable Acceleration Areas.   Some Progress 4.3 and promote energy storage, demand response and market-based flexibility solutions. • Two battery energy storage systems commissioned. • Some regulatory amendments adopted to reduce administrative burden when deploying new storage capacity in hybrid (production-storage) renewable energy projects.  Some Progress 4.4 Reduce primary and final energy consumption, and carbon intensity by strengthening energy efficiency measures, especially in the buildings sector, and by promoting further electrification. • Support schemes for energy efficiency in multi-apartment buildings, public buildings and in industry. • Regulatory measures to accelerate the renovation rate adopted (including revision of decision-making rules in multi-apartment buildings). • “Regulatory sandboxes” facilitating the use of waste heat and the uptake of heat pumps introduced. • Amendments to the Law on Pollution entered into force, covering transposition of ETS rules and other EU rules, and transposition of ETS2. • Energy efficiency Law expected to be adopted later this year. • The Ministry of Economics is developing a new financial instrument for improving the energy efficiency measures in multi-apartment buildings and ensure the continuity of support. Some Progress  
 
 
      
 
Table (continued) 

(Continued on the next page) 

32 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessment of progress  4.5 Accelerate the decarbonisation of transport, especially road transport, by promoting the uptake of electric vehicles, the production and distribution of renewable transport fuels and the expansion of recharging infrastructure. • Registrations of battery electric vehicles and plug-in hybrid electric vehicles increased; recharging points steadily increasing. • A study delivered in 2025 on the development and expansion of the electric charging stations along the TEN-T network. • New biomethane injection point constructed. • Entry into force of the Transport Energy Law as of 1 January 2026 to achieve the Renewable Energy Directive III targets in the transport sector. • Entry into force of the Amendments to the Law on Pollution, covering transposition of ETS rules and other EU rules, and transposition of ETS2. • Completion of the study on the viability of sustainable aviation fuel with Estonia. • Ongoing works to deliver 100 km of electrified and modernised railways. • 9 Battery Electric Multiple Units (BEMUs) procured and expected to be delivered in 2029 with top-up option of 7 additional units. • Ongoing implementation of project “Modernization of Railway Passenger Infrastructure” covering works in 45 stations and stops. • Eight new mobility points to be completed by Rīga and Ādaži municipalities. Some Progress 4.6 Increase resource efficiency and the transition to a circular economy through eco-innovation and sustainable resource management practices. • Adoption of the National Action Plan "Towards a circular economy" in 2020.  • Ongoing discussions to amend existing framework on the Extended Producer Responsibility. However, the evaluation will take until October 2026. No Progress 5.1 Address labour and skills shortages, in particular in science, technology, engineering and mathematics (STEM) and in other specialisations needed for the green transition, for research and for digitalisation, as well as in the social and healthcare sectors, including through targeted upskilling and reskilling and improved working conditions. • Several different programmes underway (mainly under the ESF and the RRF) aiming to provide skills trainings.  • 12 500 digital skills participants (of different levels) benefitted from the Individual Learning Accounts supported by the RRF. • Updating and upgrading Latvian State Employment Service’s digital system for job-seekers profiling and vacancy matching, which has contributed to the reform on support provided to jobseekers, persons at risk of unemployment and employers in Latvia.  • Adoption of the Human Capital Development Action Plan in 2026. • Introduction of a mandatory exam in science for secondary and upper-secondary education cycles. • Swiss-Latvian Cooperation Programme project ‘Stronger Work-Based Learning for Improving Vocational Education Training in Latvia’  (to be finalised in 2029). Some Progress 5.2 Strengthen social protection to reduce inequality, including by improving the adequacy of old-age pensions and the access to quality social services, notably home care, while maintaining fiscal sustainability. • Allocation of 1 pp of mandatory pension contributions from the 2nd pillar to the 1st pillar for a limited period (2025-2028). • Pension indexation and reintroduction of supplements for certain age-groups. • Improvement of material support for families with children and for children in non-• Revision of the minimum income thresholds used for, among others, determination of the national social security benefit, minimum pensions, and the guaranteed minimum income benefit. Limited Progress  
 
 
      
 
Table (continued) 

Source: Latvia’s reporting and Commission assessment 

33 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessment of progress  family care. • Introduction of the single basket of minimum social services. • Additional funding for several services. 5.3 Strengthen the adequacy and accessibility of the health system to improve health outcomes, including by providing additional human and financial resources, broadening the statutory benefits package and reducing out-of-pocket payments. • Expansion of the list of reimbursable medicines and increasing the reimbursement rate of pharmaceuticals. • Additional funds for maternal and child health care, palliative care, and for GPs practising in rural areas. • Introduction of new nurse professions and increase in nurse competencies. • Introduction of the e-referral/single appointment system. • Measures aimed at promoting healthy behaviour, e.g. increase in the excise duty for tobacco. • Adoption of a hospital network reform, aimed at increasing cross-country efficiency of hospital care. Limited Progress 5.4 Increase the availability and quality of social and affordable energy-efficient housing, including through renovations. • Projects on renovation and construction of social housing. • In the regions: low-rent dwelling construction, introduction of public-private partnerships for affordable housing and support for households to take a loan. • A support programme for energy efficiency. • Housing guarantee and subsidies.  Some Progress   
 
     
 
FISCAL 
ANNEX 2: FISCAL DEVELOPMENTS AND DEBT SUSTAINABILITY 

expenditure.  On  the  revenue  side,  the  lingering 
effects  of  the  personal  income-tax  reform  on 
income-tax  growth  and  property  income;  on  the 
expenditure side, increased investment in defence, 
alongside with higher spending on social transfers 
and interest. 

Graph A2.1: Contributions to the change in the 
general government balance (% of GDP) 

Source: European Commission 

Graph A2.2: Public investment evolution and 
composition (% of GDP) 

in 

developments 

This annex discusses selected topics in public 
finance  and 
fiscal-
structural  country-specific  recommendations 
(CSRs)  addressed  to  Latvia  in  July  2025. 
These include a call to reinforce defence spending 
and readiness while implementing a fiscal strategy 
in  line  with  the  Council  Recommendation  of  21 
January  2025.  Latvia  was  also  recommended  to 
make  public  finances  fit  to  cope  with  rising 
structural  spending  needs  including  for  defence, 
healthcare  and  social  protection.  This  would  be 
achieved by i) broadening taxation to sources less 
detrimental  to  growth,  ii)  moving  informal  or 
undeclared activities into the formal economy and 
ii)  redirecting  expenditure  to  priority  areas  based 
on public-spending reviews.  

On 21 January 2025, the Council adopted the 
Recommendation endorsing Latvia’s medium-
term  fiscal-structural  plan  (42).  The  plan 
includes a fiscal adjustment over four years. On 8 
July  2025, the Council  also activated the  national 
escape  clause  for  Latvia  in  order  to  facilitate  the 
transition  to  higher  levels  of  defence  spending 
(43)(44). 

Developments in government balance, 
debt and public expenditure (45) 

At  the  end  of  2025,  Latvia’s  government 
deficit  amounted  to  2.5%  of  GDP  and  the 
government  debt-to-GDP  ratio  stood  at 
46.9%.  Based  on  the  Commission’s  Spring  2026 
Forecast,  Latvia’s  government  deficit  is  projected 
to  increase  to  3.3%  of GDP  in  2026  and  4.3%  of 
GDP  in  2027.  The  forecast  increase  in  deficit  is 
revenue  and 
relating 
driven  by  factors 

to 

(42)  OJ C, C/2025/652, 10.02.2025, ELI: EUR-Lex - 

32025H00652 – EN – EUR-Lex. 

(43)  OJ C, C/2025/3970, ELI: EUR-Lex - 32025H03970 – EN – 

EUR-Lex. 

(44)  Compliance by Latvia with the maximum growth rates of net 
expenditure recommended by the Council is assessed in 
COM(2026)200. 

(45)  Figures underpinning fiscal surveillance (net expenditure 
growth) are provided in the Fiscal Statistical Tables 
(SWD(2026)200) providing background data relevant for the 
assessment of the budgetary policies of the Member States. 

Source: European Commission 

Rising defence expenditure and EU funds are 
contributing  to  public  investment  growth 
over  the  medium  term.  Public  investment  is 
expected  to  reach  7.2%  of  GDP  in  2026,  up  from 
5.6%  in  2021  (see  Graph  A2.2).  Despite  the 
phasing out of the Recovery and Resilience Facility 
(RRF),  it  is  set  to  broadly  stablise,  as  a  result  of 
national  investment  in  defence  increasing  from 
1.0% of GDP in 2021 to 2.2% in 2027. 

34 

-4-3-2-10123452021202220232024202520262027RevenueExpenditureChange in budget balance% of GDP012345678201920202021202220232024202520262027% of GDPDefenceRRF grants and other EU fundsOther nationally-financed 
 
 
 
  
 
      
 
 
Graph A2.3: Primary spending evolution and 
compositional change 

Spending on  defence  is  forecast  to  increase, 
but  policy  areas  such  as  healthcare  and 
social  protection 
remain  underfinanced. 
Latvia  received  a  CSR  in  2025  to  make  public 
finances fit to cope with rising structural spending 
needs, including for defence, healthcare and social 
protection.  The  current  budget  and  the  medium-
term  budgetary  plan  provide  for  higher  debt-
financed  spending  on  defence  but  fall  short  of 
providing  sufficient  funding  to  address  structural 
spending needs in healthcare and social protection. 
Total  government  expenditure  on  defence 
amounted to 3.2% GDP in 2025 and is forecast by 
the Commission to increase to  4.1% GDP in 2026 
and 5.5% in 2027. In 2023, government spending 
on  healthcare  and  social  protection  stood  at  only 
5.3%  and  13.5%  of  GDP,  respectively  -  1.9 
percentage points (pps) and 5.7 pps below the EU 
average. 

for 

the 

While  expenditure  with  a  higher  impact  on 
GDP  remained  broadly  stable  over  three 
decades, it has increased slightly since 2019. 
This  may  be  related  to  the  impact  of  the  RRF, 
which  facilitates  a  more  quality-based  fiscal 
strategy.  As  regards  the  composition  of  spending, 
social  protection  accounts 
largest 
proportion  of  total  expenditure  (around  30%), 
followed by economic affairs (46), education, health 
and  general  public  services,  each  accounting  at 
least  10%  of  total  spending.  Since  2019,  public 
expenditure on defence, transport, public order and 
health  has  risen  sharply,  with  the  increase  in 
defence  spending 
recent  security 
developments (See Graph A2.3). Spending on R&D 
has risen more modestly. By contrast, spending on 
communication  remains  broadly  stable  while 
education  expenditure  has  declined,  a  trend  that 
deserves  attention,  as 
these  categories  are 
generally considered conducive to growth. 

reflecting 

Based on economic literature, the categories considered to 
have the higher growth impact include education, research 
and development, health, transport and communication (See 
Barbiero and Cournede (2013), Gemmel et al. (2016), Lupu et 
al (2018), Cepparulo and Mourre (2020) and OECD (2025)). 
Source:  Eurostat. 

Latvia’s  tax  revenues  remain  relatively  low 
in relation to its GDP. Despite an increase from 
32.5% of GDP in 2023 to 34.6% of GDP in 2024, 
Latvia’s tax revenues dropped to 34.2% of GDP in 
2025  and  are  still  below  the  EU  aggregate  of 
39.9% of GDP in 2025(47).  In terms of sources of 
revenue,  Latvia  continues  to  rely  heavily  on 
consumption and labour taxes, whereas taxes on i) 
capital,  including  corporate  income  tax,  ii)  income 
from  capital  and  iii)  property  play  a  smaller  role 
to  other  Member  States.  Despite 
compared 
comparatively low revenues from labour taxes, the 
tax burden on Latvia’s low earners was above the 
EU average in 2025 (see Annex 3).  

(46)  This refers to the set of government activities, policies, and 

expenditures aimed at regulating, supporting, and developing 
economic activity across major sectors, including general 
economic and labour policies, agriculture and natural 
resources, energy, industry, construction, and other economic 
functions not elsewhere classified. Although transport and 
communication, as well as research and development 
activities, are normally considered part of this function, they 
are treated separately in the graph presented. 

(47)  According to the Commission’s Spring 2026 Forecast, tax 

revenue (total tax burden excluding imputed social security 
contributions) are projected to remain relatively stable at 
34.6% of GDP in 2026 and increase to 35.0% of GDP in 
2027 

35 

48121634384246200720082009201020112012201320142015201620172018201920202021202220232024a) Evolution (% of GDP)Primary expenditureSpending with higher impact on GDP (rhs)-2.0-1.5-1.0-0.50.00.51.01.52.0EducationGeneralservicesOther economicCultureHousingEnvironmentSocialprotectionCommunicationInterestspendingR&DDefenceHealthPublicorderTransportb) Compositional change 2024-2019 (% of total spending) 
 
  
 
Table A2.1:  Supplementary pension schemes - Scope for expansion 

Source: European Commission. 

Cost of ageing 

in  Latvia 

Total  age-related  spending 
is 
projected to fall by about 0.5 pps of GDP by 
2040 and by around 1 pp by 2070 (see Table 
A2.2). This decline stems mainly from a projected 
fall  in  pension  expenditure,  which  more  than 
offsets  an  expected  rise  in  public  healthcare  and 
long-term 
care  spending.  Public  healthcare 
expenditure  is  projected  at  5.3%  of  GDP  in  2025 
(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 
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. 

Public  pension  spending  as  a  proportion  of 
GDP  is  projected  to  decline  by  0.5  by  2040 
and  by  1.5  pps  in  the  long  term.  By  2070, 
public  pension  outlay  is  projected  to  account  for 
around 5.5% of GDP, compared to an EU average 
close  to  12%.  In  2025,  Latvia  received  a  CSR  to 
strengthen  social  protection  with  a  view  to 
reducing  inequality;  this  includes  improving  the 
adequacy  of  old-age  pensions,  while  maintaining 
fiscal  sustainability.  Recent  measures  to  address 
this  CSR  include  i)  a  gradual  re-introduction  of 
supplement payments (to be finalised by 2029), ii) 
annual pension indexations; iii) increased minimum 
pension  amounts;  (iv)  and  increased  non-taxable 
minimum for pensioners. 

Supplementary pension schemes can help the 
pension system to become more resilient, by 
diversifying 
retirement 
the  sources  of 
income.  In  Latvia,  by  the  end  of  2024, private 
pension  fund  assets  amounted  to  around  25%  of 
GDP.  The  whole  of  the  working-age  population 
participated in the supplementary schemes due to 

mandatory  coverage  of  pillar  II  of  the  pension 
system  (48)(49).  While  the  public  pension  spending 
is  set  to  decline  by  0.5  pps  of  GDP  by  2040, 
pension  adequacy  is  expected  to  remain  very  low 
with  a  projected  decline  in  the  replacement  rate 
by 20 pps between  2025  and  2040 (See  Tables 
A2.1 and  A2.2)  (50).  Pension  adequacy  may  be 
improved  with  greater  participation  in  voluntary 
savings  funds,  in  particular  the  pillar  III  pension 
funds. 

(48)  OECD  (2025),  Pension  Market  in  Focus  2025.  The  highest 
participation rate in at least one supplementary pension plan 
is reported. 

(49)  Stems from the current structure of the pension system 

which entails that participation in the pillar II is mandatory 
for people born after July 1, 1971. 

(50)  Depending on data availability, (gross) replacement rate 
refers to both public and private pensions. Based on 
European Commission (2024), 2024 Ageing Report. 

36 

Assets in 2024 (% GDP)Participation in 2024 (% working-age population)LV24.3-19.7100.0LVEU32.4-2.855.9EUGross replacement rate at retirement: (pps change 2025-2040)  
 
 
 
     
 
Table A2.2:  Projected change in age-related expenditure in 2025-2040 and 2025-2070 

with  a  view  to  applying  managerial  accounting  in 
the  analysis  of  their  services  and  developing 
relevant key performance indicators in areas such 
as  accounting  and  auditing.  In  October  2025,  a 
report on the first results of the pilot projects was 
delivered,  primarily  identifying  potential  efficiency 
gains  rather  than  areas  for  cost  savings  and 
budgetary  decision-making.  In  2024,  the  Ministry 
of Finance conducted a green tagging assessment 
on 
in 
accordance  with  Regulation  (EU)  2020/852.  In 
2025, the scope of tagging was expanded to cover 
the  entire  expenditure  of  the  State  basic  budget. 
This  year  the  ministry  intends  to  carry  out  an 
assessment  of  the  2025  State  basic  budget 
expenditure. 

in  the  previous  year, 

its  expenditure 

Source: 2024 Ageing Report (EC/EPC). 

National fiscal framework 

overarching 

Latvia’s 2025 CSRs include a call to redirect 
expenditure  to  priority  areas  based  on 
spending  reviews.  In  previous  budgetary  cycles, 
the  authorities  have  followed  an  approach 
whereby  sectoral  ministries  identify  savings  in 
their sectors, which are then mostly reallocated to 
new  priorities  of  the  same  sectoral  ministries. 
Unlike  in previous years, in the preparation of the 
2026 budget, most of the savings identified in the 
spending  reviews  went  towards  financing  the 
namely 
government’s 
security,  financing  of  schools 
increasing 
teachers’  pay),  social  benefits  for  families  with 
children  and  ensuring  that  children  have  the 
medical  services  and  medicines  they  need.  Latvia 
could benefit from institutionalising this practice in 
future  budgets.  Additionally,  it  could  consider  i) 
setting  high-level  objectives  to 
improve  the 
visibility and public acceptance of this exercise and 
ii) carrying out performance audits (51) with a view 
to providing stakeholders with an evaluation of the 
of 
efficiency, 
government  programmes.  The  requirement  to 
draw  up  spending  reviews  is  currently  being 
expanded to local governments. 

priorities, 
(i.e. 

effectiveness 

economy 

and 

is 

taking  steps 

Latvia 
implement 
performance-based  budgeting  and  to  ‘tag’ 
(52) the green budget. The Ministries of Finance, 
Economics  and  Transport  have  conducted  pilots 

to 

(51)  OECD (2023), Spending reviews: country fact sheets 2023. 

(52)  This involves assessing each individual budget measure and 
giving it a “tag” according to whether it is helpful or harmful 
to green objectives. See section 6.2.2 of the 2025 Fiscal 
Risks Declaration. 

37 

LV16.3-0.50.40.1-0.3##16.0LVEU24.30.50.30.4-0.30.925.2EULV16.3-1.50.50.3-0.2##15.4LVEU24.30.20.60.8-0.31.325.6EUageing-related expenditure change in 2025-2040 (pps GDP) due to:ageing-related expenditure pensionshealthcarelong-term careeducationtotalageing-related expenditure change in 2025-2070 (pps GDP) due to:ageing-related expenditure pensionshealthcarelong-term careeducationtotal 
 
 
       
 
Table A2.3:  Fiscal Governance Database Indicators and Public Accounting Maturity 

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. 
The score for public accounting reflects the degree of maturity in relation to the International Public Sector Accounting Standards 
(IPSAS). Countries with an accounting maturity of 70% or more in relation to IPSAS are deemed to apply accrual accounting. For 
more information, see the report on public accounting in the EU (COM(2025)746 and accompanying Staff Working Document 
SWD(2025)396). 
Source: Fiscal Governance Database, European Commission 

in 

involved 

long-term 
that 

fiscal 
occasionally 
projections.  The  FDC  considers 
it  has 
sufficient  resources  to  fulfil  its  remit.  It  has  a 
strong presence in traditional media and on social 
media,  based  on  an  explicit  communication 
strategy. 

of 

2025 

Fiscal 

effects 

change on 

their 
the 

climate-related 

The  Latvian  national  authorities  have 
risk 
strengthened 
assessments. In 
Risks 
Declaration (53), the Ministry of Finance included an 
assessment  –  using  the  Quantitative  Climate  Risk 
Assessment Fiscal Tool developed by the IMF – of 
the 
the 
climate 
macroeconomic  and  fiscal  indicators.  The  long-
term  assessment indicates that  the  impact  of  the 
speed  of  climate  change  adaptation  on  economic 
development,  general  government  debt  and  the 
general  government  budget  primary  balance  is 
significant  and  that  work  needs  to  be  done  to 
prevent  more  serious  economic  and 
fiscal 
consequences.  Additionally,  the  Latvian  fiscal 
discipline council (FDC) has been part of the multi-
national  project  under  the  EU  Technical  Support 
Instrument launched in 2023 to help the FDC to be 
in  a  better  position  to  integrate  climate-change-
related  risks  into  its  modelling  framework  for 
debt-sustainability analysis (54). 

rather  narrow  mandate: 

The FDC is a relatively small institution with 
endorsing 
a 
macroeconomic  forecasts  and  monitoring 
compliance  with  fiscal  rules.  It  is  not  involved 
in  any  budgetary  forecast  assessments,  but  it  is 

(53)  Ministry of Finance (2025), Declaration of fiscal risks. 

(54)  In 2024, the project conducted a literature review and 

drafted a conceptual framework while the next steps in 
2025 included upgrading the debt-sustainability models of 
independent fiscal institutions to include climate risks and 
introducing newly developed debt-sustainability models. 

38 

2024LatviaEU AverageCountry Fiscal Rule Strength Index (C-FRSI)13.2214.81Medium-Term Budgetary Framework Index (MTBFI)0.780.722025 Public accounting maturity of general government91%65% 
 
 
 
 
 
  
 
ANNEX 3: TAXATION 

the 

tax  mix, 

This  annex  provides  an 
indicator-based 
overview  of  Latvia’s  tax  system.  It  includes 
information  on 
tax  burden, 
competitiveness of the tax system, as well as fight 
against shadow economy. In the area of taxation, 
recommendations 
the  2025 
recommended  Latvia  to  broaden  taxation  to 
sources  less  detrimental  to  growth  and  to  move 
informal  or  undeclared  activities  into  the  formal 
economy. 

country-specific 

Latvia’s  tax  revenues  still  remain  relatively 
low  in  relation  to  its  GDP.  Despite  an  increase 
from  32.5%  of  GDP  in  2023  to  34.9%  of  GDP  in 
2024, Latvia’s tax revenues are still below the EU 
aggregate  of  39.4%  of  GDP  in  2024.  Revenues 
from  labour  taxation  increased  from  16.2%  in 
2023  to  17.5%  of  GDP  in  2024.  Revenues  from 
environmental  taxes  at  2.5%  of  GDP  in  2024 
exceeded  the  EU  average  of  2.1%  in  2024. 
Revenues  from  capital  taxation  at  4.1%  of  GDP 
are less than a half of the EU average of 8.5% in 
2024. Revenues from taxation of property at 1.0% 
of  GDP,  and  from  recurrent  taxes  on  immovable 
property  at  0.6%  of  GDP,  are  significantly  below 
the  EU  average  but  the  highest  among  the  Baltic 
States and one of the highest in Eastern Europe.  

Several  changes  in  the  field  of  taxation 
entered  into  force  in  2026.  Regarding  labour 
taxation,  the  personal  income  tax  non-taxable 
minimum  has  increased  by  EUR 40,  reaching 
EUR 550,  accompanying  an 
the 
minimum  wage  from  EUR 740  to  EUR 780.  As  of 
1 July  2026,  a  reduced  VAT  rate  of  12%  will  be 
applied  to  certain  basic  food  products  –  bread, 
milk,  poultry and eggs. In 2026, the gambling tax 
rates have been raised, and excise duty rates have 
increased 
for  petroleum  products,  alcoholic 
beverages, tobacco products and natural gas. 

increase 

in 

low 

in  Latvia:  16.5% 

Latvia’s corporate tax system remains highly 
competitive.  Effective  corporate  income  tax  rate 
in  2024, 
is  relatively 
compared  to  19.3  on  EU  average.  Since  the 
Latvian  corporate  income  tax  system  only  taxes 
distributed  earnings,  companies  can  reinvest  their 
profits  tax-free.  This,  among  other  features, 
contributes to Latvia ranking second overall on the 
2025 International Tax Competitiveness Index, the 
same as in 2024 (55). However, Latvia’s network of 

(55)  Tax Foundation (2025), International Tax Competitiveness 

Index 2025. 

39 

tax treaties includes only 63 countries, a relatively 
low  number  to  lower  tax  complexity.  While  the 
structure  of  the  tax  regulations  is  very  efficient, 
there  might  be  some  room  for  improvement  in 
areas  related  to  the  tax  processes  carried  out  by 
the tax authorities, such as audits (56). 

Graph A3.1: Tax revenue by economic function in 
2024, LV (outer ring) and EU-27 (inner ring) 

Source: Taxation Trends Data, DG TAXUD 

In  2025,  Latvia’s  labour  tax  burden  was 
higher  than  the  EU  average for  low  earners. 
The  labour  tax  wedge (57)  for  Latvia  in  2025 
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  31.6%  in  the  EU  average. 
The  tax  wedge  above  the  average  wage  was 
slightly  below  the  EU  average  (see  Graph A3.2). 
This  means  that  labour  taxation  in  Latvia  is 
somewhat  less  progressive  than  in  the  EU  on 
average.  This  is  also  reflected  in  the  high  income 
inequality  and  the  relatively  low  effect  of  taxes 
and  social  transfers  on  inequality.  In  2024,  these 
programmes  reduced  the  Gini  coefficient  of 
income  inequality  by  5.5  points  in  Latvia  as 

(56)  European Commission (2025), Mind the Gap. 

(57)  The tax wedge is an indicator of the tax burden on labour 
that can be assessed at various levels of earnings. It is 
defined as the sum of personal income taxes, employee and 
employer social-security contributions and other mandatory 
contributions, expressed as a percentage of total labour 
costs (the sum of the gross wage and social-security 
contributions paid by the employer). Tax wedge data in the 
2026 country reports are calculated by the Joint Research 
Centre of the European Commission and based on the 
EUROMOD model, while in the past country reports they were 
based on the OECD tax and benefit model. While the 
underlying methodology is very similar, differences in the 
assumptions can lead to different results between both 
models. 

51.526.821.650.038.311.7Taxes on labourTaxes on consumptionTaxes on capital 
 
 
      
 
 
 
Table A3.1:  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 2024. EU-27 refers to the median value. For more data on tax revenues as well as the methodology 
applied, see the Data on Taxation Trends webpage. 
Source: European Commission, OECD, ISORA. 

compared with 7.8 for the EU-27 (see Table A3.1, 
see also Annex 12). 

The  tax  reform  of  2025  decreased  the  tax 
burden  for  most  low-  and  medium-income 
taxpayers.  The  reform  simplified  the  tax  system 
by  introducing  two  progressive  income-tax  rates 
(25.5%  for  annual  earnings  up  to  EUR 105 300 
and  33%  for  other  incomes)  and  a  uniform  non-
taxable  minimum  of  EUR 510.  It  resulted  in  a 
reduced  tax  wedge  as  compared  to  2024  at  all 
earnings  levels  between  50%  and  167%  of  the 
average wage, with the most  significant decrease 
(of  about  1.8 pps)  occurring  close  to  the  average 
wage  (Table  A3.1).  The  introduction  of  a  non-
taxable minimum for pensioners of EUR 1 000 per 
month  substantially  decreased  the  tax  burden  for 
this  social  group.  The  reform  also  increased  the 
tax  rate  on  income  from  capital  to  match  the 
personal income tax rate. The large fiscal costs of 
the  tax  reform  were  partially  compensated  by 
shifting 
social 
contributions from the second to the first ‘pillar’ of 
the  pension  system  from  2025  until  2028  and 
introducing  temporary  solidarity  contribution  on 
banks’ net interest income. 

percentage 

point 

one 

of 

Tax  expenditures  are  widely  used  in  Latvia 
with  considerable  budgetary 
implications. 
There  are  currently  more  than  300  different  tax 

40 

(credits, 

allowances, 

incentives 
deductions, 
exemptions,  reduced  rates  and  tax  deferrals)  in 
Latvia.  In  2023,  the  total  estimated  government 
revenue foregone from tax expenditures amounted 
to  EUR 3 113.5 million,  representing  8.0%  of  GDP 
and 23.2% of total tax revenues analysed (58). 

Its  VAT 

is  a  good  performer  among  EU 
Latvia 
Member States regarding the VAT compliance 
gap. 
compliance  gap  of  5.4% 
(EUR 220 million)  was  well  below  the  EU  average 
of  9.5%  in  2023 (59).  Latvia  assesses  the  gap  of 
personal income tax (PIT) from labour and the gap 
of Social Security Contributions (SSC). In 2024, the 
PIT  gap  was  estimated  at  15.8%,  following  a 
decreasing  trend.  The  PIT  gap  decreased  by  5.5 
percentage  points  against  2020  (the  PIT  gap  was 
21.3%  in  2020  and  2021,  20.6%  in  2022  and 
15.8%  in  2023).  The  SSC  gap  also  decreased  by 
4 percentage points in the same timeframe. It was 
17.8%  in  2020,  18%  in  2021,  17.5%  in  2022, 
14.6%  in  2023  and  13.8%  in  2024 (60).  Latvia 

(58)  European Commission (2025), Mind the Gap. 

(59)  European Commission (2025), VAT Gap in Europe. 

(60)  State Revenue Service (2025), Undeclared wages (“envelope 
wages”) for those working in the general tax regime and the 
tax gap it creates in 2024. 

2019202220232024202520192022202320242025Tax structureTotal taxes (including compulsory actual social contributions) (% of GDP)32.432.832.534.939.939.739.039.4Taxes on labour (% of GDP)15.515.716.217.520.620.119.920.3of which, social security contributions (SSC, % of GDP)9.810.010.211.013.012.712.713.0Taxes on consumption (% of GDP)14.014.213.313.411.210.910.510.6of which, value added taxes (VAT, % of GDP)9.010.19.59.57.17.47.17.1Taxes on capital (% of GDP)3.02.93.04.18.18.78.58.5Personal income taxes (PIT, % of GDP)6.76.36.47.19.69.49.39.6Corporate income taxes (CIT, % of GDP)0.61.11.42.02.63.23.23.1Total property taxes (% of GDP)1.10.90.81.02.22.11.91.8Recurrent taxes on immovable property (% of GDP)0.80.60.60.61.21.00.90.9Environmental taxes (% of GDP)3.22.42.42.52.62.12.12.1Effective carbon rate in EUR per tonne of CO2 equivalentsnana62.2nanana84.8naTax wedge at 50% of average wage (single person) (*)38.336.334.635.935.032.431.631.531.531.6Tax wedge at 100% of average wage (single person) (*)42.641.441.442.340.540.139.739.939.940.0Effective corporate income tax rates (1) (*)16.516.516.516.520.019.219.019.3Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5.55.55.55.57.88.07.97.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)8.77.06.2na31.832.630.7naVAT gap (% of VAT total tax liability, VTTL) (**)10.12.05.45.310.57.38.2naProgressivity & fairnessTax administration & complianceBy tax baseSome tax typesEU-27Latvia 
 
 
     
 
does not publish any information on other possible 
compliance tax gaps. 

Graph A3.2: Tax wedge for single and second 
earners as a percentage of total labour costs, 
2025 

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

The  size  of  Latvia’s  shadow  economy 
continues  to  decrease.  Surveys  of  company 
owners  and  managers 
indicate  that  Latvia’s 
shadow  economy  was  equivalent  to  21.4%  of  its 
GDP  in  2024  (a  decrease  from  22.9%  in  2023). 
The biggest component of the shadow economy is 
the  underreporting  of  salaries 
(estimated  to 
account  for  50%  of  Latvia’s  shadow  economy), 
with  an  average  of  20.7%  of  total  salaries  being 
paid 
The 
construction  (33.8%)  and  retail  (26.2%)  sectors 
had  the  highest  estimated  shares  of  shadow 
activity in 2024 (61). 

(‘envelope  wages’). 

informally 

maintain  focus  on  reducing  the  shadow  economy 
while  improving  tax  compliance.  Collection  costs 
have decreased steadily from 2023 to 2025, while 
revenue  collected  per  employee 
in 
collection activities was boosted. 

involved 

E-filing  rates  of  tax  returns  are  high  and 
above the EU average. According to 2023 data, 
100%  of  corporate  income  tax  returns  are  filed 
electronically  compared  to  the  EU  average  of 
97.1%.  100%  of  VAT  returns  are  also  filed 
electronically,  compared  to  the  EU  average  of 
99.2%.  Moreover,  94.9%  of  personal  income  tax 
returns are submitted electronically, above the EU 
average of 87.1%. 

Tax  arrears  in  Latvia  are  below  the  EU 
average and have decreased in recent years. 
As  of  1 January  2025,  the  general  budget 
payments  administered  by  the  SRS  amounted  to 
EUR 844.3 million. The closing stock of tax arrears 
at  year-end  in  Latvia  was  nearly  halved  over 
2018-2023,  with  6.2%  of  total  net  revenue  in 
2023,  24.5%  below  the  EU  average,  40.6%  of 
which  were  deemed  collectable.  Total  tax  arrears 
have  decreased  by  EUR 18.1 million  or  2.1% 
against 1 January 2024. The biggest decrease was 
by EUR 30.1 million for VAT debts, while tax debts 
increased  by  EUR 39.55 million  or 
on 
8.5% (62). 

labour 

(from  1 January  2025)  and 

Latvia  is  taking  measures  to  improve  tax 
compliance.  These include  a phased-in  rollout  of 
mandatory  e-invoicing  in  transactions  with  public 
institutions 
in 
business-to-business  transactions  (from  2028). 
The  Latvian  State  Revenue  Service 
is 
continuing  to  develop  the  taxpayer  rating  system, 
introduced  in  2024  as  a  measure  under  the 
recovery and resilience plan, to better detect non-
payment  or  evasion  of  taxes,  and  to  encourage 
voluntary  compliance.  The  SRS  received  support 
from the EU’s Technical Support Instrument for the 
production  and  implementation  of  the  SRS  2023-
to 
2026  medium-term  operational  strategy 

(SRS) 

(61)  Stockholm School of Economics (2025), Shadow Economy 

Index for the Baltic Countries 2009–2024. 

(62)  European Commission (2025), Mind the Gap. 

41 

35.037.840.542.737.82025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - LVSingle earner - EU averageSecond earner -  LVSecond earner -  EU average 
     
 
 
PRODUCTIVITY 
ANNEX 4: INNOVATION TO BUSINESS  

Latvia’s innovation performance remains low 
and 
is  held  back  by  underinvestment. 
According  to  the  2025  edition  of  the  European 
Innovation  Scoreboard (63),  Latvia’s 
innovation 
performance  stands  at  only  56.7%  of  the  EU 
average.  Due  to  a  very  low  R&D  intensity,  its 
innovation  performance  has 
improved  at  a 
relatively  slow  rate  and  is  falling  further  behind 
the EU. Although R&D intensity increased to 0.92% 
of GDP in 2024 (from 0.81% in 2022), this is still 
only  40%  of  the  EU  average  (2.24%),  below  that 
of the other Baltic countries (see Graph A4.1), and 
below Latvia’s own target of 1.5% (64). Latvia has 
one  of  the  lowest  levels  of  business  expenditure 
on R&D (BERD) in the EU (0.34% of GDP compared 
with  the  EU  average  of  1.49%).  This  low  level  of 
private  research  and  innovation  (R&I)  investment, 
combined 
business–academia 
weak 
cooperation  and  skills  shortages,  poses  persistent 
challenges to innovation performance, as indicated 
in  the  2025  country-specific  recommendations 
(CSRs) (65). Latvia continues to lag behind the EU in 
the  uptake  of  advanced  digital  technologies, 
despite  recent  progress  in  SME  digital  intensity 
and  the  rollout  of  targeted  policy  and  skills 
initiatives.  

with 

Excellent science 

some 

public 

sector 

research 

is 
Latvia's 
underdeveloped, 
reform 
despite 
efforts.  The  quality  of  its  research  outputs  lags 
significantly  behind  the  EU  average,  as  evidenced 
by  the  proportion  of  its  scientific  publications 
featured  in  the  top  10%  most-cited  globally.  In 
2022,  Latvia's  share  was  4.93%,  compared  with 
9.44% in the EU, and has been further decreasing 
in  recent  years.  This  is  partly  due  to  sustained 

thanks 

to  contributions  from 

underfunding of the public research system, which 
has remained below the EU average, despite some 
increases 
the 
(RRF)  and 
Recovery  and  Resilience  Facility 
cohesion  policy (66).  Continued  commitment  from 
the  national  budget  is  needed  to  maintain  the 
upward  trend  in  the  public  R&D  investment  level 
beyond  the  duration  of  the  RRF.  The  recent 
university  consolidation (67),  also  part  of  the  RRF, 
has  strong  potential  to  tackle  fragmentation  and 
improve efficiency. However, its effects are yet to 
be observed, necessitating ongoing monitoring and 
evaluation.  Additionally,  stronger  performance-
linked 
research 
institutions,  envisaged  in  the  upcoming  reform 
under  the  RRF  (see  Annex  13).  This  could  help 
increase  excellence  and  promote  international 
collaboration (68),  contributing  to  addressing  the 
2025 CSR. 

funding  mechanisms 

for 

Graph A4.1: R&D intensity in the Baltic countries 

Source: Eurostat 

for 

Government  support 
research  and 
innovation  is  fragmented.  Historically,  Latvia’s 
fragmented  R&I  governance  system  has  led  to 
unpredictable  funding  and  hindered  the  full 
development of research ideas and the creation of 
for 
a 
researchers (69).  To  advance  its  R&I  system  and 

environment 

conducive 

working 

(63)  European Commission (2025), European Innovation 

Scoreboard: Latvia. 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). 

(64)  The target of 1.5% of GDP is set for GERD in Latvia’s 2021-
2027 national development plan: National Development 
Plan of Latvia 2021-2027. 

(65)  2025 country specific recommendation: “Facilitate private 

investment in research and innovation, including by pursuing 
further reforms in the higher education system to strengthen 
cooperation between businesses and academia.” 

(66)  As measured in public R&D expenditure as % of GDP. 

Latvia’s figure stood at 0.59% in 2024, up from 0.52% in 
2023 (EU average: 0.72%). 

(67)  Latvia consolidated seven higher education institutions into 

five other institutions and carried out internal 
reorganisations. This reduced both the number of higher 
education institutions and the number of departments within 
them. Moreover, two scientific institutes were merged into 
two others, also reducing the number of research 
organisations. 

(68)  OECD (2022), Economic Surveys: Latvia. 

(69)  European Commission (2018), The Latvian Research Funding 

System. 

42 

0.0%0.5%1.0%1.5%2.0%2.5%EELTLVEELTLVEELTLVEELTLV2010201520202024Percentage of GDPPublic R&D expenditurePrivate R&D expenditureEU GERD 
 
 
 
   
 
 
 
constitutes 

governance  model 

the 
links  between 

improve  policy  coordination,  Latvia  introduced  a 
new  governance  model  under  the  RRF  and 
established the Innovation & Research Council (70). 
significant  progress, 
While 
this 
consolidating 
and 
levels  of 
strengthening 
governance  could  make  Latvia  better  able  to 
foster  an  ecosystem  and  whole-of-government 
approach  to  R&I  policymaking.  Stronger  strategic 
coordination  and  planning  could  facilitate  the 
implementation  of 
initiatives  aimed  at  an 
innovation  lifecycle  approach,  including  follow-on 
funding and plug-in schemes (71). 

the 

Business innovation 

innovation 

potential 
characterised 

remains 
Latvia’s 
low 
by 
underdeveloped, 
productivity  and  a  reliance  on  low-tech 
industries. Business expenditure on R&D is one of 
the lowest in the EU, at just 0.34% of GDP in 2024 
(see  Graph  A4.1),  well  below  the  EU  average  of 
1.49% in 2024. This is compounded by the limited 
presence  of  high-tech 
sectors,  as  many 
multinational  firms  conduct  R&D  operations  in 
other  EU  countries (72).  Latvia  offers 
limited 
targeted public R&D support to businesses, mostly 
in  the  form  of  direct  funding (73).  This  has, 
however,  remained  at  a  low  level (74)  and  is 
insufficient to promote more innovation activity in 
the  private  sector.  These  factors  contribute  to 
weak innovation outcomes, evidenced by only 1.31 

in 

expanding 

patent  applications  per  billion  GDP  in  2022  (EU 
average:  2.81)  and  a  scarcity  of  researchers 
working  in  businesses (75).  This  state  of  affairs 
underlines the need for higher levels of private R&I 
investment, 
line  with  the  2025  CSR.  To 
stimulate  broader  R&D  engagement,  Latvia  could 
consider 
by 
introducing  indirect  incentives,  like  refundable  tax 
credits and innovation vouchers, and by leveraging 
innovation  procurement,  all  supported  by  an 
enhanced  monitoring  framework.  Additionally, 
grants  could  be  strategically  designed  to  build 
capacity and encourage future innovation, such as 
by requiring private co-financing or mandating the 
employment of researchers (76). 

volumes 

funding 

and 

contractual 

research (77) 

Science-business  collaboration  is  gradually 
improving,  although  continued  improvement 
will depend on sustained support for applied 
and  collaborative  research.  There  is  limited 
engagement  between  the  business  sector  and 
academia, as evidenced by the relatively low level 
of 
other 
indicators (78).  Businesses  cite  complicated  and 
lengthy procedures for entering into contracts with 
public  research  institutions  as  well  as  a  lack  of 
interest 
an 
researchers, 
underdeveloped  research  base  and  insufficient 
engagement (79). 
researcher 
incentives 
Although  funding  calls  for  public–private  research 
exist,  such  as  the 
Innovation  Fund  research 
programme (80),  they  have  been  inconsistent  and 
overly dependent on EU funding. More predictable 
funding and stronger support is also needed from 

reflecting 

from 

for 

(70)  The model consists of the coordination of three levels: 

operational, strategic management and political. The RIS3 
Steering Boards bring together the private sector and 
policymakers in thematic areas at the operational level. At 
the strategic level, the Innovation and Research Governance 
Council coordinates implementation between the relevant 
ministries and agencies to align funding programmes. The 
Council also forms the political level. This includes ministers, 
representatives of entrepreneurs and scientists, and provides 
policy recommendations. 

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

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

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

(73)  OECD (2024), Economic Surveys: Latvia. 

(74)  As indicated by the business enterprise expenditure on R&D 

(BERD) financed by the public sector (national and abroad). In 
2022 this stood at 0.03% of GDP (EU average: 0.1%). 

(75)  Researchers employed by businesses make up only 1.4 per 

thousand active population (EU average: 7.0). 

(76)  OECD (2022), Economic Surveys: Latvia. 

(77)  Measured by the public expenditure on R&D financed by 

business. This stands at 0.04% of GDP in Latvia, while the 
EU average was 0.06% in 2024. 

(78)  The Global Innovation Index identifies Innovation linkages as 

a weakness for Latvia: Global Innovation Index 2025. 
Innovation at a Crossroads. 

(79)  See among others: OECD (2021), Innovation Diffusion in 

Latvia. Researchers rely heavily on grant funding and often 
move between projects without focusing on 
commercialisation. 

(80)  The Innovation Fund research programme was launched in 
2024 and created a platform in two thematic areas for 
businesses to express their research needs and connect to 
researchers. Its budget is uncertain, as it needs a new 
commitment for each three-year budgeting period. 
Research Latvia: The long-term research program will 
develop at least 45 technologies until 2032. 

43 

 
 
 
is  preparing  a 

intermediary  structures  such  as 
technology 
transfer  offices.  In  line  with  the  2025  CSR  on 
further reforms in the higher education system to 
strengthen  cooperation  between  business  and 
academia,  Latvia 
research 
commercialisation  regulation,  expected  in  2026. 
This  will  aim  to  remove  some  administrative 
barriers  hindering  tech  transfer.  Moreover,  the 
higher  education  reform  included  in  the  recovery 
and  resilience  plan  (see  Annex  13)  consists  of 
increasing  the  performance-based  funding  of 
incentives  for 
universities.  This  could 
in 
institutions 
researchers  and 
commercial  and  public–private  collaboration,  and 
the  increase  of  private-sector  representation  in 
scientific  university  governance.  These  reforms  in 
preparation have the potential  to boost  business–
academia 
research 
commercialisation (81). Other positive signals could 
come  from  the  Latvian  defence  industry  and 
innovation  strategy (82).  The  strategy  aims  to 
catalyse defence R&I and create a EUR 50 million 
Defence  Innovation  Fund,  with  the  potential  to 
strengthen science-business linkages in the sector. 

to  engage 

linkages 

include 

and 

Latvia  is  falling  behind  in  the  adoption  of 
advanced digital technologies. While the share 
of Latvian SMEs with at least basic digital intensity 
has increased markedly in recent years (58.54% in 
2025),  it  still  lags  well  behind  the  EU  average  of 
71.39%.  Additionally,  AI  adoption  among  Latvian 
enterprises  remains  limited  at  12.21%,  while 
37.80% have adopted  cloud services and 36.37% 
use data analytics. All three figures remain below 
the  EU  averages,  which  stand  at  19.95%  for  AI, 
46.69% for cloud, and 39.85% for data analytics. 
To  address  this, Latvia  has  introduced  a  range  of 
education-  and  skills-focused  measures  under  its 
Digital  Decade  roadmap  and  the  RRF,  targeting 
thousands  of  SME  employees  and  businesses. 
Policy  efforts  have  been  strongest  in  cloud  and 
data  analytics, 
the 
Important  Project  of  Common  European  Interest 
Infrastructure  and 
on  Next  Generation  Cloud 
Services (IPCEI-CIS) and broader SME digitalisation 
measures. At the same time, AI adoption – despite 
rapid  recent  growth  and  an  emerging  legal  and 
governance framework – continues to suffer from 
investment.  Overall,  targeted  and 
insufficient 

through  participation 

in 

(81)  OECD (2022), Economic Surveys: Latvia and OECD (2024), 

Economic Surveys: Latvia. 

(82)  Ministry of Defence, Defence Industry and Innovation 

Strategy 2025-2036. 

44 

scaled-up  support  for  SME  digital  uptake  remains 
crucial to strengthening Latvia’s economic growth. 

Entrepreneurial dynamism 

level.  This 

to  fragmented  and 

The  Latvian  start-up  ecosystem  is  growing 
slowly  despite  further  needs  in  financing. 
Latvia  has  512  start-ups,  with  50  new  ones 
registering each year on average (83), a rate lower 
than  in  the  other  Baltic  countries  (84).  This  can  be 
low  financial 
attributed 
support.  While  incubators  and  accelerators  offer 
limited 
training  and  mentoring,  they  provide 
financial  support  at  pre-seed 
is 
exacerbated by banks’  reluctance to lend to SMEs 
(see  Annex  5).  ALTUM (85)  and 
the  Latvian 
Investment  and  Development  Agency  have  a 
number  of  programmes  investing  in  start-ups 
(innovation vouchers, funding for export activities) 
but  these  are  smaller  investments  and  not  suited 
for  scale-ups.  Many  programmes  provide  no  or 
limited prefinancing, which is suboptimal for start-
ups.  Overall,  the  start-up  ecosystem  continues  to 
face a significant shortage of venture capital, with 
current  levels  at  roughly  a  sixth  of  the  EU 
average (86). Most funding is concentrated in early-
stage ventures (31.1% of venture capital vs an EU 
average  of  8.2%),  while  late-stage  capital  is 
scarce  (21.1%  of  venture  capital  vs  43.4%  EU 
innovative 
average),  hindering  the  scaling  of 
businesses (87) 
(see  Annex  6).  A  positive 
development  is  the  gradual  shift  away  from 
reliance on government funding, as the portion of 
state-backed capital now aligns more closely with 
levels in other Baltic countries (88). 

The  regulatory  conditions  are  promising  for 
for  start-up 
start-ups.  The 

law  on  aid 

(83)  Latvian Startup Association, Latvian Startup Report 2024. 

(84)  Estonia has approximately 1 551 start-ups and Lithuania 
more than 1 100. See Startup Estonia and Ministry of the 
Economy and Innovation of the Republic of Lithuania. 

(85)  Financial investment institution owned by the Latvian State. 

(86)  Latvia’s average was 0.01% of GDP in 2024 (EU average: 

0.06%). 

(87)  OECD (2021), Innovation Diffusion in Latvia. 

(88)  From 2018 to 2023, government funding still accounted for 

27% of capital raised; in 2023 the figure was 20%. 
See: KPMG, LTVC, LVCA, ESTVCA (2023), Venture Capital 
Market Overview 2023. 

 
 
 
companies (89)  provides  favourable  income  tax 
options  for  start-up  employees,  and  employee 
stock  options  are  taxed  as  capital  gains.  While 
registering  new  firms  and  insolvency  is  becoming 
faster  and  easier,  the  administrative  burden  for 
obtaining  permits  in  certain  fields  remains  (see 
Annex  5).  Through  the  2022–2025  start-up 
ecosystem  development  strategy (90),  Latvia  has 
reduced  some  administrative  burdens,  provided 
training and funding for start-ups and created the 
‘Startup  House’  to  bring  the  ecosystem  together. 
Looking ahead, ambitious commitment and holistic 
planning  would  signal  continued  support  and 
further  develop  the  Latvian  start-up  ecosystem. 
Latvia could consider setting targets to implement 
best  practices  to  signal  commitment  to  start-
ups (91). 

including 

innovation  outputs, 

The  lack  of  talent  limits  Latvia’s  research 
and 
the 
development  of  innovative  companies.  Both 
the  public  and  private  sectors  employ  fewer 
researchers than the EU average (3.2 and 1.6 per 
thousand  active  population  respectively  in  2024; 
respective  EU  averages:  5.9  and  4.3).  Latvia  also 
ranks in the bottom third in the OECD Indicators of 
Talent Attractiveness for highly skilled workers (92). 
This limits Latvia’s capacity to absorb R&I funding, 
and 
restricts 
undermines  long-term  growth (93).  While  the  new 
doctoral  model  introduced  under  the  RRP 
is 
increasing  the  number  of  doctoral  students  (229 
doctoral graduates in 2024 compared with 120 in 
2020 (94),  it  would  have  a  greater  impact  if 
coupled  with 
researcher  working 
conditions,  the  creation  of  permanent  positions, 
and  stable  funding.  Attracting  researchers  from 
abroad through specific programmes and lowering 
barriers  to  skilled  migration  could  also  alleviate 
high-skilled  labour  shortages (95).  The  number  of 

innovation 

improved 

capacity 

output 

science  and  engineering  graduates  (8.64  per 
thousand  active  population)  is  well  below  the  EU 
average  (16.82),  further  exacerbating  the  low 
availability  of  skilled  staff,  cited  by  companies  as 
one  of  the  main  barriers  to  investment (96)  (see 
Annexes  11  and  13).  The  start-up  visa  is  in  line 
with 
the  start-up  and  scale-up  strategy’s 
recommendation (97)  to  attract  founders  but  is 
underused. It might be strengthened by promoting 
it abroad or extending it to start-up employees in 
fields facing labour shortages. 

for 

training 

literacy, 

levels  of  education, 

learners'  capacities 
digital 
skills, 

Latvia  has  prioritised  entrepreneurship 
education at the national level.  The Education 
Development  Guidelines (98)  represent  a  national 
educational  strategy  that  encompasses  all  forms 
including  vocational 
and 
education  and 
current 
(VET).  The 
guidelines  for  2021-2027  highlight  the  need  to 
innovation, 
increase 
and 
entrepreneurial 
creativity.  Similarly,  the  State  General  Secondary 
Education Standard (99) prioritises the development 
of entrepreneurship as one of six transversal skills. 
competence-based 
The 
curriculum allows for more flexible and innovative 
teaching  methods,  emphasising  cross-cutting 
skills.  Concurrently,  the  Digital  Transformation 
Guidelines  for  2021-2027 (100)  advocate  for  the 
integration  of  digital  skills  into  entrepreneurship 
education,  thereby  aligning  educational  outcomes 
with  modern  business  needs.  Despite  the  positive 
in  entrepreneurship  education, 
developments 
challenges persist, including cultural barriers linked 
to  fear  of  failure  and  resource  constraints  (see 
Annex 13). 

implemented 

newly 

(89)  Law on Aid for Start-up Companies. 

(90)  Ministry of Economics (2020), Strategy for the development 

of the start-up ecosystem. 

(91)  The European Startup Nations Alliance standards can provide 

good examples for such targets. 

(92)  OECD (2023), Talent Attractiveness 2023. 

(93)  OECD (2024), Economic Surveys: Latvia. 

(94)  3 223 doctoral students enrolled, 229 doctoral graduates 
and 800 new entrants in 2024, see Central Statistical 
Bureau of Latvia. 

(95)  OECD (2022), Economic Surveys: Latvia and OECD (2024), 

Economic Surveys: Latvia. 

(96)  Availability of skilled staff is cited as an obstacle to 

investment by 91% of Latvian companies. This was the 
second highest figure in the EU and the second highest 
response for Latvian companies behind uncertainty about 
the future. See European Investment Bank (2025), 
Investment Survey 2025.  

(97)  European Commission (2025), EU Startup and Scaleup 

Strategy. 

(98)  Education Development Guidelines 2021-2027. 

(99)  Regulations Regarding the State General Secondary 

Education Standard and Samples of General Secondary 
Education Programmes 

(100) Ministry of Smart Administration and Regional Development 
(2020), Latvian Digital Transformation Guidelines for 2021-
2027. 

45 

 
 
 
Table A4.1:  Key innovation indicators 

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

46 

R&D intensity (gross domestic expenditure on R&D as % of GDP)0.620.640.760.810.820.92:2.243.44Public expenditure on R&D as % of GDP0.390.480.490.520.520.59:0.720.64Scientific publications of the country within the top 10% most-cited publications worldwide as % of total publications of the country 4.118.684.854.93:::9.4412.31Researchers (FTEs) employed by public sector (Gov+HEI) per thousand active population3.13.13.53.33.13.2:4.3:International co-publications as % of total number of publications31.5236.3051.2648.7348.0752.52:57.24:Business enterprise expenditure on R&D (BERD) as % of GDP0.230.160.260.290.300.33:1.492.69Business enterprise expenditure on R&D (BERD) performed by SMEs as % of GDP0.130.130.150.120.11::0.470.30Researchers employed by business per thousand active population0.60.60.91.41.51.6:5.9:Patent applications filed under the Patent Cooperation Treaty per billion GDP (in PPS €)0.771.271.471.31:::2.812.20Employment share of high-growth enterprises measured in employment (%):::1.441.43::0.87:SMEs with at least a basic level of digital intensity% SMEs (EU Digital Decade target by 2030: 90%)::::48.19:58.5471.39:Data analytics adoption% enterprises (EU Digital Decade target by 2030: 75%)::::36.87:36.3739.85:Cloud adoption% enterprises (EU Digital Decade target by 2030: 75%)::::29.04:37.8046.69:Artificial intelligence adoption % enterprises (EU Digital Decade target by 2030: 75%)::::4.538.8312.2119.95:Public-private scientific co-publications as % of total number of publications5.636.627.448.988.419.04:7.62:Public expenditure on R&D financed by business enterprises (national) as % of GDP0.050.050.040.070.04::0.060.02Total public-sector support for BERD as % of GDP:0.06:0.04:::0.21:R&D tax incentives: foregone revenues as % of GDP0.000.000.00::::0.10:BERD financed by the public sector (national and abroad) as % of GDP :0.06:0.04:::0.11:Venture capital (market statistics) as % of GDP (calculated as a 3-year moving average)0.0160.0230.0150.0230.0190.010:0.063:Seed stage funding share (% of GDP)0.0000.0030.0030.0050.0040.003:0.005:Start-up stage funding share (% of GDP)0.0090.0150.0120.0160.0130.005:0.030:Later stage funding share (as % of GDP)0.0070.0040.0000.0030.0030.002:0.027:New graduates in science & engineering per thousand population aged 25-34:9.738.448.308.64::16.82:Graduates in the field of computing per thousand population aged 25-34:2.682.653.173.76::3.84:2022Latvia201020152020Headline indicatorScience and innovative ecosystemsR&D investment & researchers employed in businesses Public support for business innovationInnovation outputsDigitalisation of businessesAcademia-business collaborationFinancing innovationInnovative talent2023EU average (1)USA20242025 
 
   
 
ANNEX 5: SINGLE MARKET AND INDUSTRY 

to 

faces 

Latvian 

strengthen 

The 
several 
economy 
structural  challenges  which  have  hampered 
convergence 
in  recent  years.  The  2025 
country-specific  recommendations  (CSRs)  called 
Latvia’s 
for  measures 
competitiveness  by  removing  obstacles  for  small 
and  medium-sized  enterprises  (SMEs),  such  as 
skills mismatches and labour shortages, as well as 
constraints  in  access  to  finance,  particularly  for 
SMEs.  Moreover,  Latvia  was  called  on  to  simplify 
regulation  and  reduce  the  administrative  burden 
on  businesses.  Low 
innovation, 
accompanied  by  severe  labour  shortages  and 
difficulties  accessing  finance  affect  all  sectors, 
especially  SMEs.  Despite  significant  advances  in 
digitalisation  to  improve  the  administrative  and 
regulatory  environment,  it  remains  burdensome 
for  many  companies.  Recent  reforms  bring  a 
positive  outlook.  Connectivity  infrastructure  lags 
behind  EU  standards,  and  creates  barriers  for 
businesses,  especially  in  rural  areas.  Addressing 
these  issues  can  support  the  Latvian  business 
sector 
lower-technology, 
labour-intensive  industries  towards  higher-value-
added ones. 

in  transitioning  from 

levels  of 

Business dynamics 

sector 

Latvian 

exhibits 

business 

Business  dynamism 
is  high  but  skewed 
towards  high  entry  levels,  pointing  to  weak 
allocative efficiency. With a business birth rate 
of  12.89%  (vs  an  EU  average  of  10.46%)  and 
death rate of 6.23% (vs an EU average of 8.61%) 
a 
the 
comparatively  high  churn  rate  (19.11%  vs  an  EU 
average  of  18.97%).  This  is  driven  by  particularly 
high  business  entry  rates,  suggesting  low  formal 
barriers  to  entry  (101).  However,  the  IMF  points  to 
low  corporate 
rates  and  costly 
insolvency  procedures  for  small  firms,  which  can 
slow  effective  exit  and  delay  the  reallocation  of 
resources  towards  more  productive  firms.  This 
combination  may  weaken  the  productivity  effects 
of firm turnover (102). 

insolvency 

SMEs play a central role in Latvia’s economy, 
but  their  recent  performance  has  weakened. 

(101) Eurostat. 

In 2024, SMEs accounted for 99.8% of enterprises, 
employed  76.4%  of  the  workforce  and  generated 
71.7%  of  value  added 
in  the  non-financial 
business sector (103). SME employment declined by 
1.3%  in  2024,  following  a  sharper  contraction  in 
2023,  while  inflation-adjusted  SME  value  added 
fell  by  3.7%,  reversing  the  modest  recovery 
observed  a  year  earlier.  The  downturn  was  most 
pronounced  among  micro  and  small 
firms, 
showed 
whereas  medium-sized 
greater  resilience  in  employment  but  recorded  a 
stronger decline in real value added (–8.2%). SME 
activity  is  expected  to  recover  gradually  in  2025, 
with  employment  projected  to  increase  by  0.3% 
and  real  value  added  by  1.5%,  driven  mainly  by 
information  and  communication  activities,  where 
SME employment and value added are forecast to 
grow by more than 4% (104). 

enterprises 

The  growing  social  economy  is  fostering 
innovation  and  creating  jobs.  Building  on  the 
policy  and  legal  framework  set-up  for  social 
entrepreneurship, the social economy continues to 
develop  well  in  Latvia.  Today,  more  than  200 
enterprises with social enterprise status have been 
registered,  and  the  social  economy’s  estimated 
share  of  employment  stands  at  2.2% (105).  Latvia 
is  exploring  potential  regulatory  amendments  to 
further strengthen social entrepreneurship and the 
ability of social enterprises to grow and expand. 

Investment  growth  in  Latvia  has  been  weak 
since  the  pandemic,  with  more  recent  data 
pointing  to  an  additional  slowdown.  With 
annualised  growth  rates  of  1.1%  since  2020, 
investment  levels  in  Latvia  have  fallen  behind 
those  of  Latvia's  Baltic  peers,  standing  at  22.4% 
of  GDP  (106).  The  Latvian  National  Productivity 
Board  estimates  that  investment  would  need  to 
to  support 
reach  around  25.5%  of  GDP 
convergence, implying an investment gap of about 
three  percentage  points  over  the  past  decade, 
particularly  in  machinery  and  equipment  (107). 
While  most  recent  data  at  sectoral  level  is  not 
available yet, there are indications that investment 
in  key  sectors  such  as  manufacturing  and  the 
wholesale  and  retail  trade  has  fallen  since  2022. 

(103) European Commission (2025), SME Performance Review. 

(104) Ibid. 

(105) European Commission (2026), EU Social Economy Gateway. 

(102) IMF (2025), 2025 Article IV Consultation of Latvia, and 

Eurostat. 

(106) Ibid. 

(107) IMF (2025), 2025 Article IV Consultation of Latvia. 

47 

 
 
 
 
 
Conversely,  investment  in  the  information  and 
communication  sector  almost  doubled  from  2020 
to  2023.  The  sluggish  investment  environment  is 
also  reflected 
in  perceptions  of  the  Latvian 
industrial  sector's  competitive  position  inside  and 
outside  the  EU.  Since  2022,  these  perceptions 
have continuously deteriorated (108). 

Investment  decisions  by  firms  are  strongly 
shaped by labour shortages and uncertainty. 
In 2025, 94% of firms cited uncertainty about the 
future,  90%  shortages  of  skilled  staff,  and  85% 
energy  costs  as  barriers  to  long-term  investment 
(109).  The  National  Productivity  Board  similarly 
identifies  skills  shortages  and  uncertainty  as  key 
long-term  constraints,  although  firms  reported 
some easing compared with the previous year (110). 
Labour  shortages  are  particularly  pronounced  in 
STEM-related  occupations  (see  Annex  11),  which 
are critical for high-value-added sectors that drive 
convergence (111). Industry and services sectors are 
similarly affected by strong labour shortages, with 
more than 15% of firms citing labour shortages as 
limiting  their  current  production  or  business 
activities (112). 

Latvia’s  productivity 
level  remains  well 
below  the  EU  average  in  strategic  sectors, 
and  its  development  is  stagnating.  In  2024, 
labour  productivity  reached  61.3%  of  the  EU 
average  (GDP  per  hour  worked)  and  70.2%  per 
person  employed  (113).  Over  2021-2024,  labour 
productivity  and  total  factor  productivity  (TFP) 
growth  were  weak  on  average,  before  turning 
positive  again  in  2024  (0.9%  labour  productivity; 
0.2%  TFP)  (114).  Sectoral  developments  indicate 
trade  and 
that 
information  and 
contributed 
positively  to  productivity  growth,  while  structural 
change  supported  productivity  only  to  a  limited 
extent (115). In both sectors, labour productivity per 

retail 
communication 

the  wholesale  and 

(108) European Commission (2026), Business and Consumer 

Surveys. 

(109) European Investment Bank (2025), EIB Investment Survey. 

(110) Ibid. 

(111) IMF (2025), 2025 Article IV Consultation of Latvia. 

(112) European Commission (2026), Business and Consumer 

Surveys. 

(113) Eurostat. 

(114) Ameco. 

(115) Ibid. 

is  up  41  pps,  while 

employed  person 
(index  2015  =  100)  has 
increased  significantly  since  2015  (wholesale  and 
retail 
information  and 
communication  increased  by  11  pps)  (116).  The 
wholesale and retail trade sector in particular has 
made  increasingly  big  gains  since  the  pandemic. 
This  development  was  further  enhanced  by  a 
strong increase in gross value added (GVA) in both 
sectors  since  2020  (33  pps  increase  in  wholesale 
information  and 
and  retail  and  25  pps 
communication)  (117).  Nevertheless,  the  IMF  links 
overall  weak  productivity  dynamics  to  low  capital 
reallocation,  and 
sectoral 
intensity, 
(118). 
productivity 
Additionally, weak innovation inputs, including low 
business  R&D  spending  and  limited  private-sector 
R&D  employment,  are  weighing  on  longer-term 
TFP growth (see Annex 4) (119). 

in  manufacturing 

limited 

gaps 

in 

Business environment 

for 

through  digitalisation  and 

Over recent years, Latvia has laid important 
reducing  administrative 
foundations 
burden 
e-
government  reforms.  Several  measures  have 
been  taken  to  address  the  CSR  to  simplify 
regulation,  improve  regulatory  tools  and  reduce 
administrative  burden  on  companies.  Centralised 
online  public  services  and  the  widespread  use  of 
electronic identification and digital signatures have 
enabled a shift towards paperless procedures and 
reduced the need for in-person interactions. These 
measures  have  simplified  business  establishment 
and everyday administrative interactions and form 
the  backbone  of  Latvia’s  efforts 
lower 
administrative friction for firms and individuals. 

to 

simplification  measures 
design 
policy 

More  recently,  policy  action  has  focused  on 
and 
targeted 
improvements 
and 
reform  packages, 
evaluation.  Concentrated 
including  a  21-point  action  plan  to  reduce 
bureaucracy,  aim to  streamline  procedures  across 
(120), 
areas 

such  as  business 

registration 

in 

(116) Ibid. 

(117) Ibid. 

(118) IMF (2025), 2025 Article IV Consultation of Latvia. 

(119) Eurostat. 

(120) One of the 'Terrible Ten' in the Single Market Strategy, 

COM(2025)500 

48 

 
 
 
institutions. 

construction,  social  services  and  data  exchange 
In  parallel,  simplification 
between 
initiatives have been advanced in areas such as EU 
funds  management  and  public  procurement  to 
reduce  duplication  and  procedural  complexity. 
These  efforts  are  complemented  by  strengthened 
‘better  regulation’  practices,  including  improved 
ex ante impact assessments and a growing use of 
ex post  evaluations  to  assess  whether  regulatory 
intended  effects.  The 
measures  deliver  their 
overall 
on 
these  measures 
impact 
administrative  burden  and  business  conditions  is 
expected to be evaluated in 2026. 

of 

Despite reform efforts, a large proportion of 
firms  still  report  business  and 
labour 
regulations  as  being  major  obstacles  and 
dedicate  significant  staff 
resources  to 
compliance.  Latvian  firms  are  more  likely  than 
the EU average to identify business regulation and 
labour market rules as barriers to investment, with 
compliance  requirements  absorbing  considerable 
management  and  staff  time,  particularly  for 
smaller  firms  (121).  Administrative  complexity  is 
for 
reported 
exporting  firms,  which  face  fragmented  and 
overlapping 
across 
markets,  adding  to  fixed  costs  and  uncertainty 
(122).  Overall,  these  findings  suggest  that  while 
reform  initiatives  are  ongoing,  they  have  not  yet 
resulted  in  broad-based  reductions  in  regulatory 
burden felt by firms on the ground (123). 

to  be  especially  burdensome 

requirements 

regulatory 

Improving  the  regulatory  environment  for 
businesses could further diminish the shadow 
economy.  According  to  the  Stockholm  School  of 
Economics  (SSE),  dissatisfaction  with  business 
legislation  could  be  a  major  factor 
in  the 
prevalence  of  activities  in  the  shadow  economy. 
link  between 
The  SSE  establishes  a  direct 
reduction 
and 
improvement of the regulatory and administrative 
environment  for  companies.  The  size  of  the 
shadow  economy  in  Latvia  has  continued  to 
decline, 
in 
formalisation.  According  to  the  latest  SSE  Riga 
Shadow  Economy  Index,  the  shadow  economy 
decreased to 21.4% of GDP in 2024, down by 1.5 
pps  in  2023  and  down  by  5.1  pps  in  2022. 

indicating 

economy 

progress 

shadow 

gradual 

the 

of 

(121) European Investment Bank (2025), EIB Investment Survey. 

(122) Ibid. 

(123) Ibid. 

that 

Improvements  were  also  observed  in  high-risk 
sectors:  in  construction,  the  shadow  economy 
share  declined  to  33.8%  in  2024,  while  national 
accounts  data  show 
the  non-observed 
economy  in  construction  fell  to  17.4%  of  GVA  in 
in  2022.  Compliance 
2023,  down  7.3  pps 
indicators  further  improved,  with  the  share  of 
undeclared  work  income  declining  to  13.8%  in 
2024,  the  lowest  level  since  2020.  Latvia  also 
recorded  a  VAT  gap  of  5.4%  in  2023,  well  below 
the  EU  median  of  8.2%,  placing  it  among  the 
better-performing Member States (see Annex 3). 

have 

focused 

Policy  measures 
on 
transparency,  digitalisation  and  targeted 
sectoral  interventions  to  support  this  trend 
and  implementation  of  the  CSR  on  reducing 
the  size  of  the  shadow  economy.  Under  the 
Shadow Economy Restriction Plan for 2024-2027, 
authorities  expanded  public  access  to  information 
on taxes paid and employment reported  by firms, 
strengthened measures in priority sectors such as 
construction  and  taxi  services,  and  introduced 
regulatory  changes  to  reduce  risks  in  the  vehicle 
trade  (Ministry  of  Finance).  Digitalisation  plays  a 
central role, notably through the mandatory use of 
electronic  invoicing  in  transactions  with  public 
institutions and the phased extension of structured 
e-invoicing 
(B2B) 
transactions,  aimed  at  improving  traceability  and 
reducing  undeclared  activity  (Ministry  of  Finance; 
Ministry  of  Economics).  Additional  measures 
promote  voluntary  compliance,  limit  cash-based 
transactions  and  expand  digital 
for 
monitoring  goods  movements,  while  recognising 
the  need  for  proportionality  and  support  for 
smaller 
The 
combined  impact  of  these  measures  and  recent 
trends 
to  be  assessed  as 
expected 
implementation advances in 2026. 

business-to-business 

implementation. 

firms  during 

tools 

to 

is 

Access  to  finance  remains  a  relevant 
constraint  for  SME  investment  and  scaling, 
and  implementation  of  the  CSR  has  been 
limited in this regard. The National Productivity 
Board  highlights  weak  lending,  underdeveloped 
capital markets and uncertainty as factors limiting 
investment  (124).  The  OECD  notes  that  public 
development  finance  via  ALTUM  helps  address 
collateral  constraints  but  also  points  to  practical 
effective 
limitations 

need 

and 

the 

for 

(124) IMF (2025), 2025 Article IV Consultation of Latvia. 

49 

 
 
 
implementation  of  planned  investment  support  of 
around EUR 423 million (1.1% of GDP) until 2026. 
In addition, low willingness to borrow continues to 
constrain SME investment and scale-up (125). 

firms 

report 

experiencing 

late 
More 
payments.  In  2024,  60%  of  Latvian  enterprises 
reported payment issues due to late payments, up 
from  51%  in  2023,  continuing  an  upward  trend 
observed  since  2020  (126).  49%  of  companies 
report  delayed  payments  in  B2B  transactions  but 
only  13%  from  the  public  sector.  Despite  the 
higher  incidence,  reported  negative  effects  have 
eased compared with the previous year: the share 
of  firms 
indicating  adverse  effects  on  their 
capacity to pay suppliers declined to 38% in 2024, 
while  the  share  reporting  negative  effects  on 
investment and new recruitment fell to 12%, down 
from  23%  in  2023  (127).  At  the  same  time,  the 
share  of  firms  reporting  broader  operational 
impacts,  such  as  effects  on  production  or 
operations, remained constant at 23%, suggesting 
that  while  late  payments  are  widespread,  their 
operational  consequences  have  become  more 
limited overall (128). 

connectivity 

infrastructure 

Latvia’s 
is 
lagging  behind  EU  averages.  Very-high-
capacity-network (VHCN)  coverage  for  households 
stood  at  68.13%  in  2024,  against  the  EU’s 
82.49%,  and  there  was  a  minimal  growth  rate  of 
(FTTP) 
in  2024.  Fibre-to-the-premises 
0.2% 
coverage is below par, standing at 61.1% in 2024, 
while the country’s progress in 5G coverage shows 
considerable  growth,  reaching  71.1%  in  2024, 
though  still  far  below  the  EU  average.  While 
Latvia’s broadband take-up indicates mixed results 
(surpassing the EU  average in fixed broadband at 
speeds  of  100  Mbps  or  higher  but  lagging  in  5G 
spectrum  assignment),  Latvia  relies  heavily  on 
long-standing  policies  without  introducing  new 
measures,  and  more  efforts  are  needed  to  reach 
the 2030 targets. 

Single Market 

Latvia is highly integrated into the EU Single 
integration,  measured  as  the 
Market.  Trade 
average of intra-EU exports and imports relative to 
GDP,  stood  at  49.3%,  well  above  the  EU  average 
of 40.7%, underlining the importance of the Single 
Market for Latvia’s economy (129). This high level of 
integration has supported growth and resilience by 
facilitating  participation  in  European  value  chains. 
OECD  analysis  similarly  highlights  that  Latvia’s 
openness  and  integration  into  EU  markets  have 
helped  cushion  external  shocks  and  support 
export-led  growth,  particularly  for  tradable  goods 
and  services  (130).  At  the  same  time,  firm-level 
evidence  shows  that  exporters  continue  to  face 
regulatory  fragmentation  across  Member  States, 
which  limits  the  full  benefits  of  Single  Market 
integration  and  raises  compliance  costs  for  firms 
operating across borders (131). When it comes to 
goods 
of 
products circulating in the Single Market (132) 
is  key  to  ensuring  a  level-playing  field  for 
law-abiding  companies  and  the  safety  of 
consumers.  In Latvia,  the  number  of  market 
surveillance 
increased 
compared with 2019. In 2025, national authorities 
reported in the EU system for market surveillance 
(ICSMS)  a  total  of 301 investigations  per  one 
the 
million 
is higher than 
The 
EU median 
of 
number 
notifications remains limited 
in  absolute  terms, 
which  may  also  be  the  result  of  insufficient  IT 
national interoperability to the ICSMS system. The 
upcoming  revision  of  the  Market  Surveillance 
Regulation  will  upgrade 
fully 
interoperable EU digital platform. 

inhabitants,  which 

investigations 

compliance 

markets, 

136.2. 

ICSMS 

to  a 

has 

of 

The  Latvian  National  Standardisation  Body 
(NSB)  Latvian  Standard  would  benefit  from 
additional  staff  resources.  Currently,  reporting 
18  people  staff,  an  expansion  of  the  NSB’s 
personnel  could help to build a broader and more 
specialised  expert  base  capable  of  engaging  in 

(125) OECD (2024), Economic Survey: Latvia. 

(129) Eurostat. 

(126) European Commission, EU Payment Observatory and 

European Commission (2025), Survey on the Access to 
Finance of Enterprises (SAFE). 

(127) European Commission, EU Payment Observatory. 

(128) Ibid. 

(130) OECD (2024), Economic Survey: Latvia. 

(131) European Investment Bank (2025), EIB Investment Survey. 

(132) Part of the barriers highlighted in the Single Market Strategy 
and the 2026 Annual Single Market and Competitiveness 
Report. 

50 

 
 
 
complex 

increasingly 
standardisation  work. 
Moreover,  additional  resources  are  needed  to 
ensure  that  Latvian  Standard  undertakes  the 
necessary  digital  transition  to  allow  for  faster, 
more  efficient  and  more  inclusive  standardisation 
process.  It  is  therefore  recommended  that  Latvia 
enhances its support for its NSB to reduce market 
fragmentation,  improving  the  competitiveness  of 
Latvian  companies,  and  fully  benefiting  from  the 
opportunities of the Single Market. 

Latvia’s  performance  in  implementing  Single 
Market  legislation  is  quite  good.  As  of  2025, 
1.2% of all Single Market directives have not been 
fully transposed into  national  law,  which is  above 
both  the  EU  average  of  1.1%  and  the  1%  target 
set  by  the  EU  Council.  However,  only  0.2%  of 
transposed directives are not transposed correctly 
(EU  average:  1.1%),  which  puts  Latvia  in  first 
position  among  the  Member  States  on  this 
criterion. This is also reflected in a comparably low 
number  of  pending 
infringement  proceedings 
against  Latvia  (8  vs  the  EU  average  of  25). 
Moreover, the Latvian SOLVIT centre has resolved 
100% of cases handled as lead centre in the past 
year (EU average 84.6%) (133).  

including 

durations 

Latvia’s  public  procurement 
framework 
continues  to  face  structural  challenges, 
although  reform  efforts  are  ongoing.  Public 
procurement  authorities  report  persistent  staff-
limited  capacity, 
related  constraints, 
relatively low pay and gaps in training, which can 
affect planning quality and the timely execution of 
procurement  procedures  (national  audit  report). 
Procurement planning is further affected by short 
contract 
uneven  workload 
and 
distribution  among  procurers.  While  procurement 
remains 
for 
standardised goods and services, steps have been 
and 
taken 
to 
professionalisation, 
the 
establishment  of  an  advisory  council  and 
measures  under  the  recovery  and  resilience  plan. 
In  terms  of  outcomes,  24%  of  contracts  were 
awarded following a single bid in 2025, below the 
EU median of 27%, while direct awards accounted 
for 6% of contracts, compared with an EU median 
of 6% (134). 

coordination 
through 

largely  decentralised, 

strengthen 

including 

notably 

is  further  reforming 

Latvia 
its  public 
procurement  system.  In  order  to  make  public 
spending  more  efficient  and  reduce  bureaucratic 
complexity,  the  Latvian  authorities  are  currently 
working  on  a  public  procurement  law  to  simplify 
nationally  regulated  procurement  procedures  that 
are  not  subject  to  the  EU  procurement  directives. 
The  law,  to  be  adopted  by  the  Parliament  in 
summer 2026, will make procurement rules more 
improve  data-driven  oversight  and 
flexible, 
analytics, 
transparency 
greater 
(highlighted  by  stakeholders)  and  bring  forward 
further centralisation of procurement. Additionally, 
although 
the  proportion  of  green  public 
procurement in total procurement volume declined 
significantly from 29.9% in 2022 to 9.6% in 2024, 
it increased to 15.1% in 2025. 

achieve 

think 

Businesses’  views  on  corruption  risks  in 
public  procurement  are  above  the  EU 
In  Latvia,  71%  of  companies  (EU 
average. 
average: 58%)  consider tailor-made specifications 
for  particular  companies  in  public  procurement 
procedures, and 56% (EU average: 51%) collusive 
bidding,  to  be  a  ‘very’  or  ‘fairly  widespread’ 
practice.  Among  companies  that  have  experience 
of  and  have  participated  in  a  public  procurement 
that  corruption  has 
procedure,  27% 
prevented them from winning a public tender or a 
public  procurement  contract 
(EU 
average:  25%)  (135).  35%  of  businesses  perceive 
the  public 
the 
procurement review body (Procurement Monitoring 
Bureau)  as  ‘very’  or  ‘fairly  good’ when  it  is 
reviewing  public  procurement  cases  (136).  Reforms 
are  being  undertaken  to  address  challenges 
related  to  public  procurement,  which remains an 
(137).  Restricted 
area  at high  risk of corruption 
competition  and  prohibited  agreements  among 
public 
bidders remain a 
procurement in Latvia. 

independence  of 

in  practice 

challenge 

level  of 

key 

in 

Latvia has made progress in improving its e-
procurement  landscape.  Latvia’s  centralised  e-
procurement service allows economic operators to 
use  a  single  system  to  access  all  national  public 
procurement  procedures  and  has  implemented 
their  e-procurement 
various 

features  within 

(135) European Commission (2025), Justice Scoreboard and 

European Commisison (2024), Flash Eurobarometer 557 on 
Businesses attitudes towards corruption in the EU. 

(133) European Commission (2025), Single Market Scoreboard. 

(136) Ibid. 

(134) Ibid. 

(137) European Commission (2025), Rule of Law Report for Latvia. 

51 

 
 
 
the  once-only  principle 

platforms  which  partially  solve  the  problem  of 
cross-border  participation.  Nevertheless,  Latvia 
could  benefit  from  further  reducing  barriers  to 
facilitate  the  participation  of  other  European 
companies, contributing to reducing fragmentation 
on  the  European  public  procurement  market. 
Additionally, 
is  only 
partially  implemented  (see  Annex  7),  and  buyers 
across  the  EU  still  lack  digital  access  to  relevant 
evidence.  Latvia  has  a  dedicated  entity  in  charge 
of  monitoring  and  assessing  the  uptake  of  public 
procurement at the national level, as such there is 
a focus on the management of public procurement 
data and its monitoring, however it does not fully 
cover the public procurement lifecycle. It would be 
beneficial  if  Latvia  continues  on  this  path  and 
strengthens the public procurement data collection 
and  analysis  service  within  the  government  to 
support  data  driven  oversight  of  the  procurement 
lifecycle. 

Industry and economic security 

Latvia’s  economic  structure 
is  relatively 
diversified,  but  it  remains  tilted  towards 
lower-technology  activities.  The  economy  is 
mainly  service-oriented,  with  services  accounting 
for  around  71%  of  total  value  added,  a  level 
broadly in line with Latvia's Baltic peers but below 
that  observed  in  some  larger  EU  economies.  A 
substantial  share  of  services  is  concentrated  in 
lower-technology 
the 
activities, 
wholesale  and  retail  trade,  real  estate  and 
transport,  which  together  account  for  28.6%  of 
total  GVA.  At  the  same  time,  higher-technology 
services,  notably  information  and  communication, 
have  expanded  steadily,  with  their  share  of  value 
added  increasing  from  4.9%  in  2015  to  6.9%  in 
2025, largely driven by growth in IT and computer 
programming activities. 

including 

a 

dominant 

industry, 
to 

lower-technology  activities 
In 
continue 
role. 
play 
Manufacturing  accounts  for  around  76%  of 
industrial  value  added,  with  food  processing  and 
timber-related  industries  remaining  particularly 
important.  Low-  and  medium-low-technology 
sectors employ around 85% of the manufacturing 
workforce,  reflecting  the  current  structure  of 
(138).  While  more 
Latvia’s 

industrial  base 

knowledge-intensive  activities  have  gained  some 
ground,  their  overall  weight  in  manufacturing 
remains limited, suggesting that structural change 
in industry has so far progressed only gradually. 

Graph A5.1: Manufacturing industry production: 
total and selected sectors, index (2021=100), 
2015-2024 

Source: Eurostat 

Latvia  has  made  progress  in  implementing 
the  Net-Zero  Industry  Act  (NZIA).  It  has 
successfully  designated  a  single  point  of  contact, 
which  is  crucial  for  streamlining  communication 
and 
stakeholders. 
Furthermore,  Latvia  has  established  a  national 
contact  point  to  process  applications,  facilitating 
the  advancement  of  net-zero  strategic  projects, 
despite having no confirmed projects yet. 

coordination 

among 

is  high 

When  it  comes  to  critical  raw  materials, 
market  operators  are  dependent  on  imports, 
but  diversification 
in  European 
comparison.  Latvia’s  industry  imports  the  vast 
majority  of  raw  materials  it  needs  as  production 
inputs.  In  2024,  roughly  29%  of  direct  material 
input  in  the  economy  was  imported  (EU  average: 
22.4%)  (139).  In  particular,  coking  coal,  copper, 
titanium  and  borates  are  imported,  mainly  from 
non-EU countries in Europe and Asia. Major trading 
partners are Türkiye, Kazakhstan as well as Russia. 
Nevertheless,  Latvia’s  import  concentration  index 
has  been  comparably  low  in  2025  at  0.17  (EU 
average: 0.23) (140). 

(138) Eurostat. 

(139) Eurostat. 
(140) COMEXT. Data until August 2025. 

52 

5863687378838893981031082015201620172018201920202021202220232024ManufacturingManufacture of wood and wood/cork productsManufacture of paper and paper productsManufacture of chemicals and chemical productsManufacture of rubber and plastic productsManufacture of other non-metallic mineral products 
 
  
 
Table A5.1:  Single Market and Industry 

Source: (1) Eurostat, (2) EIB Investment Survey, (3) EIF SME Access to Finance Index, (4) Intrum Payment Report, (5) SAFE survey, 
(6) OECD, (7) data up to 2024: Single Market and Competitiveness Scoreboard, 2025: Commission calculation based on TED data, 
accessible at the Public Procurement Data Space (PPDS) (*) the value represented here under EU average is the median, (8) Single 
Market and Competitiveness Scoreboard, (9) European Commission calculations. 

53 

POLICY AREA20212022202320242025EU-27 average60.959.661.461.362.2100.014.214.915.313.2-12.55.64.85.66.3-3.7Business environment and simplification50.325.939.841.842.034.00.400.260.180.15-0.430.140.260.200.16-0.1910.816.016.2--17.48.713.312.0--13.6from private entities in the previous or current quarter---59.3549.3747.13from public entities in the previous or current quarter---18.2210.915.948.257.749.948.949.340.70.0380.0380.0380.0380.0380.050263727222427118686621.20.50.81.2110.80.400.21.110010010010010084.617121010825---0.1939-0.146218.717.516.3--32.742.143.843.345.5-25.231.431.131.929.0-22.45.04.36.06.8-12.2LatviaINDICATOR NAMEBusiness environment and investmentProductivity and investmentLabour productivity (GDP per hour worked in PPP terms), % of EU271Business investment (share of GDP)1Public investment (share of GDP)1Impact of regulation on long-term investment, % of firms reporting business regulation as a major obstacle2SME liquidityEIF Access to Finance for SMEs index - loans3EIF Access to Finance for SMEs index - equity3Late paymentsPayment gap - corporates B2B, difference in days between offered and actual payment4Payment gap - public sector, difference in days between offered and actual payment4Share of SMEs experiencing late payments, %5Industry and economic securitySingle Market IntegrationEU trade integration, average(intra-EU imports + intra EU exports)/GDP, %1EEA Services Trade Restrictiveness index6Public procurementSingle bids, % of total contractors7*Direct awards, % of negotiated procedures7*ComplianceTransposition deficit, % of all directives not transposed8Conformity deficit, % of all directives transposed incorrectly8SOLVIT, resolution rate per country, %8Number of pending infringement proceedings8Energy-intensive industriesElectricity prices for non-household consumers1Electrification (electricity as a share of total energy consumption in industry)1Share of energy from renewable sources (renewable energy generation as a share of overall energy consumption)1Critical raw materialsMaterial import dependency, %1Circular material use rate1Operational cleantech manufacturing capacity in 20259 - Solar PV (c: cell, w: wafer, M:module), GW- - Electrolyzer, GW- - Heat pump assembly - - Battery, GW- 
 
     
 
ANNEX 6: SAVINGS, INVESTMENT AND ACCESS TO FINANCE 

Table A6.1:  Savings and Investments Union summary diagnostic 

Source: OECD (pensions), Eurostat (households' financial wealth), FISMA CMU dashboard (VC and PE), national sources (capital 
taxation). End-2024. 

fund 

channel 

savings  mostly 

Some  reforms  addressing  elements  of  the 
2025  CSR  (141)  have  been  implemented,  but 
further progress is needed. Companies in Latvia 
rely  less  than  the  EU  average  on  funding  from 
banks  or  capital  markets.  To 
their 
investments,  they  rely  on  internal  funding  more 
than their EU peers. The ratio of bank loans to GDP 
in Latvia is among the lowest in the euro area. The 
country’s  domestic  listed  equity  market  remains 
small  from  a  European  perspective,  while  debt 
markets 
the 
government.  The  persistently  low  saving  rate  of 
Latvian  households  reduces  the  availability  of 
credit  for  company  funding.  Latvia’s  relatively 
small  banking  sector  remains  robust,  with  most 
performance indicators among the best in the EU. 
Lending  to  both  households  and  companies  has 
been  growing  strongly  in  recent  years.  Non-bank 
financial  intermediaries,  which  have  both  the 
funds  and  the  capacity  to  drive  progress  in  the 
development  of  Latvia’s  capital  markets  favour  a 
very  conservative  asset  allocation  that  allows  for 
only  very  limited  equity  investments.  Latvia’s 
venture capital ecosystem remains very small and 
is dominated by  public funds channelled  primarily 
by national development institutions. 

to 

(141) 2025 country-specific recommendation: “Improve access to 
finance for small and medium-sized enterprises, including by 
stimulating competition in the financial markets and 
promoting public lending and guarantee schemes to 
facilitate investments of strategic importance, in particular in 
the areas of the green transition, scaling-up and 
commercialisation of innovations, and regional 
development.” 

54 

Business landscape and company 
funding 

In  comparison  with  the  EU  average,  the 
Latvian  economy,  in  terms  of  structure  and 
size,  relies  more  on  micro-sized  companies. 
Micro, small and medium-sized companies are the 
backbone of Latvia’s economy, comprising roughly 
99% of all businesses and playing a critical role in 
employment, innovation, and value added creation. 
Micro-sized  companies  play  a  stronger  role  in  the 
structure  of the Latvian  economy  than they do  in 
the EU on average (see Annex 5 for more details). 
This  has  concrete  implications  for  the  corporate 
sector’s demand for funding. 

For  Latvian  firms  using  external  finance, 
bank  financing 
is  the  dominant  source, 
though  less  so  in  terms  of  GDP  than  the  EU 
average.  According  to  the  2025  EIB  Investment 
Survey,  only  54%  of  all  Latvian  firms  use  bank 
finance,  the  third  lowest  share  in  the  EU,  after 
Lithuania  and  Sweden  (with  the  EU  average  at 
financial  service 
79%).  However,  alternative 
providers  have  rapidly  begun  to  compete  with  – 
and often outcompete – the traditional banks. This 
is  reflected  in  the  2025  SAFE  survey  results. 
According  to  these  results,  37%  of  Latvian  SMEs 
indicate  that  bank  loans  are  relevant  for  them, 
compared with an EU average of 46%. Despite the 
decline in the relative significance of bank credit to 
Latvian businesses in recent years, vigorous credit 
growth  to  companies  in  2024  resulted  in  bank 
credit  accounting  for  a  23.7%  share  of  total 
corporate  funding  at  the  end  of  2024  (Graph 

Main featuresRelative EU positioningAssets at 24.3% of GDP (32.3% in the EU)10-year real return of -1.1 (1.4% in the EU)The medium pension assets yield a very low real returnEUR 23 287 per capita (EUR 85 098 in the EU)o/w 2.5% in listed shares and bonds (7.6% in the EU)o/w 1.6% in investment funds (11.0% in the EU)o/w 2.9% in life insurance (13.4% in the EU)o/w 21.1% in  pension claims (13.6% in the EU)A very low share of households' financial assets is invested in equity and in capital marketsVC at 0.010% of GDP (0.064% in the EU)PE at 0.119% of GDP (0.487% in the EU)Very low venture capital and very low private equity investmentsCapital gains & income on capital: flat rate of 25.5% is applied to most assets and savings types; exemptions and reductions apply; 0% corporate income tax on reinvestment and 20% on distributionModerate taxes on capital1-34-1011-1718-2425-27Colours indicate the country's relative ranking based on five groups, ranging from the three best to the three worst performers. The relative ranking as regards an SIU diagnostic topic derives from a consistent cross-country comparison, the starting point of which is the average of the underlying main features.TopicAsset-backed pension schemesHouseholds' financial assetsVenture capital (VC)Private equity (PE)Capital taxation 
 
 
 
 
 
 
   
 
(NFCs) 

A6.1).  Listed  shares  and  bonds  represented  only 
0.4%  of  all  funding  sources  for  Latvian  non-
financial  corporations 
in  2024.  The 
equivalent  figures  for  the  EU  average  are  26.9% 
and  18.8%.  The  aggregate  level  of  Latvian  NFC 
funding  is  also  substantially  lower  as  a  share  of 
GDP (at 142% of GDP in Latvia but 226% for the 
EU  average,  see Graph  A6.1).  The  market  funding 
ratio  (142)  as  of  end  2024  was  20.6%,  compared 
with an EU average of 49.7%.  

Graph A6.1: Composition of non-financial 
corporations' funding 

Source: Eurostat. End-2024. 

The  share  of  Latvian  firms  that  rely  on 
internal  finance  increased  over  2025,  but 
remains lower than the EU average. Compared 
with  2024,  the  share  of  Latvian  firms  that  are 
financially  constrained  fell  to  9.2%  in  2025  but 
remains  higher than  among  EU  firms (6.1%).  This 
is  primarily  due  to  collateral  requirements  in 
Latvia,  which  are  among  the  strictest  in  the  euro 
area. Rejection rates for loan applications are high. 
A  survey  conducted  by  the  European  Investment 
Bank shows that 26% of companies in Latvia that 
obtained  external  financing  were  dissatisfied  with 
the  lender’s  collateral  requirements,  vs  12%  in 
Lithuania and only 9% in Estonia. As a result, NFCs 
tend  to  rely  on  their  own  funds  as  well  as  other 
alternatives  (other  equity).  This  is  reflected  in  the 
2025 SAFE survey  results. In that  survey, 40% of 
SMEs 
internal  funds  (retained 
earnings or sales of assets) are relevant for them, 
compared  with  an  EU  average  of  28%  (143). 

indicated  that 

(142) I.e., the volume of corporate bonds and listed shares of NFCs 
relative to the volume of those two and bank loans to NFCs. 

(143) European Commission (2025), Survey on the Access to 

Finance of Enterprises (SAFE). 

Anecdotal  evidence  shows  that  the  most  widely 
available financing sources in Latvia – apart from 
banking  products  –  are  friends,  family,  venture 
capital,  business  angels,  and  state  support 
programmes,  including  EU  grants  and  ALTUM, 
finance 
Latvia’s 
institution.  However,  ALTUM’s  loan  portfolio  is 
relatively  small  compared  with  the  total  value  of 
outstanding loans.  

development 

state-owned 

There  may  be  a  financing  gap  relative  to 
investment  demand  in  Latvia,  especially  for 
SMEs. According to the 2025 SAFE survey, 18% of 
all  Latvian  firms  believed  that  their  investment 
activities  over  the  last  three  years  were  not 
sufficient.  This  percentage  –  together  with  the 
percentages from the other two Baltic countries  – 
are  some  of  the  highest  levels  of  perceived 
underinvestment  in  the  EU  (EU  average  of  12%). 
This  suggests  that  there  may  be  a  financing  gap 
relative  to  investment  demand,  especially  for 
SMEs. 

Size and structure of the financial 
sector 

their 

operations 

is  very  small 
Latvia’s  banking  sector 
compared  with 
the  EU  average,  and 
concentration in the sector is high. At the end 
of Q3-2025, banks’ total assets were equivalent to 
69.3% of GDP (Graph A6.2), significantly below the 
EU  average  of  245.3%  and  also  below  the  level 
reached  in  Latvia  as  recently  as  2017  (108.8%). 
The  sector  has  been  shrinking  in  recent  years,  as 
banks  servicing  non-residents  have  significantly 
downsized 
the 
laundering 
introduction  of  stricter  anti-money 
rules.  As  a  result,  the  business  volumes  and 
deposits  of  Latvian  banks  have  fallen  markedly. 
This  has  led  them  to  transform  their  business 
models.  In  the  meantime,  bank  domestic  assets 
continued  growing,  albeit  at  a  slower  pace  than 
GDP.  The  country’s  banking  sector 
is  highly 
concentrated, and borrowing costs are among the 
highest  in  the  EU  in  almost  all  lending  segments. 
The  Latvian  banking  sector  is  dominated  by 
subsidiaries  and  branches  of  banks  from  Nordic 
and  Baltic  countries.  In  particular,  Swedbank  (144) 

following 

(144) 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 

55 

050100150200250LVEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
     
 
 
 
 
and SEB Banka, which are the two largest banks in 
Latvia, are Swedish owned. 

In  terms  of  capital  market  development, 
Latvia  lags  behind  the  rest  of  the  EU  and 
neighbouring  countries.  Despite  a  similar 
economic  structure, 
the  stock  exchanges  of 
Estonia  and  Lithuania  have  been  able  to  develop 
more  swiftly.  While  the  market  capitalisation  of 
listed  stocks  in  Estonia  reached  10.7%  of  GDP  at 
the end of Q3-2025, and 6.2% in Lithuania, it was 
only  0.8%  of  GDP  on  Nasdaq  Riga  (145).  In 
comparison,  the  EU  average  is  69.9%  of  GDP. 
While  state  and 
local  government-controlled 
companies  account  for  slightly  more  than  a  third 
of  market  capitalisation  in  Lithuania  and  Estonia, 
in  Latvia  the  topic  of  listing  state  and  municipal 
enterprises  on  the  stock  exchange  is  still  under 
consideration.  The  situation  is  similar  in  the  debt 
securities  market:  the  corporate  bond  market  is 
very thin and activity is very weak, although it has 
grown in recent years. 

Graph A6.2: Capital markets and financial 
intermediaries 

Source: ECB, EIOPA, AMECO, OECD. End-2024. 

Latvia’s  capital  markets  are  hampered  by 
their 
lack  of  size,  despite  efforts  by 
authorities  from  Latvia,  Lithuania  and 
Estonia  to  develop  an  integrated  capital 
market  in  the  Baltic  region.  The  three  Baltic 
states have been working towards integrating their 

Swedbank AB, and which is under the supervision of the 
European Central Bank. 

(145) The Nasdaq Riga Stock Exchange belongs to the Nasdaq 

group, which in the EU operates other trading venues in the 
two other Baltic states of Estonia and Lithuania, as well as in 
Sweden, Finland and Denmark. 

56 

in  2017 

capital  markets’ 
infrastructure  and  signed  a 
to 
memorandum  of  understanding 
‘cooperate  in  developing  a  deeper  and  more 
efficient regional capital market’. This commitment 
was  followed  by  efforts  to  harmonise  regulation 
between  them  and  create  pan-Baltic  investment 
products.  The  three  national  central  securities 
depositories  (CSDs)  were  also  merged  in  2017, 
resulting in the creation of Nasdaq CSD SE, legally 
based  in  Latvia.  This  has  facilitated  cross-border 
transactions  and  improved  the  visibility  of  all 
Baltic  markets.  However,  the  number  of  listed 
enterprises,  investors,  transactions  and  issued 
securities  remains  low  on  all  three  markets,  and 
the  prospects  for  capital market  development  are 
limited.  This  results  in  few  local  investment 
opportunities,  low  interest  from  institutional  and 
retail  investors,  and  thus  limited  opportunities  to 
raise  share  capital  locally.  For  the  local  capital 
markets  to  become  attractive  to  international 
investors,  they  would  first  need  to  reach  a 
sufficient level of capitalisation. This is reflected in 
the  identification  of  Latvia  by  the  2025  MSCI 
market  classification  review  as  an  advanced 
frontier market, a new subcategory added by MSCI 
to  identify  frontier  markets  that  demonstrate 
market accessibility characteristics  closely aligned 
with  those  of  developed  markets  but  that  remain 
classified as frontier markets due to their size and 
liquidity constraints. 

Latvia  has  launched  several  initiatives  to 
meet  the  ambitious  target  of  reaching  a 
stock market capitalisation equivalent to 9% 
of  GDP  by  2027.  These  initiatives  are  part  of  a 
broader  government  strategy  to  leverage  over 
EUR 10 billion in household savings across Latvia, 
directing  these  funds  towards  vital  investments 
that  can  spur  sustainable  economic  growth. 
Government  decisions  from  2021  and  2023 
contained  plans  for  new  instruments  like  green 
bonds to both: (i) increase the capitalisation of the 
stock market; and (ii) promote regional integration 
and  the  entry  of  new  issuers  into  the  stock 
exchange.  Despite  the  2023  decision,  tangible 
progress in this area has been limited so far, and 
several stumbling blocks remain. Continued efforts 
would therefore be beneficial. Measures that could 
help  attract  investors  and  raise  access  to  finance 
large  state-owned  or 
include  the 
listing  of 
municipality-owned  enterprises  on 
the  stock 
market  and  facilitating  greater  exposure  of 
pension funds to domestic securities. 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds01020304050607080   Listed equity               Bonds                        Assets by sector% of GDP 
   
 
The  Latvian  authorities  have  taken  several 
to  strengthen  capital  markets 
actions 
through public-private collaboration, building 
on  cooperation  among  the  Baltic  national 
development  banks.  SMEs  find  it  difficult  to 
access  and  take  advantage  of  Latvian  capital 
markets.  Once  companies  reach  the  stage  that 
they have already proven their business model and 
start expanding internationally, they require larger 
long-term  equity  capital  to  continue  scaling. 
However, at this stage local equity funding options 
in Latvia remain limited, and traditional banks are 
often  reluctant  to  lend  to  innovation-driven  or 
export-oriented companies without hard collateral. 
Unfortunately,  there  are  no  established  SME 
growth markets in Latvia or the other Baltic states, 
is  Nasdaq  First  North  as  a 
however,  there 
prominent  Multilateral  Trading  Facility  which 
supports  both  listing  of  shares  and  corporate 
bonds. To address this issue, Latvia’s development 
Lithuania’s 
finance 
development bank Ilte previously set up a fund for 
initial  public  offerings  to  prepare  businesses  for 
listing  on  the  stock  market.  Moreover,  in  order  to 
both ensure a more robust continuum of financing 
options  and  bridge  critical  financing  gaps  at  the 
scale-up/growth  stage,  both  ALTUM  and 
Ilte 
approved  the  Baltic  Capital  Market  Acceleration 
Fund  in  2023.  The  fund  is  worth  over  EUR 
50 million,  began  its  operations  in  October  2025 
and  will  remain  active  for  the  next decade.  It  will 
provide financing to businesses before and during 
the  listing  stage,  investing  in  newly  issued  equity 
or bonds over ten years. This is expected to boost 
equity  and  bond 
listings  on  Nasdaq  Baltic 
exchanges and increase both market liquidity and 
access to growth capital across the region. 

institution  ALTUM  and 

Households’ participation in capital 
markets 

Latvian households have relatively low levels 
of  income  and  savings.  Latvian  households’ 
financial  assets  amount  to  only  half  of  the  EU 
average  of  212.2%  of  GDP  (Graph  A6.3).  Latvian 
households’  asset  portfolios  are  tilted  towards 
currency and deposits (33.2%), and more than one 
third of their portfolio is held in ‘other equity’ (146), 

(146) ‘Other equity’ comprises all forms of equity other than those 
classified in sub-categories listed shares (AF.511) and 
unlisted shares (AF.512). In Latvia, the largest part of 

which  is  high  compared  with  other  EU  countries 
where  the  average  is  11.4%.  Latvian  households 
have relatively few financial assets, in particular in 
investment,  insurance  and  pension  funds.  The 
share  of  households’  financial  assets  held  in 
pension  and  insurance  funds  –  or  directly  in 
financial  investment  instruments  –  in  their  total 
holdings  of  financial  assets  rose  to  28.6%  in 
2024,  but  still  falls  short  of  the  EU  average  of 
46.5%.  Most  investments  are  in  pension  funds 
(mainly  due  to  the  larger  mandatory  contribution 
to  the  second  pension  pillar)  and  life  insurance. 
used 
Other 
significantly 
little,  Latvian 
households  are  starting  to  invest  their  funds  in 
higher-risk  assets.  In  recent  years,  deposits  in 
securities and investment funds grew most rapidly. 
It  is  also  important  to  note  that  the  outstanding 
deposits at Latvian banks significantly exceed the 
outstanding loans from banks, which may point to 
untapped  potential,  since  those  savings  could  be 
redirected towards capital markets. 

less.  Little  by 

opportunities 

investment 

are 

Graph A6.3: Composition of households' financial 
assets 

Source: Eurostat. End-2024. 

is 

the 

in  Latvia 

The  primary  mechanism  for  active  retail 
investors 
investment 
account. It allows users to defer personal income 
tax  on  investment  income  and  capital  gains  until 
the funds are withdrawn. Tax is only paid when the 
total  withdrawals  from  the  account  exceed  the 
total  contributions.  Starting  in  2025,  the  tax  rate 
on  capital  gains  and  investment  income  for 
individuals has been increased to 25.5%, up from 

households' financial assets during the last year was made 
up by funds invested in business activity (e.g. the equity 
capital of limited liability companies and individual 
merchants). 

57 

0200400050100LVEULVEUper capita (000 EUR) (lhs)% of GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
   
 
accumulated 
liquid  assets 
large  amounts  of 
(liquidity coverage ratio amounted to 256% in Q3-
2025).  This  is  partly  due  to  moderate  lending 
growth. 

The  financial  cycle  in  Latvia  tightened  in 
2023 but has picked up vigorously since then. 
With interest rates decreasing gradually, activity in 
domestic  lending  has increased  substantially  over 
2024  and  2025  with  lending  growth  outpacing 
GDP  growth  in  those  two  years,  across  both 
shorter and longer maturities. For households, the 
annual  credit  growth  rate  for  adjusted  loans  has 
gradually edged up from 2.9% in December 2023 
to  9.7%  in  November  2025.  For  NFCs,  annual 
credit  growth  recovered  from  -3.4%  in  November 
2023  to  reach  17.9%  in  August  2025.  The  state 
guarantee  programme  for  housing  purchases  and 
construction  continues  to  provide  a  significant 
boost  to  housing  lending.  After  a  decline  in 
previous years, its role in the growth of new loans 
increased again over 2025, with the share of loans 
issued  under  the  programme  exceeding  40%. 
Despite  rapid  growth  in  the  past  years,  the 
outstanding  amount  of  overall  loans  is  still  low: 
the bank loan-to-GDP ratio remains at a very low 
level,  at  30.3%  of  GDP  in  Q3-2025,  while  the 
corresponding ratio for the EU is 72.9%. 

refinancing. 

simplify  mortgage 

Interest  rates  on  loans  in  Latvia  may  have 
decreased  recently,  but  they  are  still  among 
the  highest  in  the  euro  area.  Interest  rate 
spreads  have  been  decreasing  for  mortgages,  in 
part  as  a  result  of  amendments  to  a  number  of 
laws and regulations that came into force in 2024 
These 
to 
amendments  have  ensured  competition  between 
lenders in favour of homeowners. The interest rate 
spread  for  NFC  lending  has  not  changed  much  in 
recent  years.  Despite  the  positive  dynamics, 
lending  levels  in  Latvia  still  lag  behind most  euro 
area  countries,  underscoring  the  potential  benefit 
of  additional  measures 
to  support  financial 
intermediation  and  improve  financing  availability 
across  all  sectors  of  the  economy.  For  example, 
Latvia’s  central  bank,  in  collaboration  with  the 
Ministry  of  Finance,  has  drafted  a  regulatory 
proposal to limit early repayment fees in order to 
promote 
increase 
borrower  mobility 
competition in the corporate lending market.  

and 

20%  previously.  Key  instruments  used  by  retail 
investors  include  local  and  international  stocks, 
ETFs,  government  bonds,  and  P2P 
lending 
platforms.  To  encourage  savings,  the  Latvian 
government  allows  residents  to  recover  25.5%  of 
their personal income tax on contributions to third-
pillar  pension  plans  and  life  insurance  savings 
instruments (up to 10% of gross salary capped at 
EUR 4 000 per year). 

Latvia 
improve 
is  actively  working  to 
national financial literacy through the 2021-
2027 national strategy for financial literacy. 
It is led by the Latvian central bank and supported 
by  partners  like  the  Financial  and  Capital  Market 
Commission  and  Finance  Latvia.  Initiatives  in  this 
area  aim  primarily  to:  (i)  develop  digital  tools;  (ii) 
educate  the  public  on  financial  security  and  the 
second  pension  pillar;  and  (iii)  reduce  fraud.  The 
level  of  financial  literacy  in  Latvia  is  somewhat 
below  the  EU  average.  The  2023  Eurobarometer 
survey  showed  that  20% of  Latvians  have  a  high 
level  of  financial  literacy,  55%  a  medium  level, 
and the remaining 25% a low level. 

The banking sector: resilience and 
financing of the economy 

Most  performance  indicators  of  the  Latvian 
banking sector place it as among the best in 
the  EU,  so  its  lending  capacity  is  not  in  any 
way  constrained.  The  sector’s  resilience 
is 
bolstered  by  strong  capitalisation  and  asset-
quality  metrics,  with  a  capital  adequacy  ratio  of 
24.4% at the end of Q3-2025, well above the EU 
average  of  20.2%  (see  Table  A6.2).  The  core 
equity tier 1 capital ratio increased from 20.5% in 
2023  to  22.5  %  in  Q3-2025,  significantly  above 
the  EU  average  of  16.8%.  The  profitability  of 
credit  institutions  is  high.  The  return-on-equity 
ratio as of end Q3-2025 stood at 14.9%, vs an EU 
average  of  9.6%.  With  an  aggregate  non-
performing  loan  ratio  of  1.2%  in  Q3-2025,  below 
the  EU  average  of  1.9%,  credit  quality  has 
improved  significantly  over  the  past  decade.  The 
loan-to-deposit ratio is low (80.4% in Q3-2025 vs 
93.2%  for  the  EU)  as  domestic  deposits  exceed 
issued  loans.  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.  Banks  have 

58 

 
and reduce the financial burden on the public 
pension  system  in  the  future.  Thanks  to 
mandatory  participation  in  the  pillar  2  pension 
scheme,  contributions  and  pension  fund  assets 
have  been  growing.  Increasing  payments  to  the 
mandatory  second  pension  pillar  could  further 
improve  pension  adequacy.  While  employers  may 
contribute  to  their  employees’  pillar  3  pension 
schemes, in practice, this option is not widely used. 
The government could promote greater enrolment 
in pillar 3 to businesses that offer pillar 3 to their 
employees.  

Strengthening  insurance  markets  could  help 
deepen  Latvia’s  capital  markets.  According  to 
the  Capital  Markets  Union  dashboard,  insurance 
corporations’ investment in equity (directly and via 
investment  funds)  amounted  to  22.4%  of  total 
assets  (three-year  moving  average  for  2021-
2024). 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  with  other  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  Latvian 
start-ups  and  venture  capital  decreased 
considerably  over  2024  compared  with  prior 
years.  The  reason  for  this  is  likely  that  venture 
capital  funds have been focusing on earlier stage 
investing,  where  pension  fund  activity  and  ‘equity 
tickets’  (the  amount  of  money  invested  by  a 
private  equity  or  venture  capital  firm 
in  a 
company)  provided  are  smaller.  Recent  market 
overview  data  for  2024  show  that  pension  funds 
in  Latvia  accounted  on  average  for  15.5%  of 
private  equity  and  venture  capital  funds  raised,  a 
figure  that  is  in  line  with  that  of  the  other  Baltic 
states. Providing a wider range of financial market 
instruments  traded  on  the  capital  markets  could 
diversify 
investment 
portfolio  and  render  its  role  in  the  country’s 
funding chain more significant. 

the  pension 

industry’s 

Role of non-bank financial 
intermediaries 

The  role  of  the  non-bank  financial  sector  in 
the  Latvian  financial  sector  and  the  Latvian 
economy  more  broadly  is  still  considerably 
less  significant  than  it  is  in  other  euro  area 
countries. This is primarily due to the population’s 
low level of long-term savings and the low level of 
financial literacy in the country. The total assets of 
insurance  corporations  as  a  percentage  of  GDP 
amounted  to  4.1%  at  the  end  of  Q3-2025  (vs 
53.9%  in  the  EU  on  average).  Data  show  that  at 
the end of Q2-2025, Latvia’s pension savings in all 
types of pension products (equivalent to 24.3% of 
GDP)  exceeded  Lithuania's  (12.2.%)  and  also  – 
slightly  –  Estonia’s  (18%).  Latvia’s  public  pension 
scheme  offers  low  replacement  rates  (a  measure 
replaces  an 
of  how  much  pension 
individual’s  income  when  they  were  working). 
Participation in the funded second and third pillars 
is thus key to achieving a comfortable retirement. 
Participation  rates  in  Latvia’s  voluntary  personal 
scheme  reached  29.7%  of  the  total  working 
population, very close to the EU average (147). 

income 

Pension  funds  have  contributed  to  the 
development of the Latvian capital markets, 
but  their  domestic  investment  and  returns 
remain low. Previously, there were constraints on 
the  amount  of  assets  that  a  pension  fund  was 
permitted to invest in equities. As a result of this, 
most  assets  were  invested  in  relatively  low-
yielding,  short-term  government  bonds  and  term 
deposits.  Currently,  about  half  of  Latvian  pension 
assets are invested in (relatively low-yielding) bills 
and  bonds,  pointing  at  a  conservative  bias  and  a 
the 
preference 
shallowness  of  the  local  corporate  bond  market. 
Moreover,  second-pillar  pension  management 
companies are not allowed to invest directly in real 
estate  and  face  concentration  limits  on  single 
issuer equity and debt instruments (148).  

foreign  bonds,  given 

for 

The  Latvian  multi-pillar  pension  system  is  a 
well-designed  model  that  could  be  further 
enforced  to  guarantee  adequate  pensions 

(147) OECD (2025), Pensions at a Glance 2025. 

(148) OECD (2025), Annual Survey of Investment Regulation of 

Pension Providers.  

59 

 
 
 
Venture capital ecosystem 

sector 

capital 

venture 

Latvia’s 
still 
significantly lags behind the EU average. Over 
the  last  decade,  the  private  equity  and  venture 
capital sector has played a key role in diversifying 
corporate  financing.  In  2024,  however,  Latvian 
start-ups  raised  approximately  EUR  39 million, 
significantly  less  than  in  2023  (149).  According  to 
the  Capital  Markets  Union  dashboard,  Latvia 
significantly lags behind the EU in this area, as its 
venture  capital  investments  relative  to  GDP  were 
equivalent to only 0.03% on average annually over 
the  period  2022-2024  (vs  an  EU  average  of 
0.058%).  Equally,  the  country  significantly  lags 
behind  in  terms  of  private  equity  investments 
(including venture capital) relative to GDP (0.119% 
of GDP per year on average over 2022-2024 vs an 
In  addition,  most 
EU  average  of  0.487%). 
investments  are  made  at  the  earlier  stages  while 
funding  at 
is 
perceived as a barrier to scaling up innovation (150) 
(see  Annex  4).  However,  Latvia  is  an  outlier  in 
terms  of  making  use  of  crowdfunding  platforms. 
These  platforms  have  the  equivalent  of  0.7%  of 
GDP  in  investment  according  to  the  latest  data 
available (EU average 0.1%).  

is  scarce,  which 

later  stages 

Latvian venture capital funding still depends 
largely on public co-funding, as it does in the 
other  Baltic  countries.  This  co-funding  takes 
place  through  co-investments  from  the  state 
budget,  EU  funds, 
the  European  Bank  for 
Reconstruction  and  Development,  the  European 
Investment  Fund,  pension  funds,  and  private 
investment  funds.  Government  agencies  remain  a 
key  funding  source  for  local  fund  managers,  with 
the  proportion  of  government-sourced  capital 
around a third, comparable with that of the other 
Baltic  countries  (151).  There  is  also  high  level  of 
cross-border  activity  in  the  private  equity  and 
venture  capital  industry,  where  fund  managers 
operate across the Baltic countries. 

(149) KPMG, LTVC, LVCA, ESTVCA (2025), Baltic Private Equity and 

Venture Capital Market Overview 2024. 

(150) OECD (2021), Innovation Diffusion in Latvia. 

(151) In 2024, government funding still accounted for 31% of 
capital raised, an increase from 23% in 2019. See KPMG, 
LTVC, LVCA, ESTVCA (2025), Baltic Private Equity and 
Venture Capital Market Overview 2024. 

60 

 
 
 
Table A6.2:  Financial sector indicators 

Annualised data. Credit growth and the ECB pension funds EU data refer to the EA average. 
Private equity and venture capital, % of GDP is calculated as a three-year moving average. 
Source: ECB, ESTAT, OECD, CMU Dashboard, AMECO. 

61 

20182019202020212022202320242025-Q3EUTotal assets of MFIs, % of GDP81.076.882.476.874.970.574.171.2246.1Common equity Tier 1 ratio20.322.025.729.223.620.521.922.516.8Total capital adequacy ratio22.323.426.829.724.121.623.724.420.2Overall NPL ratio, % of all loans5.33.94.62.11.41.31.31.21.9NPL ratio, loans to NFCs9.17.35.93.12.62.01.91.73.5NPL ratio, loans to HHs5.24.23.71.30.80.90.90.92.1Return on equity ratio19.29.65.24.510.220.317.614.99.6Loans to NFCs, % of GDP19.818.317.115.415.113.613.914.829.3Loans to HHs, % of GDP17.616.917.116.715.614.615.215.543.6NFC credit growth rate, %3.9-0.8-1.0-0.810.0-1.55.815.42.5HH credit growth rate, %0.81.30.56.33.82.96.29.42.6Stock market capitalisation, % of GDP2.72.83.33.12.11.90.80.869.9Initial public offerings, % of GDP0.000.000.000.380.120.060.00-0.06Market funding ratio13.715.616.521.120.721.220.6-49.7Private equity, % of GDP0.2680.2450.0500.0620.0930.0950.119-0.487Venture capital, % of GDP0.0160.0110.0150.0220.0230.0200.010-0.064Financial literacy, composite index-----36.0--45.5Bonds, % of HHs' financial assets0.90.90.80.60.61.01.2-2.8Listed shares, % of HHs' financial assets0.70.71.01.41.11.21.3-4.8Investment funds, % of HHs' financial assets1.11.21.11.41.21.21.6-11.0Insurance/pension funds, % of HHs' financial assets18.221.822.122.620.122.424.5-27.8Total assets of insurers, % of GDP2.94.85.14.73.93.94.24.153.9Pension assets, bn EUR---6.76.47.99.8-5813.8Pension assets, % of GDP---20.917.620.024.3-32.310y real return average of pension assets, %------1.5-1.1-1.4Pension funds assets, ECB (% of GDP)-17.219.520.917.719.924.225.223.01-34-1011-1718-2425-27Colours indicate performance ranking among the 27 EU Member States.Banking sectorNon-banking sector 
 
 
     
 
ANNEX 7: EFFECTIVE INSTITUTIONAL FRAMEWORK 

trust  built  on 

institutional  framework 

An  effective 
is 
essential  for  competitiveness.  This  requires 
public 
integrity,  high-quality 
legislation,  regulatory  simplification  and  efficient 
services for people and businesses. For Latvia, the 
2025  country  specific  recommendations  (CSRs) 
highlighted  challenges  in  simplifying  regulation, 
improving 
reducing 
administrative  burden.  Accordingly,  Latvia  has 
drawn up a bureaucracy-reduction plan. 

regulatory 

tools 

and 

Public trust 

Graph A7.1: Trust in the justice system, regional / 
local authorities and in government 

EU-27 since 2019; EU-28 before. 
Source: European Commission, Standard Eurobarometer 
surveys 

the 

Public  trust  in  government  in  Latvia  fell 
slightly,  remaining  below  the  EU  average 
justice  system 
in 
(Graph  A7.1).  Trust 
fluctuates  around  the  EU  average,  while  trust  in 
regional  and 
rose  slightly, 
local  authorities 
reaching 
the  EU  average.  Although  both 
retain 
businesses 
confidence in the ability of public administration to 
handle  their  data  securely  and  responsibly,  these 
figures  are  slightly  below  the  EU  average  (79% 
and 72% respectively) (152). Overall perceptions on 
the quality of public administration have improved 
since 2023 (153) - the proportion of people finding 
complex  and 
public  administration 

(75%)  and  people 

to  be 

(69%) 

(152) European Commission (2025), Flash Eurobarometer 557 on 

businesses attitudes towards corruption in the EU. 

(153) European Commission (2023), Flash Eurobarometer 526: 

Understanding Europeans’ views on reform needs. 

62 

burdensome decreased from 30% in 2023 to 24% 
in 2025 (154). 

Quality of lawmaking and 
implementation 

costs 

(155)  and 

Latvia’s  rules  on  lawmaking  demonstrate 
partial  alignment  with 
selected  best 
practices  in  reducing  the  regulatory  burden 
and ensuring effective implementation (Table 
A7.1).  There  has  been  progress  in  reducing 
administrative  burden 
for 
businesses, to comply with the 2025 CSR (156) (see 
Annex 5). However, regulatory impact assessments 
could improve as regards estimating financial and 
administrative  costs.  The impact  of  some  primary 
and  secondary  legislation  is  also  assessed  in  the 
areas  of  competition,  small  and  medium-sized 
businesses, certain social groups and regions. The 
monitoring  of 
is 
hampered by the absence of a formal requirement 
to measure progress in achieving the objectives of 
the legislation and to assess compliance with it. Ex 
post  evaluations  have  a  limited  scope,  but  recent 
reforms  have  introduced  guidance  to  perform  ex-
post  evaluations  that  will  lead  to  strengthening 
evidence-based  policymaking  (157).  Nevertheless, 
oversight  is  hindered  by  the  lack  of  an  external 
body  to  review  ex  post  evaluations.  The  State 
Chancellery  has  conducted  three  pilot  ex  post 
assessments of legal acts (158) to develop national 
standards and know-how. The assessment of three 
additional legal acts is expected to be finalized by 
mid-year  while  the  assessment  of  two  additional 
legal acts will start this year. 

implementation 

legislative 

(154) European Commission (2026), Flash Eurobarometer 567 
and Flash Eurobarometer 568 on satisfaction with 
administrative services. 

(155) European Commission (2025), Single Market and 

Competitiveness Scoreboard. 

(156) 2025 country-specific recommendation: “Simplify regulation, 
improve regulatory tools and reduce administrative burden 
on companies.” 

(157) Technical Support Instrument, 2022 project: Building 

capacity for evidence‑informed policymaking in Latvia. 

(158) Residential Tenancy Law (in force since 2021); Law on the 

Reduction of Consumption of Products Containing Plastic (in 
force since 2021); Whistleblowing Law (in force since 2022). 
Pilots conducted by outsourced experts, coordinated by the 
State Chancellery in cooperation with the responsible 
ministries.  

00.10.20.30.40.50.60.70.80.9AutumnSpringAutumnSpringSpringAutumnWinterSummerWinterSpringWinterSummerAutumnSpringAutumnSpringAutumnSpring202520242023202220212020201920182017Justice,  legal system EU-27Justice,  legal system LVRegional or local public authorities EU-27Regional or local public authorities LVGovernment  EU-27Government  LV 
 
       
 
 
 
 
Table A7.1:  Latvia. Selected indicators on better regulation practices for primary legislation 

Source: OECD (2025), Regulatory Policy Outlook 2025 [https://doi.org/10.1787/56b60e39-en] and Better Regulation across the 
European Union 2025 

Regulators  are  required  to  take  account  of 
consultation  comments  and  respond  online  for 
new  primary  and  secondary 
legislation.  Such 
comments  are  reproduced 
in  the  Regulatory 
Impact Analysis, ensuring transparency on how the 
consultations  were  reflected  in  the  legislative 
proposal.  

Public service delivery and 
digitalisation  

For  businesses,  the  biggest  challenges  are 
the  time 
it  takes  to  process  business 
operations,  wait  for  responses,  and  collect 
and  prepare  documents  and  data  (Graph 
A7.2).  Latvian  companies  are  more  likely  to 
encounter  these  issues  than  their  counterparts 
elsewhere  in  the  EU.  Challenges  in  administrative 
services lead to delays in business operations less 
frequently  than  the  EU  average  (Latvia  23%;  EU 
increased 
36%)  with  only  15% 
operational  costs  (EU:  30%),  which  suggests  that 
interaction  with  administration  is  positive.  People 
find  it  easier  than  businesses  to  use  public-
administration  services  while  abroad  in  the  EU. 
Both  people  and  businesses  find  it  important  for 
public-administration  services  to  be  fast  and 
accessible  through  different  channels,  and  for 
information to be transparent and clear. 

reporting 

Graph A7.2: Most time-consuming aspects of 
service delivery 

Source: European Commission (2026), Flash Eurobarometer 
567 / 568 on satisfaction with administrative services. 

The  availability  of  digital  public  services  to 
people  surpasses  the  EU  level.  The  proportion 
of  e-government  users  went  up  in  2025,  staying 
above the EU average (Latvia 84%; EU 76%) (159). 
the  preferred 
However,  when  asked  about 
communication  channels  people  tend  to  prefer 
email  and  telephone,  with 
interest  in  online 
services below the EU average. 50% of people find 
that their interactions with administrative services 
could  improve  with  clearer  information  about 
procedures  and  services,  specifically  digital 
services.  There  appears  to  be  a  lack  of  simplicity 
and clarity in digital services, as evidenced by the 
large  proportions  of  people  requesting  step-by-
step  guidance  (60%),  user-friendly  design  (50%) 
and  the  possibility  of  obtaining  quick  help  (49%) 

(159) European Commission (2025), Digital Decade: eGovernment 

Benchmark. 

63 

0%10%20%30%40%50%Time forresponsesApplicationformsDocumentspreparationDocumentspreparationTime forresponsesApplicationformsPeopleBusinessesEUTools for smart legislation: Share of possible impacts assessed for all primary laws when developing legislation 0Regulators are required to identify and quantify the benefits of a new primary law0Regulators are required to identify and assess the impacts of alternative non-regulatory options1Tools for effective implementation: when developing laws, regulators are required to:Assess the level of compliance0Identify and assess potential enforcement mechanisms0Specify the methodology of measuring progress in achieving the law's goals0Oversight of better regulation: There is an external  body responsible for reviewing the quality of RIAs and of ex post evacuations 1There are publicly available assessments of the effectiveness of RIA in modifying regulatory proposals 1There are reports on the level of compliance by government department with the requirements of RIA1There are indicators on the percentage of ex post evaluations that comply with guidelines0The effectiveness of ex post evaluations in improving the regulatory stock has been assessed in the last five years0 
   
 
 
     
 
Table A7.2:  Digital Decade key performance indicators: availability of digital public services 

(1) Digital Decade target by 2030: 100. (2) Publishing year, data was collected in the previous year 
Source: European Commission, State of the Digital Decade report 2025 

(160).  In  terms  of  the  technical  deployment  of 
electronic  health  records,  Latvia  is  slightly  above 
the EU average, at 86% (161) (see Annex 15). Latvia 
could build on its strong e-government foundation 
to deploy AI-driven tools that support public sector 
reform and enable broader AI adoption. 

Latvia  has  put  in  place  a  comprehensive 
framework  for  state  electronic  identity  and 
qualified electronic signature (eID, eParaksts 
and  eParaksts  Mobile).  This  enables  secure 
authentication  and 
legally  binding  electronic 
transactions  across  the  public  administration  and 
the  private  sector.  This  infrastructure  is  a  key 
enabler of the once-only principle and supports the 
EU  Digital  Decade  objectives  on  digital  public 
services and digital identity (162). In 2024, Latvians 
used  electronic  identification  tools  to  verify  their 
eID more than 22.4 million times, 60% more than 
in  2023,  while  secure  identity  tools  became 
available  in  another  600  portals  and  information 
systems  (163).  Latvia  also  increased  access  to  its 
services for people and companies from other EU 
countries:  in  the  case  of  businesses,  it  went  from 
74%  to  92%  and  for  people  from  86%  to  90% 
(the  EU  averages  are  74%  and  71%  respectively) 
(164).  Latvia  could  introduce  the  European  Digital 
Identity  Wallet 
fragmented 
identification and access challenges by providing a 
secure,  unified,  and  cross  border  usable  digital 

address 

to 

(160) European Commission (2026), Flash Eurobarometer 567 
and Flash Eurobarometer 568 on satisfaction with 
administrative services. 

(161) European Commission (2025), Digital Decade: eGovernment 

Benchmark. 

(162) Information provided during the European Semester mission 

to Latvia, January 2026. 

(163) European Commission (forthcoming), Simplification of key 

life events. 

(164) European Commission (2025), Digital Decade: DESI 

indicators. 

64 

identity,  while  at  the  same  time  modernising  the 
existing e-identification infrastructure. 

Latvia  has  made  great  progress  in  the 
availability  of  digital  public  services  for 
businesses  (Table  A7.2)  (165).  However,  only 
68%  of  Latvian  businesses  report  regular  use  of 
digital public administration services, even though 
a  large  proportion  of  businesses  (79%)  say  that 
digital  services  save  time  and  effort  (EU:  73%). 
This  seems  to  be  consistent  with  the  fact  that 
businesses 
with 
government institutions  by  email  (Latvia  79%;  EU 
71%) and telephone (Latvia 62%; EU 58%) rather 
than using online services (Latvia 57%; EU 70%).  

communicating 

prefer 

One  of  the  key  online  services  regarding 
companies is the Latvian Enterprise Register. 
This  platform  enables  users  to  i)  register  new 
businesses  online,  ii)  access  company  data,  iii) 
access  annual  reports  submitted  to  the  State 
Revenue  Service,  iv)  update  company  information 
and v) manage business-related legal processes. It 
offers  a  streamlined  and  efficient  set  of  services 
that simplify the process of setting up and running 
a  business.  As  of  October  2025,  there  were 
183 191  active 
companies  and  merchants 
registered in Latvia (166). In relation to 2025 CSRs, 
the  government  set  up  a  fast-track  mechanism 
(the Green Corridor) (167) for companies investing in 
priority  sectors.  A  combined  electronic-reporting 
format  was  introduced  for  requesting information 
requests  from  the  Central  Statistical  Bureau 

(165) European Commission (2025), Digital Decade: eGovernment 

Benchmark. 

(166) European Commission (forthcoming), Simplification of key 

life events. 

(167) Investment and Development Agency of Latvia, The Green 
Corridor initiative. Indicative services offered: Permits and 
licences, construction and environmental procedures, 
registration, approvals and opinions from state or municipal 
bodies. 

EU-272023202420252025878893828687968679858683Digital public services for citizens (0 to 100)Digital public services for businesses (0 to 100)Access to electronic health records (0 to 100)Latvia 
 
 
 
  
 
(Valsts 

(Centrālā  statistikas  pārvalde)  and  the  State 
ieņēmumu  dienests), 
Revenue  Service 
which  eliminates  duplicate  data  submissions.  This 
is  estimated  to  have  led  to  a  net  reduction  of 
approximately  42 384  reporting  obligations  per 
year for 3 900 companies (168). 

Latvia  has  made  progress  with 
the 
digitalisation of permitting processes. Latvia's 
building information system is an extensive digital 
platform  for  construction  permitting.  It  covers  all 
construction  permit  processes  and  mandates 
exclusively  electronic  format  submissions.  The 
integration with several state information systems 
such  as  the  land  and  enterprise  register  and  the 
automatic data exchange means that the platform 
can  cover  applications,  permits,  inspections  and 
commissioning.  

for 

relaxed 

building 

January  2026, 

documentation 
In 
2025, 
small 
requirements  were 
structures. A unified building registration process, 
creates  a 
effective 
from 
streamlined  one-stop  shop 
for  construction 
applications.  Other  processes  are  available, 
including  i)  submissions  for  Environmental  Impact 
Assessments,  ii)  permitting  for  polluting  activities, 
iii)  producer-responsibility  registrations  and  iv) 
waste-management reporting. There are also new 
e-services for deposit packaging management. 

of 

data 

exchange 

Latvia  is  technically  ready  to  enable  the 
cross-border 
and 
documents  between  authorities  through  the 
EU  once-only  technical  system  (OOTS)  (169). 
When  services  (170)  become  accessible,  the  public 
and  businesses  will  no  longer  have  to  search  for 
their  data,  download  and  upload  documents 
manually across e-government portals in different 
Member  States.  Latvia  has  yet  to  identify  the 
types of documents and data to exchange through 
the  system  and  explore  ways  to  shift  from  the 
submission  of  documents 
to  exchange  of 
structured data. 

(168) Information provided during the European Semester mission 

to Latvia, January 2026. 

(169) European Commission, Once-Only Technical System 

Acceleratormeter. 

(170) Procedure types under Annex II of the 

SDGR (2018/1724/EU) and directives 2005/36/EC, 
2006/123/EC, 2014/24/EU and 2014/25/EU. 

Civil service 

Latvia  has  one  of  youngest  civil  service 
workforces  in  the  EU.  The  proportion  of  civil 
servants  of  25-49  years  old  to  50-65  years  old 
decreases  gradually  (171).  Despite  having  one  of 
the  highest  proportions  of  staff  with  higher 
education in the EU, this is also decreasing (172). In 
2025,  the  proportion  of  women  in  senior  civil-
service  posts  decreased  to  54%  in  2025  but 
remains above the EU-27 average of 48% (173). 

In  2025,  Latvia  continued  to  implement  the 
2023-2027 Modernisation Plan (174). This plan 
covers  i)  the  public-administration  salary  reform, 
ii) improving pay competitiveness, iii) transparency 
and  alignment  between 
responsibilities  and 
salaries  and  iv)  supporting  moves  to  retain  and 
attract  staff  in  critical  functions.  This  aligns  with 
Latvian  employees  stating  that  the  main  reasons 
for  wanting  to  leave  government  institutions  are 
the pay and unmanageable workload (175).  

and 

performance- 

The  State  Chancellery  also  worked  on 
reinforcing 
results-
oriented  management,  including  leadership 
development  and  internal  mobility,  building 
on  the  progress  made  in  2024  (176).  Activities 
undertaken  in  2025  further  strengthened  digital, 
including 
analytical  and  policy-design  skills, 
targeted  training  courses  for  senior  and  middle 
management,  with  a  focus  on  evidence-based 
policymaking  (177)  and  delivery  of  reforms.  The 
innovation  laboratory  of  the  State  Chancellery 
strengthens  public  representation 
in  decision-
‘design  sprints’  are  held 
making  processes: 

(171) Eurostat. 

(172) Ibid. 

(173) European Institute for Gender Equality (2025), Gender 

Statistics Database. 

(174) The Public Administration Modernization Plan 2023-2027. 

(175) Technical Support Instrument project: Workforce Insights 

from Central Governments: Findings of the 2024 OECD/EU 
Survey of Public Servants. 

(176) European Commisison (2024), EU Public Administration 

Country Knowledge, Latvia Country Brief. 

(177) OECD (2024), Building capacity for evidence-informed 

policymaking in Latvia. 

65 

 
 
 
regularly to  find  collaborative  solutions  to  current 
problems in society (178).  

Latvia  has  developed  a  Data  Dissemination 
and  Governance  Platform  (DAGR)  to  foster 
centralised  data  governance  and  to  reduce 
the  administrative  and  IT  burden.  It  offers 
standardised metadata, record-level access control 
and  integration  with  EU  solutions  such  as  the 
once-only technical system and eIDAS. It therefore 
provides flexible, interoperable data exchange that 
is  tailored  to  institutions  of  varying  ICT  maturity. 
As  of  December  2025,  there  were  278  published 
data 
(including 
municipalities) and 46 data users (179). The Ministry 
Administration 
of 
Regional 
Smart 
(VARAM)  has  unveiled  a  Data 
Development 
Management  Strategy  2026-2030  (180)  open  for 
public feedback until 15 March 2026. The initiative 
is  set  to  make  public  administration  data-centric; 
cutting red tape, sparking innovation and boosting 
data  access  to 
improve  service  quality  and 
promote digital skills. 

sets,  71 

providers 

data 

and 

face 

challenges  due 

The  Council  of  Europe  (181)  states  that  local 
governments 
to 
insufficient financial resources to cover new 
responsibilities, complex oversight by various 
bodies  and  unclear  power  distribution 
between  local  and  state  levels,  causing 
overlaps.  After  the  post-2021  consolidation  of 
municipalities, uneven administrative capacity and 
inconsistent  service  quality  remain 
important 
challenges  (see  Annex  18).  Reform  priorities 
include enhancing municipal capacity to boost the 
efficiency  and  quality  of  services,  with  a  view  to 
supporting  the  successful  implementation  of  the 
Latvian  RRP  and  the  national  energy  and  climate 
plan.  Ongoing  efforts  to  improve  the  municipal 
financial  equalisation  system  aim  to  ensure  that 
municipalities  have  the  resources  necessary  to 
better perform their functions. 

(178) See inovacija.mk.gov.lv and Latvia's Sixth National Open 
Government Action Plan 2026-2027 (under preparation). 

(179) Ministry of Smart Administration and Regional Development 
(2025), Department of Public Services and Data Governance, 
presentation of DAGR. 

(180) Ministry of Smart Administration and Regional Development 

With  Commission  support,  the  VARAM  is 
developing  a  data  tool  for  Latvian  local 
governments  (182). It aims to optimise resources 
and  decision-making  in  education,  social  security 
indicators  to 
and  sustainability  featuring  97 
inform Latvia's planning. 

Integrity  

The  perception  of  corruption  when  doing 
business  in  Latvia  is  below  the  EU  average 
and  there  have  been  few  reports  of  actual 
corruption  experienced.  Although  perceptions 
are  broadly  in  line  with  the  EU,  concerns  about 
political  influence  stand  out:  66%  of  companies 
view  corruption  as  widespread  (EU:  63%)  and 
according  to  82%  overly  close  links  between 
business and politics lead to corruption (EU: 76%). 
Yet  only  25%  see  corruption  as  a  problem  when 
doing  business  (EU:  35%)  (183),  suggesting  that 
these concerns are largely  a matter of perception 
rather  than  a  day-to-day  obstacle  for  firms. 
Sectors  particularly  vulnerable  to  corruption  in 
Latvia  are 
renewable  energy,  building  and 
municipal public procurement (see Annex 5) (184). 

At  the  same  time,  reported  exposure  to 
bribery  requests  is  very  low.  Only  2%  of 
companies  said  they  had  been  asked  or  expected 
to offer gifts, favours or extra money for permits, 
services  or  procurement  (EU:  10%).  However,  a 
smaller  proportion  of  companies  than  the  EU 
average believe that those caught bribing a senior 
official are punished appropriately (Latvia 21%; EU 
33%)  (185),  suggesting  concerns  on  the  perceived 
effectiveness of high-level enforcement. 

Latvia  has  taken  steps  to  improve  the 
prevention  and  detection  of  corruption.  In 
2024,  Latvia  strengthened 
legislation  on 
preventing  conflicts  of  interest  among  public 
officials  and  introduced  an  automatic  system  for 
electronically  checking  asset  declarations.  Strides 

its 

(182) Technical Support Instrument, 2024 project: Enhancing 

Regional Development: Tools for Monitoring and Evaluation. 

(183) European Commission (2025), Flash Eurobarometer 557 on 

businesses attitudes towards corruption in the EU. 

(2026), Data Management Strategy 2026-2030. 

(184) European Commission (2025), Rule of Law Report. 

(181) Council of Europe (2024), Monitoring of the application of 
the European Charter of Local Self Government in Latvia. 

(185) European Commission (2025), Flash Eurobarometer 557 on 

businesses attitudes towards corruption in the EU. 

66 

 
 
 
have  been  made  in  lobbying  transparency  with  a 
temporary lobby register. However, the launch of a 
permanent  system  has  been  postponed  until  1 
September 2028. 

Latvia  carries  out  the  prosecution  of 
corruption  efficiently.  Corruption  cases  are 
efficiently  investigated  and  sent  for  prosecution. 
While  10  cases  of  high-level  corruption  were 
prosecuted and at least 2 were concluded in 2024, 
these  procedures  seem  more  challenging  and 
time-consuming 
less 
complex  corruption  cases.  In  2024,  the  European 
Public  Prosecutor’s  Office  did  not  report  any 
corruption-related investigations in Latvia (186). 

relating 

those 

than 

to 

Justice 

The justice system remains efficient. The time 
taken  to  reach  a  decision  in  civil  and  commercial 
cases  in  first-instance  courts  increased  from  204 
days in 2023 to 244 in 2024. The estimated time 
taken  to  resolve  administrative  cases  in  first-
instance  courts  increased  slightly  from  205  days 
in  2023  to  210  days  in  2024.  The  quality  of  the 
justice system is high. Latvia has one of the most 
digitally advanced justice systems in the EU, which 
performs  very  well  in  digital  solutions  to  initiate 
and  follow  proceedings  in  civil/commercial  and 
administrative  cases.  It  also  provides  the  public 
with  online  access  to  published  judgments,  and 
arrangements are in place for producing machine-
readable judicial decisions (187). 

(186) European Public Prosecutor’s Office (2025), Annual Report 

2024. 

(187) For a more detailed analysis of the performance of the 

justice system in Latvia, see the upcoming 2026 EU Justice 
Scoreboard and the 2025 Rule of Law Report, link. 

67 

 
 
SUSTAINABILITY 
ANNEX 8: INDUSTRY DECARBONISATION, CIRCULARITY AND CLIMATE MITIGATION 

in 

Latvia is advancing with reducing greenhouse 
gas  (GHG)  emissions  from  industry  and  the 
effort  sharing  sectors  but  continues  to  face 
challenges  in  decarbonising  road  transport 
and  transitioning  to  a  circular  economy. 
Latvia 
its 
is  actively  reducing  emissions 
manufacturing  sector,  including  through  carbon 
capture 
initiatives,  which  are  supported  by 
legislative  changes  and  market-based  incentives 
funded by EU emissions trading system revenues. 
It  is  on  track  to  reach  its  2030  effort  sharing 
target and has also seen significant GHG emission 
reductions in the industrial sector. Latvia is taking 
steps towards decarbonising transport, but further 
investment  is  needed  in  heavy-duty  vehicles  in 
particular.  Despite  the  launch  of  some  good 
initiatives,  the  transition  to  a  circular  economy  is 
slow  and  Latvia’s  resource  productivity  is  roughly 
half the EU average. For Latvia, the 2025 country-
specific  recommendations  highlighted  challenges 
in  the  decarbonisation  of  transport  and  the 
transition to a circular economy. 

Industry decarbonisation 

Latvia’s  manufacturing  sector  accounts  for 
10%  of  the  country’s  total  GHG  emissions, 
following  significant  emission  reductions 
over  the  past  few  years  (188).  Latvia  has  a 
rather  limited  emission-intensive  industrial  sector. 
Emissions  are  dominated  by  a  single  cement 
facility  that  alone  accounts  for  nearly  half  of 
industrial  GHG  emissions.  Overall,  a  significant 
portion  of  Latvian  manufacturing  emissions, 
namely  57%,  come  from  industry  processes  and 
product  use,  compared  with  42%  for  the  EU  as a 
whole (189).  Looking  at  the  trends  between  2019 

(188) This Annex discusses the transition of Latvia's manufacturing 
industry, specifically its energy-intensive industries, to low-
carbon and net-zero modes of production, which is key to 
preserving competitiveness on the path towards climate 
neutrality as mandated by the European Climate Law. A 
broader perspective on the current competitiveness 
challenges facing Latvia's manufacturing industry is provided 
in Annex 5. For a more detailed description of greenhouse 
gas emissions from industry, see European Commission 
(2025), 2025 Country Report: Latvia, Annex A7. 

(189) Data on the manufacturing sector exclude the NACE division 
C19 – manufacture of coke and refined petroleum products, 
for better match of the sectoral data from Eurostat (gross 
value added) with those from the UNFCCC under the 

and  2024,  GHG  emissions  from  manufacturing 
decreased by  18% over the last five years, which 
is more than the EU average of 16%. 

GHG emissions per euro of gross value added 
(GVA)  in  Latvia’s  manufacturing  industries 
stood  at  371 g CO2eq  in  2023.  This  is  slightly 
higher  than  the  EU  average  of  310 g CO2eq. 
However,  the  energy  intensity  of  the  Latvian 
manufacturing industry is among of the highest in 
the  EU,  at  more  than  double  the  EU  average. 
Largely  as  a  result  of  the  prominent  role  of 
biomass  in  the  wood-processing  sector,  most  of 
this energy comes from renewable sources. 

Latvia’s  pathway  to  decarbonising  industry 
aims  to  improve  energy  efficiency,  increase 
the  use  of  renewable  energy  sources  and 
reduce emissions from production processes. 
Its  final  updated  national  energy  and  climate 
plan (190) continues to focus on energy efficiency in 
the industrial  sector. Key energy-saving measures 
further 
set  out 
for 
implementation  of  support  programmes 
enterprises,  changes 
for 
framework 
to 
imposing  obligations  on  major  energy  consumers 
and energy audits. 

the  plan 

include 

the 

the 

in 

The 

Carbon  capture,  utilisation  and  storage 
(CCUS)  is  needed  to  decarbonise  Latvia’s 
cement  production. 
country’s  most 
emission-intensive  cement  production  facility  is 
testing  several  carbon  capture  technologies  and 
future  CCUS 
assessing 
applications. 
took 
legislative  steps  to  facilitate  CCUS  by  amending 
the  laws  on  pollution  and  subterranean  depths  to 
allow  for  permanent  CO2  storage  in  geological 
formations (191). 

their  potential 
In  2025, 

the  government 

for 

In  addition  to  regulatory  measures,  Latvia 
for 
provides  market-based 
industry  decarbonisation.  These  incentives  are 
mainly  provided  through  programmes  as  part  of 

incentives 

Common Reporting Format. See further indicators on industry 
decarbonisation as well as the annotation for further 
information in table A8.1 at the end of this Annex. 

(190) European Commission (2024), Latvia: Final updated NECP 

2021-2030. 

(191) As suggested in the European Commission's assessment of 

Latvia’s final updated energy and climate plan. 

68 

 
 
 
 
 
 
 
emissions 

allowance 

Latvia’s 
auctioning 
instrument,  which  is  funded  by  revenue  from  the 
EU  emissions  trading  system.  Latvia  has  raised 
over  EUR 0.49 billion  in  auction  revenue  since 
2013  (EUR 65 million  in  2024).  Latvia  reported 
that an average of 49% of revenue was used for 
climate  and  energy  purposes  over  the  same 
period (192). 

Reduction of effort sharing emissions 

For  2030,  Latvia is  projected  to  overachieve 
its  effort  sharing  target  (193).  In  2024,  GHG 
emissions from Latvia’s effort sharing sectors are 
expected to have been 5.4% below those of 2005. 
By  2030,  with  current  and  planned  policies  and 
measures, 
to 
decrease  by  18.2%,  resulting  in  a  surplus  of  1.2 
percentage  points  relative  to  the  2030  target  of 
−17%.  Latvia  is  projected not  to exceed its  effort 
sharing  emissions  limits in  any  year in the  2021-
2030 period. 

these  emissions  are  expected 

In  2024,  44%  of  Latvia’s  effort  sharing 
emissions  came  from  road  transport,  with  a 
reduction  of  only  6%  compared  with  2005 
levels (194).  The  transport  sector  is  one  of  the 
largest  contributors  of  GHG  emissions  in  Latvia, 
accounting  for  34.9%  of  total  national  emissions 
(3.7 Mt CO₂eq)  in  2023 (195).  83%  of  that  amount 
came from road transport. Around 92% of Latvia’s 
road transport fleet consists of fossil fuel-powered 
vehicles, making it the primary driver of transport 

(192) European Commission (2025), Climate Action Progress 

Report. 

(193) The national GHG emission reduction target is set out in 

Regulation (EU) 2018/842 (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). The emissions from effort sharing 
sectors for 2024 are based on approximated inventory data. 
The final data will be established in 2027 after a 
comprehensive review. Projections about the impact of 
current policies (‘with existing measures’, WEM) and 
additional policies (‘with additional measures’, WAM) as per 
Latvia’s 2025 reporting under Article 17 of Regulation (EU) 
2018/1999 (the Governance Regulation). Also see European 
Commission (2025), Climate Action Progress Report 2025 – 
Technical Information, Staff Working Document. 

emissions.  Passenger  cars  and  buses  account  for 
travelled (196).  To 
most  passenger-kilometres 
address  the 
issue,  Latvia  has  adopted  the 
Transport  Energy  Law  (in  force  since  January 
2026),  which  (i)  sets  a   GHG  emissions  intensity 
reduction obligation on fuel suppliers, with at least 
16%  emission intensity  reduction  from  renewable 
transport  energy  sources  from  2030  onwards; 
(ii) sets  an  advanced  fuels  shares  obligation  on 
least  5.5%  in  2030; 
fuel  suppliers,  with  at 
(iii) commits 
energy 
expanding 
infrastructure;  and  (iv) commits  to  achieving  a 
cleaner public transport fleet. 

cleaner 

to 

Graph A8.1: Greenhouse gas emissions in the 
effort sharing sectors, 2005, 2023, and 2024 

Source: European Environment Agency 

to 

In  addition, 

Latvia  is  taking  steps  to  accelerate  the 
uptake of electric passenger cars. In 2025, the 
Latvian government provided financial support for 
private  electric  vehicle  (EV)  purchases,  allocating 
approximately 
subsidy 
EUR 11 million 
programmes. 
the  Recovery  and 
Resilience  Facility  (RRF)  is  providing  support  for 
greening the public transport fleet. As a result, new 
EV  registrations  are  increasing,  although  from  a 
relatively low base compared with the EU average. 
Recent  data  show  that  the  EV  fleet  has  grown 
from  0.8%  (2024)  to  1.05%  (2025)  of  the  total 
fleet.  Despite  this  growth,  the  share  of  electric 
vehicles  in  newly  registered  passenger  cars  in 
2025  remains  low,  at  approximately  7.19%  for 
battery EVs and 12.28% for plug-in hybrids (197). 

(194) See Graph A8.1 and Table A8.1 at the end of this Annex. 

(196) Ibid. 

(195) European Commission (2025), EU Transport in figures – 

(197) European Commission (2026), European Alternative Fuels 

Statistical pocketbook 2025. 

Observatory. 

69 

0123456789200520232024MtCO2eDomestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
 
  
 
has 

inhabitants 

infrastructure 

Charging 
expanded 
rapidly. In 2025, the number of light-duty vehicle 
charging  points  doubled  in  comparison  with  the 
previous  year,  but,  at  108  charging  points,  it 
remains  lower  than  the  EU  average  in  both 
absolute  and  per  capital  terms  (EU  average: 
(198)).  Charging 
224 per  100 000 
infrastructure  for  buses  and  coaches  within  the 
insufficient, 
Riga  TEN-T  urban  node  remains 
jeopardising  compliance  with  the  requirement 
under the TEN-T Regulation for all urban nodes to 
be equipped with multimodal passenger hubs with 
charging  infrastructure  for  buses  and  coaches  by 
2030 (199).  The  RRF  also 
includes  ongoing 
investments  in  charging  stations  for  buses  and, 
more  generally,  connection  points  for  charging 
electric vehicles. 

freight 

remaining  11%.  Rail 

The uptake of electric heavy-duty vehicles is 
crucial  to  decarbonise  freight  transport  but 
is  proceeding  slowly.  Road  transport  accounted 
for  89%  of  total  land  freight  volumes  in  the  first 
nine months of 2025, while railways accounted for 
the 
transport 
comprised 6.7 million tonnes, which is 19.8% less 
than  in  the  first  nine  months  of  2024.  This 
decrease  was  driven  mainly  by  a  sharp  reduction 
in  international  rail  freight  as  a  result  of  the 
closure  of  Eastern  markets.  National  rail  freight 
also decreased but to a lesser extent (200). Progress 
with the uptake of electric heavy-duty vehicles has 
been slow. Latvia currently has around 30 electric 
trucks (201), which make up only a very small share 
of  the  commercial  vehicle  fleet.  The  majority  of 
trucks,  including  those  above  3.5 tonnes,  continue 
charging 
to 
infrastructure  –  particularly  high-power  charging 
infrastructure  –  for  heavy-duty  vehicles  remains 
underdeveloped, with only 12 stations dedicated to 
locations (202). 
heavy-duty  vehicles 
Insufficient  availability  of  suitable  charging 

rely  on  diesel. 

Furthermore, 

in  mixed 

(198) Ibid. 

(199) A 2025 strategic node study (Riga Node Operation 

Optimisation Study) identified Riga Central Station as a pre-
identified multimodal transport facility that requires further 
development to improve multimodal connectivity and 
services for passengers, including by integrating charging 
infrastructure for zero-emission buses and coaches. 

(200) Central Statistical Bureau of Latvia (2025), In the 9 months 

of 2025 freight transport by road and air increased. 

(201) European Commission (2026), European Alternative Fuels 

Observatory. 

(202) Ibid. 

infrastructure  risks  becoming  a  major  bottleneck. 
The absence of adequate charging infrastructure is 
discouraging 
trucks, 
constraining  fleet  renewal  by  logistics  operators 
and  undermining  truck  manufacturers’  ability  to 
meet their legally binding EU sales targets. 

the  uptake  of  electric 

Latvia  could  benefit  from  speeding  up  rail 
electrification and the replacement of diesel 
trains  with  battery-electric  and  electric 
traction. Compared with most EU Member States, 
Latvia’s  conventional  rail  network  remains  only 
minimally  electrified.  Electrification  is  currently 
limited mainly  to the Riga area and its commuter 
routes,  which  operate  on  an  older  3.3 kV DC 
system.  As  a  result,  electrified  lines  account  for 
only  around  14%  of  the  total  rail  network,  well 
below  the  EU  average  of  approximately  57%.  To 
address  this  gap,  the  Latvian  national  railway 
company  (Latvijas  Dzelzceļš)  has  launched  a 
national  rail  electrification  programme  aimed  at 
modernising existing infrastructure and expanding 
region.  The 
electrification  beyond 
programme 
in  stages  and 
envisages the use of a 25 kV AC system, which is 
compatible  with  European  standards.  In  addition, 
funding  from  the  RRF  has  been  allocated  to 
electrify  100 km  of  railway  lines  in  the  Riga  and 
Pierīga area by 2026. At present, rail electrification 
in Latvia mainly benefits passenger rail transport, 
which is already around 90% electrified, while rail 
freight  services  continue  to  rely  exclusively  on 
diesel  traction.  This  is  a  missed  opportunity  for 
emission reduction, particularly given the strategic 
role  of  rail  freight  in  the  modal  shift  and  in 
decarbonising transport. 

is  to  take  place 

the  Riga 

Latvia  is  constructing  the  Rail  Baltica  high-
speed  railway  line  to  connect  the  Baltic 
states  to  the  EU  standard-gauge  railway 
network.  This  important  project  has  received 
considerable  EU  funding  under  the  Connecting 
Europe  Facility.  Moreover,  as  part  of  the  Rail 
Baltica  project,  RRF  funding  has  been  granted  for 
the  completion  of  the  southern  part  of  Riga 
Central  Station.  Once  completed,  the  high-speed 
railway line will form a key part of the TEN-T core 
network  corridor  and  multimodal  hub,  bringing 
electrified rail capacity through Latvia and directly 
linking  the  country  to  the  EU  high-speed  rail 
network  by  2030.  The  new  line  is  expected  to 
encourage a modal shift from road and air to rail, 
particularly for medium-distance passenger travel, 
thereby  contributing  to  lower  GHG  emissions.  The 
project  is  also important  for  military mobility  and 

70 

 
 
security  and 

has  a 
resilience  dimension, 
strengthening  strategic  connectivity  within  the  EU 
and  enhancing  the  overall  robustness  of  regional 
transport infrastructure (203). 

Sustainable industry 

Despite notable successes in recycling, Latvia 
faces  significant  challenges  in  its  overall 
transition  to  a  circular  economy,  which 
low 
remains  hindered  by  a  persistently 
circular  material  use  rate,  now  standing  at 
just  half  the  EU  average.  In  2025,  Latvia 
received  a  country-specific  recommendation  to 
increase resource efficiency and the transition to a 
circular  economy  through  eco-innovation  and 
sustainable 
resource  management  practices. 
Latvia outperformed the EU  average of 42.1% by 
recycling  59.2%  of  its  plastic  packaging  in  2023, 
up  from  35.8%  in  2018  (204).  In  terms  of  the 
recycling  rate  for  construction  and  demolition 
waste,  Latvia  also  surpassed  the  EU  average  of 
80%, achieving nearly 87% in 2022. The municipal 
waste  recycling  rate  stood  at  52.7%  in  2024, 
compared  with  the  EU  average  of  48.1%. Despite 
these achievements, Latvia’s circular material use 
rate  in  2024  was  only  half  the  EU  average, 
standing at 6.8%, compared with 12.2% for the EU 
as a whole. This rate has been stagnating and on a 
downward trend since 2016. 

Although  Latvia  has  cut  its  landfill  reliance, 
more  than  30%  of  its  municipal  waste  was 
still being sent to landfill in 2024, well above 
the  EU  average  of  21%.  While  this  marks  a 
decrease  from  a  landfill  rate  of  59%  in  2018, 
Latvia remains at risk of not meeting the EU target 
to limit landfilling to a maximum of 10% by 2035. 
On the positive side, the incineration rate was low 
–  only  6.6%  for  2024,  below  the  EU  average  of 
26.1%.  Latvia  has  also  taken  good  regulatory 
measures to reduce landfilling with a high landfill 

(203) As part of Rail Baltica, Latvia is planning to roll out the 
European Rail Traffic Management System, which is 
essential for interoperability, safety, capacity and cost-
efficiency. Procurement of the control-command and 
signalling subsystem was launched in 2024 and the contract 
is expected to be signed this year. However, the migration of 
the rest of the national network is still in the planning phase, 
without detailed timelines. 

(204) Eurostat. 

tax for municipal waste which stood at EUR 130 in 
2026.  To  ensure  genuine  waste  reduction  and 
prevent  a  mere  shift  from  landfill  to  incineration, 
one  option  is  to  introduce  a  new  tax  of  up  to 
EUR 15  per  tonne  on  waste  designated  for 
incineration,  including  waste  exported  for  that 
purpose (205). 

The  outlook  for  Latvia’s  circular  economy  is 
concerning.  In  2024,  Latvia  generated  EUR 1.58 
per  kg  of  material  consumed,  which  is  just  over 
half the EU average of EUR 3 per kg. Furthermore, 
Latvia’s  import  material  dependency  stands  at 
29%,  which  is  higher  than  the  EU  average  of 
22.4%. 

Implementation  of  the  national  2020  action 
plan  for  transitioning  to  a  circular  economy 
by  2027  is  reaching  its  final  stage,  but 
progress  has  been  limited.  The  2021-2027 
action plan ‘Towards a Circular Economy’ adopted 
in  2020  was  rather  general  and  lacked  concrete 
actions and targets. Latvia took a long time to set 
up a committee to oversee the implementation of 
the plan. Furthermore, there was a 20% decrease 
in  circular  economy  jobs  between  2014  and 
2022 (206), with the sector accounting for 3.6% of 
total  employment  in  2023,  which  was  still  above 
the  EU  average  of  2%.  Nevertheless,  there  have 
been  some  good  initiatives,  such  as  separate 
collection  of  textile  goods  since  2025  and  the 
ongoing  implementation  of  an  e-cigarette  deposit 
system. 

The  bioeconomy  is  growing  in  the  wood 
products  and  furniture,  food  and  beverages, 
and  bio-based 
chemicals  and  plastics 
subsectors.  In  Latvia,  the  average  five-year 
growth  rate  of  the  bioeconomy  value  added 
stands  at  6.5%  since  2018,  which  is  well  above 
the  EU-27  average  of  5.1% (207).  The  wood 
products  and  furniture,  food  and  beverages,  and 
bio-based  chemicals  and  plastics  subsectors 
accounted for 46% of the total bioeconomy value 
added in 2023 and registered the highest average 

(205) European Commission (2026), Greening the European 

Semester – Resource and pollution taxes. 

(206) Eurostat. 

(207) European Commission (2023), Jobs and Wealth in the 

European Union Bioeconomy. 

71 

 
 
 
growth  in  value  added  (5.6%  between  2018  and 
2023) (208). 

Overall  bioeconomy  employment  has  shown 
limited  growth.  Of  the  subsectors,  only  wood 
products  and  furniture  registered  positive  growth 
in  total  employment  between  2018  and  2023 
(1.4%  on  average)  (209).  When  compared  with  the 
the 
national  average, 
bioeconomy  –  measured  as  value  added  per 
person  employed  – 
consistent 
improvement  until  2022  and  subsequently  fell  to 
66.2%  in  2023,  due  to  a  contraction  in  the  value 
added  of  the  wood  products  and  furniture 
subsector (210). 

labour  productivity 

showed  a 

in 

R&D business expenditure from bioeconomy-
relevant  subsectors  has  grown  slightly  less 
than the overall R&D business expenditure. It 
showed  a  16.7%  average  growth  rate  compared 
with  an  average  of  16.9%  between  2018  and 
2023 (211).  Latvia’s  Bioeconomy  Strategy  2030 
adopted  in  December  2017  highlights  innovation 
trends  in  several  domains,  notably  in  biomedical 
(genetics,  molecular  biology,  and 
sciences 
biotechnology)  and  wood  processing  technologies 
(212). 

Air  quality  in  Latvia  is  of  concern  in  some 
parts  of  its  territory,  notably  the  capital. 
Some  1 600  deaths  can  be  attributed  to  air 
pollution  in  the  form  of  fine  particulate  matter 
(PM2.5) and ozone exposure alone (213). The latest 
available  annual  estimates  for  2023  attribute 
8 412  years  of  life  lost  (YLL)  to  fine  particulate 
to  ozone 
matter 
exposure (214).  Environmental  risks  also  weighed 
heavily  on  public  health.  Combined  behavioural 
risks  (i.e.  smoking,  harmful  alcohol  use,  poor  diet 
and  low  physical  activity,  as  described  in  Annex 

(PM2.5)  and  2 300  YLL 

(208) Ibid. 

(209) Ibid. Bioeconomy subsectors: food and beverages; bio-based 
textiles; wood products and furniture; bio-based chemicals 
and plastics. 

(210) European Commission (2023), Jobs and Wealth in the 

European Union Bioeconomy. 

(211) European Commission (2023), Business expenditure on 

Research and Development (R&D) in the EU bioeconomy. 

(212) Latvia's Bioeconomy Strategy 2030 

(213) EEA (2025), Harm to human health from air pollution in 

Europe: burden of disease status. 

15)  and  air  pollution  accounted  for  32%  of  all 
deaths in Latvia in 2021, which was slightly higher 
than  the  EU  average  of  29%,  underscoring  the 
need for stronger and more comprehensive public 
health measures (215). 

transport, 

The  solution  to  air  pollution  can  be  found 
through  a  combination  of  measures.  These 
and 
include sustainable 
agricultural  policies  to  reduce  emissions  of  air 
pollutants,  targeted  urban  and  land-use  planning 
policies,  and  specific  fiscal  actions,  such  as 
removing  environmentally  harmful  subsidies  and 
increasing targeted environmental taxation (216). 

energy 

Water pollution from industry is low and on a 
downward  trend,  except  for  heavy  metal 
releases.  In  2022,  Latvia  had  one  of  the  lowest 
levels  of  pollutant  releases  into  water  in  the  EU. 
They  amounted  to  0.46 kg/EUR 1 billion  GVA, 
weighted  by  human  toxicity  factors  (2022  EU 
average:  0.86).  Nevertheless,  between  2010  and 
2022,  there  was  a  10%  increase  in  industrial 
heavy  metal  releases  (cadmium,  mercury,  nickel 
and  lead).  All  other  releases  are  falling,  with  a 
69%  reduction  in  total  nitrogen  releases  and  a 
17%  reduction  in  total  phosphorus  emissions  as 
reported 
Emissions 
Directive (217). In Latvia, water pollution by industry 
imposes direct and indirect costs of EUR 28 million 
annually (218).  This  is  not  yet  sufficiently  borne  by 
the  polluters.  Pollution  by  perfluoroalkyl  and 
polyfluoroalkyl  substances  (PFAS)  is  a  growing 
issue  in  Latvia.  The  Forever  Pollution  Project (219) 
aimed 
raise  public  awareness  of  PFAS 
contamination.  Latvia  took  part  in  the  project, 
which  resulted  in  the  development  of  a  map 
illustrating  the  extent  of  PFAS  pollution  across 
Europe. 

Industrial 

under 

the 

to 

(215) EC/OECD/European Observatory on Health Systems and 

Policies (2025), State of Health in the EU: Country Health 
Profile for Latvia. 

(216) European Commission (2026), Greening the European 

Semester – Resource and pollution taxes. 

(217) EEA (2024), Water pollutant releases changes from 2010 to 

2022 for the EU Member States. 

(218) European Commission (2021), Green taxation and other 

economic instruments – Internalising environmental costs to 
make the polluter pay. 

(214) Ibid. 

(219) The Forever Pollution Project. 

72 

 
 
 
 
Table A8.1:  Key clean industry and climate mitigation indicators: Latvia 

Source: Industry decarbonisation: All data from Eurostat; data following the UNFCCC Common Reporting Format (CRF) are from 
the European Environment Agency (EEA), republished by Eurostat. (1) Sectors covered: all divisions of section C - Manufacturing - 
of the NACE Rev. 2 statistical classification of economic activities, except C19 (manufacture of coke and refined petroleum 
products). (2) GHG emissions as per UNFCCC Common Reporting Framework (CRF) categories 1.A.2 - fuel combustion in 
manufacturing in industries and construction (that broadly correspond to the broadly correspond to the NACE sections C - 
Manufacturing and E - Construction, excluding C-19),  and CRF2 - industrial processes and product use. The figures shows the 
emissions in the 1.A.2 category as a share of the sum of CRF1.A.2. and CRF2 emissions. (3) Sectors covered: CRF 1.A.2 as 
described above. Gross value added (GVA) data in the denominator aligned in sectoral coverage, in 2020 prices. (4) Sectors 
covered: NACE section C excluding C19. (5) Nominator: NACE divisions C17, 20, 23, 24; denominator: NACE section C excluding 
C19 (see above). (6) GVA (denominator) in 2020 prices. Reduction of effort sharing emissions: EEA, greenhouse gas data viewer; 
European Commission, Climate Action Progress Report, 2025. For details, see the footnote in the "Reduction of effort sharing 
emissions" section. Sustainable road transport: (7) Eurostat; (8) European Alternative Fuels Observatory; (9) Eurostat. For all 
climate mitigation indicators, the trend arrows compare the latest available data (year t) with the data four years earlier (t-4). 
Sustainable industry: Bioeconomy value added, employment and productivity: JRC, Developments of Economic Growth and 
Employment in Bioeconomy Sectors across the EU. Bioeconomy R&D business expenditure: JRC, Business expenditure in Research 
and Development (R&D) in the EU bioeconomy. Damage cost for industrial pollution: EEA, The costs to health and the environment 
from industrial air pollution in Europe, 2024. Water industrial pollutants releases: EEA, Industrial releases of pollutants to water 
and economic activity in the EU-27, 2024. Water chemical status: WISE, Surface water bodies: Chemical status, 2024 and 
WISE Groundwater bodies: chemical status, 2024. Other indicators: Eurostat. For circular economy indicators, the trend arrows 
compare the latest available data (year t) with the data two years earlier (t-2). 

73 

Climate mitigationTrendIndustry decarbonisation201820192020202120222023202420182023GHG emissions intensity of manufacturing production, g/€ (1)443420393351353371-330-Share of energy-related emissions in industrial GHG emissions (2)45.943.243.242.841.242.6-55.557.9Energy-related GHG emissions intensity of manufacturing and construction, g/€ (3)229.0202.5196.2177.6170.2185.9-203.9163.0Share of electricity and renewables in final energy consumption in manufacturing, % (4)62.665.567.468.371.870.871.542.843.9Energy intensity of manufacturing, GWh/€ (4)3.032.852.882.692.852.973.041.271.05Share of energy-intensive industries in manufacturing production, % in GVA (5)12.0712.4011.7610.8010.5911.07---GHG emissions intensity of production in sector [...], g/€ (6)- paper and paper products (NACE C17) 146          129          95                   141            143                  163           -722             619            - chemicals and chemical products (NACE C20) 426          356          235                 228            201                  119           ---- other non-metallic mineral products (NACE C23) 4,061        3,868       4,032              3,268         3,887                4,467         -2,495           2,352          - basic metals (NACE C24) 185          84            57                   127            83                    219           -2,842           3,099          Reduction of effort sharing emissions201820192020202120222023202420182023GHG emission reductions relative to base year, % 0.7-2.0-3.8-5.4- domestic road transport7.26.60.03.10.50.8-6.3-1.4-5.6- buildings-6.7-8.3-7.6-4.2-6.0-10.3-9.7-20.3-33.520052021202220232024TargetWEMWAMEffort sharing: GHG emissions, Mt; target, gap, %8.68.78.48.38.1-17.0%-15.2%-18.2%Sustainable road transport2018201920202021202220232024202520182021New zero-emission vehicles, electricity motor, % (7)0.450.632.563.286.408.837.351.038.96Number of publicly accessible AC/DC charging points (8)--26635950653411572051446956n/aShare of electrified railways, % of total (9)13.4913.4913.5013.5013.4513.7013.7055.4756.49Sustainable industryTrendEU-27Circular economy transition20182019202020212022202320242018latest dataMaterial footprint, tonnes per person17.517.317.618.919.515.815.414.813.7Circular material use rate, %4.7            4.8           5.2                  5.0             4.3                    6.0             6.811.612.2Resource productivity, €/kg1.0            1.1           1.0                  1.1             1.1                    1.5             1.62.13.0Employees in circular economy4.1            3.93.7                  3.7             3.5                    3.6             -2.12.0Patents in circular economy01.0           0.5                  -            12.312.0Recycling rate            25.2           41.0                  39.7             44.1                   50.8            50.6 52.7            46.4048.1Plastic recyling 36%35%36%42%47%59%-41%42%Construction and demolition waste (CDW) recovery 97-998889Bioeconomy industry 2018201920202021202220232024CAGR 2018-202320182023Value added, million EUR2,2702,4202,6683,3293,9573,311-6.5%642,438863,436Employment, total number of people employed122,056118,456128,743132,288129,556132,516-1.4%17,649,04017,085,642ProductivityValued added per worker, thousand EUR18.620.420.725.230.525.0-5.0%36.450.5Valued added per worker, % of national average69.273.674.881.187.866.2--62.270.7R&D business expenditureTotal bioeconomy (biomass producing and converting sectors)781217191716.7%15,67223,335Total R&D business expenditure46517793106118-16.9%196,587259,525Zero pollution industry201820192020202120222023202420182021Damage cost for industrial pollution0.40.40.30.4---414.9352.7Water industrial pollutants releases 2021change (2010)2021change (2010)2021change (2010)2021change (2010)355          -18%388,000          -64%863,000            no data40,000        -8% Water chemical statusGood-                  Good (%)-                   Poor780.0Poor (%)100%EUTOCPhosporusLatviaLatviaCd, Hg, Ni, Pbnitrogen 
 
  
 
ANNEX 9: AFFORDABLE ENERGY TRANSITION 

taxes  and 

than  gas,  with 

the  first  half  of  2025  remained  imbalanced.  For 
large  businesses,  electricity  was  2.3  times  more 
expensive 
levies 
(excluding  VAT)  accounting  for  only  2%  of 
electricity bills and 3% of gas bills. Excluding taxes 
and  levies,  the  electricity-to-gas  price  ratio  would 
have  remained  the  same,  indicating  that  Latvia’s 
fiscal  measures  to  promote  electrification  had  no 
balancing  effect  on  large  business  energy  prices. 
For  household  consumers,  on  the  other  hand,  the 
effect  of  taxes  and  levies  was  slightly  more 
evident:  the  electricity-to-gas  price  ratio  would 
have increased from 2.9 to 3.1 if taxes and levies 
were  excluded,  bearing  in  mind  that  taxes  and 
levies  combined  account  for  over  18%  of 
household  electricity  bills  and  19%  of  gas  bills 
(221). Thus, there is room to improve the ratio. 

Graph A9.1: Electricity and gas prices for 
household and non-household consumers, first 
half of 2025 

Latvia has made some progress in enhancing 
energy  affordability  while  advancing  the 
transition to net zero, but challenges remain. 
Latvia’s  2025  energy-related  country-specific 
recommendations  highlighted  the  need  to  reduce 
reliance  on  fossil  fuels  and  increase  energy 
security  by  accelerating 
the  deployment  of 
renewable  energy,  particularly  wind  and  solar,  to 
improve permit-granting procedures and electricity 
grid  queue  management,  to  promote  energy 
storage,  demand  response  and  market-based 
flexibility  solutions,  and  to  reduce  primary  and 
final  energy  consumption  and  carbon  intensity  by 
energy 
strengthening 
efficiency  measures, 
especially 
the  buildings  sector,  and  by 
in 
promoting  further  electrification.  Latvia  is  making 
steady  progress  in  clean  energy  production  while 
building  on  its  already  extensively  decarbonised 
electricity mix  and  is  working  to  achieve its  2030 
targets for renewable energy and greenhouse gas 
reduction in line with the EU’s 2030 objectives. The 
country has seen good progress in terms of uptake 
of  solar  power.  Moreover,  the  synchronisation  of 
the  Baltic  power  system  with  the  continental 
European  grid  was  completed  in  2025,  thereby 
strengthening  Latvia’s  security  of  supply  and 
integration  with  the  EU  internal  energy  market. 
However,  challenges  remain,  including  the  slow 
roll-out  of  wind  energy  projects,  grid  capacity 
limits  constraints  that  can  slowing  down  the 
connection  of  new  renewable  installations,  and 
persistent  lengthy  and  complex  permit-granting 
procedures 
network 
renewables 
investments. 

and 

for 

Energy prices and costs 

Thanks  to  persistently  low  taxes  and  levies 
(220),  both  non-
on  retail  energy  bills 
household  and  household  energy  prices  in 
Latvia  remain  below  the  EU  average.  In  the 
first  half  of  2025,  household  electricity  and  gas 
prices in Latvia decreased to EUR 0.2440/kWh and 
EUR 0.0832/kWh respectively, remaining below the 
EU  average.  Retail  electricity  prices  for  industrial 
consumers  also  decreased  and  continued  to  be 
well  below  the  EU  average,  while  industrial  gas 
prices were stable and in line with the EU average. 
Nevertheless,  final  energy  prices  in  Latvia  during 

(i) For household consumers, the consumption band is DC for 
electricity and D2 for gas. 
(ii) For non-household consumers, the consumption band is ID 
for electricity and I4 for gas. VAT and recoverable charges are 
not displayed for non-household consumers as these are 
typically recovered by businesses. This also applies to the ‘% 
of taxes and levies’, which is shown excluding VAT and 
recoverable charges for non-household consumers. 
(iii) ‘Without taxes and levies’ indicates the retail price 
excluding all taxes and levies. It always includes the 
energy/supply and network cost components, which are not 
disaggregated in Eurostat’s six-monthly price dataset. 
Source: Eurostat 

Average wholesale electricity prices in Latvia 
were EUR 88/MWh in 2025 (222), above the EU 
average  of  EUR 85/MWh.  Average  day-ahead 

(221) Latvia maintained a 17% VAT rate on gas and electricity 

consumption. Analysis based on Eurostat data from first six 
months of 2025. 

(220) Eurostat 

(222) Ember 

74 

 
 
 
 
 
 
 
electricity  prices  in  Latvia  decreased  slightly  in 
2025  despite  higher  natural  gas  prices  (223).  The 
effect of the latter on electricity prices was partly 
mitigated by the growing incorporation of low-cost 
renewables 
in  Latvia’s  energy  mix.  Although 
daytime  prices  have  fallen  in  recent  years,  Latvia 
remains  vulnerable  to  price  spikes  during  peak-
demand  hours.  This  is  because  lower  solar  power 
output in the evening and early morning, combined 
with  limited  non-fossil  flexibility  requires  thermal 
plants  to  ramp  up  generation  to  cover  supply–
demand  gaps,  which  keeps  costs  elevated.  As  a 
result,  price  spreads  (224)  in  Latvia  averaged 
EUR 158/MWh  in  2025,  up  4%  from  2024  while 
significantly 
of 
the 
EUR 121/MWh. 

average 

above 

EU 

has 

Latvia 

reliable 

improved 

independence  and 

(CESA) via Poland. By synchronising its electricity 
its  energy 
grid  with  CESA  and  modernising 
infrastructure, 
the 
management  of  its  electricity  systems,  including 
by  ensuring  stable  and 
frequency 
regulation,  which  in  turn  has  strengthened  its 
energy 
increased  energy 
security  and  resilience  throughout  the  region.  The 
grid  synchronisation  project  and  upgrades  to 
Latvia’s  electricity  infrastructure  benefitted  from 
crucial  EU  support,  in  the form  of  substantial  EU-
funded  investments  under  the  Connecting  Europe 
Facility  (CEF).  This  was  complemented  by  support 
under  Recovery  and  Resilience  Facility  and  by 
investments  from  the  EU  Modernisation  Fund  for 
network modernisation and grid development. 

Graph A9.2: Low-carbon electricity generation vs 
electricity wholesale prices, 2025 

Data unavailable for Cyprus and Malta. The wholesale price is 
given as the average of day-ahead electricity prices over 
2025. The EU-27 average is calculated as consumption-
weighted. The EU low-carbon share is calculated from total 
EU electricity generation. The low-carbon share by country is 
calculated from total public electricity generation. ‘Low-
carbon’ includes renewables and nuclear. 
Source: European Commission calculation based on ENTSO-E, 
S&P Global Platts 

Flexibility and electricity grids 

In  February  2025,  Latvia  disconnected  from 
the  Russian-operated 
IPS/UPS  electricity 
system  and  successfully  synchronised  with 
the  Continental  European  Synchronous  Area 

(223) Fossil fuels still accounted for over 28% of electricity 

generation in Latvia throughout the year, maintaining their 
role as marginal price-setting technologies. 

(224) Spread refers to the difference between the highest and 
lowest hourly day-ahead electricity prices in a single day. 

to 

has 

completed 

some  major 

interconnection 

Latvia’s  electricity 
level 
stands at 49.9% as of 2026, well above the 
EU 15% interconnection target for 2030 (225). 
grid 
Latvia 
reinforcement  projects  to  improve  resilience  and 
renewables integration, including the renovation of 
the  330 kV  electricity  interconnection  between 
its 
Latvia  and  Estonia,  and  upgrades 
interconnections  with  Lithuania.  In  early  2026,  an 
additional  EUR 113 million  in  funding  under  the 
CEF  was  allocated  specifically  to  bolster  Latvia’s 
and  other  Baltics’  post-synchronisation  resilience 
against  cyber  and  physical  threats.  New  flagship 
projects under the Modernisation Fund are also in 
progress with the aim of upgrading and expanding 
distribution  and  transmission  networks  to  handle 
higher capacity and integrate renewables. Latvia is 
also  taking  steps  to  advance 
its  non-fossil 
flexibility by promoting the deployment of battery 
energy  storage.  Large  battery  storage  projects, 
financed  under  the  RRF  and  CEF,  were  brought 
online 
a 
October 2025, 
notably 
in  Rēzekne  and  a 
60 MW/120 MWh  battery 
20 MW/40 MWh  battery  in  Tume,  which  will  help 
with  grid  balancing  and  frequency  stability  while 
reducing energy costs.  

in 

grid, 

alongside 

The  Baltic  states’  synchronisation  with  the 
continental 
ongoing 
reinforcements  of  Latvia’s  national  grid, 
have  boosted  the  country’s  cross-border 
trade capacity and system flexibility. Latvia’s 
efforts  have  ensured  a  minimum  of  70%  of 

(225) The EU has set an interconnection target of at least 15% by 
2030 under Regulation (EU) 2018/1999 on the Governance 
of the Energy Union and Climate Action. 

75 

 
 
 
 
technical  cross-border  capacity  is  available  for 
trading.  Nevertheless,  Latvia  is  part  of  the  Baltic 
(226)  capacity  calculation  region  (CCR)  which  does 
not  yet  have  a  fully  coordinated  regional  process 
in  place  for  monitoring  the  margin  available  for 
cross-zonal electricity trading (227). 

recommendation 

towards  achieving 

Although challenges persist, Latvia has made 
the  2025 
progress 
country-specific 
on 
improving  permit-granting  procedures  and 
electricity  grid  queue  management  by 
accelerating  permitting  for  energy  projects. 
Latvia  has  introduced  amendments  aimed  at 
simplifying 
and 
reducing  administrative  burden.  Since  1 February 
2025, Latvia has set up a dedicated one-stop-shop 
for  energy  infrastructure  permitting  under  the 
former  Energy  and  Environment  Agency  (now  the 
State  Environmental  Service).  However, 
the 
permitting procedures are not subject to any fixed 
time  limits  and  there  can  be  significant  delays 
caused by environmental impact assessments.  

permit-granting 

procedures 

large 

facilities 

renewable 

Despite  Latvia  taking  mitigating  measures, 
new 
are 
experiencing  grid  connection  delays  due  to 
the  virtual  overcapacity  of  the  grid.  Latvia’s 
transmission  system  operator  (Augstsprieguma 
Tīkls)  has  issued  no  new  grid  connection  permits 
since  summer 2023.  To  address  the  problem  of 
grid  capacity  overbooking,  amendments  were 
made to the Electricity Market Law (228) with effect 
from 1 April 2025. These amendments introduced 
a  transition  period  in  which  developers  could 
relinquish all or part of their reserved capacity and 
request  a 
fee. 
Furthermore, the amendments put in place a new 
flexible  transmission  system  service,  whereby  the 
transmission  system  operator  may  curtail  system 
services  for  up  to  876 hours  per  calendar  year. 
These  mitigating  measures  were 
in 
Latvia’s  national  recovery  and  resilience  plan  and 
have  freed  up  approximately  2 GW  of  booked 
capacity.  Until  31 December  2026,  free  system 

refund  of 

reservation 

included 

the 

capacity  will  only  be  allocated  for  receiving  the 
flexible transmission system service. 

Despite  significant  regulatory  action 
in 
relation  to  self-consumption  and  energy 
communities,  there  is  scope  to  improve  the 
legal framework governing demand-response 
and  energy  storage. 
In  Latvia,  energy 
communities  are  still  in  the  early  stages  of 
development.  Although  a  legislative  framework  is 
in  place,  only  two  energy  communities  (with 
electricity generation of 8 MWh and 120 MWh per 
year)  have  been  registered  so  far.  Aggregation 
rules  would  be  useful  for  allowing  demand-side 
response  and  storage  in  order  to  participate  in 
day-ahead  and  intraday  markets,  as  well  as 
took 
ancillary  services.  Nevertheless,  Latvia 
significant  regulatory  steps  in  relation  to  self-
consumption  and  electricity  sharing  in  2024  by 
amending 
the  Electricity  Market  Law  and 
standards  on  trading  and  use  of  electricity. 
Additional steps were taken with regard to energy 
communities  with  the  adoption  of  a  Regulation 
laying  down 
registration  and 
operation  of  energy  communities.  These  efforts 
were part of the ‘Transforming the Energy Sector’ 
reform  package  included  in  Latvia’s  recovery  and 
resilience plan. In addition, Latvia has launched its 
first small-scale energy-community demonstration 
projects in the municipality of Marupe (229). 

rules  on 

the 

regulation, 

further  efforts 

Although Latvia has made progress in retail-
market 
to 
empower  consumers  to  actively  participate 
in  the  energy  market  would  be  beneficial.  In 
Latvia,  while  consumers  are  entitled  to  dynamic-
price  contracts,  the  share  of  households  on  a 
fixed-price  electricity  contract  is  still  very  high,  at 
about  85%.  Meanwhile,  the  share  of  dynamic 
contracts rose from 49% in 2023 to 51% in 2024 
(230).  The  share  of  consumers  that  switched 
electricity contract increased slightly, from around 
4% to 5% for household customers (in the case of 
non-household  customers  no  data  is  available). 
Household  roll-out  of  smart  meters  has  reached 
99%, one of the highest rates in the EU (231). 

(226) A CCR lays down the set of bidding zone borders 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. 

(229) Interreg Europe (2024), Energy communities in Latvia. 

(227) ACER (2025), Transmission capacities for cross-zonal trade 

(230) ACER (2025), Market Monitoring report and ACER (2025), 

of electricity and congestion management. 

Electricity country sheets: monitoring data 2024.  

(228) Amendments to the Electricity Market Law. 

(231) Ibid. 

76 

 
 
 
final 

energy 

last  decade 

In  2024,  electricity  accounted  for  15.0%  of 
consumption 
Latvia’s 
(considerably  below  the  EU  average  of 
23.4%),  a  share  which  has  remained  largely 
(232). 
unchanged  over  the 
Electricity  accounts  for  13.6%  and  16.6%  of 
household and industrial final energy consumption 
respectively (see Annex 8). In the transport sector, 
the  share  accounted  for  by  electricity  remains 
negligible 
in 
electrification  across  sectors  would  help  to  cost-
effectively decarbonise the economy and bring the 
benefits  of  affordable  renewable  generation  to 
consumers. 

at  1.1%. 

progress 

Further 

Renewables and long-term contracts 

In 2025, renewables accounted for 72.9% of 
electricity  generation  in  Latvia  (vs  an  EU 
average  of  45%)  (233),  a  share  which  is 
unchanged  compared  to  the  previous  year 
(234).  Hydropower  accounted  for  most  of  Latvia’s 
renewable  electricity  mix,  followed  by  solar,  wind 
and biomass also contributing. Furthermore, Latvia 
increased 
renewables 
deployment  to  61%  (as  a  share  of  gross  final 
energy  consumption)  in  the  final  version  of  its 
updated  national  energy  and  climate  plan,  in 
the 
accordance  with 
Governance  of  the  Energy  Union  and  Climate 
Action. 

the  EU  Regulation on 

its  2030 

target 

for 

Latvia  has  taken  steps  to  address  the  2025 
country-specific recommendation on reducing 
reliance on fossil fuels and increasing energy 
security  by  accelerating  the  deployment  of 
for 
renewable  energy. 
renewables  in  Latvia  represented  2,755  MW  in 
2025,  an  increase  of  10%  compared  to  2024 
(2,505  MW).  Installed  capacity  for  wind  energy 
grew marginally to 133 MW in 2025 (compared to 
131 MW in 2024, +1.5%), whilst installed capacity 
for  solar  grew  strongly  (+39.7%  compared  to 
installed 
2024),  reaching  922  MW.  However, 

Installed 

capacity 

(232) Eurostat: CAGR (compound annual growth rate) of -0.08% 

between 2015 and 2024 and minimum/maximum share of 
14.2% and 15.1%, respectively. 

(233) Ember: yearly electricity data. 

(234) Energy-charts based on ENTSO-E Transparency Platform. 

77 

capacity in both cases remains significantly below 
that of the two other Baltic countries, Estonia and 
Lithuania. 
In  terms  of  heating  and  cooling, 
renewables  accounted  for  around  61%  in  2025 
(mostly  biomass).  Furthermore,  the  development 
of wind energy, in particular onshore wind, is faced 
with  major  challenges,  including  strong  public 
opposition, 
and 
capacity 
investment uncertainty. 

limitations 

grid 

Following  a  recent  amendment  to  the 
Electricity  Market  Law,  all  electricity  users 
are  now  able  to  conclude  power  purchase 
agreements  (PPAs)  with  producers.  However, 
uptake  has  been  hindered  by  the  limited  number 
of large-scale renewable facilities and the lack of 
major  industrial  consumers.  Latvia  is  assessing 
possible  support  measures  that  could  promote 
PPAs,  including  for  smaller  industrial  consumers 
(i.e.  SMEs).  According  to  the  Ministry  of  Climate 
and Energy, no auctions or tenders are planned for 
wind or solar power in 2026. 

Graph A9.3: Latvia’s installed renewable capacity 
vs electricity generation mix 

Electricity mix is given as net electricity generation (gross 
electricity production minus consumption of power stations’ 
auxiliary services). Electricity produced in pumped hydro 
plants is excluded from total net electricity production, as it 
was previously counted as electricity produced from another 
source. 
“Other” includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Eurostat 

Latvia’s  permit-granting  framework  still 
needs  to  be  aligned  with  the  Renewable 
Energy  Directive.  Latvia  has  made  efforts  to 
speed  up  the  deployment  of  renewables  by 
simplifying  permitting,  applying  the  overriding 
public  interest  principle  for  strategic  projects,  and 
advancing  the  process  of  designating  renewable 
acceleration areas. In this regard, maps identifying 
acceleration  areas  were  developed  in  late  2025. 
Nevertheless,  it  is  expected  that  these  areas  will 

 
 
 
be challenging to implement due to growing public 
opposition  to  onshore  wind  farms.  In  addition, 
there is scope for further improvement, specifically 
by  shortening  the  permit-granting  procedure  for 
renewable  energy  sources,  especially  for  larger 
onshore wind and solar installations. This could be 
through  more  active 
achieved,  for 
and 
engagement  with 
authorities 
communities 
the 
benefits of renewables. 

raise  awareness  about 

instance, 

local 

to 

made  to  the  regulatory  framework  to  reduce 
administrative  barriers  and  simplify  the  decision-
making  model  for  multi-apartment  buildings. 
Given  that  buildings  are  responsible  for  44%  of 
energy use in Latvia, they play an important role in 
improving  energy  efficiency.  Latvia  is  therefore 
encouraged  to  submit  its  draft  national  building 
renovation  plan  pursuant  to  the  recast  of  the 
Energy Performance of Buildings Directive in order 
to ensure a clear and predictable pathway towards 
an  energy  efficient  and  decarbonised  building 
stock. 

Energy efficiency 

the 

consumption  and 

Latvia  has  made  some  progress  towards 
country-specific 
2025 
achieving 
recommendation  on  reducing  primary  and 
final  energy 
carbon 
intensity  by  strengthening  energy  efficiency 
measures,  especially  in  the  buildings  sector. 
In 2024, final energy consumption (FEC) decreased 
by  0.8%  to  3.87  Mtoe,  as  compared  to  2023, 
continuing  the  downward  trend  observed  since 
2019.  Latvia’s  FEC  in  2024  was  in  line  with  the 
trajectory for meeting its expected contribution by 
2030. FEC in industry has increased by 7.9% since 
2019, while a consistent downward trend has been 
observed  between  2019  and  2024  in  the  other 
three  sectors:  –12.7%  in  transport,  -5.9%  in 
services and –7.6% in the residential sector. These 
to  ongoing 
reductions 
programmes 
renovation  of 
residential  and  non-residential  buildings,  including 
a  new  programme  started  in  2025  to  promote 
the  deployment  of 
energy  efficiency  and 
renewables  in  public  buildings.  A  decrease  in  FEC 
was also observed in the transport sector over the 
2019-2024 period.  

can  be  attributed 

to  support 

the 

The  decrease  in  final  energy  consumption  in 
the  residential  building  sector  was  mostly 
driven  by  building  renovations.  Nevertheless, 
this decrease was not in line with the objective set 
in Latvia’s 2020 long-term renovation strategy to 
reduce  energy  consumption  by  23%  by  2030  as 
compared to the 2018 baseline. 

Thanks  to  substantial  EU  funding,  including 
through the Recovery and Resilience Facility, 
Latvia  has  stepped  up  support  in  recent 
years  for 
large-scale  energy  efficiency 
programmes  for  multi-apartment  buildings. 
Furthermore,  in  2025  some  improvements  were 

used 

final 

residential 

Heating  and  cooling  account  for  83%  of 
Latvia’s 
energy 
consumption.  Renewables  supply  61%  (235)  of 
cooling, 
energy 
predominantly  biomass  in  the  case  of  heating. 
Nevertheless,  there  are  approximately  400 000 
households  which  use  gas  for  heating.  Currently, 
no  structured  data  is  available  on  the  number  of 
heat pumps sold or installed. 

heating 

and 

for 

Security of supply and diversification 

Latvia has taken important steps to diversify 
its  energy  supply,  notably by  ending  imports 
of  Russian  natural  gas  and  electricity.  The 
share  of  renewable  energy  in  Latvia’s  energy  mix 
has undergone positive shifts. Nevertheless, fossil 
fuels still account for more than half of the overall 
energy  consumption,  particularly  in  the  building 
and  transport  sector.  Latvia  has  diversified  its 
natural  gas  supply  through  regional  LNG  access 
and  interconnections  with  neighbouring  countries 
(including  with  Lithuania  and  Finland  via  Estonia), 
and  through  the  use  of  domestic  underground 
storage  facility.  Demand  for  natural  gas  has 
declined, 
have 
expanded. Nevertheless, gas remains important as 
a fuel source for generating power during periods 
of  peak  demand  and  for  cogeneration.  Oil 
accounted  for  35%  and  natural  gas  for  16%  of 
gross  inland  consumption  (236),  while  renewables 

alternatives 

renewable 

as 

(235) Eurostat 

(236) Excluding electricity and heat to avoid double-counting, 

focusing on primary energy sources. 

78 

 
 
(including  biofuels)  again  accounted 
considerable share (46.9%) (237). 

for  a 

In  response  to  the  regional  crisis  in  the 
Middle  East,  Latvia  has  introduced  some 
It  adopted  a 
temporary  policy  measures. 
reduction  in  the  excise  duty  on  diesel  fuel  (of 
indicatively  15%)  from  1  April  to  30  June  2026 
solidarity 
"fuel 
and 
contribution",  a  100%  levy  on  excess  profits  if 
retail  prices  exceed  the  government  reference  by 
more  than  3%. Latvia is monitoring  energy prices 
and may activate state aid if prices spike sharply.  

proposed 

retailer 

a 

Fossil fuel subsidies 

In  2024,  environmentally  harmful  fossil  fuel 
subsidies  (238)  without  a  planned  phase-out 
before  2030  represented  0.29%  of  Latvia’s 
GDP  (239).  However,  Latvia’s  2023  Effective 
Carbon Rate (240) averaged EUR 62.15 per tonne of 
CO₂,  below  the  EU  weighted  mean  of  EUR 84.80 
(241). 

(237) Eurostat 

(238) Explicit fossil fuel subsidies (e.g. direct transfers) and implicit 
fossil fuel subsidies (i.e. tax expenditures linked to forgone 
tax revenues that have an identifiable fiscal impact for the 
central budget) that support fossil fuel energy production, 
transmission and/or consumption.  

(239) European Commission calculation based on underlying data 

from European Commission (2025), Study on energy 
subsidies and other government interventions in the EU. 
2024 gross domestic product at market prices, Eurostat. 

(240) 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. 

(241) OECD (2024), Pricing Greenhouse Gas Emissions. 

79 

 
 
ANNEX 10: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT 

investment 

cross-sectoral 

Latvia  faces  a  significant  challenge 
in 
increasing its carbon removal capacity, while 
climate change and nature degradation pose 
economic  risks.  Latvia  would  benefit  from 
and 
substantial 
improved  insurance  coverage  as  well  as  from 
systematically expanding the use of nature-based 
solutions.  It  faces  challenges  such  as  enhancing 
sustainable resource management practices in the 
land  and  forestry  sectors 
to  boost  carbon 
removals,  enhancing  water  resilience,  addressing 
agricultural nutrient pollution, restoring nature, and 
finalising  the  designation  of  protected  nature 
areas.  These  are  all  vital  for  safeguarding 
economic  stability  and  food  security  in  a  context 
of climate change pressure. 

Climate adaptation and preparedness 

its 

is  a 

investment.  Latvia 

territory  covered  by  forests 

Climate  change  poses  significant  risks  to 
Latvia  that  will  require  significant  cross-
low-lying 
sectoral 
country  in  northern  Europe.  It  has  an  extensive 
Baltic  coastline  and  is  dominated  by  forests, 
waterside  areas  and  meadows,  with  more  than 
in 
half  of 
particular (242).  Changes  in  precipitation  patterns 
and  more  frequent  extreme  weather  events 
therefore  put  pressure  on  ecosystems  and  on 
sectors  such  as  fisheries  and  agriculture.  They 
could  also  affect  hydropower  generation,  which 
accounts  for  almost  half  of  domestic  electricity 
generation.  In  addition,  the  growing  impacts  of 
climate  change  also  have  a  broader  effect  on 
(243). 
people’s  health,  safety  and  businesses 
Available  sources estimate that investment needs 
related to climate adaptation will be significant in 
the  future.  A  recent  study (244)  estimates  that 
Latvia  will  need  to  invest  almost  EUR 664 million 
per  year  up  to  2050.  This  is  one  of  the  highest 

(242) EEA (2025), Latvia Country Profile. 

(243) European Commission (2025), 2025 Country Report: Latvia. 

(244) European Commission, (2026), Assessment of EU and 

Member States adaptation investment needs, Table 25. The 
study provides detailed estimates of adaptation investment 
needs at the level of the EU and individual Member States 
per type of measure. It relies on a common methodology 
that makes estimates comparable across the EU. Four 
accompanying methodological reports provide a detailed 
description of how the results were estimated to ensure full 
transparency. 

levels  in  the  EU  relative  to  GDP  (1.4%  of  annual 
GDP,  as  compared  to  the  EU-27  average  of 
0.46%). 
in 
infrastructure retrofitting and reinforcement (more 
than  54%  of  the  total),  followed  by  ecosystem 
restoration (around 35%) and health (around 6%). 

is  primarily  needed 

Investment 

Latvia is reinforcing its  policy framework on 
resilience,  but  steps  remain  to  be  taken  in 
implementation. In 2025, Latvia strengthened its 
national  adaptation  and  climate  resilience  policy 
framework  through  the  adoption  of  the  Climate 
Resilience  and  Economic  Sustainability  Law.  This 
establishes  a  regulatory  framework  to  coordinate 
climate  policy  and  implementation  across  public 
institutions 
(including  a  focus  on  enhancing 
resilience  to  the  impacts  of  climate  change).  The 
new  law  includes  a  requirement  to  regularly 
update the national adaptation plan and to update 
climate  risk  and  vulnerability  assessments  every 
10 years.  Under  the  recovery  and  resilience  plan, 
Latvia has adopted legislation on a national  early 
warning  system  to  ensure  a  coordinated,  rapid 
response. In parallel, Latvia has published risk and 
vulnerability  assessments  for  specific  sectors, 
fisheries (245)  and 
including  agriculture  and 
transport (246).  These  sector-specific  analyses 
complement the assessment in the updated 2024 
national energy and climate plan, which includes a 
partial analysis of climate vulnerabilities and risks 
(including 
infrastructure 
vulnerabilities  and  biodiversity  degradation) (247). 
In  addition,  studies  have  been  launched  and  are 
ongoing  in  the  areas  of  energy  infrastructure  and 
construction.  At  the  sub-national  level,  the  share 
of Latvia’s population covered by the EU Covenant 
of  Mayors 
local 
governments  in  the  EU,  dedicated  to  addressing 
climate  change)  has  been  steadily  increasing  and 
(248). 
stood  at  53% 
Furthermore, 78% of signatories have submitted a 

largest  coalition  of 

(EU-27: 34%) 

fluctuations, 

in  2024 

power 

(the 

(245) Ministry of Climate and Energy (2025), Risk and vulnerability 
assessment and identification of adaptation indicators and 
measures in the field of agriculture and fisheries. The 
assessment regarding fisheries suggests high climate-
related risks due to negative impact on spawning, on the 
natural reproduction of fish and on certain fish species. 
These would together negatively impact fisheries in the Gulf 
of Riga and in the Baltic Sea, as well as freshwater 
aquaculture production. 

(246) Link. 

(247) European Commission (2024), Latvia: Final updated NECP 

2021-2030. 

(248) European Commission, EU Covenant of Mayors. 

80 

 
 
 
 
 
(i.e. within 

two  years  of 

sustainable  energy  and  action  plan  (SECAP)  on 
initial 
time 
commitment  to  the  EU  Covenant)  and  86%  of 
signatories have submitted at least one monitoring 
report  within  the  recommended  timeframe  (i.e.  at 
their 
two  years  after  submission  of 
least 
SECAP) (249). 

their 

Climate  risks  have  a  direct  and  significant 
effect  on  Latvia’s  economy,  but  insurance 
coverage  remains  low.  Between  1980  and 
2024,  Latvia  recorded  EUR 1.3 billion  in  economic 
losses (250) caused by weather and climate-related 
extreme events (251). According to a recent analysis 
(252), windstorms have had a relatively high impact 
on Latvia’s economy over the past decade. Looking 
towards 2050, the potential  annual  damage from 
coastal flooding could also be particularly high and 
is predicted to be 0.5% of GDP. However, Latvia’s 
7%  insurance  coverage  against  weather-related 
and climate-related events is one of the lowest in 
the  EU  (EU-27  average: 19%)  (253).  The  transport 
vulnerability  index  of the TEN-T  network in Latvia 
to  climate  change  has  been  assessed  as  one  of 
the  highest  in  the  EU.  This  is  mainly  driven  by 
lower general adaptation preparedness, the quality 
of 
limited 
infrastructure 
interoperability on the TEN-T (254). Estimates show 
that  a  total  of  EUR 195 billion  will  need  to  be 
invested in adapting the TEN-T network until mid-
century. 

transport 

and 

not 

has 

been 
Climate-proofing 
systematically  applied  across  sectors  and 
key  infrastructure.  The  Climate  Resilience  and 
Economic Sustainability Law explicitly requires the 
integration 
adaptation 
objectives  and  measures  into  sectoral  policies.  A 
methodological  guidance  document  has  been 

climate 

change 

of 

(249) European Commission, EU Covenant of Mayors CoM-munity 

Explorer. 

(250) EEA (2024), Economic losses from weather- and climate-

related extremes in Europe. 

(251) ECB and EIOPA (2024), Towards a European system for 

natural catastrophe risk management, Chart 2. This figure 
includes earthquakes in the period 2020-2023. 

published  to  support  this  integration,  but  more 
work  is  needed  in  order  to  effectively  implement 
these measures across all sectors. 

is 

the 

There  is  scope  to  tap  into  nature-based 
solutions  more  widely  and  systematically. 
With  its  abundant  natural  capital,  nature-based 
strategies play a key role in enhancing resilience in 
Latvia, including for addressing flood-related risks 
and  vulnerabilities.  A  notable  opportunity  for 
Latvia 
rewetting  of 
restoration  and 
peatlands,  which  act  as  efficient  water  buffers, 
offering  protection  against  both  flooding  and 
drought.  Beyond  the  benefits  for  better  resilience 
to  climate  change,  peatland  rewetting  has  the 
capacity to store substantial carbon in the soil and 
conserve  Latvia’s  unique  peatland  biodiversity. 
Projects funded by Interreg (255) and LIFE (256) have 
already  supported  rewetting  efforts  in  areas  like 
Cenas  Tīrelis,  while  the  CAP  strategic  plan  for 
Latvia  (2023-2027)  and  the  Just  Transition  Fund 
provide  financing  to  support  the  establishment  of 
wetlands  and  restoration  of  peatlands.  Nature-
based  solutions  are  equally  relevant  for  urban 
areas,  helping  transform  regions  to  be  more 
resilient  to  extreme  weather  events  in  the  future, 
as demonstrated by the LIFE LATEST adapt project. 
The  key  challenge  moving  forward  is  to  scale  up 
towards  a  more  systematic 
these  projects 
implementation.  

Water resilience 

Water  productivity  (257)  in  Latvia stood  at 
EUR 143 per m³ of abstracted water in 2023, 
below the EU-27 average of EUR 153 per m³. 
Latvia’s  water  productivity  has  been  improving 
since 2020. Its 2023 Water Exploitation Index Plus 
(WEI+)  was  0.14,  a  low  value  that  is  consistent 
with a fluctuation between 0.1 and 0.8 since 2016. 
Agriculture  remains  a  significant  water  consumer, 
accounting for 32% of total consumption despite a 
5%  decline  in  abstraction  from  2018  to  2023. 

(252) European Commission (2025), Macro-economic / top-down 

(255) Interreg Europe (2025), Fighting climate change: Peatland 

assessment of climate impacts on the EU economy. 

restoration in Latvia. 

(253) EEA (2024), Economic losses from weather- and climate-

(256) University of Latvia (2026), LIFE PeatCarbonLink. 

related extremes in Europe. 

(254) European Commission (2024), Support study on the climate 
adaptation and cross-border investment needs to realise the 
TEN-T network. 

(257) Water productivity is a metric that is calculated by dividing 
GDP (in chain-linked volume) by total water abstraction. It 
indicates the average economic value (GDP) a Member State 
creates for each unit of water it takes from nature. 

81 

 
 
 
Public water supply is the largest consumer (52% 
of total abstraction (258)). 

reveal 

chemical 

assessments 

Recent 
some 
improvements  in  the  ecological  status  of 
surface  water  bodies  but  also  a  decline  in 
the 
surface  and 
status  of 
groundwater  bodies,  compared  with  the 
previous  reporting  period.  According  to  the 
assessment  of  the  third  River  Basin  Management 
Plan (2022-2027), the ecological status of Latvia’s 
surface  water  bodies  has  improved,  with  32.5% 
now  achieving  good  status.  This  is  an  increase 
compared to the previous period’s 21%, but 67.5% 
still  fall  short.  All  surface  water  bodies  are 
assessed  as  failing  to  achieve  good  chemical 
status, with limited monitoring covering only 12% 
due  to  capacity  constraints (259).  Groundwater 
bodies  consistently  maintain  good  quantitative 
status,  but  their  chemical  status  has  declined 
(68% do not have good chemical status).  

Latvia is facing increasing water leakage and 
in  pollution 
a  significant  financing  gap 
protection  and  water  management.  In  2023, 
Latvia’s  water  leakage  increased  to  5.3 million 
cubic  metres  from  4.8 million  cubic  metres  in 
2022 (260).  This  highlights  substantial  investment 
needs  in  water  protection  and  management.  The 
financing  gap  matches  the  annual  investment  of 
EUR 171 million.  Improved  investment  is  crucial, 
especially  following the  adoption  of  the  amended 
and  strengthened  Urban  Waste  Water  Treatment 
Directive  (UWWTD)  in  2024 (261).  Infrastructure 
development  is  needed  in  order  to  improve  water 
supply.  Additional 
management, 
investment  is  needed  to  improve  monitoring  and 
support  nature-based  solutions,  flood  prevention 
and river restoration. 

reuse  and 

Latvia  has  a  high  compliance  rate  with  the 
Urban  Waste  Water  Treatment  Directive  – 
97.5% in 2022. In Latvia, households and certain 
population 
industries 
(roughly  3 million 
equivalents  of  wastewater 

1.5 million 

generate 

(258) EEA (2025), Water abstraction by source and economic 

sector in Europe. 

the  environment. 

bathtubs  daily) (262).  Urban  wastewater  needs  to 
be  treated  before  discharge  in  order  to  avoid 
polluting 
In  Latvia,  urban 
wastewater  is  treated  in  52  plants.  97.5%  is 
treated  according  to  the  requirements  of  the 
UWWTD  (above  the  EU  average  of  75.9%). Latvia 
does  not  yet  fully  use  tools  for  enhancing  water 
resilience  practices.  Viable  strategies 
include 
selectively  applying  water  abstraction  pricing  in 
stressed  catchments  (coupled  with  restructuring 
current  charges  to  differentiate  by  usage)  and 
potentially 
increasing  the  wastewater  tax  to 
EUR 2.14 per kg. Implementing a water abstraction 
tax could generate EUR 8.4 million annually (263). 

Nature restoration 

Nature  degradation  is  a  significant  risk  for 
Latvia’s  economy  and 
competitiveness. 
Latvia’s  supply  chain  relies  heavily  on  ecosystem 
services, which account for 32% of its gross value 
added  (EU  average: 22%).  37%  of  its  economy  is 
dependent 
(EU 
these 
average: 44%) (264).  Sectors 
agriculture, 
forestry, fishery and healthcare are entirely reliant 
services.  Annual  ecosystem 
on  ecosystem 
restoration  and  maintenance  costs  are  estimated 
at 
at 
EUR 611 million (265). 

services 
like 

EUR 54.3 million 

benefits 

and 

on 

Action  on  nature  protection  and  restoration 
will help Latvia meet the EU goal of 30% by 
2030. Latvia legally protects 18.4% of its land (EU 
average:  26.4%)  and  about  15.8%  of  its  marine 
areas  (EU  average:  12.3%).  Latvia  still  needs  to 
expand the Natura 2000 network on its territory. It 
also  faces  significant  nature  restoration  needs:  it 
has  to  take measures to  restore  up  to  3 141 km2 
of  land  habitats  (equivalent  to  up  to  4.9%  of 
Latvia’s territory) (266). Only about 10% of habitats 

(262) European Commission, Country profiles on urban waste 

water treatment: Latvia. 

(263) European Commission (2026), Greening the European 
Semester – Resource and pollution taxes, Table 74. 

(264) Dataset from Commission/JRC, based on The EU economy’s 

(259) European Commission (2025), Staff Working 

dependency on nature. 

Document(2025) 27 final. 

(260) OECD (2025), Latvia Water Losses: Leakage. 

(261) Directive (EU) 2024/3019 concerning urban wastewater 

treatment. 

(265) Ibid. 

(266) European Commission (2022), Impact assessment 

accompanying the proposal for a Regulation on nature 
restoration. 

82 

 
 
 
and  fewer  than  40%  of  species  have  a  good 
conservation  status.  The  mean  forest  condition 
index  was  0.63  in  2018 (267).  Latvia’s  common 
farmland bird population is above the EU average 
but has declined unevenly since 2011. 

Invasive  alien  species 
(IAS)  exacerbate 
nature  degradation  in  Latvia.  17 species  were 
recorded  in  2024  (268),  causing  an  estimated 
EUR 80 million  in  damage  between  1960  and 
2020, primarily affecting agriculture (269). Latvia is 
conducting  a  large  scientific  study  on  how  to 
control IAS (270). Its results will be used to develop 
national  guidelines  for  managing  IAS  throughout 
Latvia by 2027.  

of 

goals 

Aligning  itself  with  the  EU’s  biodiversity 
strategy would help Latvia to play its part in 
restoring  at  least  25 000 km  of  the  EU’s 
rivers  to  free-flowing  conditions  by  2030. 
This would support the achievement of the Water 
Framework  Directive’s 
restoring 
freshwater  ecosystems,  mitigating  flood  impacts 
and  delivering  socio-economic  benefits  (e.g. an 
improved  rural  landscape,  recreation,  tourism,  job 
creation, 
improved  water  quality  and  better 
sediment  transport  that  protects  deltas  and 
coastal  areas  against  erosion  and  rising  sea 
levels).  The  LIFE  River  Flow  project  in  Latvia (271) 
aims to enhance river connectivity and ecosystem 
improving  ecological  quality  across 
functions, 
tools  and 
557 km,  while  also  developing 
partnerships  for  sustainable  river  management. 
Similar initiatives (e.g. the Beja Watermill removal 
financed  by  the  Open  Rivers  grant  programme) 
further  support  these  objectives  by  opening  up 
approximately  20 km  of  free-flowing  rivers  in 
north-eastern  Latvia (272).  The  European  Maritime 

(267) On a scale from 0 to 1, where 0 represents a degraded 

ecosystem and 1 represents a reference condition based on 
primary or protected forests. 

(268) European Commission (2025), Environmental 

Implementation Review, Latvia Country Report. 

(269) NeoBiota (2021), Economic Cost of invasive alien species 

across Europe. 

(270) LIFE Integrated project: Optimising the Governance and 

Management of the Natura 2000 Protected Areas Network in 
Latvia. 

(271) European Commission (2025), Sustaining Latvia's Aquatic 

Ecosystems. 

(272) Open Rivers Programme, Beja Watermill, Latvia. 

and  Fisheries  Fund  (EMFAF)  is  supporting  the 
removal of barriers to fish migration (273). 

Sustainable agriculture and land use 

Latvia’s  is  not  on  track  to  meet  its  2030 
carbon removal target for land use, land-use 
change  and  forestry  (LULUCF).  The  LULUCF 
sector has historically delivered substantial carbon 
removals  in  Latvia  (even  resulting  in  overall  net 
negative  emissions  in  the  early  2000s),  but 
removals  have  declined  over  time,  and  the  sector 
has  been  a  net  emitter  since  2020.  In  2023, 
LULUCF  emissions  declined  for  the  first  time  in 
five  years.  The  sector  nevertheless  remained  the 
largest  source  of  greenhouse  gas  emissions, 
contributing  4.6 MtCO2-eq  in  2023  (over  30%  of 
Latvia’s total emissions). 

use 

and 

the 

land 

beyond 

changes 

Emissions  from  organic  soils  and  intensified 
harvesting 
ecosystem's 
regenerative  capacity  are  the  main  reasons 
for  the  increase  in  CO2  emissions  in  the 
LULUCF  sector.  This  increased  harvesting  is 
among others driven by the ageing of the forests, 
natural 
historic 
disturbances.  To  meet  its  2030  LULUCF  target, 
additional  carbon  removals  of  0.6 MtCO2-eq  are 
needed (274).  The  latest  available projections  show 
a  gap  to  target  of  7 MtCO2-eq  for  2030 (275).  In 
2025,  Latvia  took  some  steps  to  improve  its 
carbon  sequestration  capacities  and 
thereby 
improved  its  sustainable  resource  management 
practices (276).  It  also  continued  implementing  the 
measures  included  in  its  final  updated  national 
energy  and  climate  plan 
(such  as  restoring 
rewetted  peatlands,  afforestation  projects  and 
sustainable 
the 
Accelerating 
implementation  of 
these  measures  would 
nevertheless  be  in  order.  In  addition  to increasing 
in 
LULUCF  net  removals,  further 

reforestation). 

investment 

(273) For more information, see: Rural Support Service. 

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

Regulation (EU) 2023/839. 

(275) European Commission (2025), Climate Action Progress 

Report. 

(276) 2025 country-specific recommendation: “Increase resource 
efficiency and the transition to a circular economy through 
eco-innovation and sustainable resource management 
practices.” 

83 

 
 
 
healthy forests and soils is key to building resilient 
bio-based  product  value  chains  and  enabling  a 
growing,  competitive  EU  bioeconomy.  Continuing 
improvements  to  the  monitoring  system  of  net 
removal  data  will  be  particularly  crucial 
in 
supporting  timely  and  effective  action  in  the 
sector.  Improved  monitoring  of  carbon  removals 
and  emissions  could  also  enable  result-based 
financing under the CAP, State aid and other public 
funds,  by  making  GHG  emissions  and  removals  a 
key CAP result indicator. In addition, public-private 
financing  could  be  improved  by  involving  private 
funds of actors in the bioeconomy (through better 
reporting of emissions and removals in their value 
chain)  and  by  leveraging  the  carbon  removal  and 
carbon farming certification.  

climate 

severely  hinder  EU 

The  topsoil  organic  carbon  pool 
is  at 
significant  risk,  particularly  because  Latvian 
regions  are  cooler  and  more  humid  than  in 
some other parts of the EU. Further carbon loss 
could 
change 
mitigation  efforts  and  jeopardise  food  security 
(277).  In  Latvia,  the  estimated  loss  of  soil  organic 
carbon  in  mineral  soils  accounts  for  about  2%  of 
the  national  territory (278).  Data  on  organic  soils 
remains  unquantified.  Latvia  could  address  this 
issue by enhancing efforts to rewet peatlands and 
safeguard  them  from  draining  and  conversion  (in 
line  with 
the  Nature 
Restoration Regulation), which would also address 
national defence needs. 

requirements  of 

the 

its 

Latvia’s  agricultural 

sector 
In  2023, 
represented  around  15%  of 
total 
greenhouse gas emissions, including LULUCF. 
Latvia  has  a  low  livestock  density  of  around  0.2-
0.3 LU/ha of utilised agricultural area (UAA). This is 
well  below  the  EU  average  of  0.7 LU/ha  and  far 
below the >2 LU/ha threshold associated with high 
nutrient pressure (279). Latvia’s UAA increased from 
1 937 900 hectares 
to 
in 
1 970 800 hectares in 2024. 

2018 

(280),  but 

Latvia  has  not  met  its  ammonia  emission 
is 
reduction  commitments 
projected  to  do  so  from  2030  onwards.  In 
2023,  Latvia’s  agriculture  sector  accounted  for 
95%  of  its  total  ammonia  emissions.  Latvia 
nevertheless  has  the  lowest  rate  of  ammonia 
emissions  in  the  EU  (6.4 kg/ha  in  2023),  with  a 
reduction of 9% since 2018. 

it 

has 

been 

atmosphere. 

in  Latvia.  Nitrogen 

is  causing  nutrient 
Intensive  agriculture 
pollution 
in  the  Baltic  Sea  via  rivers, 
groundwater  and  the  atmosphere  (despite 
some  reductions  in  risk  areas  since  2005). 
There  has  been  some  progress  in  the  overall 
nitrogen  balance 
levels 
decreased  from  26.6 kg/ha  in  2018  to  23.6 kg/ha 
in  2023.  Eutrophication  is  a  major  issue  in  the 
Baltic  Sea,  driven  by  an  excess  of  nitrogen  and 
phosphorus  that  causes  oxygen-deprived  ‘dead 
zones’.  These  nutrients  stem  from 
intensive 
agriculture  in  the  Baltic  Sea  countries  and  enter 
the  sea  mainly  through  rivers,  groundwater  and 
the 
some 
There 
improvement  (risk  areas  have  fallen  from  84.5% 
to  60.1%  since  2005),  but  Latvia  continues  to 
struggle  with  excessive  nutrient  inputs.  The  latest 
HELCOM  assessment 
little 
progress in improving the Baltic Sea’s environment 
and no significant reduction in nitrogen input in the 
Gulf  of  Riga  since  1997-2003 (281).  The  Baltic 
Sea’s  poor  environmental  status  clearly  affects, 
for  example,  the  profitability  of  fisheries  and 
coastal  tourism,  and  impacts  a  wide  range  of 
ecosystem  services.  Moreover,  pollution  and  dead 
zones  in  Baltic  Sea  contribute  to  the  collapse  of 
stocks  of  some  fish  species  (e.g. Baltic  cod).  It  is 
therefore  necessary  to  continue  data  collection 
and  control  enforcement  regarding  fish  stocks  in 
the  Baltic  Sea (282).  Considering  the  high  costs  of 
inaction, investing in a healthy Baltic Sea is also an 
investment  in  the  region’s  sustainable  economic 
and 
societal  development.  Achieving  good 
environmental status in national marine waters by 
to  be  worth 
2040  has  been  estimated 
EUR 5.6 billion  per  year  to  the  people  around  the 

in  2023 

reveals 

(277) European Commission (2025), Soil organic carbon is at risk in 

a large part of European agricultural land. 

(278) European Commission, Staff Working Document(2023) 417 

final. 

(279) Eurostat 

(280) According to the 2024 inventories submitted under Article 
10(2) of the National Emission Reduction Commitments 
Directive. 

(281) HELCOM (2021), Eutrophication: thematic assessment. 

(282) The European Maritime and Fisheries Fund (EMFAF) is 

supporting data collection and control enforcement (total 
public support for data collection and control enforcement in 
Latvia amounts to EUR 30.6 million). 

84 

 
 
 
Baltic  Sea (283).  In  2023,  over  half  of  Latvia’s 
rivers,  nearly  a  quarter  of  lakes,  and  45%  of 
groundwater exceeded pesticide safety limits (284). 
Pesticides  not  only  threaten  aquatic  ecosystems 
and  related  socio-economic  activities  (such  as 
fisheries and coastal tourism) but also pose long-
term risks to human health through contaminated 
drinking water and food chains. 

The  share  of  agricultural  land  covered  by 
non-productive  landscape  features  in  Latvia 
was  4.3%  below  the  EU  average  of  5.6%  in 
2022 (285). Latvia had the lowest  decrease in the 
EU-27  in  the  extent  of  areas  providing  flood 
control  ecosystem  service,  despite  the  dramatic 
increase  of  average  yearly  net  land  take  in  cities 
and commuting zones (202%) between 2018 and 
2021  compared  to  the  previous  period  2012-
2018. 

has 

The 

government 

approximately 

EUR 216 million 

Latvia  is  in  transition  to  a  sustainable  food 
system  by  implementing  policies  to  reduce 
the  environmental  impact  of  agriculture. 
Organic  farming,  which  reduces  the  use  of 
synthetic fertilisers and pesticides, made up 15.6% 
of Latvia’s agricultural land in 2024 (above the EU 
average).  Under  its  CAP  strategic  plan,  Latvia 
to 
allocates 
organic  farming  and  aims  to  increase  the  area 
under  organic  farming  to  reach  18.8%  of  UAA  by 
2027. 
implemented 
measures  to  mitigate  the  environmental  impacts 
of agriculture, by reducing pollution (e.g. promoting 
integrated 
improving 
farming  systems  and 
methods  of  distributing  fertilisers  and  manure  to 
the soil). Over EUR 740 million of the CAP strategic 
plan’s  EU  funds  is  earmarked  for  measures  to 
support  the  climate  and  the  environment.  To  this 
end, 
agri-
environmental  interventions  and  seven  voluntary 
schemes 
the 
additional  costs  and  income  loss  resulting  from 
the  adoption  of  more  environmental  and  climate-
friendly  practices.  These  include  reduced  use  of 
fertilisers  and  pesticides,  farming  techniques  that 
protect biodiversity and soil conservation practices. 

that  compensate  farmers  for 

designed 

several 

Latvia 

has 

(283) HELCOM (2023), State of the Baltic Sea. 

(284) EEA (2023), Pesticides in rivers, lakes and groundwater in 

Europe. 

(285) Eurostat, LUCAS. 

85 

 
 
Table A10.1:Key Adaptation Indicators 

(1) EFFIS (European Forest Fire Information System), Link. (2) The climate protection gap refers to the share of non-insured 
economic losses caused by climate-related disasters, based on modelling of the risk from floods, wildfires and windstorms, and 
on the insurance penetration rate. Scale: 0 (no protection gap) – 4 (very high gap). EIOPA, 2025, Dashboard on insurance 
protection gap for natural catastrophes. (3) This 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 to or greater than 40% indicate severe water scarcity. (4) European Commission, 2024, Seventh 
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) (5) Indicator refers to concentrations of nitrate (NO3) in groundwater, measured as milligrams per litre 
(mgNO3/L). Nitrate 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 is limited to 50 mgNO3/L to avoid threats to human health. (6) Net 
removals are expressed in negative figures and net emissions are expressed in positive figures. Reported data are from the 2025 
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals is taken from Regulation (EU) 2023/839 – 
Annex IIa. 
Source: Eurostat, EEA and JRC. 

86 

Climate adaptation and preparedness:EU-27201920202021202220232024latest dataDrought impact on ecosystems19.151.614.830.9910.71-2.76[area impacted by drought as % of total]Forest fires burned area (1)49            -          251          171          127          -           354 510     [burned area in ha. per year]Economic losses from extreme events-          -          -          -          18            32            40 452       [EUR million at constant 2022 prices]Insurance protection gap (2)---2              2              2               -[composite score between 0 and 4]Sub-national climate adaptation action19            26            59            63            63            63            34               [% of population covered by the EU Covenant of Mayors for Climate & Energy]Water resilience:EU-27201920202021202220232024latest dataWater Exploitation Index Plus, WEI+ (3)0.24         0.22         0.21         0.20         0.14         -4.53            [total water consumption as % of renewable freshwater resources]Water productivity131          125          131          143          143          -151[EUR per m3]Water abstractionWater abstraction by source (% from surface water)52.43%53.57%53.50%51.35%53.10%-Water abstraction by sectorAgricultureElectricity coolingManufactu-ringPublic water supplyMining and QuarryingConstru- ction 31.91%1.37%12.06%51.14%3.53%0.00%Status of water bodies (4)[% of water bodies in a good status]Surface water bodies (ecological)-----33%38%Groundwater bodies (quantitative)-----100%93%Nature restoration:EU-27201920202021202220232024latest dataEcosystem dependency---37%--44%[% of direct dependency]Protected area18.118.118.118.118.426.4[% of terrestrial protected areas]Invasive alien species (IAS)-----1729.2[number of IAS of Union concern]Damage cost of IAS----0.081.69[EUR billion]Eutrophication 141141295[AAE of area at risk of euthrophication]Sustainable agriculture and land use:EU-272012-20182018-2021latest dataYearly net land taken by Member State183          552          670            [ppm of total urban surface per Member State]Land conversion in functional urban area [% of total land taken from 2018-2021]Arable land34%Complex and mixed cultivation0%Forests28%Herbaceous vegetation associations7%Open spaces with little or no vegetation0%Pastures28%Permanent crops0%Water1%Wetlands1%201920202021202220232024latest dataNitrates in groundwater (5)1.81.61.61.71.8[mgNO₃/l]Livestock density0.240.230.75(number of livestock units per hectare of utilised agricultural area)Ammonia emissions 96%96%96%96%96%-94%[% of total utilised agricultural area]Pesticide contamination on rivers and lakes water bodiesrivers53%27%[% of monitoring sites with pesticides exceeding thresholds, 2018-2023]lakes23%18%Pesticide contamination in soil 38%57%[% of samples with a concentration over 0.5 mg/Kg⁻¹]Net greenhouse gas removals from LULUCF (6)-2209.3529.41978.25701.74629.8--198 421 [ktCO₂-eq] 
 
   
 
FAIRNESS 
ANNEX 11: LABOUR MARKET 

Latvia  has  comparatively  strong 
labour 
market  outcomes  but  continues  to  face 
significant 
challenges. 
labour  market 
Employment  has  reached  a  record  high  in  2025, 
while  unemployment  nevertheless  remains  above 
the  EU  average.  Employment  challenges  remain 
most acute in the eastern border region of Latgale. 
Young  people  and  persons  with  disabilities 
continue  to  face  barriers  to 
labour  market 
integration,  but  some  positive  developments  have 
emerged  with  regard  to  supporting  employment 
opportunities  for  the  most  vulnerable  groups, 
including through the growing social economy. The 
employment  rate  among  women  is  high,  but  a 
large  gender  pay  gap  persists.  Real  wages  have 
grown  strongly  in  recent  years,  but  low  and 
declining  collective  bargaining 
further 
improvements  in  some  areas,  such  as  working 
conditions. Weak productivity growth poses risks to 
long-term  competitiveness,  and  labour  and  skills 
shortages need to be addressed (286). 

limits 

in  2024 

in 
Employment  growth  slowed 
response to the economic stagnation but has 
picked  up  again  in  line  with  the  economic 
recovery. The employment rate, having remained 
unchanged at 77.4% in 2024 (EU: 75.8%) and has 
increased  to  78.2%  in  2025  (EU:  76.1%).  This 
mirrors the recent economic developments, as real 
GDP  contracted  by  0.9%  in  2023,  showed  no 
growth in 2024, before recovering to 2.1% growth 
in  2025.  Likewise,  the  labour  force  participation 
rate, which had remained largely unchanged since 
2022,  grew  to  77.6%  in  2025  (EU:  75.7%).  The 
unemployment  rate  has  remained  stable  at  6.9% 
and above the EU average in 2025 (EU: 6.0%). The 
economy  is  projected  to  continue  to  grow  slightly 
in  the  upcoming  years,  with  the  unemployment 
rate  projected  to  decrease  to  6.5%  by  2027 (287). 
However, with demographic pressures intensifying, 
the  workforce  is  expected  to  shrink.  Latvia  risks 
falling  short  of  its  2030  national  employment 
target of 80%. 

Regional  disparities  persist,  particularly  in 
the  eastern  border  region  of  Latgale.  Riga 
accounts  for  65.6%  of  national  GDP,  while 
economic  output  is  significantly  lower  in  other 
regions. GDP per capita in Latgale is the lowest in 
the  country  and  about  one  third  of  the  level  in 
Riga (288).  The  difference  in economic  activity  also 
has  an  impact  on  labour  market  outcomes.  The 
activity  rate  (for  15-64-year-olds)  is  highest  in 
Riga  at  80%  and  lowest  in  the  eastern  border 
region  of  Latgale  at  71.4% (289).  Similarly, 
employment (15-64-year-olds) stands at 74.4% in 
Riga  and  63.5%  in  Latgale.  Latgale  also  faces 
higher  unemployment,  accelerated  depopulation 
and the lowest birth rate in the country at 5.9 per 
1000  in  2024  (Latvia:  6.9  per  1 000)  (290).  The 
average  net  wage  was  EUR 904  in  Latgale  in 
2024,  compared  with  EUR 1 332  in  Riga  and 
EUR 1 221  nationally.  Russia’s  war  of  aggression 
in  Ukraine  and  shifting  global  geopolitical 
conditions 
affected 
Latgale, which borders Russia and Belarus, through 
reduced  trade  and  tourism,  disrupted  supply 
chains,  higher  levels  of  hybrid  threats  and  a 
weakened investment environment (see Annex 18). 

disproportionately 

have 

labour  market  outcomes  have 
Youth 
deteriorated.  The  share of  young  people  neither 
in  employment  nor  in  education  and  training 
(NEETs)  increased  from  10.0%  in  2023  to  10.7% 
in  2024  and  reached  the EU  average  in  2025 (at 
11.0%). The labour force participation rate among 
15-24-year-olds  rose  to  36.1%  in  2025  (EU: 
40.7%),  and  the  employment  rate  increased  to 
30.8% 
(EU:  34.5%).  Youth  unemployment 
increased by 1.2 pps to 14.8% in 2025, converging 
with the EU average of 15.2%. The share of early 
school  leavers  rose  for  the  third  year  in  a  row  to 
8.8%  in  2025  but  remains  below  the  EU  average 
(9.1%).  

to 
disabilities 
Persons  with 
integrate into the labour market. The disability 
employment  gap  reached  21.3  pps  in  2024,  its 

struggle 

(286) 2025 country-specific recommendation: “Address labour and 

skills shortages, in particular in science, technology, 
engineering and mathematics (STEM) and in other 
specialisations needed for the green transition, for research 
and for digitalisation, as well as in the social and healthcare 
sectors, including through targeted upskilling and reskilling 
and improved working conditions.” 

(287) European Commission (2025), Economic forecast for Latvia. 

(288) Central Statistical Bureau of Latvia (2023), Gross domestic 

product by region and State city. 

(289) Central Statistical Bureau of Latvia (2025), Activity rate, 
employment rate and unemployment rate by region. 

(290) Central Statistical Bureau of Latvia (2024), Number of births 
per 1000 inhabitants and total fertility rate in regions, State 
cities and municipalities. 

87 

 
 
 
 
 
 
 
labour  market  slack 

to  a  mismatch  between 

highest  level  in  the  past  decade  (EU:  24  pps), 
before falling to 19.8 pps in 2025 (EU:  24.2 pps). 
58.2% of persons with some or severe disabilities 
are actively participating in the labour market (EU: 
55.5%).  The  unemployment  rate  for  persons  with 
disabilities however, though improving (down from 
12.4% in 2022 to 11.6% in 2024), remains above 
the  EU  average  (9.5%).  These  outcomes  are 
primarily  due 
the 
employment offer and the skills and capabilities of 
persons  with  disabilities,  as  further  evidenced  by 
the 
for  persons  with 
disabilities,  which  stood  at  17%  in  2024  (EU: 
18.8%).  Expanding  access 
job 
opportunities in the open labour market, outside of 
sheltered  workshops,  could  help  improve  their 
labour market outcomes (291). There is also a need 
for  individualised  support  services  tailored  to  the 
severity  of the  person’s  disability  and  the type  of 
functional  impairment.  Latvia  continues  to  invest 
in  active  labour  market  policies  for  persons  with 
disabilities 
training  and  subsidised 
employment  schemes  for  a  maximum  period  of 
two  years)  as  well  as  in  workplace  adaptations. 
However,  disability  policy  remains  insufficiently 
integrated  into  broader,  increasingly  important 
cross-sectoral  policy  initiatives  that  aim  to  boost 
competitiveness  and  reduce  labour  and  skills 
shortages.  

to  quality 

(including 

Long-term  unemployment  has  increased,  but 
the growing social economy offers solutions. 
the  EU 
Long-term  unemployment  surpassed 
average  in  2024,  rising  to  2.2%  (EU:  1.9%),  and 
slightly  further  increasing  in  2025  to  2.3%  (EU: 
1.9%).  This  is  likely  a  result  of  the  weaker 
economic  performance 
in  2023  and  2024, 
resulting  in  lower  labour  demand,  as  well  as 
insufficient 
integrated 
employment  and  social  services  for  vulnerable 
groups.  In  2024,  only  24.9%  of  people  in  long-
term unemployment had no disability (EU: 31.1%), 
indicating  that,  in  these  cases,  a  more  tailored 
approach  would  benefit  activation.  On  the  upside, 
Latvia is progressing with its social economy. Since 
the  adoption  of  the  Social  Enterprise  Law  in 
2017 (292),  which  aims  to  foster  the  employment 

inefficient 

and/or 

of  the  most  vulnerable  groups,  more  than  380 
social enterprises have been established, and 279 
were still active in 2025 (293). 

Female  labour  market  participation  is  high, 
but  large  gender  pay  disparities  persist. 
Women are more economically active than in most 
other  Member  States,  at  76.1%  in  2025  (EU: 
71.1%), and the gender employment gap remains 
one  of  the  lowest  in  the  EU  at  1.9  pps  (EU:  9.6 
pps).  However,  Latvia  had  an  above  EU  average 
gender  pay  gap  in  2024  at  13.9%  (EU:  11.1%). 
This  reflects  strong  sectoral  gender  segregation, 
with  higher  shares  of  women  working  in  sectors 
such as care, retail  and education, where average 
salaries  are  lower,  and  higher  shares  of  men 
working  in  higher-paying  sectors,  such  as  ICT.  Of 
4.9% of the population working in ICT, 26.8% were 
women. In higher-paying sectors where women are 
well  represented,  such  as  the  health  sector, 
women  remain  under-represented  in  top-paying 
positions (294).  Cultural  stereotypes,  educational 
choices and a relatively higher care burden further 
contribute to the persisting gender pay gap. 

and 

collective 

The  quality  of  jobs  is  improving,  but  trade 
unionisation 
bargaining 
coverage  are  low.  The  minimum  wage  has 
increased  (by  12.9%  in  2024  and  5.7%  in  2025, 
reaching  EUR  740),  and  real  wages  have  grown 
strongly (by 6.5% in 2023 and 7.4% in 2024). As a 
result, the adequacy of earnings has improved. The 
risk of in-work poverty fell  from 9.2% in 2023 to 
8.2% in 2024 but rose up to 8.7% in 2025 again 
(EU:  8.3%).  Job  satisfaction  among  employees  is 
above  the  EU  average,  while  the  share  of 
employees  with  long  working  hours  in  their  main 
job fell to just 0.9% in 2025 (EU: 6.2%). However, 
involuntary part-time employment remains high at 
26.4% (EU: 17.8%), although it has improved since 
2021.  Further  progress  on  fair  wages  and  better 
working  conditions 
low  and 
decreasing  levels  of  trade  unionisation  (10.3%  in 
2021) (295),  employer  organisation  density  (56.4% 
in  2018) (296)  and  collective  bargaining  coverage 

is  hindered  by 

(291) See practical guidance developed together with stakeholders 
under the Disability Employment Package, the common 
compass to steer Member State’s investments for the 
inclusion of persons with disabilities into employment and to 
avoid the perpetuation of segregating employment models. 

(292) Link to the Social Enterprise Law. 

(293) Ministry of Welfare (2025), Social Entrepreneurship Day 

2025: There are already 279 social enterprises operating in 
Latvia. 

(294) Bank of Latvia, makroekonomika.lv (2023), Why Latvia 

cannot afford to live without gender equality?. 

(295) OECD (2021), Trade union density. 

(296) OECD/AIAS (2018), ICTWSS v2.0. 

88 

 
 
 
to 

decisions 

strengthen 

in  2022) (297).  Moreover, 
(25.8% 
collective 
bargaining is mainly at company level, with a lack 
of  sectoral-level  agreements.  The  Action  Plan  for 
Promoting  Collective  Bargaining  2025-2027, 
adopted  in  September  2025,  may  contribute  to 
improving  the  situation,  but  its  effects  are  yet  to 
be seen. In 2026, a working group was established 
with representatives of employers, employees and 
the  Central  Statistics  Bureau  to  advance  the 
accounting  of  data  on  collective  bargaining.  This 
initiative  is  expected  to  support  evidence-based 
policy 
collective 
bargaining.  On  the  broader  involvement  of  social 
partners  in  policymaking,  employers  and  trade 
unions  have  expressed  concerns  about 
the 
effectiveness of the tripartite dialogue at national 
level. In particular, consultations are reported to be 
increasingly conducted at short notice, limiting the 
time  for  social  partners  to  carry  out  in-depth 
assessments 
complex 
proposals.  The  quality  of  social  dialogue  also 
appears to vary across sectors, with the healthcare 
sector cited as being particularly ineffective. There 
is  room  for  strengthening  the  capacity  of  social 
partners  to  boost  social  dialogue  across  sectors. 
Lastly,  workplace  safety  remains  a  concern,  with 
fatal  accident  rates  among  the  highest  in  the  EU 
at 3.21 per 100 000 workers in 2023. 

documents 

and 

of 

Recent  wage  gains  have  outpaced  labour 
productivity growth.  The gross monthly median 
wage  grew  by  10.7%  to  EUR  1  357  in  2024 (298). 
However, real labour productivity per hour worked 
only  recovered  modestly,  increasing  by  0.9%  in 
2024 (following declines of 0.3% in 2022 and 1% 
in  2023).  As  a  result,  nominal  unit  labour  costs 
based on hours worked increased by 8.7%, slightly 
below  the  2022  and  2023  growth  of  11.3%  and 
9.3%  respectively, but  still  significantly  above  the 
EU average of 4.8% (Graph A11.1). This divergence 
indicates  that  recent  productivity  gains  have  not 
kept  pace.  The  slow  pace  of  digitalisation  and 
workforce 
impacts 
productivity  growth,  with  participation  in  adult 
learning still below the EU average (see Annex 13).  

negatively 

upskilling 

(297) OECD (2022), Collective bargaining coverage. 

(298) Central Statistical Bureau of Latvia (2025), Average monthly 

and median wages and salaries. 

89 

Graph A11.1: Nominal and real unit labour costs 
and components (compensation of employees and 
productivity), compared with 2007 

Real unit labour cost, real compensation per employee and 
real productivity - compared with 2007 
Source: Eurostat, National Accounts 

(11.7%). 

the  EU  average 

Labour  shortages  and  skills  mismatches  in 
specific  sectors  will 
likely  continue  to 
hamper  competitiveness (299).  Labour  market 
slack, a measure of the mismatch between labour 
supply  and  demand,  stood  at  11.1%  in  2025, 
below 
In  2024, 
employment  outcomes  worsened  more  for  low-
skilled  workers  (Graph  A11.2).  This  resulted  in  a 
the  macroeconomic  skills 
slight 
mismatch  rate  (from  17.5%  in  2023  to  18.7%  in 
2024),  although  it  remains  below the  EU  average 
of  19.2% (300).  Labour  shortages  have  recently 
declined,  with  the  job  vacancy  rate  standing  at 
2.2%  in  Q2-2025,  close  to  the  EU  average  of 
2.1%.  However,  shortages  remain  high  in  specific 
sectors,  such  as  energy  production  (2.3%  vs  EU: 
1.4%) and manufacturing (2.4% vs EU: 1.6%).  

increase 

in 

The  most  in-demand  occupations  in  2025 
were  sales  and  marketing  professionals, 

(299) 2025 country-specific recommendation: “Address labour and 

skills shortages, in particular in science, technology, 
engineering and mathematics (STEM) and in other 
specialisations needed for the green transition, for research 
and for digitalisation, as well as in the social and healthcare 
sectors.” 

(300) The macroeconomic skills mismatch indicator measures the 
discrepancy between employment outcomes for workers 
with low, medium and high levels of skills (represented by 
qualification levels, with ISCED 0-2 – low; 3-4 – medium and 
5-7 – high). 

60708090100110120130140150160200720082009201020112012201320142015201620172018201920202021202220232024index 2007=100LVReal compensation per employeeReal productivity per personReal unit labour cost 
 
  
 
(301).  By  2040, 

development  managers,  public 
relations 
professionals,  as  well  as  cleaners  and 
helpers 
the  highest  skills 
shortages  are  expected  to  occur  in  engineering, 
manufacturing and construction (with the need for 
75 000  workers),  science  (9 600)  and  agriculture 
(3 700) (302).  Looking  at  qualifications,  more  than 
100 000  additional  workers  with  upper-secondary 
or  post-secondary  vocational  education  and 
training will be needed to meet the demand,  with 
the  most 
in 
manufacturing (303).  Shortages  are  also  expected 
to  increase  in  the  healthcare  and  social  sector, 
particularly nurses and caretakers (304) (see Annex 
13).  

shortages 

projected 

acute 

Graph A11.2: Unemployment rate by educational 
attainment (annual), Latvia 

green  and  digital  transitions  are  likely  to  further 
for  new  skills  and 
intensify 
exacerbate existing shortages and mismatches. 

the  demand 

intensity  of 

Considerable  challenges  in  the  transition  to 
climate neutrality persist. Emission intensity of 
output stands at 175% of the EU average, and the 
greenhouse  gas  emission 
the 
workforce  improved  by  only  10%  between  2018 
and  2023  (EU:  20%).  Energy-intensive  industries 
account  for  1.7%  of  employment,  below  the  EU 
average  of  3.5%.  The  amount  of  solar  energy 
produced  between  2021  and  2023,  however, 
increased  by  more  than  18  times,  pointing  to  a 
high potential for job creation in this area. 

The  labour  force  is  shrinking,  with  a  limited 
inflow  of  talent  from  abroad.  In  2025,  the 
labour  force  stood  at  884 000,  down  from 
887 000  in  2023  and  957 000  a  decade  earlier. 
While net migration was positive in 2022, primarily 
due to the influx of Ukrainian civilians fleeing from 
Russia’s  war  of  aggression  against  Ukraine,  it 
turned negative again in 2023 and 2024. Latvia’s 
share  of  EU  movers  (people  aged  20-64  who  are 
nationals of another Member State) is 0.45% and 
one  of  the  lowest  in  the  EU  (EU:  3.85%).  The 
number of non-EU nationals obtaining a long-term 
residence permit fell by 10.7% in 2024, with India 
being the main country of origin. In addition, 5 300 
were posted to Latvia by employers based in other 
EU  countries  in  2023,  mostly  on  short-term 
contracts (306). 

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

Only 48.43% of the population had at least basic 
digital skills, one of the lowest results in the EU. By 
2035,  Latvia  is  projected  to  face  a  particularly 
strong  demand  for  high-qualification  (52%)  and 
medium-qualification  (43%)  professionals,  with 
the  most  acute  shortages  expected  among  highly 
skilled  workers  in  the  legal,  social  and  cultural 
sectors (305).  Technological  advancements  and  the 

(301) CEDEFOP (2025), EURES. 

(302) Ministry of Economics forecasting tool, 2025. 

(303) Ibid. 

(304) Ibid. 

(305) CEDEFOP (2025), Latvia: 2025 Skills forecast. 

(306) OECD (2025), Latvia: International Migration Outlook 2025. 

90 

05101520253035200720082009201020112012201320142015201620172018201920202021202220232024% labour force 20-64LVHigh skilledMedium skilledLow skilled 
     
 
 
ANNEX 12: SOCIAL POLICIES 

Latvia  continues  to  face  considerable  social 
challenges. Wealth and income inequality remain 
high, due to limited redistribution and the low and 
diminishing  impact  of  social  transfers  on  poverty 
reduction.  This  pushes  a  significant  proportion  of 
the population into poverty. Poverty is particularly 
high  among  unemployed  people,  people  of 
pensionable  age  and  people  with  disabilities,  and 
among  those  with  a  low  level  of  education  and 
those in non-standard employment, including self-
employed workers such as farmers. Despite some 
progress in recent years, social and long-term care 
services  remain  underdeveloped.  Latvia  is  also 
facing  additional  socio-economic  challenges  as  a 
result  of  Russia’s  war  of  aggression  against 
Ukraine, the impact of which is particularly evident 
in  the  country's  eastern  border  region  of  Latgale. 
The  2025 
recommendations 
called on Latvia to strengthen social protection to 
reduce  inequality,  including  by  improving  the 
adequacy  of  old-age  pensions  and  access  to 
quality  social  services,  particularly  home  care. 
challenges  will 
Addressing 
contribute 
and 
growth 
to 
competitiveness. 

these  structural 
inclusive 

country-specific 

Inequality  remains  among  the  highest  in 
Europe,  with  limited  redistribution  through 
the  tax-benefit  system.  The  income  quintile 
share ratio (S80/S20) increased from 6.28 in 2024 
to 6.68 in 2025, remaining significantly above the 
EU  average  of  4.62  (307).  Inequality  increased  at 
both the bottom and the top of income distribution 
(with  S50/S20  and  S80/S50  increasing  in  2024 
and 2025). Persistent income inequality reinforces 
the  already  high  wealth  inequality  (see  Annex  3). 
Wealth inequality  reached the highest level in the 
euro area in Q1-2025 (308), primarily due to limited 
redistribution  from  the  tax-benefit  system.  In 
recent years, Latvia has broadened its tax revenue, 
including  by  reducing  the  shadow  economy. 
General  tax  revenue  reached  34.9%  of  GDP  in 
2024,  although  it  remains  below  the  EU  average 
of 39.4%. In addition, the 2025 labour tax reform 
reduced the taxation of earnings from labour (the 
tax  wedge)  for  the 
lower-  to  medium-wage 
earners. However, its impact  on income inequality 
is  expected  to  be  limited,  as  the  lowest-income 

group is more effectively supported through social 
benefits (309).  

Progress  has  been made  in  reducing  poverty 
and  social  exclusion,  but  overall  levels  are 
still  relatively  high  (310).  The  at-risk-of-poverty 
or social exclusion (AROPE) rate stood at 24.7% in 
2025,  almost  4pps  above  the  EU  average  of 
20.8%. Likewise, the at-risk-of-poverty rate (AROP) 
remains  very  high  at  22.0%  in  2025  (vs  EU: 
16.3%) (311). The proportion of people experiencing 
severe  material  or  social  deprivation  fell  by  0.5 
percentage  points  to  4.8%  in  2025  and  is  now 
below  the  EU  average  of  6.3%.  The  latter  can  be 
attributed to recent efforts to strengthen the ‘last 
resort’ safety net system. In 2023, Latvia adopted 
a minimum income reform, and in 2025, it raised 
the  guaranteed  minimum  income  threshold  from 
20% to 22% of the median income In the context 
of  the  mid-term  review,  Latvia  provided  a  top-up 
of EUR 27.4 million in order to be able to maintain 
essential features of the valuable in-kind material 
support  and  food  assistance  in  the  European 
Social Fund Plus (ESF+) Programme for Addressing 
Material  Deprivation  2021-2027.  Nevertheless, 
homelessness 
increasing  and  remains  the 
highest  in  the  Baltics  in  terms  of  the  share  of 
homeless  persons  in  the  total  population  (312).  In 
2024, 5 971 persons stayed in municipal shelters 
(313).  Since  2019,  the  number  of  people  at  risk  of 
poverty  or  social  exclusion  has  fallen  by  52 000, 
demonstrating that Latvia is on track to achieve its 
2030 poverty reduction target of 95 000 persons 
but that sustained efforts are needed to reach the 
goal.  To  address  the  multiple  dimensions  of 
poverty,  the  implementation  of  a  comprehensive 
approach,  as  set  out  in  the  EU  Anti-Poverty 
Strategy,  can  support  progress  towards  achieving 
the national anti-poverty target.  

is 

(309) Estimates  by  the  European  Commission,  Joint  Research 

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

(310) 2025  country-specific  recommendation:  “Strengthen  social 
protection  to  reduce  inequality,  including  by  improving  the 
adequacy  of  old  age  pensions  and  access  to  quality  social 
services,  notably  home  care,  while  maintaining  fiscal 
sustainability.” 

(311) 2024 AROP is based on income earned in 2023.  

(312) OECD  (2024),  Affordable  Housing  Database  and  Data  on 

(307) Income-based indicators for 2024 refer to income earned in 

homelessness: Latvia 

2023. 

(308) ECB (2025), Distributional Wealth Accounts. 

(313) Central  Statistical  Bureau  of  Latvia  (2024),  Recipients  of 
municipal social services in State cities and municipalities. 

91 

 
 
 
 
Minimum income benefit has been increased, 
but  the  adequacy  and  coverage  of  social 
protection  remain  limited.  Despite  the  2023 
reform, the adequacy of Latvia's minimum income 
benefit scheme is still below the EU average, since 
the total income of a minimum income beneficiary 
(single  person)  stands  at  44%  of  the  poverty 
threshold (smoothed over 3 years) and at 34% of 
the total  income of a minimum wage earner (314). 
Coverage  also  remains  low:  in  2025,  only  63.1% 
of people aged 18 to 64 at risk of poverty received 
benefits  other  than  old-age  benefits,  compared 
in  the  EU.  The  existing  social 
with  72.4% 
protection system still does not reach a significant 
proportion  of  the  population  at  risk  of  poverty. 
Enhancing  benefit  adequacy  and  improving  active 
inclusion measures to enable every citizen to work 
and  participate  fully  in  society,  in  line  with  the 
Council  Recommendation  on  minimum  income, 
would support the most vulnerable. 

(other 

The  effectiveness  of  social  transfers  in 
reducing  the  risk  of  poverty  in  Latvia  is  low 
and  deteriorating.  For  unemployed  people,  the 
risk  of  poverty  decreased from  57.6%  in  2024 to 
56.5%  in  2025,  yet  remaining  significantly  above 
the  EU  average  of  49.3%.  The  impact  of  social 
than  pensions)  on  poverty 
transfers 
reduction  stabilised  at  22.0%  in  2025  after  two 
consecutive  falls  in  2023  and  2024  but  remains 
significantly lower than the EU average at 33.2%. 
According to a simulation by the Commission (315), 
the  poverty  rate  and  the  depth  of  poverty 
increased  for  most  key  target  groups  between 
2015  and  2025, including  before  and  after  social 
largest 
(excluding  pensions).  The 
transfers 
increases  were  observed  for  households  with 
persons  with  disabilities,  migrant  households  and 
households  with  older people (aged  65  years  and 
over).  This  indicates  that  these  groups  are  most 
affected by the decreasing effectiveness of social 
transfers.  The  poverty  gap  after  social  transfers 
increased  by  3.52  pps  for  households  consisting 
only of older people, 2.62 pps for households with 
persons  with  disabilities  and  4.28  pps  for 
households  where  at  least  one  member  had  a 
migration background. The relative ineffectiveness 
and  drop  in  performance  of  social  transfers  is 
related  to  low  social  benefits  expenditure,  which 

remains  significantly  below  the  EU  average,  at 
18.7% of GDP in 2024 (vs EU: 27.3% of GDP) (316). 
Amid  rising  pressures  on  the  social  security 
system, Latvia is developing a new social security 
forecasting  tool  with  the  support  of  the  Recovery 
and  Resilience  Facility.  This  tool  should  improve 
the  long-term  sustainability  of  the  social  security 
system  and  potentially  contribute  to  improved 
effectiveness of social transfers in the long run. 

Graph A12.1: Impact of social benefits on poverty 
reduction (%) 

Impact of social transfers (other than pensions) on poverty 
reduction (% reduction of AROP) 
Source: Eurostat, EU SILC. 

in-work  at-risk-of-poverty 

Employees  on  temporary  and  part-time 
contracts  are  significantly  more  exposed  to 
poverty.  The 
rate 
decreased from 9.5% in 2023 to 8.5% in 2024 but 
rose  back  to  9.0%  in  2025  (EU:  8.3%).  This  is 
primarily  due  to  strong  wage  growth  and  a 
decrease in poverty risk for permanent employees, 
which fell from 7.1% in 2023 to 6.1% in 2024, but 
rose  to  6.4%  in  2025.  Conversely,  the  risk  of 
poverty  for  employees  on  temporary  contracts 
increased  from  10.7%  to  13.0%  in  2024  and 
improved  to  12.6%  in  2025.  Part-time  workers 
also experienced a significantly higher risk (18.8%) 
than  the  EU  average  (13.5%  in  2025).  For  full-

(314) European Commission and Social Protection Committee 

(2025), 2025 Minimum Income Report. 

(315) Estimation by the European Commission, Joint Research 

Centre, based on the EUROMOD model, J2.0+. 

(316) 2025 country-specific recommendation: “Make public 

finances fit to cope with rising structural spending needs 
including for defence, healthcare and social protection, such 
as by broadening taxation to sources less detrimental to 
growth.” 

92 

101520253035402015201620172018201920202021202220232024LVEU-27 
 
  
 
time employees, the risk of in-work poverty (7.4%) 
is now above the EU average (6.8%). 

There  are  strong  regional  disparities,  with 
the eastern border region of Latgale facing a 
particularly  precarious  situation.  The  risk  of 
poverty  in  Latgale  stands  at  32.7%,  which  is 
significantly above the national average and more 
than twice that of the capital city of Riga (14.2%) 
(317). The region, which borders Russia and Belarus 
to the east and Lithuania to the south, is exposed 
trade  relations  with  Russia, 
to  deteriorating 
threats,  negative 
increasing  hybrid  warfare 
pressures on investor confidence and more limited 
access  to  finance.  Latgale’s  population  density, 
already much lower than that of the capital region 
(318),  continues 
to  decrease,  exacerbated  by 
ongoing  depopulation.  Access  to  social  services, 
employment  and  healthcare  is  limited  due  to 
underdeveloped 
insufficient 
mobility solutions (see Annex 18).  

infrastructure  and 

Latvia  continues  to  host  a  large  number  of 
Ukrainian  civilians  (319).  While  the  number  of 
people  arriving  from  Ukraine  has  decreased,  by 
mid-2025 more than 30 000 Ukrainians were still 
registered  in  Latvia,  of  whom  60%  were  women 
and  23%  children  (320).  At  the  start  of  2025, 
temporary 
around  9 000  Ukrainians  with 
protection status had found employment, primarily 
in  manufacturing  (321).  With  municipal  support, 
more  than  3 000  people  were  in  temporary 
accommodation  and  over  2 500  received  the 
guaranteed minimum income benefit each month. 
In addition to providing more than EUR 200 million 
in  financial  support  to  assist  Ukrainian  civilians 
between 2022 and 2024, Latvia extended support 
by  a  further  EUR 65  million  in  2025.  In  the  first 
three  quarters  of  2025, Ukrainians  received  more 
than  20 000  food  packs  and  10 000  hygiene 
packs through the ESF+ programme for addressing 
material deprivation. 

(317) Central Statistical Bureau of Latvia (2024), At-risk-of-poverty 

rate in regions. 

(318) Central Statistical Bureau of Latvia (2025), Usually resident 

population density in regions, cities and towns, municipalities, 
and rural territories. 

(319) Central Statistical Bureau of Latvia (2024), Long-term 
international migration by citizenship of migrants. 

(320) Ministry of the Interior (2025), On the current situation in 
providing support to the civilian population of Ukraine. 

(321) Central Statistical Bureau of Latvia (2025), Around 9 000 

citizens of Ukraine work in Latvia. 

Child  poverty  remains  relatively  low,  but 
single-parent  households  are  still  more 
vulnerable.  The  AROPE  rate  for  children  has 
continued to improve, falling from 20.3% in 2023 
to  17.9%  in  2024  and  17.6%  in  2025,  which  is 
well below the EU average of 24.3%. However, the 
support  schemes  and  measures  under 
the 
European  Child  Guarantee  national  action  plan 
remain  largely  universal  and  untargeted,  with 
social  service  provision  and  income  assessment 
carried  out  at  municipal  level.  While  households 
with  dependent  children  face  a  lower  risk  of 
poverty  (13.7%)  than  those  without  (30.5%), 
single-parent  households  face  a  significantly 
higher risk, at 28.7% (EU: 33.8%). Latvia does not 
recognise  a  specific  legal  status  for  single-parent 
households,  nor  does  it  provide  targeted  social 
support  for  those  at  risk  of  poverty.  In  2026, 
increases 
(from 
EUR 421.17 
the  childcare 
to  EUR 298)  are 
allowance 
expected  to  benefit  all  households  with  young 
children.  There  would  be  room  to  further  target 
this  allowance  or  to  introduce  additional  support 
specifically for single parent households. 

the  childbirth  allowance 

to  EUR 600)  and 

(from  EUR 171 

in 

the  gradual 

Old-age  poverty  remains  significant,  despite 
recent  policy  efforts  (322).  In  recent  years, 
Latvia has taken steps to improve the adequacy of 
re-
old-age  pensions, 
including 
introduction  of  supplement  payments 
(to  be 
completed  by  2029),  annual  indexation,  increases 
in  minimum pensions  and  non-taxable  thresholds. 
In  2023,  Latvia  amended  the  rules  for  life 
insurance  providers  offering  life  annuities  from 
capital  accumulated  under  the  second  pension 
pillar, prohibiting the previous practice of providing 
higher  payouts  in  the  initial  stages  of  retirement. 
Nevertheless, the poverty risk  for  people  aged  65 
and  over  remained  more  than  twice  the  EU 
average, at 41.7% in 2025 (EU: 16.3%). The risk of 
poverty for retired persons increased further, from 
48.7% in 2024 to 49.3% in 2025 (EU: 15.0%). The 
risk  of  old-age poverty  is particularly  high  among 
women  aged  65  and  over,  at  45.4%  in  2025 
(compared  with  33.9%  for  men).  The  recent 
equalisation  of  life  annuities  is  expected  to  help 
reduce the low pension adequacy for people aged 
75  and  over,  a  group  that  includes  a  higher 
proportion of women. However, given the decrease 
in the aggregate replacement ratio in 2024 and in 

(322) 2025 country-specific recommendation: “Strengthen social 
protection to reduce inequality, including by improving the 
adequacy of old age pensions.” 

93 

 
 
 
2025,  it  is  evident  that  the  most  recent  policy 
efforts to improve old-age pension adequacy have 
not yet fully materialised. 

no 

(EU: 

28.8%),  with 

Persons  with  disabilities  also  face  a  greater 
risk  of  poverty  and  social  exclusion.  The 
AROPE  rate  among  persons  with  disabilities  in 
Latvia is one of the highest in the EU, at 42.6% in 
significant 
2025 
improvement over the past ten years. This figure is 
24.5 pps higher than for people without disabilities 
in  Latvia.  The  situation  is  even  worse  for  people 
with  severe  disabilities  (56.5%  compared  with 
36.5% for the EU) and for women with disabilities 
(46.4% in 2025 compared with 29.5% for the EU). 
Poverty or social exclusion is much greater among 
persons with disabilities aged 65 and over (50.2% 
vs 22.6% in the EU), than among those aged 16-
29  (32.4%  vs  36.2%  in  the  EU),  suggesting  that 
more  effective  support  mechanisms  are  in  place 
for  younger  persons  with  disabilities  and  that 
there  is  a  need  to  strengthen  the  policy  support 
framework  to  better  address  the  overlapping 
inequalities  faced  by  vulnerable  groups.  The 
at 
carer's 
EUR 213.43  and  has  not  been  increased  for  15 
years.  Latvia  has  the  highest  share  of  self-
perceived disability in the EU at 35.9% (EU: 24.2%) 
in  2025.  Deinstitutionalisation  (323)  is  slow  and 
appears  to  be  stalling,  with  reports  that  several 
municipalities  are  showing  reduced  interest  in 
to  provide  existing 
expanding  or  continuing 
increasing 
community-based  services  due 
financial constraints. 

unchanged 

allowance 

remains 

to 

The availability of long-term care services is 
insufficient  (324).  Latvia  has  one  of  the  highest 
levels  of  long-term  care  (LTC)  needs  in  the  EU 
(38.8% compared with 26.6% for the EU) (325) and 
one  of  the  lowest  levels  of  public  expenditure  on 
LTC at 0.5% of GDP (EU: 1.7%) (326). Public support 
primarily  focuses  on  people  with  severe  needs, 
while  people  with  moderate  or  low  needs  receive 
limited  or  no  support  and  face  higher  out-of-
pocket than the EU average. As a result, the risk of 
poverty  among  home  care  recipients  remains 

services  basket 

above  the  EU  average  (327).  Access  to  home  care 
services is far below the EU average at 14.6% (EU: 
28.6%) (328) despite some efforts to increase their 
provision in recent years. Following the adoption of 
the  minimum 
reform,  all 
municipalities  are  obliged  to  have  established  a 
home  care  service  for  persons  with  severe 
disability  as  of  2025.  As  relatively  few  LTC 
workers  are  covered  by  sectoral  collective 
agreements  and  participate  in  education  and 
training,  the  attractiveness  of  the  sector 
is 
reduced,  contributing  to  staff  shortages.  Latvia 
has  only  0.9  LTC  workers  for  every  100  people 
aged 65 and over, compared with the EU average 
of 3.3 workers (329). 

transport  poverty 

remain 
Energy  and 
significant  issues  in  Latvia.  In  2025,  the 
country  continued  to  face  high  levels  of  energy 
poverty,  driven  by  an  old  building  stock,  cold 
risk  of  poverty, 
temperatures  and  a  high 
particularly  in  rural  areas  (330).  Latvia  would 
benefit  from  exploring  ways  to  reduce  the  risk  of 
energy  poverty, 
including  through  the  Social 
Climate Fund. Transport poverty is also a concern. 
Due to Latvia’s limited public transport network in 
many  rural  areas  (see  Annex  18),  access  to 
essential  services  within  a  reasonable  timeframe 
is  insufficient.  The  regions  of  Latgale,  Zemgale, 
Kurzeme  and  Vidzeme,  where  approximately  22% 
of  the  population  is  at  risk  of  poverty,  have 
particularly  poor  public  transport  links,  where  it 
takes at least half of the population more than 45 
minutes to reach the nearest healthcare facility by 
public  transport  (331).  Higher-than-the-EU-average 
car use partially offsets this gap, but affordability 
remains  a  concern: 
in  2024,  9.2%  of  the 
population  could  not  afford  a  car,  compared  with 
the  EU  average  of  5.6%.  This  particularly  affects 
people  at  risk  of  poverty,  among  whom  the 
percentage  rises  to  18.8%  (EU  average:  15.9%). 
Rail use in Latvia, measured in terms of the share 
of  passenger-kilometres  in  total  land  transport, 
stands  at  3.8%  and  is  below  the  EU  average  of 
8.4%. 

(323) This refers to the transition from institutional care to 
independent living and inclusion in the community. 

(324) 2025 country-specific recommendation: “Strengthen […] the 
access to quality social services, notably home care, while 
maintaining fiscal sustainability.” 

(325) Eurostat (2019), European Health Interview Survey. 

(326) European Commission (2024), 2024 Ageing Report. 

(327) OECD (2026), Adequacy of social protection for long-term 

care. 

(328) Eurostat (2019), European Health Interview Survey. 

(329) Eurostat (2024), Labour Force Survey. 

(330) European Commission, JRC (2025), European rural areas face 

higher levels of energy poverty. 

(331) European Commission (2025), Transport Poverty Hub. 

94 

 
 
 
ANNEX 13: EDUCATION AND SKILLS 

but 

skills 

broadly 

education  and 

system 
Latvia’s 
risks 
well, 
performs 
deteriorating 
issues  remain 
if  structural 
unaddressed.  Participation  in  early  childhood 
education and care (ECEC) is high, and basic skills 
outcomes  are  good  in  comparison  with  the  EU 
average.  Nevertheless,  regional  disparities  are 
pronounced,  with  lower  educational  outcomes  in 
the  regions  outside  the  capital.  The  education 
system  is  not  adapted  to  demographic  trends, 
including  through  continued  consolidation  of  the 
school  network.  The  low  attractiveness  of  the 
teaching  profession,  central  to  developing  the 
skills of the future workforce, represents a risk to 
the quality of education in the medium term. There 
is  also  ample  scope  to  further  improve  the 
employability  of  people  who  have  completed 
vocational  education  and  the  uptake  of  lifelong 
learning (332). 

Participation in ECEC for children both under 
and over the age of three is high. In 2025, the 
share  stood  at  45.1%,  having  surpassed  the  EU 
average  of  40.5%  and  the  national  Barcelona 
target  of  41%  by  2030.  All  children  over  the  age 
of  18 months  are  legally  entitled  to  a  place  in 
ECEC;  if  a  municipality  cannot  provide  a  public 
place, it has to contribute to the cost of alternative 
private  services,  with  families  covering 
the 
remainder.  At  age  five,  children  enter  mandatory 
primary education. The share of children aged 3-6 
in formal ECEC at 95.6% in 2023, is above the EU 
average (94.6%), nearing the target of 96% (333). 

in  the 

Educational  outcomes  are  relatively  strong 
but  remain  below  EU  targets,  and  at  school 
level,  regional  disparities  are  pronounced. 
Latvia showed relatively good results in basic skills 
proficiency 
(2022)  PISA  tests. 
latest 
Underachievement  in  reading,  mathematics  and 
science  has  been  below  the  EU  average  since 
is  one  of  the  EU’s  top 
2012.  The  country 
performers 
in  secondary  school. 
However,  the  share  of  top  performing  students 
across  all  three  domains has  remained  below  the 
EU  average  for  a  decade.  Levels  of  proficiency  in 

in  science 

(332) 2025 country-specific recommendation: “Address labour and 

skills shortages, in particular in science, technology, 
engineering and mathematics (STEM) and in other 
specialisations needed for the green transition, for research 
and for digitalisation, as well as in the social and healthcare 
sectors, including through targeted upskilling and reskilling 
and improved working conditions.” 

basic  skills  vary  significantly  by  geographical 
area, with larger urban schools, particularly in Riga, 
performing much better than smaller rural schools 
(see  Annex  18).  The  city-rural  score  gap  in  2022 
was significantly higher than the EU average, with 
56 in mathematics (EU average: 46); 68 in reading 
(EU  average:  52)  and  61  in  science  (EU  average: 
46).  Substantial  investments  are  being  made  in 
school 
infrastructure  under  the  recovery  and 
resilience  plan  (RRP)  and  with  support  from 
cohesion  policy  funds,  including  renovation  and 
digitalisation  projects 
learning 
to  quality 
environments  and  ensure  access 
education. 

to  modernise 

instruction 

The  transition  to  Latvian  as  the  sole 
in  all  general 
language  of 
education  institutions  is  being  finalised.  The 
transition will be fully implemented by the end of 
the  2025/2026  school  year,  with  the  primary 
objective  of  promoting  linguistic  integration  and 
national  cohesion.  Minority  students  retain  the 
right  to  study  their  native  languages  and  cultural 
subjects  through  extracurricular  activities.  The 
reform has increased demand for teacher training 
and  support  measures  for  linguistic  minorities  to 
prevent  social  exclusion  and  ensure  equitable 
learning opportunities, which remains a challenge. 
Concerns  persist  about  uneven  implementation 
across  municipalities,  which 
risks  deepening 
regional and sociolinguistic disparities. 

aim 
to 
improve 

Reforms are ongoing to consolidate the large 
address 
school  network. 
They 
demographic  change  and 
resource 
allocation.  Latvia’s  population  fell  by  18 000  to 
1.86 million in 2025, as births fell to a record low 
of 12 900 in 2024 (334), leading to decreasing pupil 
numbers. The country is currently consolidating its 
school  network  and  implementing  Programma 
skolā,  a  new  funding  model  for  schools.  A 
streamlined school network is expected to enhance 
the  quality  of  education  across  the  country. 
However,  school  closures  –  particularly  in  rural 
areas  – 
raise  concerns  about  accessibility, 
including longer commuting distances and reduced 
local support, which may disproportionately affect 
vulnerable groups. 

Latvia  is  taking  steps  to  address  persistent 
concerns  about  teacher  retention.  Shortages 

(334) Central Statistical Bureau of Latvia (2024), Population and 

(333) Based on ECEC participation data and total population data. 

population change. 

95 

 
 
 
 
 
are especially acute in rural areas and in subjects 
such as mathematics, natural sciences and foreign 
languages.  About  two  thirds  of  lower  secondary 
teachers are aged 50 or older (58.8% in 2023; EU 
average: 39.8%). This is particularly concerning, as 
the 2024 TALIS teacher survey reveals that 52.9% 
of  teachers  under  the  age  of  30  intends  to  leave 
the  profession  within  five  years  (EU  average: 
15.2%).  Factors  related  to  working  conditions 
impact  teachers’  well-being  and  their 
might 
retention.  Measures  have  been  taken  to  further 
increase  salaries,  attract  new  entrants  and 
improve induction. While pay increases since 2018 
have  boosted  satisfaction  (from  22%  to  38.9%), 
salaries  remain  lower  than  those  of  tertiary-
educated  workers  (at  a  ratio  of  0.77  in  2023;  EU 
average:  0.85) (335).  Over  the  past  decade,  Latvia 
has  introduced  supplementary  pathways  into  the 
profession (336). According to the TALIS survey, the 
proportion  of  second-career  teachers  rose  from 
7%  in  2018  to  11%  in  2024.  By  contrast,  weekly 
working  hours  have  risen  (from  35.1  to  42.3), 
surpassing  the  EU  average  (39).  Additionally,  the 
share  of  teachers  working  in  schools  where  more 
than 10% of students are non-native speakers has 
increased (from 23% in 2018 to 38.2% in 2024), 
surpassing the EU average (24.4%). This coincided 
with the transition to Latvian-only instruction (337). 

Early  school  leaving  has  increased  in  recent 
years but remains below the EU average. The 
proportion  of  early  leavers  from  education  and 
training rose from 6.7% in 2022 to 8.8% in 2025, 
but  it  remains  below  the  EU  average  (9.1%  in 
2025) and the EU target of less than 9% by 2030. 
Participation  may  have  been  affected  by  the 
delayed  effects  of  the  pandemic  between  2020 
and  2022,  the  elevation  of  exam  standards  and 
the  growing  share  of  non-native  speakers  in 
rose  from 
classrooms.  Youth  unemployment 
12.3%  in  2023  to  13.6%  in  2024  and  14.8  in 
2025 (EU average: 15.2%), and the share of young 
people  not  in  employment,  education  or  training 
also  increased,  from  10.0%  in  2023  to  10.7%  in 
2024 and 11.0% in 2025 (EU average: 11.0%). 

Despite  ongoing  reforms  to  improve  labour 
market  relevance,  the  employability  of 
(VET) 
vocational  education  and  training 

to 

one 

taken 

testing 

improve 

in  2024: 

tool  and  has  made 

graduates remains a challenge. In recent years, 
the 
steps 
Latvia  has 
attractiveness of VET by making the learning offer 
more  flexible,  inclusive  and  aligned  with  labour 
market  needs. 
It  has  developed  a  graduate 
it  publicly 
tracking 
available (338). Work is ongoing to develop a work-
based  learning  system,  with  two  pilot  projects 
shorter, 
launched 
apprenticeship  type  courses  for  initial  VET,  post-
secondary and adult learners, and another seeking 
to  strengthen  the  capacity  of  sectoral  expert 
councils  to  better  identify  labour  market  needs 
and  employers  willing  to  engage  in  work-based 
learning. Nevertheless, work-based learning within 
the  vocational  education  and  training  system 
in  2024,  34.9%  of 
remains  underdeveloped: 
people who had completed VET had been involved 
in  work-based  learning  during  their  studies  (EU 
average: 65.2%). In addition, the attractiveness of 
VET  still  lags  behind  that  of  higher  education, 
notably due to weaker labour market outcomes for 
people  who  have  completed  VET:  in  2025,  the 
employment  rate  for  people  who  had  recently 
completed  upper-secondary  or  post-secondary 
non-tertiary VET was 74.6%, remaining well below 
the  EU  average  of  80.2%.  Continued  efforts  to 
strengthen  initial  and  continued  VET  are  thus 
needed,  particularly  given  rising  skills  shortages 
and mismatches. 

Educational attainment is generally high, but 
significant  regional  and  gender  differences 
persist. The highest performing general education 
institutions  are  concentrated  in  the  capital  region 
is 
of  Riga,  where  educational  attainment 
significantly higher than in the rest of the country, 
with  39.6%  of  the  population  having  completed 
tertiary  education  (ISCED  5-8  levels)  and  36.7% 
having  completed  general  education  (ISCED  3 
level).  Outside  Riga,  only  some  25%  of  the 
population  have  completed  tertiary  education  and 
43% 
education. 
Attainment  in  non-tertiary  vocational  education 
(ISCED 4 level) also varies significantly across the 
country,  with  the  highest  share  in  the  eastern 
border region of Latgale (17.4%) and the lowest in 
Riga  (11.5%) (339).  While  the  level  of  education 
partly  reflects  regional  economic  opportunities, 
further  improving  skills  to  match  labour  market 

completed 

general 

have 

(335) OECD (2025), Education at a Glance 2025. 

(336) See macitspeks.lu.lv and iespejamamisija.lv. 

(337) OECD (2024), Results from TALIS 2024. 

(338) CEDEFOP (2026), Improving VET graduate tracking. 

(339) Central Statistical Bureau of Latvia (2024), Population aged 

15 and over by educational attainment group. 

96 

 
 
 
needs  is  essential  for  growth.  In  2025,  44.7%  of 
tertiary  educational 
25-34-year-olds  had  a 
qualification,  close  to  the  EU  average  of  44.8% 
and the EU-level target of 45% by 2030. However, 
while  the  tertiary  educational  attainment  (TEA) 
rate  of  young  women  (54.7%)  is  significantly 
above the EU average of 50.6%, the TEA rate for 
men  is  well  below  the  EU  average  (35.2%  vs 
39.3%), 
indicating  an  opportunity  to  further 
engage men in higher education. The employment 
rate  for  recent  tertiary  education  graduates  (20-
34)  stood at 92.1% in 2025, higher than in 2024 
(89%) and above the EU average of 87.0%. 

to 

rates 

remain 

increase  participation 

The  number  of  female  STEM  graduates  lags 
behind  male  attainment,  adding  to  gender 
inequalities  and  skills  shortages.  Despite 
in 
policy  efforts 
STEM (340),  participation 
low, 
especially  among  women.  The  share  of  students 
enrolled  in  STEM  courses  at  tertiary  level  was 
25.1%  in  2023,  below  the  EU  average  of  26.9% 
and  the  proposed  EU  target  of  32%  by  2030. 
Moreover, the share of female enrolment in STEM 
courses was only 26.5% (EU average: 32.2%). Only 
around 1 in 7 pupils in medium-level VET in STEM 
fields were female (14.6% in in 2024; EU average: 
15.9%),  far  below  the  proposed  EU  target  of  at 
least  25%  by  2030.  Increasing  the  number  of 
women  in  STEM  jobs,  which  usually  offer  better 
pay  and  working  conditions,  could  also  help 
address the gender pay gap, one of the largest in 
the  EU.  On  the  upside,  47.2%  of  students  in 
medium-level  VET were enrolled  in STEM fields in 
2024, significantly above the EU average (36.6%). 

Latvia 

Latvia  is  modernising  its  higher  education 
system  to  improve  its  quality  and  labour-
market  relevance.  Reforms  include  improving 
the  licensing  and  quality  assurance  of  its  study 
programmes. 
the 
‘Digitalisation of the Study  Process’ project, which 
will  run  until  2029  with  a  EUR 33 million  EU-
initiative  aims  to 
supported 
provide  flexible  study  options,  integrated  digital 
management  systems,  e-diplomas  and  greater 
cooperation  with  employers (341).  A  funding  model 
is  being 
for  higher  education 

investment.  The 

institutions 

launched 

has 

(340) European Commission (2025), Education and Training 

Monitor: Latvia. 

(341) Ministry of Education and Science (2025), Latvia's 

Universities and Colleges to Implement Study Solution 
Modernization. 

97 

to  align 

reform  seeks 

introduced as a pilot running until the end of 2026. 
resources  with 
The 
institutional  performance  and  national  economic 
needs.  It  also  introduces  mechanisms  to  improve 
enrolments  in  STEM  courses  at  post-secondary 
level, including  graduate-oriented  funding,  flexible 
performance-based 
admissions 
incentives (342).  Moreover, 
the 
since  2025, 
government  has  assumed 
for 
responsibility 
determining  the  procedure  for  licensing  study 
programmes,  with  requirements  stipulated 
in 
cabinet  regulations  rather  than  in  the  Law  on 
Higher  Education  Institutions.  This  shift  aims  to 
facilitate  the  maintenance  and  improvement  of 
higher education quality (343). 

and 

Latvia  is  taking  gradual  steps  to  make 
academic careers more attractive.  To address 
the  2025  country-specific  recommendation  on 
shortages,  upskilling  needs  and  better  working 
conditions  for  research,  Latvia  has  increased  the 
number  of  PhD  graduates  and  piloted  tenure 
tracks, benefiting from support under the RRP and 
the Technical Support Instrument (344). In 2022, the 
share  of  PhD  graduates  per  1 000  inhabitants 
aged 25-34 was 0.3 (EU average: 1.3), down from 
0.5  in  2015 (345).  A  new  doctoral  model  was 
launched  in  2024,  with  completion  due  by  early 
2027.  The  new  model  ensures  adequate  pay  for 
doctoral  students  and  provides  for  a  unified  PhD 
process  and  support  across  higher  education 
institutions.  After  seven  years  of  discussions,  the 
Latvian  cabinet  of  ministers  adopted  the  concept 
for  the  post-doctoral  career  reforms,  including  a 
unified  and  more  predictable  four-step  academic 
career framework. It features a new framework for 
evaluating the performance of academic staff and 
flexibility  to  expand  permanent  contracts.  The 
related  legislative  amendments  are  planned  to 
enter into force by the end of 2026, with updates 
to cabinet regulations to follow in 2027 (346). 

The  green  and  digital  transitions  call  for 
continued  efforts  to  upskill  and  reskill  the 

(342) Cabinet of Ministers (2024): Greater autonomy for 

universities: pilot project to change funding system will be 
introduced. 

(343) Eurydice (2025), National reforms in higher education. 

(344) OECD (2026), Academic career reform in Latvia. 

(345) Eurostat 

(346) Ministry of Education and Science (2024), Support for the 

introduction of a new academic career framework. 

 
 
 
is 

vs 

lower 

60.4%), 

negatively 

workforce.  The 
level  of  basic  digital  skills 
remained  well  below  the  EU  average  in  2025 
(48.4% 
affecting 
productivity  and  competitiveness.  The  16-29  age 
group  has  the  highest  proportion  of  individuals 
with digital skills (67.6%; EU average: 74.7%). This 
proportion 
among 
significantly 
unemployed people (25-64) at 41.6% (EU average: 
53.3%),  which  is  concerning  as  digital  skills  are 
increasingly  required  in  the  labour  market.  Latvia 
continues  to  invest  considerable  resources  in  the 
development  of  digital  literacy,  also  with  support 
from  EU  funds.  Moreover,  projected  labour  and 
skills shortages (see Annex 11) affect sectors that 
are  particularly  relevant  to  the  green  transition, 
such 
and 
engineering.  A  green  skills  module  has  been 
developed  and 
into  VET  curricula. 
However,  it  would  be  beneficial  for  Latvia  to 
continue efforts to train specialists at the VET and 
increase 
the  post-secondary 
investments  in  upskilling  and  reskilling  the  labour 
force.  Latvia  has  also  referenced  its  National 
Qualifications  Framework 
the  European 
Qualifications  Framework  (EQF),  so  that  newly 
issued  qualifications  clearly  indicate  their  EQF 
level.  This 
the  comparability  of 
qualifications  across  countries  participating  in  the 
EQF and promotes labour and skills mobility. 

construction,  manufacturing 

levels,  and 

integrated 

facilitates 

as 

to 

to 

‘stars.gov.lv’.  Supported  by 

Adult  learning  remains underdeveloped  amid 
recent  policy  initiatives,  for  which  it  is  too 
early  to  see  the  results.  Latvia  has  committed 
to  reforming  its  adult  learning  system  as  part  of 
the  RRP.  It  is  piloting  an  individual  learning 
accounts  scheme,  which  aims  to  improve  the 
digital skills of at least 3 500 adults by May 2026. 
Information on upskilling or reskilling opportunities 
can  now  be  centrally  accessed  through  the  online 
the  Just 
portal 
Transition  Fund,  Latvia  will  provide  training  in 
regions  from  2026,  including  by  continuing  VET 
programmes  for  low-skilled  people  and  young 
people not in employment, education or training, to 
adapt  to  labour  market  needs  arising  from  the 
green  transition  (see  Annex  11).  However,  many 
projects are at the initial stage, with results still to 
there  are  persistent 
be 
difficulties  in  reaching  low-qualified  individuals 
and  increasing  training  provided  by  employers. 
According 
survey, 
participation  in  adult  learning  fell  from  39%  in 
2016  to  34.1%  in  2022,  putting  at  risk  the 
achievement of the 2030 national  target of 60%. 
More  recent  data,  from  the  labour  force  survey, 

the  adult  education 

seen.  Meanwhile, 

to 

suggest  a  possible  increase  in  participation  rates 
collective 
between  2022  and  2025.  Low 
bargaining coverage presents an additional barrier, 
given  that  workers’  rights  to  training  are  also 
regulated by collective agreements (see Annex 11). 
In  addition,  in  2023,  Latvia  performed  below  the 
EU  average  in  adult  basic  skills  for  literacy  and 
adaptive  problem-solving,  as  measured  by  the 
survey of adult skills by PIAAC, with around 1 in 3 
adults recording low proficiency in these domains. 

human 

through 

promoting 

The  use  of  skills  intelligence  tools  and 
relevant  coordination  across  government 
departments  have  improved,  with  support 
from  EU  funds.  Since  2023,  the  Ministry  of 
Economics,  the  Ministry  of  Welfare  and  the 
Ministry  of  Education  and  Science  have 
coordinated  – 
the  Human  Capital 
Development  Council  –  the  planning,  design, 
implementation  and  monitoring  of  labour  market 
resource 
adjustments, 
development in alignment with future demand and 
structural  economic  changes.  The  ministries  now 
jointly  contribute  to  the  skills  forecasting  system 
developed  with  support  from  the  European  Social 
Fund in 2016-2022. The system provides forward-
looking  information  on  employment  demand  and 
is  based  on  macroeconomic  scenarios  that  take 
into 
future  growth  and  productivity  changes 
consideration as well as supply (forecast of labour 
and  skills  supply,  based  on  demographic  and 
educational  attainment  data,  data  on  current 
students  and  more).  The  information  is  used  to 
identify the occupations that are most in demand. 
Forecasts  are  updated  once  every  two  years  and 
for  both 
help  design 
employed 
individuals, 
complemented  by  skills  intelligence  from  other 
stakeholders  (e.g.  Sectoral  Expert  Councils).  In 
2022-2025,  in  collaboration  with  the  OECD  and 
the  European  Commission,  Latvia  developed  a 
Digitalisation  Strategy  for  the  State  Employment 
Agency  (the  public  employment  service,  PES) (347). 
As part of further efforts to digitalise the PES and 
with  support  from  the  Recovery  and  Resilience 
Facility, a digital skills profiling tool was developed 
in  2023  to  offer  more  targeted  upskilling  and 
reskilling for unemployed people and those at risk 
of unemployment. 

training  programmes 

unemployed 

and 

(347) Technical Support Instrument, 2022 project: Modernizing 
digital systems of the Latvian Public Employment Service. 

98 

 
 
ANNEX 14: SOCIAL SCOREBOARD 

Table A14.1:Social Scoreboard for Latvia 

Update of 4 May 2026. 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 2026 for details on the methodology 
(https://employment-social-affairs.ec.europa.eu/joint-employment-report-2026_en). 
Source: Eurostat 

99 

34.18.848.411.01.96.6878.26.92.3122.824.717.622.019.85.745.17.6Critical situationTo watchWeak but improvingGood but to monitorOn averageDynamic 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, 2025)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2025)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2025)Self-reported unmet need for medical care (% of the population aged 16+, 2025)Disability employment gap (percentage points, population aged 20-64, 2025)Housing cost overburden (% of the total population, 2025)Adult 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 marketBest performersBetter than averageEarly leavers from education and training(% of  the population aged 18-24, 2025)Young people not in employment, education or training(% of the population aged 15-29, 2025)Gender employment gap(percentage points, population aged 20-64, 2025)Income quintile ratio (S80/S20, 2025)At risk of poverty or social exclusion (AROPE) rate (% of the total population, 2025)Employment rate(% of the population aged 20-64, 2025)Unemployment rate(% of the active population aged 15-74, 2025)Long term unemployment(% of the active population aged 15-74, 2025)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2024)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2025) 
 
 
 
  
 
 
ANNEX 15: HEALTH AND HEALTH SYSTEMS 

Latvia’s  health  system  faces  significant 
challenges  that  need  to  be  addressed  to 
improve  the  health  of  its  population  and 
ensure  social  fairness,  while  boosting  the 
the  economy  and 
competitiveness  of 
productivity.  The  challenges  relate  to  low  life 
expectancy,  severe  health  workforce  shortages, 
low  public  spending  and  high  rates  of  avoidable 
country-specific 
mortality. 
recommendations  (CSRs)  highlighted  the  need  for 
additional  human  and 
resources, 
broadening  the  statutory  benefits  package  and 
redirecting  expenditure  to  priority  areas  based  on 
public spending reviews. 

financial 

2025 

The 

Despite  surpassing  its  pre-COVID-19  level, 
life expectancy at birth in Latvia was one of 
the  lowest  in  the  EU  in  2024.  Life  expectancy 
has  shown  a  recovery trajectory  from  the COVID-
19 pandemic, achieving an increase of almost one 
year  in  2024  compared  with  2019,  to  76.4 years. 
While  the  gender  gap  between  men  and  women 
has  decreased  marginally  –  from  10.1 years  in 
2023  to  9.9 years  in  2024  –  it  remains  a 
significant  concern.  Furthermore,  data  on  healthy 
life  expectancy  suggests  that  while  women  live 
longer,  they  experience  only  a  3.1-year  gap  in 
healthy  years,  indicating  that  they  spend  more 
years in poorer health. 

In  2022,  Latvia’s  avoidable  mortality  was 
among  the  highest  in  the  EU,  driven  by 
cardiovascular  diseases  (CVDs)  and  cancer, 
despite  post-2021  declines.  CVDs  and  cancer 
continue  to  be  the  primary  drivers  of  mortality, 
accounting for well over two thirds of the country’s 
deaths.  To  tackle  these,  Latvia  participates  in 
EU4Health  joint  actions,  including  JACARDI  (348), 
which  aims  to  reduce  the  burden  of  CVDs. 
Moreover,  as  part  of  the  Latvian  recovery  and 
resilience  plan  (RRP),  October  2025  saw  the 
adoption  of  the  healthcare  services  improvement 
plan  in  the  field  of  oncology  for  2025-2027, 
establishing a patient-centred, integrated oncology 
system that focuses on early diagnosis and data-
driven treatment. In the context of a multi-country 
the  Technical  Support 
project  supported  by 
Instrument,  Latvia  benefits  from  support  towards 
improving cancer screening and treatment  (349), in 

(348) Jacardi. 

(349) Technical Support Instrument, 2025 project: Cost-
effectiveness modelling and economically-based 

an  effort  to  reduce  morbidity  and  mortality  and 
thereby  improve  health  outcomes.  Notably,  while 
suicide  rates  in  2023  remained  above  the  EU 
average, Latvia reduced suicides by a quarter over 
the preceding decade. 

for 

In  2023,  Latvia  had  one  of  the  highest 
preventable  mortality  rates  in  the  EU,  and 
rates  decreased  only  marginally  over  the 
preceding decade. The preventable mortality rate 
in  Latvia  is  more  than  double  the  EU  average, 
highlighting  a 
systemic 
critical  need 
intervention.  However,  spending  on  prevention 
remains modest; while expenditure in this area has 
seen  a  slight  increase  over  the  last  10 years,  the 
2023 level of total health spending remains below 
the  EU  average  of  3.7%  (see  Table A15.1).  Of 
particular  concern  is  the  share  of  healthcare 
spending  dedicated 
immunisation,  which 
to 
represented  a  mere  0.07%  of  total  health 
expenditure  in  2023.  Despite  a  EUR 4.6 million 
reduction in the budget of the Ministry of Health in 
2025,  Latvia  continues  to  leverage  ESF+  (350) 
projects to foster health promotion and implement 
prevention measures. 

in 

antimicrobial 

Preventable  mortality  in  Latvia  is  closely 
linked  to  behavioural  risk  factors,  such  as 
high  alcohol  consumption.  The  behavioural 
landscape  for  health  is  currently  a  study  in 
contrasts.  In  a  positive  trend,  Latvia  has  shown 
stewardship; 
progress 
consumption  of  antibacterials  for  systemic  use 
stood  at  15.4  defined  daily  doses  (DDDs)  per 
1 000  inhabitants  in  2024,  well  below  the  EU 
average (20.3) and approaching the Latvian 2030 
target  of  12.6 DDDs  (351).  Compared  with  adults, 
and  despite  poor  diet  and  vaping  habits, 
adolescents  show  notable  improvements  in  terms 
of  lower  rates  of  alcohol  consumption,  improved 
physical  activity  and  obesity  metrics.  However, 
significant  behavioural  risks  persist  among  the 
adult  population.  Latvia  remains  among  the  EU 
countries  with  the  highest  alcohol  consumption 
and  the  highest  daily  smoking  rates.  Additionally, 
adults in  Latvia  report  the  lowest  consumption  of 
fruit  and  vegetables  and  the  lowest  levels  of 

recommendations for prioritization in cancer screening and 
cancer treatment activities. 

(350) European Commission, The ESF+ in Latvia. 

(351) National target set by the Council Recommendation on 

stepping up EU actions to combat antimicrobial resistance in 
a One Health approach, 2023/C 220/01. 

100 

 
 
 
 
 
 
 
physical  activity  outside  working  hours  in  the  EU. 
In  2022  Latvia  ranked  among  the  EU  countries 
with the highest rates of obesity in adults (352). 

In 

These  poor  behavioural  risks  negatively 
affect  Latvia’s  workforce,  productivity  and 
competitiveness. 
recent  years,  Latvia’s 
consistently high share of mortality at working age 
(21.4%  of  total  mortality  in  2024)  has  ranked 
among  the  highest  in  the  EU.  Fostering  the 
promotion  of  a  healthy  lifestyle  and  further 
funding  in  prevention  measures  could  reduce  this 
impact. It has been shown that a large proportion 
of  non-communicable  diseases  (NCDs),  including 
over  80%  of  CVDs,  can  be  prevented  (353).  For 
example,  it is  estimated  that  preventing mortality 
from  all  NCDs  in  Latvia  –  over  half  of  which  are 
CVDs  –  could  yield  a  (2.1%)  gain  of  359 947 life 
years cumulated over 2022-2040 (vs 0.9% for the 
EU),  representing  the  second-highest  potential 
gain  in  the  EU  (see  Graph A15.1).  This  increase 
would  mitigate  the  expected  10.7%  reduction  of 
the  workforce  due  to  ageing  of  the  2022 
population (7% for the EU) (354). 

Graph A15.1: Potential gains in working-life years 
from prevention, between 2022 and 2040 

improve 

of  its  budget  to  outpatient  care  and  (to  a  lesser 
extent)  inpatient  care  compared  with  the  EU 
average.  To 
service  quality  and 
accessibility  –  addressing the  2025 CSR  –  and  as 
part  of  Latvia’s  RRP,  the  national  health  service 
introduced  a  unified  contract  on  1 January  2025, 
aimed  at  reducing  administrative  fragmentation 
and improving resource efficiency by fostering, for 
example, the use of remote consultations. A major 
issue  is  Latvia’s  particularly  low  health  spending; 
its public share of 59.6% (2023) ranks among the 
lowest  in  the  EU.  Over  one  fifth  (21%,  2023)  of 
is  allocated  to  retail 
total  health  spending 
pharmaceuticals  (mostly  prescribed  medicines), 
partly  due  to  the  inelastic  nature  of  medicine 
pricing across the EU. This translates into a heavy 
financial  burden  for  households;  OOP  payments 
accounted for 35.1% of total health costs in 2023, 
more than double the EU average of 15%. Among 
others, OOP payments mainly account for costs in 
dental  care  (19%),  outpatient  care  (21%)  and 
pharmaceuticals  (33%)  (see  Graph A15.2).  High 
OOP  payments  and 
to 
pharmaceuticals  have  been  addressed  by  recent 
reimbursement 
measures, 
rates (from 50% to 75%), expansion of the list of 
reimbursable  medicines,  an 
the 
individual patient compensation cap (from EUR 14 
200 to EUR 30 000 per 12-month period), and an 
additional  EUR  3  million  allocated  in  2025  to 
ensure critical medicine availability. 

(lack  of)  access 

increased 

including 

increase 

in 

Graph A15.2: Out-of-pocket payments: share in 
healthcare spending and categories, 2023 

Source: EC/OECD/European Observatory on Health System 
and Policies (2025), State of Health in the EU: 2025 Synthesis 
Report. 

The  functioning  of  the  health  system  is 
hampered by low public  spending  and a  high 
reliance  on  out-of-pocket  (OOP)  payments. 
On service delivery, Latvia allocates a higher share 

(352) EC/OECD/European Observatory on Health Systems and 

Policies (2025), State of Health in the EU: Country Health 
Profile for Latvia. 

(353) NCD Alliance (2025), Noncommunicable Diseases (NCDs). 

(354) EC/OECD/European Observatory on Health System and 

Policies (2025), State of Health in the EU: 2025 Synthesis 
Report. 

Household out-of-pocket payment: direct payment for 
healthcare goods and services from the household primary 
income or savings, where the payment is made by the user at 
the time of the purchase of goods or the use of the services 
(Eurostat). VHI: voluntary health insurance. 
Others: eyeglasses, hearing aids, lab tests... 
Source: Eurostat and Country Health Profiles 

101 

0.7%0.5%1.3%0.3%0.1%0.1%0.0%0.5%1.0%1.5%2.0%2.5%LatviaEUCancerCVDDiabetes and chronic lower respiratory disease60%35%5%33%21%2%16%19%8%Gov. & CompulsoryOut-of-pocket (OOP)Voluntary (VHI)PharmaceuticalsOutpatient careLong-term careOthersDental careInpatient careShare ofspendingOOP BreakdownOOP share -EU-27 average:15% 
      
 
      
 
Table A15.1: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 2023 data (or latest available). 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 Portugal (licensed to practice) and Slovakia (professionally active). Latest data 
update on nurses for Belgium and Sweden: 2022; for France: 2021; for Luxembourg: 2017. 
** latest available 10-year trend: ratio 2023/2014 or 2024/2013; a factor of 2.00 means that it has doubled in 10 years. 
***‘Available hospital beds’ covers somatic care, not psychiatric care. 
Source: Eurostat 

The  pharmaceutical  sector  in  Latvia  has 
limited  economic  significance  and  shows 
lower  levels  of  innovation  than  the  rest  of 
the  EU.  Both  the  employment  rate  (0.32%  in 
2021)  and  the  manufacture  of  pharmaceutical 
products  in  2023  (0.79%)  remain  below  the 
respective  EU  averages.  The  absence  of 
(pharmaceutical)  patents  granted  (355)  reflects 
these  low  levels  of  innovation.  Despite  Latvia’s 
participation  in  relevant  EU4Health  joint  actions 
such  as  IncreaseNET  (356)  (medicines  regulatory 
network),  the  notable  downward  trend  in  the 
number  of  clinical  trials  in  recent  years  (357) 
demonstrates  a  decrease  in  research  activity.  As 
for 
extra-EU 
pharmaceutical  exports  have  remained  within  the 
4-5%  range  over  recent  years  (4.8%  in  2025), 
further cementing Latvia as a ‘tail-end’ performer 
and separating it from the consistently  increasing 
EU average (13.8% in 2025). 

commercialisation, 

trade  & 

Financial  barriers  and  long  waiting  lists 
result in high levels of unmet medical needs, 
particularly  for  vulnerable  groups.  In  2025, 
7.6%  of  the  Latvian  population  reported  unmet 
needs for medical examination, one of the highest 
rates  in  the  EU  (EU  average:  2.4%).  The  primary 
drivers  are  waiting  lists  (4.8%)  and  costs  (2.5%). 
Inequality  is  a  major  concern:  the  gap  in  unmet 
needs  between  the  lowest  and  highest  income 

(355) European Patent Office: Statistics & Trends Centre. 

(356) BfArM - Joint Action IncreaseNET. 

quintiles  is  10.2 percentage  points.  Furthermore, 
unmet  dental  needs  are  a  critical  issue,  with 
15.3%  of  the  population  reporting  lack  of  care, 
rising  to  37.7%  for  those  below  the  poverty 
the 
threshold. 
population  lived  within  a  10-minute  drive  of  a 
hospital, this level of access drops to one third for 
those  in  rural  areas  –  a  symptom  of  ongoing 
geographic disparities (358) (see Annex 18). 

In  2023,  although  58%  of 

The health workforce faces severe shortages 
and  an  ageing  profile,  exacerbated  by  poor 
working conditions. Density of both doctors and 
nurses  is  among  the  lowest  in  the  EU.  In  2023, 
there  were  3.4 physicians  per  1 000  inhabitants 
and  just  4.2 nurses  per  1 000  inhabitants  (see 
in  both 
Table A15.1).  The  age  distribution 
professions is concerning; the share (of over 40%) 
of  staff  of  55  years  and  older  is  substantially 
higher  than  that  of  staff  aged  younger  than  35 
years  –  under  15%  and  25%  for  nurses  and 
physicians, respectively. In 2022, the remuneration 
of  hospital  nurses  in  Latvia  was  just  1.19 times 
the national average wage. The Latvian authorities 
have identified staff shortages in several specialist 
professions,  which  can  lead  to  very  long  waiting 
times  in  some  cases  (e.g.  waiting  time  of  more 
than one year for children referred to geneticists). 
Recruitment  is  hindered  by  a  set  of  challenges, 
including  career  uncertainty  (in  regions  outside 
Riga),  lack  of  work-life  balance,  lack  of  financial 
support in staff training, and relatively low wages. 

(357) U.S. National Library of Medicine, https://clinicaltrials.gov. 

(358) Eurostat. 

102 

2020202120222023202410-year change**EU average* (latest year) Cancer mortality per 100 000 population296.5283.6280.0277.7n.a.0.93233.1 (2023)Mortality due to circulatory diseases per 100 000 population 783.5 859.5 806.2 726.0n.a.0.82313.0 (2023)Current expenditure on health, purchasing power standards, per capita1 5632 2422 0341 971n.a.2.093834.9 (2023)Public share of health expenditure, % of current health expenditure 63.6 69.5 64.9 59.6n.a.1.0080.6 (2023)Spending on prevention, % of current health expenditure 3.15.12.82.6n.a.1.293.7 (2023)Available hospital beds per 100 000 population*** 416 406 394 391n.a.0.86440 (2023)Doctors per 1 000 population*3.33.43.43.4n.a.1.014.3 (2023)*Nurses per 1 000 population*n.a. 4.2 4.2 4.2n.a. 7.6 (2023)*Mortality at working age (20-64 years), % of total mortality21.222.122.122.121.40.8914.3 (2023)Consumption of antibiotics in the community and hospital sectors,      defined daily doses per 1 000 inhabitants 11.9 11.6 14.9 14.9 15.41.2220.3 (2024) 
 
 
 
      
 
efforts 

further 

applications.  Moreover, 
in 
digitalisation  are  to  be  carried  out  by  the  joint 
action TEHDAS2 (360), funded by EU4Health, which 
focuses  on  implementing  the  European  Health 
Data Space. These investments are complemented 
by  others  under  the  Latvian  RRP,  which  focus  on 
strengthening  the  resilience  of  the  health  system 
and  improving  the  accessibility  and  quality  of 
services,  and  help  address  the  2025  CSRs  on  the 
adequacy  of  the  health  system.  More  broadly, 
Latvia  is  focusing  on  its  ongoing  hospital  reform 
(aimed  at  optimising 
its  hospital  network), 
broadening  the  statutory  benefits  package  and 
reducing OOP payments. Efforts are also underway 
to improve the distribution of the health workforce 
through  targeted  upskilling  and  improved  working 
conditions.  

To  address this in  line  with  the  2025 CSR  and  as 
part  of  Latvia’s  RRP,  a  new  remuneration  model 
for  healthcare  staff  was  adopted  in  June  2025, 
following a significant minimum wage increase in 
early 2024. A new ‘Advanced nurse’ programme is 
being  rolled  out  nationwide,  enabling  qualified 
nurses to prescribe certain medicines, thus building 
the health system’s capacity. Furthermore, working 
conditions  have  a  significant  impact  on  mental 
health:  nearly  half  of  Latvia’s  healthcare  workers 
report symptoms of depression, the highest rate in 
the EU, and nearly two thirds report symptoms of 
anxiety, in stark contrast to the average of one in 
three healthcare staff across the EU reporting the 
same symptoms (359). 

Digital health infrastructure is maturing, but 
patient  uptake  and  digital  skills  lag  behind. 
Latvia  has  a  relatively  high  technical  maturity  for 
e-health  (see  Annex 7),  enabling  a  high  share 
(40.3%)  of  patients  to  access  their  electronic 
health records (EHRs) online in 2024, which is well 
above the EU average of 27.7%. To centralise and 
manage  this  progress,  the  Latvian  Digital  Health 
Centre  became  operational  on  1 January  2025. 
Moreover, the transition to a new unified electronic 
appointment  system  aimed  at  improving  waiting 
times  could  be  fully  implemented  by  the  end  of 
2026 (with medical institutions mandated to issue 
e-referrals  as  of  May  2026).  However, the  use  of 
the  internet  to  access  health  services  (e.g.  via 
websites  or  apps 
instead  of  hospital  visits) 
remains below the EU average, at 17%, despite a 
marked improvement  since  pre-pandemic  rates.  A 
key  barrier is the  level  of  digital  literacy;  in  2025 
only 48.4% of the population have basic or above-
basic  overall  digital  skills,  compared  with  the  EU 
average  of  60.4%.  Enhancing  these  skills  will  be 
essential 
ongoing 
investments in health digitalisation. 

leverage 

fully 

the 

to 

address 

sustainability, 

EU  funds  and  ongoing  reforms  aim  to 
improve  Latvia’s  health  system  accessibility 
structural 
and 
weaknesses  and  accelerate  digitalisation. 
Under  the  2021-2027  cohesion  funds,  Latvia  has 
earmarked  approximately  EUR 174 million  for  the 
health  sector.  Specific  allocations  have  been 
assigned 
health 
equipment and digitalisation in healthcare, and the 
further  development  of  e-health  services  and 

infrastructure, 

health 

to 

(359) WHO (2025), Mental Health of Nurses and Doctors survey in 

(360) Second Joint Action Towards the European Health Data 

the European Union, Iceland and Norway. 

Space – TEHDAS2. 

103 

 
 
 
ANNEX 16: HOUSING 

inequality 

Despite  ongoing  investments  in  affordable 
housing, the housing stock remains outdated 
and  inadequate.  Decades  of  underinvestment, 
dating back to the Soviet-era construction of large 
multi-apartment blocks, combined with post-Soviet 
privatisation,  have  left  many  buildings  in  need  of 
maintenance,  renovation  and  energy-efficiency 
upgrades.  Despite  the  high  level  of  property 
invest 
ownership,  many  households  cannot 
appropriately  in  renovations  without  additional 
support,  given  the  relatively  high  income  and 
wealth 
(see  Annex  12).  Regional 
disparities  exacerbate  the  issue:  outside  major 
economic centres housing markets are thin, which 
limits access to finance and deters investment, as 
costs  cannot  be  recouped.  The  overall  housing 
stock remains of comparatively poor quality. Steps 
have  been  taken  to  tackle  these  challenges 
through the recent launch of renovation and social 
housing  programmes,  supported  by  EU  funds 
(European  Regional  Fund,  Recovery  and  Resilience 
Facility)  and  the  state  finance  institution  ALTUM. 
However,  their  scale  and  pace  remain  insufficient 
to  significantly 
improve  housing  availability, 
quality  and  energy  efficiency,  particularly  for 
vulnerable  groups,  as  highlighted  in  the  2025 
country-specific  recommendation  on  social  and 
affordable housing (361) (see Annex 12). 

Housing market developments 

House  prices  continue  to  rise,  reflecting  a 
decade-long trend. Following the 2008-09 crisis 
and  the  bursting  of  the  real  estate  bubble,  house 
prices  fell  significantly,  both  in  nominal  and  real 
terms, as well as relative to income (Graph A16.1). 
Rental  prices  (including  existing  and  new  rental 
contracts)  also  fell  in  that  period,  though  more 
slowly.  As  the  economy  began  recovering  around 
2010,  both  house  and  rental  prices  started  to 
increase,  driven  by  rising  incomes  and  favourable 
financing conditions. Nominal price growth peaked 
at  13.8%  year-on-year  in  2022  but  slowed  to 
3.7% in 2023 amid higher interest rates. In 2024, 
nominal price growth reached 4.2% and in 2025 it 
increased  to  7.7%  year-on-year.  Over  the  last 
decade,  house  prices  were  broadly  in  line  with 
income  growth,  while,  adjusted  for  inflation,  they 

(361) 2025 country-specific recommendation: “Increase the 

availability and quality of social and affordable energy-
efficient housing, including through renovations.” 

increased  by  38.8%  (EU  average:  21.2%).  The 
house-price-to-income  ratio  was  below  the  long-
term average and the EU average in 2025.  

Graph A16.1: House prices, rents and price-to-
income evolution in LV and EU27 since 2005 

Source: Eurostat 

in 

Latvia 

rental  market 

insecure,  which  can  result 

The 
is 
underdeveloped,  and  growth  of  rental  prices 
has been muted. The small private rental market 
(6.1% in 2024) means that households often face 
very  limited  rental  options  and  may  have  little 
choice  but  to  buy.  However,  income  is  often 
insufficient  or 
in 
suboptimal housing outcomes. The supply of rental 
housing in the regions is even more limited than in 
reduces 
Riga,  which  pushes  prices  up  and 
affordability.  Rental  prices  (including  existing  and 
new  rental  contracts)  followed  the  same  trend  as 
house prices until around 2015, after which house 
prices  outpaced  rent  growth.  As  a  result,  over  the 
past  decade  house  prices  have  grown  70  pps 
faster than rent prices. 

Permitting and costs have resulted in only a 
moderate increase in the construction of new 
dwellings.  After  a  significant  fall  in  2008-2010, 
investment 
in  dwellings  has  been  growing 
moderately since 2010 (Graph A16.2) but remains 
lower  than  the  EU  average  (2.5%  of  GDP  vs 
average EU investment of 5.3% in 2024). In 2024, 
2.2  new  dwellings  per  1 000  inhabitants  were 
completed, up from 0.9 in 2010, but still below 4.2 
in  2007.  Construction  has  been  restricted  by 
lengthy 
rising 
construction  costs,  as  reflected  in  an  increase  of 
74.5%  in  residential  building  producer  prices  over 
the 
issuance  of 
residential  building  permits  (Graph  A16.2)  has 
slowly increased, it is still low and remains below 

last  decade.  Although 

permitting 

processes 

and 

the 

104 

50751001251501752002252500507091113151719212325Index (2005 = 100)Nominal prices LVNominal prices EU27Rental prices LVRental prices EU27Price-to-income ratio LVPrice-to-income ratio EU27 
 
 
  
 
 
the level of 2005 and the EU average. In addition, 
65%  of  the  new  dwellings  are  built  in  the  Riga 
region. 

Graph A16.2: House supply indicators in LV since 
2005 

Source: Eurostat 

The housing stock is outdated due to decades 
of  underinvestment.  Latvia’s  housing  stock  is 
characterised  by  a  high  proportion  of  multi-
apartment  buildings  built  before  1990,  with  only 
4%  of  all  multi-apartment  buildings  having  been 
built since 1993. These buildings represent a large 
proportion  of  the  overall  housing  stock,  with 
64.4% of the population living in multi-apartment 
buildings in 2024 vs the EU average of 47.9%. In 
Riga,  this  number  is  around  85%.  While  property 
ownership  is  high  (83.7%  in  2024  vs  68.4%  for 
the  EU),  overcrowding  remains  a  significant  issue 
(39.3%  of 
in 
the  population  was 
overcrowded dwellings in 2024 vs the EU average 
of  16.9%),  and  severe  housing  deprivation  is  one 
of the highest in the EU (11.6% in 2023). 

living 

is 

lending 

level  of  mortgage 

low, 
The 
reflecting  cautious  household  behaviour. 
Currently,  only  14.4%  of  households  have  a 
mortgage  (compared  with  24.3%  in  the  EU). 
Lending  growth  has  been  constrained  in  the  last 
decade,  especially  outside  Riga  (362),  due  to 
historically  high 
(around  1.2 
percentage points above the euro area average). In 
addition,  the  high  prevalence  of  variable-rate 
loans,  at  91.6%  vs  15.6%  in the  EU in  2024,  has 
amplified mortgage repayment volatility. In 2022, 

interest 

rates 

financial  conditions 

as 
tightened,  mortgage 
lending growth fell before recovering in early 2024 
with  falling  interest  rates.  It  has  been  dynamic 
since  then,  reaching  9.1%  year-on-year  in  Q3 
2025.  Average  mortgage  amounts 
reached 
EUR 79 000  in  2024,  remaining  below  those  in 
Lithuania 
Estonia 
(EUR 122 000).  The  percentage  of  household 
income  spent  on  mortgage  repayments  has 
remained stable (19.4% of GDP in 2024 vs the EU 
average of 49.9%). 

(EUR 104 000) 

and 

Structural policies 

responsible 

Housing  policy  responsibilities  in  Latvia  are 
shared  between  national  authorities  and 
municipalities,  with  municipalities  playing  a 
central  role  in  delivery.  Overall  housing  and 
construction  policy  is  set  at  national  level  by  the 
Ministry  of  Economics,  which  sets 
legislative 
frameworks,  strategic  objectives  and  incentives. 
land-use 
Municipalities  are 
planning,  zoning  and  local  housing  programmes, 
and  they  manage  municipal  housing  stock  and 
waiting  lists.  Unlike  in  several  other  EU  countries, 
Latvia  does  not  have  a  developed  independent 
social  housing  association  sector;  social  housing 
provision  remains  predominantly  municipal  and 
state-driven,  with  limited involvement  of  NGOs  or 
non-profit  landlords.  Social  housing  accounts  for 
less than 2% of the total housing stock, one of the 
lowest  proportions  in  the  OECD,  underscoring  the 
need for greater policy and investment focus. 

for 

and 

regulation 

Land-use 
permitting 
processes  influence  the  responsiveness  of 
housing  supply.  In  Latvia,  municipalities  are 
responsible  for  zoning  and  local  spatial  planning 
decisions,  within  a  national  regulatory  framework. 
(363)  points  to  sluggish  new 
OECD  analysis 
construction  and  insufficient  housing  investment, 
particularly 
areas, 
suggesting  that  administrative  complexity  and 
slow  permitting  may  be  among  the  factors 
constraining  supply  responsiveness  and  raising 
development costs.  

high-demand 

outside 

The  rental  market  remains  underdeveloped 
and  concentrated  in  specific  urban  areas, 

(362) Banks in Latvia remain cautious to lend outside of Riga 
because of challenges in collateral valuation and lack of 
liquidity in some local housing markets. 

(363) OECD (2020), Policy Actions for Affordable Housing in Latvia. 

105 

0123456780501001502002503003500507091113151719212325% of GDPIndex (2005 = 100)Residential building permits in m2, indexResidential buildings producer prices, indexInvestment in dwellings (right-hand side axis) 
   
 
 
restricting  housing  options.  This  situation 
stems largely from the large-scale privatization of 
the housing stock in the 1990s, which led to very 
high  homeownership  rates 
in 
Lithuania  and  Estonia.  As  a  result,  the  formal 
is  relatively  small,  and 
private  rental  sector 
informal  rental  arrangements  persist, 
limiting 
affordable  rental  options,  particularly  for  younger 
and lower-income households. 

in  Latvia,  as 

Taxation  and  fiscal  policy  affect  housing 
affordability  but  currently  do  not  provide 
strong  targeted  incentives  for  the  supply  of 
affordable  housing.  Property  taxes  and  the 
taxation of rental income apply consistently across 
Latvia. Municipal property tax rates are set on the 
basis  of  cadastral  values,  and  rental  income  is 
taxed  under  general  personal  or  corporate  tax 
instruments,  such  as 
regimes.  Broader  fiscal 
housing  allowances  and 
renovation  support, 
complement  taxation.  Recent  changes  to  the 
cadastral  valuation  framework  aim  to  align 
cadastral values more closely with current market 
conditions after a long period during which values 
were  frozen  to  limit  increases  in  property  tax 
burdens.  From  2025,  two cadastral  values  will  be 
recorded — a fiscal value (used for tax calculation) 
and  a  universal  value  (based  on  broader  market 
data)  —  as  part  of  a  phased  reform  of  property 
valuation  methodology.  Because  cadastral  values 
are  influenced  by  territory-wide  market  price 
trends,  sustained  price  increases  —  including  in 
high-demand locations or new development — can 
lead to higher future tax bases for properties in a 
municipality.  This  may  increase  the  property  tax 
burden  on  long-standing  owner-occupiers  whose 
incomes  have  not  kept  pace  with  market  price 
growth.  

and 

patterns 

structural 
Investment 
bottlenecks  constrain  overall  housing  supply 
and  quality.  Latvia  has  low  levels  of  investment 
in  both  building  new  housing  and  renovating 
existing  stock  compared  with  European  peers, 
reflecting  decades  of  underinvestment  and  an 
ageing  housing  stock.  Many  households  live  in 
dwellings  of  poor 
technical  quality,  and 
overcrowding  rates  remain  high  in  many  areas. 
Investment  challenges  are  compounded  by  rising 
construction  costs  and  skills  shortages  in  the 
construction sector. OECD analysis underscores the 
need  for  sustained  and  well-resourced  housing 
strategies  to  increase  investment  and  improve 
housing  quality  and  affordability.  While 
the 
housing  cost  overburden  rate  is  lower  in  the 

regions outside Riga and rural areas, development 
of  new  dwellings  and  renovations  outside  of  the 
capital  region  of  Riga  is  complicated  by  more 
limited access to finance. In the first half of 2025, 
only  29%  of  mortgages  were  granted  outside  of 
the Riga region, with particularly low lending levels 
in the Eastern border region of Latgale. 

for 

Latvian 

Current  government  strategies  focus  on 
expanding  affordable  and  municipal  housing 
through  public  investment  and  EU-supported 
programmes.  The  Latvian  government, 
in 
partnership  with  municipalities  and  the  EIB,  is 
implementing  programmes  to  develop  modern, 
energy-efficient  and  affordable  rental  housing, 
particularly for public sector professionals and key 
workers.  This  includes  initiatives  such  as  the 
“rental  housing 
professionals” 
programme,  which  targets  the  construction  of  up 
to  around  2,260  units  through  public-sector  and 
co-financed  projects.  National  housing  guidelines 
for  2024-27  set  a  target  of  10 000  new 
apartments  per  year,  of  which  at  least  6 000 
should  be  low-rent  dwellings,  and  aim  to  reduce 
municipal  housing  assistance  waiting  lists  from 
7 215  to  3 200  applicants  (364).  EU  funding  under 
the  European  Regional  Development  Fund  (ERDF) 
supports  both  the  renovation  and  construction  of 
additional  social  housing  units.  By  2029,  this  will 
result  in  almost  2  000  social  housing  units, 
including  1615  units  through  the  renovation  of 
existing apartments. 

initiatives 

Latvia’s  social  housing  stock  remains  very 
low, at 2% of the total housing stock  (vs an 
OECD  average  of  7%),  and  largely outdated, 
highlighting the need for further action. While 
current 
important  steps, 
represent 
additional efforts are needed, including developing 
cost-effective  and 
for 
innovative 
inclusive  social  housing 
(e.g.  guarantees  or 
incentives for private landlords to provide inclusive 
housing, or social housing rental checks). Improved 
nationwide  data  collection  and  streamlined 
municipal  housing  assistance 
registers  could 
further 
inform  policy  decisions  and  support 
effective implementation.  

solutions 

(364) Housing Accessibility Guidelines 2023-2027. 

106 

 
 
Graph A16.3: Housing affordability selected indicators 

Source: Eurostat and European Commission calculations 

Vulnerable groups 

Strong 
limit 
socio-economic  disparities 
housing  development  and  renovations,  with 
particularly low lending levels in the Eastern 
border  region  of  Latgale.  Poor-quality  housing 
is  especially  prevalent  for  the  lower  income 
groups, lacking the financial resources to invest in 
renovations.  The  housing  cost  overburden  rate  at 
25.7% (EU: 31.1%) is much higher for households 
below the at-risk-of-poverty (AROP) threshold than 
for those above the threshold at 1.5% (EU: 3.8%), 
targeted  housing 
pointing 
renovation support for this group. 

the  need  for 

to 

Specific support programmes for renovations 
are  needed  for  the  most  vulnerable  groups. 
Among  the  39  500  multi-apartment  residential 
buildings  in  Latvia,  some  35  000  have  an  energy 
efficiency  rating  class  of  F  and  at  least  26  600 
require  renovation  (365).  Despite  considerable  EU 
investments  in  recent  years,  support  for  energy-
efficient  renovations  is  insufficient,  also  due  to 
increased construction costs and lack of financing. 

is 

to 

steps 

taking 

Latvia 
address 
homelessness, but comprehensive support to 
bring  those  in  shelters  back  into  housing  is 
missing. From 2025 onwards, each municipality is 
obliged to provide shelters for the homeless, with 
the  number  of  people 
in  municipal  shelters 
remaining relatively stable so far at 6 000 people 
per year (366). The pilot project to promote Housing 

First  (367),  which  ran  from  2022  to  2023  with 
support from the European Social Funds Plus, has 
been successfully continued in Riga which has the 
highest  numbers  of  homeless  people.  However,  it 
remains  to  be  further  developed  outside  of  the 
capital  region.  To  address 
limited  data,  the 
government  launched  a  study in October  2025  to 
conduct  an  in-depth  analysis  of  the  legal  and 
substantive framework governing homelessness in 
Latvia 
policy 
propose 
recommendations  for  reducing  it.  The  results  of 
the study, once available could serve as a basis for 
a national strategy for homelessness. 

specific 

and 

to 

The 

framework 

Housing policy does not consider the needs of 
people  with  disabilities.  Currently,  there  is  a 
severe  lack  of  municipal  housing  for  people  with 
disabilities. 
for 
regulatory 
construction  does  not  set  accessibility  standards 
for  single-family  residential  houses,  and  in  2024, 
only  one  municipality  provided  a  serviced 
apartment (368). Amendments to the Disability Law 
in  2022  excluded  support  for  the  adaptation  of 
housing  at  the  national  level.  Support  for  making 
private dwellings more accessible is thus currently 
limited  to  one  Recovery  and  Resilience  Facility-
funded project, which will improve accessibility for 
around  250  people  by  2026.  Moreover, 
wheelchair-users usually need larger dwellings, as 
they  need  sufficient  room  to  manoeuvre  their 
wheelchairs.  The  various  factors  contribute  to 
higher  housing  expenditures  for  persons  with  a 
disability and the housing cost overburden rate at 
8.9%  for  persons  with  disability  is  consequently 
well above the rate for persons without (5.6%). 

(365) State Audit Office of Latvia (2025), Untapped opportunities 

in retrofitting of housing. 

(366) Central Statistical Bureau of Latvia (2024), Recipients of 

(367) Housing First Europe 

municipal social services in State cities and municipalities. 

(368) Ministry of Welfare (2025), Annual data. 

107 

 
 
 
 
HORIZONTAL 
ANNEX 17: 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,  8,  9).  Sustainable 
economic growth indicators (SDG 8) are improving, 
but  still  below  the  EU  average.  In  recent  years, 

Graph A17.1: Progress towards the SDGs in Latvia 

from  2019 

Latvia’s  real  GDP  per  capita  increased  from 
EUR 15 820  in  2019  to  EUR 17  520  in  2025  (EU 
average:  EUR 34  110).  The  investment  share  of 
GDP  is  above  the  EU  average  (22.4%  of  GDP  vs 
21.7% for the EU in 2024). The material footprint 
decreased 
reaching 
15.4 tonnes  per  capita  in  2024  (EU  average: 
13.7 tonnes per capita). While Latvia is performing 
better 
the  EU  average  on  general 
employment indicators, the level of fatal accidents 
at  work  stood  at  3.21  accidents  per  100 000 
workers in 2023 (EU average: 1.63) and the long-
term  unemployment  rate  was  2.3%  of  the  labour 
force in 2025 (EU average 1.9%). 

to  2024, 

than 

However,  Latvia  still  needs  to  catch  up  with 
the  EU  average  on  SDGs 8  and  9.  When  it 
comes  to  industry,  innovation  and  infrastructure 
(SDG 9),  Latvia  has  low,  albeit  increasing,  gross 
domestic expenditure on R&D. In 2024, this stood 
at  0.92%  of  GDP  (EU  average:  2.24%).  The 
percentage  of  households  with  a  high-speed 
internet  connection  has  decreased  to  68.1%  in 

For a detailed progress assessment towards the various SDGs, see the annual Eurostat report ‘Sustainable development in the 
European Union’; for extensive data on the short-term SDG progress of EU countries, see Key findings – Sustainable development 
indicators; for an interactive visualization of SDG progress of EU countries, see SDG country overview. 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 or six 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 29 April 2026. Data refer mainly to the period 2019-2024 or 2019-2025. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

108 

 
 
 
 
 
 
 
2024,  below  the  EU  average  of  82.5%.  Latvia 
performs  better  than  EU  average  on  indicators 
related to quality education (SDG 4), but is moving 
away  from  these  targets.  However,  strengthening 
digital skills remains a challenge, as only less than 
half  of  adults  have  at  least  basic  digital  skills 
(48.4% in 2025; EU average: 60.4%). 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 

Latvia  performs  well  (SDGs 2,  7,  14)  or  is 
improving  (SDGs 9,  11,  12)  on  several  SDGs 
related to sustainability. For SDG 7 (Affordable 
and  clean  energy),  the  percentage  of  renewable 
energy in total energy consumption increased from 
40.9%  in  2019  to  45.5%  in  2024,  and  was  well 
above  the  EU  average  (25.2%  in  2024).  Latvia’s 
RRP  includes  measures  to  address  some  of  the 
energy-related  challenges  both  in  the  REPowerEU 
chapter  and  under  component 1  ‘Climate  change 
and environmental sustainability’. 

Latvia is progressing well on SDGs 6 and 15, 
but is moving away from its targets for SDG 
13.  Latvia  is  performing  below  the  EU  average 
and  moving  away  from  its  target  on  SDG 13 
(Climate  action),  in  particular  on  climate  change 
mitigation.  Net  greenhouse  gas  emissions  from 
the land use, land-use change and forestry sector 
(LULUCF) increased to 44.4 tonnes CO2 eq. per km2 
in 2024 (well up on its 2019 value of -60 tonnes) 
and  well  below  the  EU  average  of  -54.7  tonnes. 
Average  CO2  emissions  from  new  passenger  cars 
were  at  129.4 g  CO2  per  km,  well  above  the  EU 
average  of  107.9 g  in  2024.  On  SDG 15  (Life  on 
land),  Latvia  is  performing  better  than  the  EU 
average.  The  percentage  of  forest  area  stands  at 
53.4%  in  2023,  well  above  the  EU  average  of 
39%.  The  biochemical  oxygen  demand  in  rivers 
was  1.57 mg  O2  per  litre  in  2023,  well  below  the 
EU average of 2.24 mg O2 per litre. 

On the SDGs related to social fairness, Latvia 
performs  well.  Above  the  EU  average  on 
indicators related to quality education (SDG 4) and 
is 
affordable  and  clean  energy 
improving  on  indicators  for  no  poverty  (SDG 1), 
good  health  and  well-being  (SDG  3),  gender 
equality  (SDG  5),  decent  work  and  economic 
growth (SDG 8) but still needs to catch up with the 
EU  average.  While  some  indicators  related  to 
poverty  (SDG 1)  are  improving,  Latvia  is  still 
underperforming  against  the  EU  average.  This 

(SDG 7), 

it 

applies 
in  particular  for  the  severe  housing 
deprivation  rate  (11.6%  in  2023;  EU  average: 
4.0%) and people at risk of monetary poverty after 
social  transfers  (21.6%  in  2024;  EU  average: 
16.2%).  

Latvia  is  progressing  on  good  health  and 
well-being  (SDG 3),  but  needs  to  catch  up 
with  the  EU  average.  The  percentage  of people 
who  perceive  their  health  as  good  or  very  good 
has not considerably improved over the years and 
stands at 49.1% of the population, compared with 
the EU average of 68.5% in 2024. Unmet need for 
medical  care  has  increased  over  the  years  and 
stands at 8.4% of the population, compared to the 
EU average of 2.5% in 2024. 

At  the  same  time,  Latvia  is  moving  away 
from the targets related to SDG 10 (Reduced 
inequalities), and needs to catch up with the 
EU average on these. Latvia is underperforming 
compared  with  the  EU  average  on  SDG 10 
(Reduced  inequalities)  and  moving  away  from  its 
targets: the urban-rural gap for the risk of poverty 
or  social  exclusion  accounted  for  10.1%  in  2024, 
(EU  average:  0.0%)  while  purchasing  power 
adjusted GDP per capita was 29 500 in 2025 (EU 
average  41  600).  Its  RRP  includes  measures  to 
reduce  regional  disparities,  improve  the  social 
safety  net  and  encourage  social  integration  and 
inclusion in Latvia. It also aims to contribute to the 
accessibility,  efficiency  and  resilience  of  Latvia’s 
health system. 

the  quality  of 

Latvia  is  improving  on  the  SDGs  related  to 
macroeconomic stability (SDGs 8, 16, 17), but 
still  needs  to  catch  up  with  the  EU  average. 
Latvia’s  performance  on 
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  score  in  Latvia  is  60  in  2025, 
slightly  below  the  EU  average  of  62  (score  scale 
from  0  ‘highly  corrupt’  to  100  ‘very  clean’).  The 
RRP  includes  several  measures  to  increase  the 
transparency and integrity of public administration 
through  training  on  general  skills  like  ethics, 
integrity and anti-corruption. 

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

109 

 
ANNEX 18: COMPETITIVE REGIONS 

Regional development trends 

45  pps  in  2004  to  62  pps  in  2024,  leading  to 
increased inequality within the country. 

Graph A18.1: GDP per head (PPS, EU = 100) growth, 
NUTS-3, 2004-2024 

Over the past two decades, Latvia’s GDP per 
head has  risen from 45%  of  the  EU  average 
in  2004  to  70%  in  2024. The 2008  financial 
crisis slowed the  convergence  process,  but 
it 
resumed 
in  2011. Riga  showed  the  sharpest 
decline in GDP per head (in pps) compared with the 
EU  average,  falling  from  85  in  2008  to  77  in 
2009,  before 
in  2012. 
More recently,  the COVID-19  pandemic  and  the 
impact  of  Russia’s  war  of  aggression  against 
Ukraine have stalled  the  pace  of  convergence, 
although real GDP per head growth remains above 
the EU average in all regions. 

recovering 

to  86 

Map A18.1:  GDP per head compared with the EU 
average 

Data for 2024 is based on forecasts. 
Source: Eurostat 

in  2012-2022, 

Latvia’s  growth  disparities  are  primarily 
driven  by  regional  productivity  differences 
between  Riga  and  the  regions  outside  the 
capital.  Despite  a  positive  trend  of  2.3%  annual 
productivity  growth 
regional 
disparities are stark as Riga leads with 73% of the 
EU  average  in  terms  of  productivity,  while  other 
regions  remain  at  less  than  50%  of  the  EU 
average.  In  Latgale,  it  decreased  from  36%  in 
2021  to  33%  in  2022.  Regional  disparities  in 
productivity  are  mainly  due  to  differences  in  the 
sectoral  composition  of  employment:  Riga  and 
surrounding  municipalities  have  29.5%  of  people 
employed  in  trade,  transport  and  accommodation 
and  is  the  only  region  where  ICT,  financial  and 
professional  services  underpin  its  growth  with 
almost  23%  of  total  employment.  Industry  is  the 
main  driver  of  economic  activity  in  other  regions, 
with  the  highest  in  Kurzeme  (21.4%).  The  region 
with  the  highest  employment  in  agriculture  is 
Vidzeme  (11%).  A  significant  portion  of  the 
population  in  the  regions  (above  EU  average)  are 
employed  in  low  value-added  sectors,  compared 
with 
dominating 
employment in Riga. 

high-tech 

services 

and 

Source: Commission calculations based on Eurostat on 16 
July 2025 

The  economic  development gap  between  the 
capital  region  Riga  and  the  rest  of  the 
country  is  widening  and  hampers  Latvia’s 
internal  convergence.  Growth  in  the Riga region 
has  been  rising  from 67%  of  the  EU  average  of 
GDP per  head  in  2004  to 101%  in  2024 (in pps). 
While  other  regions  were  catching  up,  especially 
during  the  period  2014-2020, the  gains  have 
regions 
stalled 
outside Riga stood  at  less  than  50%  of  the  EU 
average GDP per head, remaining among the 20% 
poorest in the EU. The gap between the capital and 
the poorest region has increased significantly from 

years  and  all 

recent 

in 

110 

020406080100120LatviaLatgaleZemgaleRīgaKurzemeVidzeme 
 
 
 
 
  
 
 
Table A18.1:Main development trends and challenges in Latvia 

Source: European Commission, based on Eurostat data; categories of regions based on Map A18.1. 

Graph A18.2: Productivity per hour worked: 
average annual growth and level, NUTS 3 

border  regions  could  prove  beneficial  to  Latgale 
(369). 

This  challenge  persists  despite  renewed 
policy and investment efforts. These include (i) 
the  national  plan  for  eastern  border  regions;  (ii) 
the  highest  per  head  investment  rate  from  EU 
funds  in  2014-2020;  (iii)  two  special  economic 
zones; (iv) two regional universities; and (v) several 
high-growth 
region. 
Nevertheless,  there  is  potential  to  reverse  these 
dynamics.  Notably,  4  out  of  10  top  Latvian 
engineering companies are located in Latgale, and 
there  is  significant  untapped  potential  to  revive 
the region’s economy as a manufacturing hub. 

companies 

the 

in 

Source: European Commission, based on Eurostat and JRC 
data 

The  eastern  border  region  of  Latgale  faces 
significant  challenges  in  attracting  foreign 
direct  investment  (FDI),  yet  opportunities 
exist  for  revitalisation  through  its  high-tech 
and  engineering  sectors.  Securing  access  to 
finance is particularly challenging in Latgale, as its 
proximity  to  Russia  and  Belarus  has  become  a 
major  obstacle  for  FDI  following  Russia's  war  of 
aggression against Ukraine. A targeted instrument 
to provide concessional finance to the EU’s eastern 

Key challenges for regional 
competitiveness 

dominates 

There is a high potential for innovation, since 
manufacturing 
regional 
economies.  As  the  manufacturing  sector  has 
higher R&D expenditure, this could be exploited to 
further  boost  R&D  intensity  in  regions  outside  of 
Riga  (370).  This  suggests  a  potential  to  build  on 
existing  sectoral  strengths  and  boost  R&D 

(369) European Commission (2026), Communication on EU’s 

eastern border regions. 

(370) European Commission and National Statistics Latvia. 

111 

0.72.02.62.11.91.51.4100613976484548EULatviaLatgaleRīgaZemgaleKurzemeVidzemeAverage annual growth2024 (%)Productivity in 2024GDP/hour, EU27 = 100Main development trendsLess developed regions (population 1 871 882)Latvia is a single NUTS 2 region and is expected to remain a less developed region. However, there are significant disparities between the capital region Rīga and the rest of the country. All regions record 50% or below of GDP per capita compared with the capital, despite the small size of the country and the relatively short distances. Economic convergence is driven largely by the capital, leading to a significant wealth gap between the capital and the regions. Specific territories - eastern border regions (Latgale & Alūksne as per national definition)Latvia’s regions bordering Russia and Belarus have been economically underdeveloped for decades. In particular, the Latgale region remains the poorest region in Latvia, despite significant investments from EU funds. Now it is also disproportionally affected by Russia’s war of aggression against Ukraine and the disruptions in trade with Russia and Belarus. It is hit hardest by diversion of investments, poor connectivity, declining demography and stringent financing conditions for both households and private sector due to the closeness of its borders with Russia and Belarus. While there are individual success stories of entrepreneurial activity, these have not resulted in substantial spillovers for the rest of the region. Latgale is also at the centre of Latvia’s defence and security priorities. As the country aims to increase its defence spending, major military infrastructure and preparedness assets are placed in Latgale. This creates both new opportunities for the local economy and challenges in terms of perceived security threats.National cohesion aspectsThe flagship TEN-T project in the region is Rail Baltica, supported primarily by the Connecting Europe Facility. Promoting a modal shift away from road transport, further decarbonising transport, and ensuring that the transport network fulfils military mobility needs remain relevant.  Improving the uptake and effectiveness of rail services, other public transport and light mobility would help to address a number of regional development bottlenecks.   
  
 
 
 
     
 
Table A18.2:Key regional indicators (at NUTS 3 level) for Latvia 

Dark green - the indicator is 120% or more of the EU average. 
Light Green - the indicator is 100% or more, but less than 120% of the EU average. 
Yellow - the indicator is 90% or more, but less than 100% of the EU average. 
Light red – the indicator is 75% or more, but less than 90% of the EU average. 
Dark red – the indicator is below 75% of the EU average. 
This colour scale applies to ‘positive’ indicators, where higher values are favourable. 
For ‘negative’ indicators (where higher values are unfavourable), the colours are reversed. 
Source: Eurostat and JRC 

intensity in regions outside Riga with support from 
the  smart  specialisation  strategy.  Part  of  the 
challenge  stems  from  the  fragmented  business 
ecosystems  in  these  regions,  which  lack  strong 
regional  hubs  to  drive  innovation  and  support 
businesses.  The  potential  of  several  special 
economic  zones  and  EU-funded  industrial  parks 
across the regions remains underutilised. 

Coastal  areas  represent  5.9%  of  Latvia.  In 
2022,  the  blue  economy  constituted  1.8%  of  the 
national economy and generated 2.8% of national 
employment.  This  was  mainly  due  to  port-related 
activities and coastal tourism. While Ventspils and 
Liepāja  host  major  port  infrastructure  and  higher 
education  institutions,  including  Liepāja  Maritime 
College,  their  GDP  per  head  reaches  only  half  of 
Riga's  levels.  Ventspils  faces  high  unemployment 
despite a well-educated population. Improving the 
existing infrastructure in these two port cities  and 
exploiting it better would allow them to untap the 
potential  of  the  blue  economy  and  to  serve  as 
regional  hubs  to  boost  the  development  of  the 
coastal region, Kurzeme. 

Map A18.2:  Population change in 2015-2024 
(average annual change per 1000 residents), 
Latvia, NUTS 3 regions 

Source: Eurostat 

112 

GDP per head (PPS, index)Population growthGrowth in natural populationNet migrationNet migration of population aged 15-39Real GDP growthReal GDP per head growthProductivity: GDP (PPS) per hour worked (index)Real productivity growth (per hour worked)EU27=100Average annual change per 1000 residentsAverage annual change per 1000 residentsAverage annual change per 1000 residentsAverage annual change per 1000 residents aged 15-39Average annual % changeAverage annual % changeEU27=100Average annual % change20232015-20242015-20242015-20242014-20232013-20232013-202320242014-2024EU1001.8-1.73.57.11.61.41000.7Latvia68-6.7-5.8-0.9-3.91.92.6612.0Latgale38-17.3-11.3-6.0-17.41.73.5392.6Zemgale45-9.7-5.9-3.8-12.32.13.0481.9Rīga1010.0-3.63.65.52.22.5762.1Kurzeme48-10.7-6.4-4.2-12.61.42.3451.5Vidzeme42-9.3-6.5-2.8-6.72.43.1481.4  
 
 
 
 
 
 
 
 
 
  
 
exhibiting 

A  similar  divide  is  illustrated  by  business 
activity.  Riga  accounts  for  nearly  50%  of  all 
registered  businesses  in  the  country.  Latvia’s 
second  largest  city,  Daugavpils,  had  barely  200 
new  businesses  established  in  2024,  compared 
with over 4 000 in the Riga region (377). As a result, 
the productivity gap is widening, with Riga and its 
surrounding  municipalities 
higher 
economic  growth  than  other  regions.  Productivity 
spillovers  to  other  regions  remain limited  and  FDI 
was largely concentrated in the capital region and 
a  few  major  cities  around  Riga  (see  Annex  4). 
Information  asymmetries  and  lack  of  business 
advisory  and  technical  services  in  the  regions, 
combined  with  difficult  access  to  finance,  are 
major challenges  (378). Latvia’s aim to increase its 
national  defence  spending  is  an  opportunity  to 
boost  regional  competitiveness  by  developing 
defence industry clusters in regions outside of the 
Riga  metropolitan  area 
like 
manufacturing in Valmiera and the military school 
in Latgale could be scaled up and linked with local 
economies (380). 

(379).  Projects 

Table A18.3:Selected socio-economic indicators by 
degree of urbanisation for Latvia 

and 

Belarus, 

Latvia’s  eastern  regions,  bordering  both 
are 
Russia 
mainland 
dramatically  affected  by  the 
impact  of 
Russia’s  war  of  aggression  against  Ukraine. 
One  Latvian  region in particular – Latgale - faces 
compounded  structural  challenges  that  require 
targeted policy action. The region has experienced 
the  highest  depopulation,  the  lowest  economic 
convergence  and  stagnating  growth.  It  is  the 
poorest  region  and  exhibits  the  highest  share  of 
unemployment  (9.7%  vs  5.3%  national  average) 
(371).  It  also  has  the  lowest  gross  wage,  and 
despite  an  increase  since  2021,  it  is  still  35% 
(372).  Persistent  poverty, 
lower 
connectivity  gaps  and  social  challenges  are 
compounded  by  security  pressures, 
including 
border closures with Russia and Belarus, increased 
military  presence,  and  hybrid  attacks  (373).  In 
addition,  emerging  civil  preparedness  needs  are 
impacting  already  strained  municipal  capacities 
and budgets in these regions (374).  

than  Riga 

Latvia's  regions  are  affected  by  population 
decline.  However,  its  intensity  varies  across  the 
territory  -  with  Latgale  experiencing  the  sharpest 
losses.  Between  2015  and  2024,  Latgale’s 
population  declined  17.3  per  1000  habitants  per 
year and has experienced the sharpest emigration 
of  young  adults  between  2014-2023  with  a  drop 
of  -17.4  per  1000  inhabitants  per  year.  Rural 
regions  are  also  losing  more  young  and  working 
age people than urban regions (375). 

Disparities  in  access  to  finance  undermine 
both  the  business  environment  and  the 
economic  prospects  of  the  regions  beyond 
Riga. With a conservative banking sector focusing 
mainly  on  the  Riga  region,  companies  outside  the 
capital  face  limited  access  to  finance  with  higher 
rates  and  
requirements,  borrowing 
collateral 
a weak capital market (376). 

(371) Ministry of Economy (2025), Annual Economic Outlook. 

(372) Central Statistical Bureau of Latvia (2025), Average monthly 

wages and salaries by region. 

Source: Eurostat 

(373) European Commission (2025), Country Report: Latvia. 

(377) Regional Development Indicator Module, RAIM. 

(374) European Commission (2026), Communication on EU’s 

(378) OECD (2025), Strengthening FDI and SME Linkages in the 

eastern border regions. 

Baltic States. 

(375) Central Statistical Bureau of Latvia (2025), Latvia has a 

(379) Draft Budgetary Plan of Latvia for 2026.  

population of almost 1.86 million. 

(380) Patria (2024), Patria opens a new armoured vehicle 

(376) Latvian Central Bank (2025), Finance accessibility overview. 

production facility in Valmiera, Latvia. 

113 

Latvia (2024) Cities Townsandsuburbs Rural areas AROPE (%) 19.3 (EU 21.3)23.3 (EU 20.3)29.4 (EU 21.3)Housingcostoverburden rate (%) 7.6 (EU 9.8)7.2 (EU 7.8)5.7 (EU 6.3)Severe housing deprivation % (2023 latest)12.2(EU 4.9)10 (EU 3.2)12 (EU 3.5)Unemployment%(15-74)6.8 (EU 6.7)6.3 (EU 5.6)7.5 (EU 5.1) 
 
 
 
 
 
Graph A18.3: Share of engineering sector in the total value added in municipalities, 2022 

Source: National Statistics Bureau of Latvia 

Persistent 
rural-urban 
socio-economic 
disparities  remain.  Since  2015,  the  at-risk-of-
poverty  or  social  exclusion  (AROPE)  rate  gap 
between rural areas and cities has not decreased, 
remaining  stable  at  around  10  pps  in  2024. 
Moreover, the AROPE rate in rural areas of 29.4% 
remains well above the EU average of 21.3%. This 
shows  that  Latvia  still  has  scope  to  lift  its  rural 
population out of poverty. Unemployment shows a 
similar  picture,  with  an  overall  decrease  since 
2015  but  rates  remain  above  the  EU  average 
especially  in  towns  and  rural  areas  (see  Table 
A18.2 and Annexes 11 and 12).  

Access  to  affordable,  social  and  quality 
housing  presents  a  major  challenge  for 
regional  development.  In  2024,  14.5%  of  rural 
households  had  no  inside  toilet,  compared  with 
only  1%  in  cities  (381).  This  explains  in  part  why 
existing housing in Latvia’s regions is affordable – 
because  the  housing  stock  is  of  poor  quality. 
lack  of  quality  housing, 
However,  due  to  a 
emerging  regional  economic  centres,  such  as 
Valmiera,  Liepāja  or  Līvāni,  struggle  to  attract 
qualified labour (see Annex 16).  

Access  to  transport  beyond  Riga  is  poor, 
thereby  hampering  regional  development. 
Railway  transport  has  the  potential  to  improve 
creating 
regional 
opportunities  for  businesses  outside  Riga  to 
benefit from free load capacity if located near the 
rail  network.  Regions  outside  Riga  are  particularly 

connectivity, 

including 

poorly  served  by  public  transport,  which 
is 
compensated by above EU-average private car use 
(382). 

Regional disparities in the provision of social 
services  remain  significant. 
In  2024,  the 
number  of  social  services  per  10  000  inhabitants 
varied from 30 in the Saulkrasti municipality to 2.8 
(383).  As  with  healthcare, 
in  Daugavpils  city 
(see  Annex  13)  and  other  public 
education 
struggles  with 
the 
services, 
accessibility  and  performance  challenges.  In  this 
regard, smart shrinking policies could be beneficial, 
by addressing diverging regional population trends 
while ensuring the right to stay in the regions. 

sector 

social 

The  highly  fragmented  water  and  waste 
water  services  in  depopulating  regions  is 
proving  unsustainable.  Service  quality 
is 
deterioriating  and  many 
rural  households 
remaining  disconnected  from  central  networks. 
Latvia  has  80  water  and  waste  water  service 
providers  serving  42  municipalities.  There  is  also 
the challenge of an ageing water infrastructure, as 
half  of  the  water  supply  and  water  collection 
networks  were  last  renovated  before  2000  (384). 
Latvia  has  begun  a  review  to  reform  the  sector, 
but so far, the efforts have fallen short. 

(382) European Commission (2025), Transport Poverty Hub. 

(383) Ministry of Welfare (2025), Overview of social services and 

social aid in regions and cities in 2024. 

(381) Central Statistical Bureau of Latvia (2024), Dwelling supply 

(384) Technical Support Instrument, 2025 project: Strategy for 

with different amenities.  

Latvia’s drinking water and waste water sector.  

114 

 
 
 
   
Regions  outside  the  capital  struggle  with 
administrative  capacity  and  efficiency.  While 
the  territorial-administrative  reform  of  2021  has 
brought some efficiencies (notably by reducing the 
number  of  municipalities),  many  municipalities  in 
the  regions  continue  to  face  fiscal  pressures  and 
struggle  to  provide  the  co-financing  required  to 
access  EU  funds  to  finance  regional  investments. 
According  to  Latvia’s  territorial  administrative 
system,  there  is  no  regional-level  development 
planning but each of the 42 municipalities has its 
individual strategy, serving as basis for investment 
planning.  This  can  undermine  efforts  to  improve 
the  efficiency,  quality  and  accessibility  of  public 
services,  especially  as  Latvia  seeks  to  reduce 
bureaucratic  burden  while  dealing  with  diverging 
demographic  trends  (385)  (see  Annex  7).  Improved 
cooperation  at  the  level  of  municipalities  and 
regional-level 
cross-municipal 
solutions  could  facilitate  investment  attraction, 
creation of local economic clusters, and make the 
most of limited public funds in strategic regions. 

planning 

for 

(385) OECD (2025), Economic Outlook 

115 

 
 
ANNEX 19: TRANSPORT 

This  Transport  Annex  presents  the  state  of  play 
and  the  challenges  Latvia  is  facing  with  the 
implementation  of  the trans-European  transport 
network  (TEN-T),  the  European  Railway  Traffic 
Management System (ERTMS) and road safety. 

transport  corridors 

Two  European 
run 
through  Latvia,  the  North  Sea  –  Baltic 
corridor  and  the  Baltic  Sea  –  Black  Sea  – 
Adriatic  Sea  corridor.  The  TEN-T  in  Latvia 
comprises  1 623 km  of  rail  (924  of  which  are  on 
the  core  network)  and  1 739 km  of  road  (718  of 
which  on  the  core  network).  Latvia  has  no  inland 
waterways  on  the  TEN-T,  four  airports  (including 
one  core  airport),  three  ports  (including  two  core 
ports)  and  one  urban  node (386).  Latvia’s  railway 
network  is  built  on  the  Russian  railway  gauge 
(1 520 mm). 

from 

Although  the  rail  network  –  except  for  Rail 
Baltica – is considered isolated and therefore 
exempt 
requirements, 
modernisation  efforts  should  continue,  for 
instance  for  electrification  and  the  removal 
of  level-crossings.  Latvia  should  also  consider 
replacing its Russian-based signalling system.  

TEN-T 

Rail  Baltica  is  by  far  the  largest  railway 
project  in  Latvia  and  the  Baltic  states.  It  is 
for  military  mobility.  Once 
also  significant 
completed, this railway line will connect the Baltic 
states  to  the  European  railway  network  at  the 
European  standard  gauge.  Latvia  also  plans  to 
work  on  the  second  phase  of  the  Rail  Baltica 
project  and  continue  the  Rail  Baltica  line  through 
to Riga. Given the significant investment needs of 
Rail Baltica, a combination of funding programmes 
will be required. 

railways  and 

The  European  railway  traffic  management 
system  (ERTMS)  is  essential  to  digitalising 
to  modernising  and 
the 
harmonising 
railway  operations  across 
Europe.  The  ERTMS  ensures  the  safety  of  rail 
networks  by  providing  a  unified  signalling  system 
that  significantly  reduces  the  risk  of  accidents.  It 
also provides interoperability between national rail 
systems, improving cross-border train movements. 
It  is  important  to  advance  efforts  towards  a 

(386) European Commission (2015), TENtec Information System. 

comprehensive multilateral  agreement among the 
Baltic  states,  to  strengthen  coordination  and 
support  smooth  cross‑border  railway  operations. 
Finally, the ERTMS enhances network capacity and 
operational 
the 
competitiveness  of  the  rail  sector.  In  Latvia,  only 
Rail  Baltica  will  have  to  be  equipped  with  the 
ERTMS, and the costs of which are included in the 
total project cost estimates. 

efficiency, 

increasing 

timely 

of  major 
implementation 
The 
infrastructure projects is affected by lengthy 
permitting and tendering procedures. This also 
includes  the  process  of  land  acquisition  which  is 
time  consuming.  The  administrative  capacity  of 
the 
state 
administration  to  manage  large  infrastructure 
projects  is  weak,  which  leads  to  delays  and 
associated cost overruns. 

implementing 

bodies  and 

the 

The  legal  framework  for  Rail  Baltica  is  still 
complex  and  administrative  procedures  are 
lengthy.  The Rail Baltica mainline design has not 
yet been connected to the Estonian and Lithuanian 
lacks  a  multiannual  funding 
sections.  Latvia 
perspective  with 
sufficient  and  predictable 
financial  resources  required  for  a  smooth  and 
cost-efficient implementation of Rail Baltica. 

infrastructure, 

Latvia  has  little  experience  with  operating 
trains  on  the  existing  railway  network  to 
Lithuania  and  Estonia.  Together  with  Estonia 
and  Lithuania,  Latvia  lacks  a  model  to  operate 
railway  traffic  on  the  Rail  Baltica  line  as  a 
seamless  cross-border 
including 
traffic management, maintenance, and operations 
according  to  the  rules  of  the  single  European 
and 
railway 
operational rules with the minimisation of national 
rules  in  line  with  the  EU  directives  on  rail 
interoperability  and  safety  remains  critical  to 
ensuring  a  new  landmark  rail  infrastructure  such 
as Rail  Baltica does not inherit legacy operational 
rules.

area.  Harmonising 

technical 

116 

 
 
 
 
Map A19.1:  TEN-T Cross-Border & National Priority Sections in Latvia 

Graph A19.1: Latvia's road fatalities per million, 
2024 

education,  healthcare  and  other  crucial  public 
investments (387). 

to 

inhabitants.  Compared 

In 2024, Latvia was substantially above the 
EU average (45), with 60 road fatalities per 
million 
the  EU 
average,  the  distribution  of  fatalities  in  Latvia 
showed a high proportion of pedestrians involved, 
as  well  as  fatalities  occurring  on  roads  outside 
urban  areas.  Also,  the  total  number  of  injured 
cyclists  has  increased  over  the  last  years,  while 
inappropriate  speed  remains  the  main  cause  of 
fatal  crashes. Based on the latest available data, 
Latvia is making reasonably good progress but is 
currently not on track to reach the 2030 target of 
halving  the  number  of  fatalities,  with  a  15% 
decrease since 2019. 

Source: Report at the Mid-Point - Latvia, SWD(2026) 48 final. 

Road  crashes  impose  an  enormous  social, 
economic  and  health  burden  on  the  EU 
economy.  The  external  socio-economic  costs  of 
fatal,  serious  and  minor  injuries  have  remained 
persistently  high  despite  the  progress  made  in 
reducing  crash  frequency  and  severity.  These 
innovation, 
resources 

could  otherwise 

fuel 

(387) European Commission (2025), Report on the 

implementation of the EU Road Safety Policy framework at 
the Mid-Point. 

117 

 
 
 
 
 
 
 
 
More  would  need  to  be  done  for  Latvia  to 
meet  the  2030  target  and  reduce  the  gap 
with  other  EU  countries.  Based  on  the  self-
reported assessment, funding for road safety has 
not been adequate to date, and there is a lack of 
common  political  will  to  make  unpopular  road 
safety  decisions  (such  as  on  penalties  or  stricter 
regulations).  Nevertheless,  new  measures  have 
Impact 
been 
Assessment  of  the  Road  Traffic  Safety  Plan 
2021-2027, to complement the existing plan (388). 
The  map  below  presents  the  roads  where  the 
safety  of  the  infrastructure  is  poor  and  thus 
where urgent action is required. 

the  Mid-term 

prepared 

in 

Map A19.2:  Latvia's road safety map 

Source: TENtec Information System and TEN-T map library – 
European Commission 

(388) For more details, see European Commission (2026), Report 

on the implementation of the EU Road Safety Policy 
framework at the Mid-Point – Latvia. 

118 

 
 
 
 
 
119