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EUROPEAN

COMMISSION

Brussels, 4.6.2025

SWD(2025) 214 final

COMMISSION STAFF WORKING DOCUMENT

2025 Country Report - Latvia

Accompanying the document

Recommendation for a COUNCIL RECOMMENDATION

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

{COM(2025) 214 final}

kom (2025) 0214 - Ingen titel

kom (2025) 0214 - Ingen titel

ECONOMIC DEVELOPMENTS AND KEY POLICY

CHALLENGES

Latvia’s economy is on a path to

modest growth

In 2024, the economy faced a recession

(-0.4%).

This was mostly due to the

geopolitical

context

and

perceived

uncertainties by both households and

companies. Despite pronounced wage growth,

private consumption was weak, and the saving

rate was very high at 11.3% due to

precautionary saving. In addition, foreign

investors are holding back investments in

Latvia due to geopolitical risks following

Russia’s full-scale

invasion of Ukraine. Private

investment was also hampered by high

interest rates while some public investments

were delayed, in particular investment under

EU co-financed programmes. As a result, after

solid growth in 2023 (9.9%), investment

significantly declined in 2024 (-6.7%). Goods

and services export growth was still negative

in 2024 due to a weak external environment

and a deterioration in cost competitiveness.

However, goods and services imports fell

faster. In 2024, the economy was mostly

supported by public consumption, which

remains strong.

A slow recovery is expected in 2025.

Solid

wage growth should support a further increase

in real incomes, which should eventually spill

over into consumer spending. Investment is

expected to recover in 2025 supported by EU

fund inflows, increasing spending on defence

and easing financial conditions. In 2025,

investment is projected to decrease by 1.2%,

before picking up to 2.6% in 2026. After two

years of decline, exports could remain weak

this year due to the direct impact of US tariffs

and the potential exposure of Latvia’s main

trading partners.

The Latvian labour market is performing

well, but shows structural challenges,

such as growing labour and skills

shortages.

After increasing in the first

quarter of 2024 to 7.1%, the unemployment

rate fell slightly to 6.9% in the last quarter of

2024, while the employment rate (77.4% in

2024) returned to its pre-pandemic level (see

Social Scoreboard in Annex 13). As the

economy recovers, the unemployment rate is

expected to decrease further in 2025 and

2026. In 2024, nominal wages increased by

7.7%. Nominal wage growth is set to reach

5.5% in 2025 and 4.5% in 2026, driven by a

tight labour market.

In 2024, energy prices declined quickly,

which rapidly pushed down headline

inflation.

With a broad-based slowdown in

price rises for other items in the Harmonised

Index of Consumer Prices, inflation fell to 1.4%

in 2024. Inflation is set to reach 3% in 2025

and 1.7% in 2026. Following wage trends,

services inflation is projected to rise to 5.1% in

2025 and decrease gradually to 3.7% by

2026. Headline inflation excluding energy and

unprocessed food was above general headline

inflation in 2024 and is set to remain so in

2025, driven by pressures in services and

processed food prices. The two figures are

likely to converge again by 2026.

Public finances are under pressure

to fund key priorities

In 2024, the general government budget

deficit stood at 1.8% of GDP, down from

2.4% in 2023.

In 2024, general government

revenue grew faster than expenditure. This

was mainly due to strong revenue growth

from labour and corporate taxes, including

corporate income tax advance payments from

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Box 1:

UN Sustainable Development Goals (SDGs)

Latvia performs well or is improving on SDGs related to productivity (SDGs 4, 9) and

macroeconomic stability (SDGs 16, 17) but is moving away from the targets for some

SDGs related to environmental sustainability (SDGs 6, 15).

Latvia is well below the EU average and is moving away from the targets on good

health and well-being (SDG 3) and on reduced inequality (SDG 10), mainly due to

increasing unmet needs for medical care and a wide urban-rural gap for the risk of

poverty or social exclusion (see Annex 15).

the financial sector, other taxes on production

as well as additional dividend payments from

state owned enterprises. The lower growth of

general government expenditure was driven by

phase-out of measures to mitigate the impact

of high energy prices. The general government

deficit is forecast to increase to 3.1% of GDP

in 2025, mainly due to weaker revenue growth

and increasing current expenditure. In 2026,

the government deficit is forecast to remain at

3.1% of GDP. Government debt is expected to

rise from 46.8% of GDP in 2024 to 48.6% in

2025, affected by positive stock-flow

adjustments and budget deficit, and reach

49.3% in 2026.

The growth of net expenditure both in

2025 and cumulatively since 2024 is

projected to be below the recommended

maxima.

In 2024, net expenditure (

) in Latvia

grew by 4.5% (see Annex 1). This increase is

mainly driven by growth of current

expenditure, particularly social benefits (due to

continuous rise of the average retirement

pension) and compensation of employees (due

to the increase in the national minimum wage

and higher remuneration for public sector

employees). In 2025, net expenditure is

forecast by the Commission to grow by 5.7%,

which is below the maximum growth rate

recommended by the Council (

). The

cumulative growth rate of net expenditure in

2024 and 2025 taken together is projected at

10.4%, which is below the maximum growth

rate recommended by the Council.

A structural revenue increase may be

necessary to keep up with rising spending

needs.

Latvia’s tax revenue remains below the

EU average, at 32.9% of GDP in 2023

compared to the EU average of 39.0%. Labour

and consumption taxes are Latvia’s main

revenue sources, whereas taxes on capital,

including corporate income tax, tax on income

from capital (

) and taxes on property (

represent a relatively low share of total tax

revenue and of GDP compared to other

Member States. In 2023, taxes on capital

accounted for 3.1% of GDP in Latvia against

8.5% in the EU as a whole. In terms of

immovable property taxation, Latvia ranks in

the upper-middle section among EU Member

States but, at 0.6% of GDP in 2023, revenues

were still below the EU average of 0.9%. While

this relative overall tax revenue gap might not

be an issue per se, it becomes relevant when

viewed in the context of the government’s

ability to sustainably finance policy priorities

(

) Council Recommendation of 21 January 2025

endorsing the national medium-term fiscal-structural

plan of Latvia (OJ C, C/2025/652, 10.2.2025, ELI:

http://data.europa.eu/eli/C/2025/652/oj).

(

) Net expenditure is defined in Article 2(2) of Regulation

(EU) 2024/1263 as government expenditure net of (i)

interest expenditure, (ii) discretionary revenue

measures, (iii) expenditure on programmes of the Union

fully matched by revenue from Union funds, (iv)

national expenditure on co-financing of programmes

funded by the Union, (v) cyclical elements of

unemployment benefit expenditure, and (vi) one-off

and other temporary measures.

(

) Income from capital gains (disposal of real estate,

shares, virtual currency, intellectual property, investment

gold, etc.) and income from capital (taxable dividends,

interest on deposits, income from investment

promissory notes, income derived from the investment

account, etc.).

(

) Taxes on immovable property, duties on operations

related to real estate, legacies and donations, etc.

kom (2025) 0214 - Ingen titel

and provide adequate public services while

complying with fiscal rules.

Taxation of sources less detrimental to

growth has been only marginally

addressed by the recent tax reform.

The

tax reform that entered into force in January

2025 mainly adjusted the personal income tax

system with the aim of simplifying taxation

and raising disposable income for most

workers. The reform also increased tax rates

on income from capital in line with the

increase in the standard personal income tax

rate (from 20% to 25.5%) (

). Furthermore, it

made annual income above EUR 200 000,

including income from capital, subject to a

higher personal income tax rate (an additional

3% is applied on top of the standard rate).

Nonetheless, these measures are estimated to

have rather a minor fiscal impact on capital

tax revenue, amounting to less than 0.1% of

GDP in 2025 and in 2026. The government is

formally committed to transitioning to new

land and property values ('cadastral values')

for immovable property taxation from 2026,

alongside a review of real estate tax rates and

the rebate system. The current plan aims to

stabilise tax revenue at 0.6% of GDP,

approximately 0.2 percentage points below the

10-year annual average and significantly

lower than the theoretical revenue under the

newly projected cadastral values (

Improving the current approach to public

spending

reviews

and

gradually

introducing performance-based budgeting

could yield fiscal benefits.

Annual

expenditure reviews have been carried out

since 2016 with the aim of making public

spending more effective. However, the current

practice has largely been limited to returning

(

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

annual income not exceeding EUR 105 300; a 33% rate

is applied above this threshold (excluding income from

capital).

(

) According to the Ministry of Finance, in 2023 actual real

estate tax revenue amounted to EUR 237 million, while

theoretical real estate tax revenue under the new

projected cadastral values, assuming unchanged tax

rates, was estimated at EUR 511 million;

https://www.fm.gov.lv/lv/media/18078/download?attach

ment.

most savings (approximately 0.3% of GDP

annually) to the line ministries involved in the

review process to finance their internal

priorities. A potentially better approach could

be to redirect the resulting funding to a limited

number of priority areas, such as defence,

healthcare and social protection. According to

the declaration on intended actions by the

current government, proposals will be made

for improving the principles guiding state

budgeting, setting clearer goals for state

budget programmes and regularly evaluating

the results. As a first step, in February 2025,

the Ministry of Finance submitted an

informative report on performance-based

budgeting in Latvia for government

consideration. This initiative aims to ensure

more effective and transparent management

of state budget funding and to improve the

connection between state budget expenditure

on the one hand, and the goals and results of

sectoral policies on the other hand.

Tackling socio-economic

challenges to boost

competitiveness

Latvia’s GDP per capita is significantly

below the EU average, and the pace of

convergence with other EU Member

States is slowing.

In 2024, Latvia’s GDP per

capita was 71% of the EU average, which is

only 5 percentage points higher than in 2019.

In addition, its income level is significantly

below that of its Baltic peers

–

GDP per capita

for Estonia and Lithuania was, respectively,

79% of the 2023 EU average (down

5 percentage points on 2019) and 87% (up

4 percentage points on 2019). This suggests

that key convergence challenges, such as an

ageing population, skills shortages, poor health

outcomes, weak innovation performance and

regional disparities, are hindering faster

progress.

Simplifying regulations and increasing

investment in research have the potential

to improve competitiveness.

Latvia’s

business environment could benefit from

regulatory simplification, a reduction in the

kom (2025) 0214 - Ingen titel

size of the shadow economy and improved

access to finance, particularly for small and

medium-sized enterprises. The lack of highly

skilled human capital and low public R&D

spending are barriers for both research

performance and innovation output. Latvia

could benefit from strengthening the resilience

of its regions, particularly its eastern border

areas by promoting balanced economic

development, enhancing security and stability

and maximising the use of EU funding for

long-term growth (see Section 2 and

Annexes 3, 4, 5 and 6).

There is scope for Latvia to more closely

align decarbonisation and competitive-

ness objectives.

Latvia would especially

benefit from faster deployment of wind and

solar energy capacity, which would entail

addressing current electricity grid constraints

and further expediting and streamlining

permitting procedures, including those for the

installation of electricity storage capacities.

Moreover, considering the already high share

of renewable sources in its electricity mix,

Latvia could promote further electrification as

a cost-effective way to reduce greenhouse gas

emissions and bring the benefits of affordable

renewable generation to consumers. Finally,

climate action in the agri-food and land

management sectors is essential to contribute

to the broader goal of a climate-neutral and

resilient EU by 2050. Latvia could step up

efforts to foster a transition to more

sustainable practices in those sectors (see

Section 3 and Annexes 7, 8 and 9).

Latvia’s

competitiveness is also linked to

its social fairness, which remains a

challenge.

Inadequate social protection leads

to persistently high-income inequality and

poverty, limiting the opportunities for

vulnerable groups as reflected in the social

scoreboard accompanying the European Pillar

of Social Rights (

). The healthcare system is

underfunded, resulting in poor health

outcomes and losses of working time. The lack

of affordable and quality housing in the

regions hinders not only social well-being, but

(

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

scoreboard/.

also labour mobility (see Section 4 and

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

kom (2025) 0214 - Ingen titel

Box 2:

Barriers to private and public investment

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

barriers to private investment exist.

•

Unfavourable financing conditions. 58% of Latvian enterprises reported the non-availability

of finance as an obstacle to long-term investment in 2024. Private investment has been

constrained by high lending rates and stringent collateral requirements.

•

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

Russia’s full-scale

invasion of Ukraine.

•

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

primary obstacle to long-term investment.

•

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

R&D investment.

Latvia makes effective use of EU funds to supplement national investments, ensuring the

advancement of critical infrastructure and reforms, especially given constraints in its national

budget. However, barriers to efficient public spending remain. These challenges also act as a

bottleneck to the implementation of EU funds:

•

Administrative capacity and execution strategies. The pace of implementation of EU-funded

projects is slowed by constraints in administrative resources, cumbersome interinstitutional

coordination, excessive administrative burden on final beneficiaries and systemic delays in

setting national regulatory frameworks for implementation. Certain EU-funded projects may

also struggle with low demand at municipal level due to potential future funding needs for

maintenance or services.

•

Implementation capacity of the construction sector. The construction sector risks limitations

in implementation capacity as multiple construction projects happen simultaneously,

competing for limited resources such as skilled labour, materials and equipment, slowing

down the delivery of public investment. Large investment projects are also affected by

administrative hurdles, such as delays in procurement processes, and external factors such

as supply chain constraints and increasing costs due to inflation.

The implementation of

Latvia’s RRP

is facing challenges. At present, Latvia has fulfilled 38% of

the milestones and targets in its RRP. Accelerating progress and addressing the above-

mentioned barriers would support timely and effective implementation of the plan.

It remains important to accelerate the implementation of cohesion policy programmes. The mid-

term review offers opportunities to speed up progress and better address EU strategic priorities

related to competitiveness, defence, housing, water resilience and the energy transition.

While Latvia has leveraged STEP to reallocate some Cohesion Policy resources towards this

priority, it can further support the development or manufacturing of critical technologies in the

areas of digital and deep tech, clean and resource efficient technologies, and biotechnologies.

kom (2025) 0214 - Ingen titel

INNOVATION, BUSINESS ENVIRONMENT AND

PRODUCTIVITY

Latvia’s business environment has

improved, but the country needs to

address ongoing obstacles to achieve

stronger economic and productivity

growth.

A survey carried out in 2024 by the

European Investment Bank showed that

Latvian companies have become more

optimistic about the business environment.

Business investments in Latvia are 30% above

pre-COVID-19 levels. Latvian firms faced

lower

obstacles

for

investment (

Nevertheless, Latvian business still face

challenges such as low R&D intensity, limited

access to finance, high interest rates, a high

regulatory burden, geopolitical risks and a

significant shadow economy. Furthermore,

while labour productivity and economic

efficiency (as measured by total factor

productivity) have picked up in recent years,

Latvia’s productivity level remains not only

below the EU average, but also that of its

Baltic peers, Estonia and Lithuania. To achieve

more robust economic growth, it is essential

for Latvia to address these ongoing challenges

and bridge the productivity gap.

innovation (R&I) outputs also remains below

the EU average. For example, only 4.55% of

scientific publications written in Latvia are

within the top 10% most-cited scientific

publications (

). Innovation output in terms of

patents and trademarks is also low, with only

1.0 patent applications per EUR 1 billion of

GDP compared to the EU average of 2.8 in

2022 (see Annex 3).

In terms of research activities, Latvia is

lagging behind the EU average.

In Latvia,

there are only a few high-performing public

research

institutions.

However,

the

consolidation of universities, the creation of

the innovation governance model, and the

establishment of competence centres (all of

which feature in the recovery and resilience

plan) could potentially lead to progress in this

area. Successful continuation of the reforms in

higher education could lead to further

improvements. Latvia's R&I capacity is

hindered by a shortage of researchers in both

the public and private sectors (see Annex 3).

This could also negatively impact the R&I

system capacity to absorb funds. The

relaxation

the

Latvian

language

requirement for academic staff in 2024 may

help to attract more researchers from abroad,

although further steps, such as a relaxation

for lecturers and assistants, would be

beneficial. The number of doctoral graduates

and science, technology, engineering and

mathematics (STEM) graduates is low and

increasing too slowly to address the shortage

of researchers in the short or medium term

(see Section 4 and Annex 3). The number of

new doctoral students has already increased

following the new doctoral model (part of

recovery and resilience plan). However, their

Boosting innovation and R&D

investment

R&D outputs and investment in Latvia

are lagging the European average.

The

European Innovation Scoreboard classifies

Latvia as an emerging innovator. Unlike in

most Member States, business R&D

expenditure (0.3% of GDP) is significantly

lower than public R&D spending (0.53% of

GDP) and is the lowest in the EU (EU average

1.49% of GDP). The quality of research and

(

) https://www.eib.org/en/press/all/2025-069-latvian-

companies-see-improved-business-environment-in-

new-eib-investment-survey.

(

) DG RTD based on Science-Metrix using data from

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

citation window.

kom (2025) 0214 - Ingen titel

impact on the workforce will only be visible in

the long run.

Private R&D investment is very low.

Latvia does not currently have corporate R&D

tax incentives in place and mostly uses direct

funding to support business innovation

instead. The lack of incentives for the business

sector to distinguish R&D from other types of

investment may lead to underreporting of R&D

investment, although the low level of

innovation output shows the low level of

innovation activity. Consideration could be

given to introducing indirect funding, such as

leveraging public procurement to stimulate

broader R&D activity in businesses and

improve monitoring.

customers could increase competition between

banks and reduce high credit costs.

Latvia’s capital market

is less developed

than the EU average or the markets in

neighbouring countries.

In Q2-2024, stock

market capitalisation in Latvia was equal to

1.5% of GDP (for comparison: 67.6% in the EU,

5.8 in Lithuania and 12.7% in Estonia). In

2023, listed shares and bonds accounted for

just 1.3% of all funding sources for Latvian

non-financial corporations. Moreover, Latvia

has only listed bonds for three of its state-

owned enterprises, in contrast to Lithuania and

Estonia, where they account for slightly more

than a third of market capitalisation (see

Annex 5). Latvian authorities are working to

unify capital markets with other Baltic states.

Further harmonising reporting requirements

across Baltic capital markets could make the

capital market more attractive.

The venture capital sector shows positive

signs of development; however, it still

lags the EU average.

According to the

Capital Markets Union Dashboard (

), annual

venture capital investment amounted to

0.02% of GDP on average between 2021 and

2023, well below the EU average of 0.08%.

Venture funds in Latvia often depend on co-

investments from the state budget,

Latvia’s

national promotional institution, EU funds, the

European Bank for Reconstruction and

Development or the European Investment

Fund. Even then, Latvian venture capital still

encounters difficulties in attracting the

necessary level of private capital for the

publicly supported hybrid venture capital

funds. However, crowdfunding platforms are

rather popular, accounting for 0.7% of GDP.

The non-bank

financial sector’s assets

are largely comprised of household

retirement savings.

At the end of Q2-2024,

Latvia’s pension savings in all types of pension

products (22.3% of GDP) exceeded Lithuania’s

Improving access to finance

Despite some revival of credit growth in

2024, companies in Latvia use external

financing less than their peers in other

EU countries.

Bank lending to non-financial

corporations in December 2024 grew by 5.8%

year-on-year, thus exceeding the growth rate

of nominal GDP. In 2023, loans, listed shares,

trade credit and bonds constituted 34% of

GDP in Latvia and 54% in the EU. The cost of

credit is high: in December 2024, the lending

interest rates were 5.22% in Latvia, compared

with 4.24% in the euro area (see Annex 5).

Cyclical and structural issues constrain

lending in Latvia.

These issues are reflected

in high lending rates and stringent collateral

requirements. This is most notable in corporate

lending, where interest rate markups have

remained high and a large proportion of loans

have variable interest rates, resulting in very

high lending rates. Market concentration in the

banking sector is among the highest in the EU.

Spreading information about products,

including those provided by smaller banks, and

their costs could partly mitigate this problem.

Work is underway to facilitate switching for

bank customers. For example, in 2024

mortgage loans transfers from one lender to

another were simplified and the switching

costs for consumers were reduced. A further

reduction of switching costs for bank

(

)

https://finance.ec.europa.eu/document/download/

60d966f8-8f3a-4133-a852-

de7d6978e387_en?filename=240719-capital-

markets-union-indicators_en.pdf

kom (2025) 0214 - Ingen titel

(11%), and Estonia’s (19% in 2019). At the

end of 2023, second-pillar (occupational)

pension plans had accumulated almost half of

the total assets of the non-bank financial

sector. Due to the growing contributions to the

second-pillar pension scheme, the high return

on investment and the licensing of investment

platforms in 2021, the role of Latvia’s

institutional investors has been growing over

recent years. Pension funds have contributed

to the development of Latvian capital markets,

but their domestic investment remains low

due to the shallow local financial markets (see

Annex 5).

development, administrative hurdles remain.

The potential for simplification in systems

such as the Building Information System is

identified by the action plan as a way of

reducing the administrative burden in the field

of real estate development (

The regulatory burden is reported as an

obstacle to investment.

According to the

European Investment Bank's Investment

Survey 2024 (

), 42% of businesses in Latvia

identified business regulation as a major

challenge, exceeding the EU average of 32%

and levels reported in Estonia (15%) and

Lithuania (22%). From a competitiveness

perspective, reducing regulatory complexity

and ensuring a more predictable business

environment are essential to fostering

investment.

Reducing the administrative

burden

Latvia’s regulatory framework presents

challenges in terms of administrative

burden and compliance costs for

companies.

Currently, there are no

requirements for regulators to assess

compliance costs in new or existing legislation,

and no recent efforts have been made to

consolidate or streamline regulations (see

Annex 6). Although public participation in the

legislative process has increased, the use of

policy impact analyses remains below the EU

average, indicating gaps in long-term policy

evaluation. Public trust in government

decisions is relatively low, with only 26% of

Latvians believing that decisions are evidence-

based, compared to 41% in OECD countries

overall (

The licensing regime in Latvia is slightly

more restrictive than the EU average, as

indicated by the OECD product market

regulation indicator.

While an online

inventory of permits and licenses is available,

regular reviews to assess the need for them

are lacking. Most permits and licenses require

periodic renewal, contributing to regulatory

complexity. In sectors like real estate

Formalising the economic activity

Recent assessments reveal a positive

break in the growth of the shadow

economy over the past four years.

According to surveys of company owners and

managers (

), the shadow economy decreased

in size in 2023 to 22.9% of GDP, 3.6

percentage points lower than in 2022. This

was due to a decrease in the share of

underreported business income and in the

share of envelope wages. While there are

different ways of measuring the size of the

shadow economy and it is difficult to establish

causality, the persistent focus on policy

measures to formalise economic activity

seems to have reduced companies' tolerance

for the shadow economy and their willingness

to participate in it. Also, important but

unimplemented measures are carried over

(

)

https://www.em.gov.lv/lv/jaunums/valdiba-apstiprina-

pasakumu-planu-administrativa-sloga-mazinasanai-

nekustamo-ipasumu-attistisanas-joma

(

) EIB investment survey 2024 Latvia

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

econ_eibis_2024_latvia_en.pdf.

(

) Shadow Economy Index for the Baltic Countries 2009-

2023;

https://www.sseriga.edu/sse-riga-shadow-

economy-index-shadow-economy-latvia-decreased-

2023-229-gdp.

(

)

OECD Survey on Drivers of Trust in Public Institutions

–

2024 Results | OECD

kom (2025) 0214 - Ingen titel

from one action plan to the next, ensuring

continuity of policy implementation.

Data on taxpayers’ ratings show some

positive results in the taxpayer structure.

The taxpayer rating (a measure under the

recovery and resilience plan) is a tool operated

by the State Revenue Service aimed at

assessing the settlement of tax liabilities of

commercial companies. It is comprised of

several indicators, e.g. timely submission of

reports, status of tax settlement and salary-

setting principles. Recent analysis by the State

Revenue Service (

) shows that the proportion

of taxpayers with good and overall good

settlement of tax liabilities has increased by

0.1% and 2.5% respectively, while the share of

inactive taxpayers has decreased by 2.4%.

However, these results must be treated with

some caution given the relatively short time

series.

their

weaker-than-average

economic

performance, these regions, especially Latgale,

merit additional attention and more

investment to support border security and

defence, civilian resilience, connectivity,

administrative capacity-building and business.

Furthermore, the regions have significant

untapped potential stemming from the 'green

transition', particularly in renewable wind and

solar energy deployment, and advances in

sustainable transport.

Building resilient and competitive

regions

Latvia could benefit from stepping up

efforts to reduce disparities between the

capital region and other areas.

While some

regions show promising growth trajectories

based on a mix of traditional sectors, more

attention could be paid to developing strong

foundations for businesses to thrive by

providing quality public services, access to

finance and infrastructure, in particular, road,

railway and digital connections. Improving

connectivity in lagging regions would also

strengthen their attractiveness for visitors and

talent and would support their competitiveness

and productivity. Moreover, the war in Ukraine

has had a profound impact on Latvia’s eastern

border regions disrupting trade, triggering

migration and the need for new investments in

civil protection and defence. The government

recently approved an action plan to boost

economic growth in the eastern border regions

and strengthen their security. However, given

(

) Assessment by the State Revenue Service based on

taxpayers rating data; February 2024 and February

2025.

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DECARBONISATION, ENERGY AFFORDABILITY AND

SUSTAINABILITY

Speeding up renewable energy

deployment and electrification

While Latvia already has a high

proportion of renewables in its electricity

mix, speeding up the deployment of

additional solar and wind energy capacity

would be beneficial.

In 2024, 74% of

Latvia’s electricity was generated from

renewable sources, with hydro accounting for

51% of the total. However, the shares for

solar and wind production, at 8% and 4%

respectively, were still significantly lower than

in Lithuania and Estonia, and below the EU

average (

). Beyond the measures planned

under Latvia’s

recovery and resilience plan,

there is ample scope for additional measures

to improve grid queue management (see

Annex 8) and to expedite and streamline

permitting procedures for new solar and wind

energy projects, as well as related storage

capacities. On grid queue management,

amendments to the Electricity Market Law that

entered into force on 1 April 2025 are

expected to ease the current bottleneck (

Improving the design of national support

schemes to provide more long-term

predictability is also crucial for developers of

large-scale generation facilities.

Promoting electrification across sectors

could be a cost-effective way to reduce

greenhouse gas emissions and bring the

benefits

affordable

renewable

generation

consumers.

Latvia’s

electrification rate

–

electricity as a share of

final energy consumption

–

is substantially

(

) Ember, Electricity Data Explorer, available at

Electricity

Data Explorer | Ember.

(

)

Amendments to the Electricity Market Law

below the EU average and has stagnated over

the past decade (see Annex 8). Given the high

and increasing share of renewables in the

electricity mix, promoting further electrification

across sectors could be an effective strategy

to reduce overall greenhouse gas intensity and

enhance economic resilience. For example,

Latvia could increase electricity's share in final

energy consumption for buildings and industry

sectors by further supporting electrification

under future energy efficiency schemes. This

would help to unlock the potential of

electrification to drive decarbonisation and

support a cleaner energy system.

Further electrification and a higher rate

of renewables in the country’s energy mix

require solid planning and support for

upgrades to the grid, promotion of

storage, demand response and market-

based flexibility.

Under its recovery and

resilience plan and EU cohesion policy

programming, Latvia is already investing in

expanding, securing and digitalising electricity

transmission and distribution networks. The

successful

synchronisation

with

the

continental European electricity network as of

9 February 2025 strengthens energy security

but demands additional efforts to improve grid

resilience. The installation of a 60 MW battery

energy storage system in Rēzekne,

co-financed

by the Recovery and Resilience Facility, will be

a positive development for energy storage.

The variability associated with renewable

energy generation means that ways must be

found to balance energy supply with demand

throughout the day. Latvia could benefit from:

(i) promoting demand-response tools, which

can adjust energy use in real time to match

energy availability; (ii) providing incentives for

the installation of batteries or other systems

for storing excess energy generated at peak

times; and (iii) enhancing the role of

independent aggregators of small-scale

demand able to provide flexibility over the

kom (2025) 0214 - Ingen titel

course of a day and balancing services when

needed.

Decarbonising the transport sector

Latvia could intensify its efforts to

decarbonise the transport sector, which

remains heavily reliant on oil products.

The potential for further electrification and

decarbonisation is significant in this sector,

particularly in road transport, which is one of

the largest energy consumers and greenhouse

gas emitters in the country (see Annex 7).

However, the penetration of electric vehicles,

including both full battery-electric and plug-in

hybrid electric vehicles, is relatively low, as is

the uptake of vehicles powered by alternative

fuels.

The Latvian government is taking some

steps in the field of transport, but

additional efforts are needed.

Some

positive measures are in place or in the

pipeline: Latvia has adopted taxation policies

linking vehicle registration and ownership

taxes to CO

emissions; the Ministry of

Transport is currently working on a proposal

for a new Road Charges Act, introducing

differentiated toll rates according to the CO

emissions of vehicles and a new distance-

based levy from 2030; support measures and

direct investments are ongoing or at the

design phase. Furthermore, the cross-border

Rail Baltica project, which aims to strengthen

connectivity between the Baltic states and the

rest of the EU, is crucial for shifting traffic

from road to rail in the interests of

sustainability. However, progress has been

slow and would benefit from measures to

ensure faster implementation. Funds from the

Recovery and Resilience Facility were recently

allocated for the completion of works in the

southern part of Riga Central Railway Station

–

a big step towards a rail connection linking

Riga International Airport to the main Rail

Baltica line. Latvia could do more to promote

the uptake of electric vehicles, and the

production and uptake of renewable and low-

carbon fuels for both public and private

transport. Retrofitting conventional heavy-duty

vehicles, especially buses, with an electric

powertrain could be a cost-effective

contribution

fleet

decarbonisation.

Additional investment to expand the

recharging network would also be beneficial.

On the legislative front, the swift adoption of

the Climate Law and Transport Energy Law

would help create certainty and stability for

market operators and users as they transition

to cleaner forms of transport. Lastly, the

targeted use of the Social Climate Fund will be

essential in supporting vulnerable groups

during this transition.

Improving energy efficiency

Significant energy efficiency schemes are

currently running or being planned, but

Latvia could benefit from stepping up the

renovation of its rather old building

stock, especially by leveraging additional

private funding.

The building stock is a major

energy consumer in the country and, while

energy consumption from the sector has

decreased in the past few years, additional

efforts are needed to achieve the 2030 energy

efficiency targets (see Annex 8). Moreover,

fuel taxes for buildings are much lower than

the EU average and so do not provide a

sufficient decarbonisation incentive and

perpetuate reliance on fossil fuels. The OECD

measures this incentive by effective carbon

rates (see also Annex 8) which, for buildings,

are EUR 7.87 in Latvia compared to EUR 61.49

for the EU as a whole. Most current and

planned support schemes are dependent on EU

funding, especially via the Recovery and

Resilience Facility, EU cohesion funds and the

Modernisation Fund. There is scope for

attracting additional private funding, by

deploying dedicated financial instruments and

de-risking options for energy efficiency

investments,

and by supporting the

development of the energy services sector as

a key market-enabler for energy efficiency

improvements. Moreover, swift drafting and

submission of the first draft national building

renovation plan by 31 December 2025 will be

fundamental (and is required by the Energy

Performance of Buildings Directive). The

Latvian government plans to have a new

Energy Efficiency Law adopted by the end of

kom (2025) 0214 - Ingen titel

2025, which would provide a legal framework

for the country to achieve the targets set by

relevant EU Directives. Latvia has also recently

amended the Law on Residential Property,

which should speed up decision-making for

energy efficiency renovations in multi-

apartment buildings.

advisory services, and supporting innovative

carbon farming start-ups, could help land

sector operators build a compelling business

case for transitioning to more sustainable and

resilient practices.

Sustainable land management

The land use, land-use change and

forestry (LULUCF) sector and the

agricultural sector continue to be a

source of concern, as Latvia’s carbon

removals are insufficient to meet its

2030 target.

Amid increased logging and

high greenhouse gas emissions from degraded

peatlands, the LULUCF sector has become a

net greenhouse gas emitter in recent years.

According to the latest projections, Latvia is

unlikely to meet its target for net greenhouse

gas removals without additional efforts (see

Annex 9).

The agriculture, forestry and peat

extraction sectors put significant strain

on the natural environment, with

degraded peatlands being a particular

concern.

Wetlands, including peatlands, play a

significant role in greenhouse gas emissions

within Latvia's LULUCF sector, accounting for

approximately 38% according to the latest

available data. The vast majority of emissions

from wetlands are attributable to peat

extraction for horticultural purposes. While

Latvia’s common agricultural policy strategic

plan includes some positive measures (see

Annex 9), the country would benefit from

further initiatives to reduce the environmental

intensity of these sectors and from a stronger

national regulatory framework for sustainable

land management. For instance, Latvia could:

(i) implement capacity-building programmes

for farmers, land managers and local

communities; (ii) provide additional incentives

for set-aside and rewetting programmes

through compensation schemes; and (iii)

enforce sustainable forest management and

peat extraction practices. Furthermore,

providing farm-level monitoring data and

Circular economy and waste

management

Latvia faces significant challenges in its

transition to a circular economy and

could benefit from improved waste-

management policies.

In 2023, the country’s

circular material use rate was less than half

the EU average, and resource productivity was

also below the EU average (see Annex 7).

Improving resource productivity can help to

minimise negative impacts on the environment

and reduce dependency on volatile raw

material markets. Despite significant progress

in its waste-management system in the last

decade, Latvia still struggles with municipal

waste and bio-waste collection and recycling;

a significant proportion of municipal waste

(44%) is still sent to landfills, putting the

country at risk of missing its 2025 reuse and

recycling targets and its 2035 landfill

reduction target.

The 2021-2027 action plan

‘Towards

Circular Economy’, which is the main

national policy document in this area,

marks a positive step towards circularity

and

different

consumption

and

production patterns.

However, the plan lacks

quantified targets and a clear strategy to

ensure that planned initiatives go beyond

niche areas and are effectively integrated into

the broader economy and society. In 2024,

Latvia introduced a system for bio-waste

collection and an extended producer

responsibility system for textile products,

which is a positive development. Latvia could

develop this, for example by increasing

municipal waste recycling and improving bio-

waste collection by providing all residents with

separate bio-waste containers, by raising

public awareness through campaigns and by

extending the use of green public

procurement.

Further

investments

are

kom (2025) 0214 - Ingen titel

necessary to unlock the full potential of a

circular economy and address the existing

challenges.

Net-zero manufacturing capacity

Latvia’s

manufacturing capacity for net-

zero technologies remains limited.

Net-

zero technologies are seen as fundamental to

attaining the EU's 2030 and 2050 climate and

energy objectives (

). The country has limited

capacity to produce steel structures for wind

turbines or components for solar photovoltaic

installations and solar thermal industries. The

country has a stronger track record in the

production and export of grid technology

components (see Annex 7). There is currently

no dedicated industrial policy strategy nor

regulatory

framework

for

net-zero

manufacturing.

(

) See European Commission,

Proposal for a regulation of

the European Parliament and of the Council on

establishing a framework of measures for

strengthening

Europe’s net-zero

technology products

manufacturing ecosystem (Net-Zero Industry Act),

16 March 2023, available at

Net-Zero Industry Act -

European Commission.

kom (2025) 0214 - Ingen titel

SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS

Latvia faces considerable labour market

and social challenges, which also hinder

its competitiveness.

The ageing of the

population is leading to a decline in the labour

force. Labour and skills shortages continue to

weigh on economic growth and slow down the

transition to digital and green economy.

Furthermore, both the workforce and the

economy suffer from poor healthcare

outcomes. Social protection remains weak,

with a persistently high poverty and social

exclusion risk, notably for older people.

Strengthening access to quality social services

and long-term care, as well as improving the

quality of housing, are essential for ensuring

social fairness. Strong discrepancies in labour

outcomes and wages between Riga and the

regions negatively impact the regions’ ability

to attract and retain talent and young families,

exacerbating socio-economic and demographic

challenges.

Improving digital literacy and 'green

competencies' thus remains crucial to address

labour and skills shortages.

Despite reform efforts, reskilling and

upskilling are insufficient to provide the

required talent and to meet national

targets.

In line with its recovery and resilience

plan, Latvia will undertake significant reforms

to establish a sustainable and socially

responsible adult learning framework and

improve digital skills in businesses and society.

This includes regulation to improve access to

upskilling and reskilling by creating more

opportunities and incentives for employees to

participate in education and training.

Nevertheless, at 34.1% in 2022, the proportion

of adults in education and training in the last

12 months remains well below the national

target of 60% by 2030 and has been in

decline since 2016. Furthermore, spending on

active labour market policies remains low, with

limited participation in training and activation

measures among those seeking employment.

While recent reforms in vocational education

have made vocational education and training

more flexible and attractive, continued efforts

are needed to expand work-based learning as

a way of making graduates more employable

and supporting

Latvia’s competitiveness and

productivity. Aligning workforce skills through

reskilling and upskilling initiatives in

collaboration with social partners remains

crucial (see Annex 12).

Regional disparities in access to quality

education continue to hamper skills

development.

While the education system

performs comparatively well overall, indicators

such as the number of STEM graduates and

the share of early leavers from education and

training show marked differences between

urban and rural areas. Larger urban schools

are also outperforming smaller rural ones in

basic skills proficiency (see Annex 12). Access

to quality education depends somewhat on the

Addressing labour and skills

shortages

Labour and skills shortages remain a

significant challenge, in particular for the

green and digital transitions.

The Latvian

labour market is facing labour and skills

shortages, with high vacancy rates in key

sectors such as construction, manufacturing,

insulation, forestry and healthcare. The share

of science, technology, engineering and

mathematics (STEM) graduates remains below

the EU average (see Section 2), and only one

in three STEM graduates is female, despite

women’s above-average

tertiary education

attainment overall. The relatively low and

decreasing level of digital competency also

poses a significant risk to productivity: the

proportion of individuals with basic or above-

basic digital skills fell to 45.3% in 2023 and

remains below the EU average of 55.6%.

kom (2025) 0214 - Ingen titel

place of residence, reflected in significant

differences in school sizes, student numbers

and the ability to attract and retain teachers.

This is compounded by persisting

challenges in renewing the teaching

workforce.

37.5% of the teaching workforce

are older than 55 years and approaching

retirement and teacher shortages are

becoming apparent. Despite government

efforts, teaching remains a relatively

unattractive career option for young graduates

due to salary and workload concerns.

Retraining programmes for future teachers

have proven successful and continue to attract

new participants, but they are unlikely to be

sufficient to replenish the teaching workforce.

Continued efforts to streamline and

consolidate the large and inefficient school

network and attract and retain new teachers

could help reduce geographical disparities and

improve quality.

of a base pension system could help improve

pension adequacy and reduce old-age

poverty (

). Developing a long-term strategy,

which could include strengthening the

occupational (second-pillar) pension base,

would be another major step towards pension

adequacy. Measures in this area would help

Latvia reach its 2030 national target on

poverty reduction.

Significant socio-economic disparities

exist across regions, affecting the

provision of

social

services.

The

unemployment rate, the risk of poverty or

social exclusion and the level of early school

leavers are all higher in rural areas than in

more urbanised areas. For instance, 29.4% of

the rural population are at risk of poverty or

social exclusion, compared to 23.3% of those

living in towns and suburbs and 19.3% in cities

in 2024. The eastern border region of Latgale,

which shares a long border with Russia and

Belarus, faces particularly high levels of

unemployment and poverty, as well as a more

pronounced demographic decline than the rest

of the country. As responsibility for providing

social services lies predominantly with

municipalities, the socio-economic differences

and local budgets determine the level of

support provided. In this respect, a reform on

the provision of minimum services (

) was

adopted in early 2025; it will be important to

implement it effectively, with adequate

funding (see Annex 12).

The need for quality long-term care (LTC)

is rising and requires attention.

The

number of people of retirement age requiring

municipal LTC services is rising. At the same

time, public spending on LTC and home care

remains below the EU average and remains

inadequate given demographic trends.

Municipalities show limited interest in taking

up projects to develop new services. Home

care remains underdeveloped, although the

share of the population in need of LTC and

who use formal home care services is high.

(

) With current policies, public pension spending is

projected to decline by 1.7 pps of GDP in 2024-2070

(see Annex 1).

(

)

Called the ‘minimum services basket’.

Strengthening social fairness

The social protection system fails to lift a

considerable proportion of the population

out of poverty or social exclusion.

Despite

some positive developments in recent years,

the rate of people at risk of poverty or social

exclusion remains well above the EU average

and is the highest among the Baltic states.

Income inequality is high (the income of the

wealthiest 20% of the population was 6.28

times higher than that of the least affluent

20% in 2024, vs 4.66 times in the EU), while

general government social protection spending

remains among the lowest in the EU. The

impact of social transfers (excluding pensions)

on poverty reduction is the lowest in the Baltic

states, falling to 21.5% in 2024 (vs 34.4% in

the EU).

Ensuring adequate income support for

older people remains a key challenge.

Old-

age poverty remains particularly high, with

42.9% of people over the age of 65 deemed

at risk of poverty in 2024 (vs 19.4% in the

EU). This contributes significantly to the

above-EU- average general at risk of poverty

or social exclusion rate. A gradual introduction

kom (2025) 0214 - Ingen titel

Latvia would benefit from full implementation

of the actions outlined in the Latvian recovery

and resilience plan to promote access to and

development of LTC services for 2024-2029,

including the creation of a new and

sustainable LTC financing model. Investing in

LTC could help create new jobs, relieve the

care burden for family members and make it

easier for them to work, thus enhancing

competitiveness. The European Social Fund

Plus will help with the development of a

multidisciplinary palliative home care system

and provide training for social service

professionals.

raise the quality of housing, given the

magnitude of the challenge. This would reduce

the financial pressure on households from

rising energy costs and the need for

refurbishing and maintenance.

Investing in a healthier population

Latvia faces significant challenges in

improving the health of its population,

with low life expectancy, high mortality

rates and wide health inequalities posing

a major concern.

People in Latvia tend to

have shorter and less healthy lives compared

to other EU countries. This results in a

significant loss of productive years, hindering

the country’s economic growth. The rate of

preventable mortality is among the highest in

the EU, linked to a high prevalence of

behavioural risk factors. Furthermore, the

proportion of the population reporting unmet

medical needs is increasing, with 8.4% of the

population affected in 2024, up from 7.8% in

2023 compared to an EU average of 2.4% in

2023.

Lower-income

households

are

disproportionately

affected,

underscoring

inequality in access to health services (see

Annex 14).

The health system is hindered by

insufficient

financing,

limiting

the

adequacy of healthcare services.

Latvia

allocates one of the lowest percentages of

GDP to healthcare in the EU (4.9% vs 8.4% in

the EU in 2022). Out-of-pocket payments

account for a greater proportion of health

spending than the average across the EU, and

this is related to the limited scope of the

state-funded healthcare benefits package.

Moreover, according to Ministry of Health data

on January 2025, government spending on

healthcare is set to decrease from 5% of GDP

in 2024 to 4.8% in 2025, falling short of the

national commitment to allocate 6% of GDP to

healthcare by 2027. The government has

proposed a draft law to reform the financing

for healthcare by revising eligibility for access

to publicly funded healthcare services and

improving financial management through the

establishment of a National Health Insurance

Fund. However, the proposed law stops short

Ensuring access to quality housing

The shortage of housing impacts labour

mobility and social inclusion.

The

overcrowding rate remains among the highest

in the EU, at 39.3% in 2024, and the share of

the population without a bath or shower in

their dwelling is the second highest in the EU

(9% in 2020). The existing housing stock is of

poor quality, and the supply of affordable new

housing is limited. While above the EU

average, housing affordability deteriorated

significantly from 2022 to 2023, in line with

high inflation in that period. The shortage of

quality housing is primarily explained by

historically low investment in housing,

stemming from high levels of private

ownership combined with low levels of wealth

in the middle class. The stock of social housing

and municipal low-rent housing is also low,

with recurring reports of quality issues. In

addition, a strategy to combat homelessness

would lead to better inclusion and improve the

chances of finding work for one of the most

vulnerable groups in society (see Annex 11).

The need for investment in housing is

high.

With the support of the Recovery and

Resilience Facility, Latvia has launched an

affordable housing fund, for the construction

of at least 467 low-rent apartments by 2026.

The country has also invested significant

amounts in support programmes to improve

energy efficiency under the cohesion funds

and the Recovery and Resilience Facility.

Nevertheless, further investment is needed to

kom (2025) 0214 - Ingen titel

of committing higher allocations of GDP to

healthcare.

The persistent shortage of health

professionals is an obstacle to providing

adequate healthcare.

Latvia has fewer

doctors and nurses per 1 000 inhabitants than

the EU average. The Ministry of Health has

estimated that the health sector currently

requires around 4 900 additional nurses (see

Annex 14). Poor working conditions and low

pay are deterrents to both entering and

remaining in the public healthcare sector,

particularly for nurses. The ageing of medical

practitioners and their uneven regional

distribution pose further challenges for the

sector. As part of Latvia's recovery and

resilience plan, in 2024, the government

adopted a strategy for human resources in

healthcare for 2025-2029. The strategy aims

to improve recruitment and retention of health

professionals by addressing key areas such as

health workforce planning and financing,

education and employment, as well as working

conditions and performance. Investment from

the European Social Fund Plus will be directed

towards attracting and training medical staff.

expected to: (i) increase disposable income for

most households and especially middle-

income earners; (ii) reduce the risk of poverty,

particularly for older people, which is the most

exposed group to poverty in Latvia; (iii) have a

limited impact on income inequality as the

lowest income groups are better supported

through social transfers; and (iv) help reduce

the labour tax wedge both for low-income

earners and those earning the average wage

and above.

Graph 4.1:

Average personal income tax rates

and income distribution, %

Percent of income distribution

Average tax rate in percent

1000

2000

3000

4000

5000

6000

7000

Monthly gross income

Income distribution

ATR before tax reform

ATR after tax reform

Source:

European Commission, Joint Research Centre,

based on the EUROMOD model, J0.1+.

Enhancing labour tax

competitiveness

The recently adopted tax reform is

expected to increase disposable income,

narrow the tax wedge (

) and reduce

poverty.

A major part of the 2025 tax reform

involves adjustments to the personal income

tax system aimed at simplifying taxation and

raising disposable income for most workers. A

tax-benefit simulation with EUROMOD (

)

shows that the personal income tax reform is

(

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

contributions relative to labour cost) for single person

earning less than the average wage was higher than in

other Baltic countries and the EU average. This indicates

that the labour tax system in Latvia is less progressive

than in the EU on average and may incentivise low

earners not to declare their (full) income.

(

) Estimations performed by the European Commission,

Joint Research Centre, based on the EUROMOD model,

J0.1+.

While the immediate fiscal impact of the

personal income tax reform is projected

to be negative, the reform has some

potential to improve labour market

participation.

The higher personal income tax

rates, the new personal income tax brackets

and the non-taxable allowance for all

employees are expected to result in a

substantial net negative fiscal impact. This has

been partly financed by a temporary shift of

pension contributions between pension pillars.

At the same time, as the reform is estimated

to lower the average personal income tax rate

(personal income tax divided by earnings) for

middle-income earners (see Graph 4.1), it

could encourage low-income workers to

transition into medium-income jobs as well as

reduce the incentive for employers to

underreport salaries.

kom (2025) 0214 - Ingen titel

KEY FINDINGS

To foster competitiveness, sustainability and

social fairness, Latvia could benefit from:

•

accelerating the implementation of the

recovery and resilience plan,

including

the

REPowerEU

chapter;

swiftly

implementing

cohesion policy,

taking

advantage of the opportunities under the

mid-term review and making optimal use

of EU instruments, including

InvestEU

and

STEP,

to improve competitiveness;

•

broadening taxation

to sources less

detrimental to economic growth;

•

improving public spending reviews

redirecting expenditure savings to priority

areas, such as defence, healthcare and

social protection;

•

facilitating private investment in

research and innovation,

including by

pursuing further reforms in higher

education to strengthen cooperation

between businesses and academia;

•

improving access to finance for small

and

medium-sized

enterprises,

especially

for

scaling-up

and

commercialisation of innovations;

•

reducing the administrative burden

and simplifying regulations

to remove

barriers to investment in sectors like real

estate;

•

continuing to improve tax compliance

and moving informal or undeclared

activities into the formal economy;

•

strengthening

the

societal

and

economic resilience of the regions,

paying particular attention to Latvia’s

eastern borders;

•

accelerating the deployment of wind

and solar energy

by improving permit-

granting procedures and implementing

smart grid queue management solutions;

•

upgrading

the

electricity

grid,

promoting energy storage, demand

response and market-based flexibility

solutions;

•

further

decarbonising

the

road

transport sector,

by promoting the

uptake of electric vehicles in public and

private fleets and the production and

distribution of renewable transport fuels,

and by expanding recharging infrastructure;

•

stepping up efforts for sustainable

land management and use,

especially by

promoting a transition to more sustainable

practices in the agricultural, forestry and

peat extraction sectors;

•

supporting the transition to a circular

economy

and

improving

waste

management policies;

•

addressing labour and skills shortages,

particularly in STEM, research as well as the

green and digital transitions, including

through targeted upskilling and reskilling;

•

improving social outcomes

by increasing

the adequacy of social transfers and of

old-age pensions, and by improving access

to quality social services, especially home

care;

•

addressing the housing shortage,

increasing the availability and quality of

social and affordable energy-efficient

housing, including through renovations;

•

improving

health

outcomes

broadening the statutory benefits package

and reducing out-of-pocket payments.

kom (2025) 0214 - Ingen titel kom (2025) 0214 - Ingen titel

ANNEXES

kom (2025) 0214 - Ingen titel kom (2025) 0214 - Ingen titel

LIST OF ANNEXES

Fiscal

A1.

A2.

Fiscal surveillance and debt sustainability

Taxation

Productivity

A3.

A4.

A5.

A6.

Innovation to business

Making business easier

Capital markets, financial stability and access to finance

Effective institutional framework

Sustainability

A7.

A8.

A9.

Clean industry and climate mitigation

Affordable energy transition

Climate adaptation, preparedness and environment

Fairness

A10. Labour market

A11. Social policies

A12. Education and skills

A13. Social Scoreboard

A14. Health and health systems

Horizontal

A15. Sustainable development goals

A16. CSR progress and EU funds implementation

A17. Competitive regions

LIST OF TABLES

A1.1.

A1.2.

A1.3.

A1.4.

A1.5.

A1.6.

A1.7.

A1.8.

A1.9.

General government balance and debt

Net expenditure growth

Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation

Defence expenditure and the national escape clause

Macroeconomic developments and forecasts

General government budgetary position

Debt developments

RRF

–

Grants

RRF - Loans

kom (2025) 0214 - Ingen titel

A1.10.

A1.11.

A2.1.

A3.1.

A4.1.

A5.1.

A6.1.

A6.2.

A7.1.

A8.1.

A9.1.

A13.1.

A14.1.

A16.1.

A16.2.

A17.1.

A17.2.

Projected change in age-related expenditure in 2024-2040 and 2024-2070

Fiscal Governance Database Indicators

Taxation indicators

Key innovation indicators

Making Business Easier: indicators.

Financial indicators

Selected indicators on administrative burden reduction and simplification

Key Digital Decade targets monitored through the Digital Economy and Society Index

Key clean industry and climate mitigation indicators: Latvia

Key Energy Indicators

Key indicators tracking progress on climate adaptation, resilience and environment

Social Scoreboard for Latvia

Key health indicators

Selected EU funds with adopted allocations - summary data (million EUR)

Summary table on 2019-2024 CSRs

Selection of indicators at regional level in Latvia

Socio-economic indicators by degree of urbanisation, 2024

100

LIST OF GRAPHS

A2.1.

A2.2.

A3.1.

A3.2.

A4.1.

A5.1.

A5.2.

A5.3.

A5.4.

A5.5.

A6.1.

A6.2.

A7.1.

A7.2.

A7.3.

A8.1.

A8.2.

A8.3.

A9.1.

A9.2.

A10.1.

A11.1.

A12.1.

A12.2.

A14.1.

A14.2.

A15.1.

A16.1.

A16.2.

Tax revenue shares in 2023

Tax wedge for single and second earners, % of total labour costs, 2024

R&D intensity in the Baltic countries

Number of doctoral entrants and graduates

Making Business Easier: selected indicators.

Net savings-investment balance

International investment position

Capital markets and financial intermediaries in Latvia

Composition of NFC funding in % of GDP

Composition of household financial assets per capita and as % of GDP

Trust in justice, regional / local authorities and in government

Indicators of Regulatory Policy and Governance (iREG)

GHG emission intensity of manufacturing and energy-intensive sectors, 2022

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

Greenhouse gas emissions in the effort sharing sectors, 2005 and 2023

Retail energy price components for household and non-household consumers, 2024

Monthly average day-ahead wholesale electricity prices and European benchmark natural gas prices (Dutch TTF)

Latvia's installed renewable capacity (left) and electricity generation mix (right)

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

Investment needs and gaps in EUR million, in 2022 constant prices

Key labour market indicators for Latvia

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

Unemployment rate by educational attainment (annual) - Latvia

Participation in education and training by educational attainment level, 2022

Life expectancy at birth, years

Treatable mortality

Progress towards the SDGs in Latvia

Distribution of RRF funding in Latvia by policy field

Distribution of cohesion policy funding across policy objectives in Latvia

LIST OF MAPS

A17.1.

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

kom (2025) 0214 - Ingen titel

FISCAL

ANNEX 1: FISCAL SURVEILLANCE AND DEBT SUSTAINABILITY

This Annex contains a series of tables relevant for the assessment of the fiscal situation in Latvia,

including how Latvia is responding to Council recommendations issued under the reformed Economic

Governance Framework.

The reformed framework, which entered into force on 30 April 2024(

), aims to strengthen debt

sustainability and promote sustainable and inclusive growth through growth-enhancing reforms and

priority investments. The medium-term fiscal-structural plans (hereinafter, MTPs or plans) constitute the

cornerstone of the framework, setting the budgetary commitment of Member States over the medium

term. The latter is defined in terms of net expenditure growth, which is the single operational indicator for

fiscal surveillance.

Latvia submitted its plan on 15 October 2024. The plan covers the period until 2028, presenting a fiscal

adjustment over four years. On 21 January 2025, the Council adopted the Recommendation endorsing

Latvia’s plan(

The assessment of the implementation of the Council Recommendation

endorsing Latvia’s plan is carried

out on the basis of outturn data from Eurostat and the Commission’s Spring 2025 Forecast and taking

into account the Annual Progress Report (APR), that Latvia submitted on 29 April 2025. Furthermore, given

Latvia’s request to activate the National Escape Clause (NEC)(

) in accordance with the Commission

Communication of 19 March 2025(

), the assessment also considers, as appropriate, the projected

increase in defence expenditure based on the Commission Spring 2025 Forecast.

The Annex is organised as follows. First, developments in

government deficit and debt

are presented

based on the figures reported in Table A1.1. Then, the assessment of the

implementation of the

Council Recommendation endorsing the plan

follows, based on the relevant figures presented in

Tables A1.2 to A1.9, including data on defence expenditure. The Annex also provides information on the

cost of ageing

and the

national fiscal framework.

Fiscal sustainability risks are discussed in the Debt

Sustainability Monitor 2024.(

)

Developments in government deficit and debt

Latvia’s government deficit amounted to 1.8% of GDP in 2024. Based on the Commission’s Spring 2025

Forecast, it is projected to increase to 3.1% in 2025. The government debt-to-GDP ratio amounted to

46.8% of GDP at the end of 2024 and, according to the Commission, it is projected to increase to 48.6%

end-2025. The increase in the debt ratio mainly reflects stock-flow adjustments and the projected primary

deficit.

(

) Regulation (EU) 2024/1263 of the European Parliament and of the Council (EU) on the effective coordination of economic policies

and on multilateral budgetary surveillance, together with the amended Regulation (EC) No 1467/97 on the implementation of the

excessive deficit procedure, and the amended Council Directive 2011/85/EU on the budgetary frameworks of Member States are the

core elements of the reformed EU economic governance framework.

(

) OJ C, C/2025/652, 10.02.2025, ELI:

http://data.europa.eu/eli/C/2025/652/oj

(

) On 28 April 2025, Latvia requested to the Commission and to the Council the activation of the National Escape Clause. On this

basis, the Commission adopted a Recommendation for a Council Recommendation allowing Latvia to deviate from, and exceed, the

net expenditure path set by the Council, COM(2025)610.

(

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

March 2025, C(2025) 2000 final.

(

)

European Commission (2025) ‘Debt Sustainability Monitor 2024,’

European Economy-Institutional Papers

306.

kom (2025) 0214 - Ingen titel

Table A1.1:

General government balance and debt

Variables

2024

Outturn

% GDP

-1,8

46,8

APR

-3,1

49,0

2025

COM

-3,1

48,6

APR

n.a.

2026

COM

-3,1

49,3

General government balance

General government gross debt

Source:

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

Developments in net expenditure

The net expenditure(

) growth of Latvia in 2025 is forecast by the Commission(

) to be within the

recommended maximum. Considering 2024 and 2025 together, the cumulative growth rate of net

expenditure is also projected within the recommended maximum cumulative growth rate.

Table A1.2:

Net expenditure growth

Annual

REC

2024

2025

2026

Cumulative*

COM

REC

Growth rates

4.5%

n.a.

5.7%

15.5%

4.4%

19.7%

APR

n.a.

9.8%

n.a.

COM

n.a.

10.4%

15.2%

APR

3.9%

5.7%

n.a.

5.9%

3.6%

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

Source:

Council Recommendation endorsing the national medium-term fiscal-structural plan of Latvia (Rec.), Annual Progress

Report (APR) and Commission's calculation based on Commission Spring 2025 Forecast (COM).

General government defence expenditure in Latvia amounted to 2.5% of GDP in 2021, 2.4% of GDP in

2022 and 3.1% of GDP in 2023 (

). According to the Commission 2025 Spring Forecast, expenditure on

defence is projected to amount to 3.0 % of GDP in 2024 and 3.3% of GDP in 2025.

(

) Net expenditure is defined in Article 2(2) of Regulation (EU) 2024/1263 as government expenditure net of (i) interest expenditure,

(ii) discretionary revenue measures, (iii) expenditure on programmes of the Union fully matched by revenue from Union funds, (iv)

national expenditure on co-financing of programmes funded by the Union, (v) cyclical elements of unemployment benefit

expenditure, and (vi) one-off and other temporary measures.

(

) Commission Spring 2025 Forecast,

European Economy-Institutional paper 318,

May 2025.].

(

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

kom (2025) 0214 - Ingen titel

Table A1.3:

Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the

recommendation

Variables

Total expenditure

Interest expenditure

Cyclical unemployment expenditure

Expenditure funded by transfers from the EU

National co-financing of EU programmes

One-off expenditure (levels, excl. EU funded)

Net nationally financed primary expenditure (before

7=1-2-3-4-5-6

discretionary revenue measures, DRM)

Change in net nationally financed primary expenditure (before DRM)

DRM (excl. one-off revenue, incremental impact)

Change in net nationally financed primary expenditure

10=8-9

(after DRM)

Outturn / forecast net expenditure growth

Recommended net expenditure growth*

13=(11-12) x 7

Annual deviation

14 (cumulated from 13)

Cumulated deviation

15=13/17

Annual balance

16=14/17

Cumulated balance

p.m. Nominal GDP

bn NAC

% change

bn NAC

% GDP

bn NAC

2023

Outturn

17.2

0.3

0.0

0.7

0.2

0.0

16.0

2024

Outturn

18.4

0.4

0.0

0.8

0.1

0.0

17.0

1.0

0.3

0.7

4.47%

9.1%

-0.7

-1.8

40.2

2025

COM

20.0

0.5

0.0

1.3

0.2

0.0

18.0

1.0

0.0

1.0

5.7%

5.9%

0.0

-0.8

-0.1

-1.9

42.0

2026

COM

20.9

0.6

0.0

1.4

0.2

0.0

18.6

0.7

-0.1

0.8

4.4%

3.6%

0.1

-0.6

0.3

-1.4

44.0

39.4

* The growth rate for 2024 is not a recommendation but serves to anchor the base, as the latest year with outturn data when

setting the net expenditure path is year 2023.

Source:

Commission Spring 2025 Forecast and Commission's calculation.

Table A1.4:

Defence expenditure and the national escape clause

Total defence expenditure

of which: gross fixed capital formation

Flexibility from increases in defence expenditure

Cumulated balance after flexibility

% GDP

2021

2,5

1,0

2022

2,4

0,2

2023

3,1

0,5

2024

3,0

0,8

2025

3,3

1,0

0,8

-2,7

2026

3,8

1,5

1,3

-2,8

Source:

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

Table A1.5:

Macroeconomic developments and forecasts

Variables

1=7+8+9

2024

Outturn

% change

pps

% pot GDP

% change

% GDP

-0,4

0,5

7,6

-6,7

-1,6

-2,3

0,2

-1,2

0,6

-0,5

-0,9

6,9

0,5

1,3

2,6

9,1

-1,7

APR

1,2

1,3

4,6

0,8

1,7

2,8

2,6

-0,6

-0,8

-1,5

-0,1

6,7

1,3

2,5

3,1

5,8

n.a.

2025

COM

0,5

1,0

1,7

-1,2

1,8

2,1

0,7

0,0

-0,2

-1,3

-0,4

6,8

0,9

3,0

3,9

5,5

-1,9

APR

n.a.

2026

COM

2,0

1,9

1,5

2,6

2,0

2,1

2,0

0,0

-0,1

-0,7

-0,4

6,6

2,4

1,7

2,8

4,5

-1,4

Real GDP

Private consumption

Government consumption expenditure

Gross fixed capital formation

Exports of goods and services

Imports of goods and services

Contributions to real GDP growth

- Final domestic demand

- Change in inventories

- Net exports

Output gap

Employment

Unemployment rate

Labour productivity

HICP

GDP deflator

Compensation of employees per head

Net lending/borrowing vis-à-vis the rest of the

world

Source:

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

kom (2025) 0214 - Ingen titel

Table A1.6:

General government budgetary position

Variables (% GDP)

1=2+3+4+5

8=9+16

2024

Outturn

43,9

14,5

9,3

11,6

8,5

45,7

44,6

13,2

6,4

15,1

0,7

5,7

3,5

1,1

-1,8

-0,7

-1,6

0,0

-1,6

-0,5

APR

43,9

14,8

8,7

12,1

8,3

47,1

45,8

13,2

6,8

14,6

0,9

6,0

4,3

1,3

-3,1

-1,8

n.a.

0,0

-2,6

-1,2

2025

COM

44,4

14,6

8,6

11,9

9,3

47,6

46,3

13,4

6,4

15,2

0,7

7,0

3,4

1,3

-3,1

-1,8

-2,6

0,0

-2,6

-1,3

APR

n.a.

2026

COM

44,4

14,8

8,6

11,9

9,1

47,5

46,1

13,3

6,4

15,3

0,7

7,2

3,1

1,4

-3,1

-1,7

-2,9

0,0

-2,9

-1,4

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

- Compensation of employees

- Intermediate consumption

- Social payments

- Subsidies

- Gross fixed capital formation

- Other

- Interest expenditure

General government balance

Primary balance

Cyclically adjusted balance

One-offs

Structural balance

Structural primary balance

18=1-8

19=1-9

22=20-21

23=22+16

Source:

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

Table A1.7:

Debt developments

Variables

2=3+4+8

4≈5+6+7

Gross debt ratio* (% of GDP)

Change in the ratio (pps. of GDP)

Contributions**

Primary balance

'Snow-ball' effect

of which:

- Interest expenditure

- Real growth effect

- Inflation effect

'Stock-flow' adjustment

2024

Outturn

46.8

2.1

0.7

0.2

1.1

0.2

-1.1

1.3

2025

APR

49.0

2.3

1.8

-0.6

1.3

-0.5

-1.4

1.1

COM

48.6

1.9

1.8

-0.7

1.3

-0.2

-1.8

0.7

APR

n.a.

2026

COM

49.3

0.6

1.7

-0.8

1.4

-0.9

-1.3

-0.3

* End of period.

** The 'snow-ball' effect captures the impact of interest expenditure on accumulated general government debt, as well as the

impact of real GDP growth and inflation on the general government debt-to-GDP ratio (through the denominator). The stock-flow

adjustment includes differences in cash and accrual accounting (including leads and lags in Recovery and Resilience Facility grant

disbursements), accumulation of financial assets, and valuation and other residual effects.

Source:

Commission Spring 2025 Forecast and Commission's calculation (COM), Annual Progress Report (APR)

kom (2025) 0214 - Ingen titel

Table A1.8:

RRF

–

Grants

Revenue from RRF grants (% of GDP)

RRF grants as included in the revenue projections

Cash disbursements of RRF grants from EU

2020

n.a.

2021

0,0

0,7

2022

0,0

0,6

2023

0,4

0,0

2024

0,9

2025

1,8

0,7

2026

1,5

2,0

Expenditure financed by RRF grants (% of GDP)

6=4+5

Total current expenditure

Gross fixed capital formation

Capital transfers

Total capital expenditure

2020

0,0

2021

0,0

2022

0,0

2023

0,1

0,3

0,0

0,3

2024

0,3

0,6

0,0

0,6

2025

0,6

1,2

0,0

1,2

2026

0,6

1,0

0,0

1,0

Other costs financed by RRF grants (% of GDP)

Reduction in tax revenue

Other costs with impact on revenue

Financial transactions

2020

0,0

2021

0,0

2022

0,0

2023

0,0

2024

0,0

2025

0,0

2026

0,0

Source:

Annual Progress Report

Table A1.9:

RRF - Loans

Cash flow from RRF loans projected in the Plan (% of GDP)

Disbursements of RRF loans from EU

Repayments of RRF loans to EU

2020

n.a.

2021

0,0

2022

0,0

2023

0,0

2024

0,0

2025

0,0

2026

0,0

Expenditure financed by RRF loans (% of GDP)

6=4+5

Total current expenditure

Gross fixed capital formation

Capital transfers

Total capital expenditure

2020

0,0

2021

0,0

2022

0,0

2023

0,0

2024

0,0

2025

0,0

2026

0,0

Other costs financed by RRF loans (% of GDP)

Reduction in tax revenue

Other costs with impact on revenue

Financial transactions

2020

0,0

2021

0,0

2022

0,0

2023

0,0

2024

0,0

2025

0,0

2026

0,0

Source:

Annual Progress Report

Cost of ageing

Total age-related spending in Latvia is projected to decrease from about 16% of GDP in 2024

to around 15% by 2070 (see Table

A1.10). The overall decrease by 2070 is driven by pension and, to

a lesser extent, education spending, which together more than offset the expected increase in healthcare

and long-term care spending. The pension expenditure-to-GDP ratio would fall by 1.7 pps, of which 0.6

pps by 2040, from 7.1% of GDP in 2024 to 5.4% in 2070, the lowest projected level of all Member

States.   At 15.4% of GDP in 2070, Latvia would be spending the least of all Member States on age-

related items.

kom (2025) 0214 - Ingen titel

Public healthcare

(

)

expenditure is projected at 5.3% of GDP in 2024 (below the EU average

of 6.6%) and is expected to increase by 0.4 pps by 2040 and by a further 0.1 pp by 2070.

Public expenditure on long-term care

(

)

is projected at 0.5% of GDP in 2024 (below the EU

average of 1.7%) and is expected to increase by 0.1 pp of GDP by 2040 and by a further

0.2 pps of GDP by 2070.

Table A1.10:Projected

change in age-related expenditure in 2024-2040 and 2024-2070

age-related

expenditure

2024 (% GDP)

16.4

24.3

age-related

expenditure

2024 (% GDP)

16.4

24.3

change in 2024-2040 (pps GDP) due to:

pensions

-0.6

0.5

healthcare

0.4

0.3

long-term care

0.1

0.4

education

-0.3

total

-0.4

0.9

age-related

expenditure

2040 (%GDP)

16.0

25.2

age-related

expenditure

2070 (%GDP)

-1.1

1.3

15.4

25.6

change in 2024-2070 (pps GDP) due to:

pensions

-1.7

0.2

healthcare

0.5

0.6

long-term care

0.3

0.8

education

-0.3

-0.4

total

Source:

2024 Ageing Report (EC/EPC).

National fiscal framework

The Latvian Fiscal Discipline Council (FDC) is a relatively small independent fiscal institution

with a rather narrow mandate.

It serves as endorser of macroeconomic forecasts and monitors

compliance with fiscal rules. It is not involved in any budgetary forecast assessments but does some work

on long-term fiscal projections. With only three full-time staff, the FDC reports a need for more resources.

Its autonomy could be enhanced by allowing it to reallocate funds between expenditure types (for

example wages for services), which would put it on a similar level as other Latvian independent

institutions, such as the Audit office. The FDC appears regularly in mainstream national TV/radio/daily

papers throughout the year and has an explicit communication strategy.

Table A1.11:Fiscal

Governance Database Indicators

2023

Country Fiscal Rule Strength Index (C-FRSI)

Medium-Term Budgetary Framework Index (MTBFI)

Latvia

12.58

0.78

EU Average

14.52

0.73

The Country Fiscal Rule Strength Index (C-FRSI) shows the strength of national fiscal rules aggregated at the country level based

on i) the legal base, ii) how binding the rule is, iii) monitoring bodies, iv) correction mechanisms, and v) resilience to shocks. The

Medium-Term Budgetary Framework Index (MTBFI) shows the strength of the national MTBF based on i) coverage of the

targets/ceilings included in the national medium-term fiscal plans; ii) connectedness between these targets/ceilings and the

annual budgets; iii) involvement of the national parliament in the preparation of the plans; iv) involvement of independent fiscal

institutions in their preparation; and v) their level of detail. A higher score is associated with higher rule and MTBF strength.

Source:

Fiscal Governance Database

(

)

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

(

) The quality and the accessibility of the long-term care system are covered

in Annex 9 ‘Social policies’.

kom (2025) 0214 - Ingen titel

ANNEX 2: TAXATION

This annex provides an indicator-based

overview of Latvia’s tax system.

It includes

information on: (i) the tax mix; (ii) competitiveness

and fairness aspects of the tax system; and (iii)

tax collection and compliance.

Latvia’s tax revenues remain relatively

low

in relation to its GDP.

Table A2.1 shows that

Latvia’s tax revenues were still below the EU

average in 2023 (equivalent to about 32.7% of

GDP compared with 39% for the EU). In 2023, tax

revenues from labour taxation were equivalent to

16.4% of GDP (below the EU average of 20%),

while revenues from consumption taxes were

equivalent to 13.5% of GDP (higher than the EU

average of 10.5%). In 2023, revenues from

property taxes were equivalent to 0.8% of GDP,

significantly higher than in Baltic peers Lithuania

(0.4%) and Estonia (0.3%), but far below the EU

average of 1.9%.

Graph A2.1:

Tax revenue shares in 2023

Tax revenue shares in 2023, Latvia (outer ring)

and EU (inner ring)

9.4

is somewhat less progressive than in the EU on

average. This is also reflected in the relatively low

effect of taxes and social transfers on inequality.

These programs reduced the Gini index of income

inequality by 5.5 points in Latvia as compared to

7.7 points in the EU average (Table A2.1).

Latvia’s 2025 tax reform provides for

significant changes in personal-income

taxation.

Latvia’s 2025 tax reform introduced: (i)

two progressive income-tax rates (25.5% for

annual earnings up to EUR 105 300 and 33% for

incomes greater than this); (ii) an additional tax of

3% on total income exceeding EUR 200 000 per

year; (iii) an increase in the non-taxable amounts

of monthly income for employed and retired

persons (the tax-free allowance); and (iv) an

increased tax rate of 25.5% on capital gains. In

addition, the 2025 tax reform provides for: (i) an

increase in gambling taxes, excise taxes and taxes

on vehicles; (ii) a decreased VAT rate for fresh

fruits and vegetables; (iii) an exemption from VAT

for certain medical services; and (iv) the

introduction of a temporary solidarity levy on

credit institutions for the years 2025-2027. The

costs of the personal-income-tax reform will be

also partially compensated by shifting one

percentage point of tax from the second to the

first ‘pillar’ of the pension system from 2025 until

2028 (i.e. reducing tax on the second pillar by one

percentage point and increasing tax on the first

pillar by one percentage point).

Graph A2.2:

Tax wedge for single and second

earners, % of total labour costs, 2024

Tax wedge, % of total labour costs

21.9

51.2

41.2

26.9

50.1

Taxes on labour

Taxes on consumption

Taxes on capital

Source:

Taxation Trends Data, DG TAXUD

43.1

35.0

38.4

41.7

In 2024, Latvia’s labour

tax burden was

higher than the EU average for low earners.

The labour tax wedge (

) for Latvia in 2024

exceeded the EU average for single people earning

the average wage or less. For instance, it was 35%

for single workers earning 50% of the average

wage, as compared to 31.8% in the EU average.

The tax wedge at higher earnings levels increased

in 2024, but still it was slightly below the EU

average. This means that labour taxation in Latvia

(

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

taxes and employee and employer social-security

contributions net of family allowances, expressed as a

percentage of total labour costs (the sum of the gross wage

and social-security contributions paid by the employer).

100

150

Earnings as % of the average wage

Single earner - LV

Second earner - LV

Single earner - EU average

Second earner - EU average

The tax wedge for second earners assumes a first earner at

100% of the average wage and no children. For the full

methodology, see OECD, 2016, Taxing Wages 2014-2015.

Source:

European Commission

kom (2025) 0214 - Ingen titel

Table A2.1:

Taxation indicators

Median (EU-27)

Tax structure

2010

Total taxes (including compulsory actual social contributions) (% of

GDP)

Taxes on labour (% of GDP)

of which, social security contributions (SSC, % of GDP)

Taxes on consumption (% of GDP)

of which, value added taxes (VAT, % of GDP)

Taxes on capital (% of GDP)

Personal income taxes (PIT, % of GDP)

Corporate income taxes (CIT, % of GDP)

Total property taxes (% of GDP)

Recurrent taxes on immovable property (% of GDP)

Environmental taxes (% of GDP)

Effective carbon rate in EUR per tonne of CO

equivalents

Tax wedge at 50% of average wage (single person) (*)

Tax wedge at 100% of average wage (single person) (*)

Corporate income tax - effective average tax rates (1) (*)

Difference in Gini coefficient before and after taxes and cash social

transfers (pensions excluded from social transfers) (2) (*)

Outstanding tax arrears: total year-end tax debt (including debt

VAT gap (% of VAT total tax liability, VTTL) (**)

28.9

14.6

8.8

11.5

6.8

2.8

6.3

1.0

0.7

3.0

42.4

44.0

11.9

5.8

Latvia

2021 2022

32.0

15.5

9.9

13.6

9.0

2.9

6.2

1.1

1.0

0.7

3.0

73.8

35.3

40.5

16.5

5.5

9.9

10.2

32.8

15.7

10.0

14.2

10.1

2.9

6.3

1.1

0.9

0.6

2.4

33.5

40.4

16.5

5.5

7.0

5.1

2023

32.7

16.4

10.4

13.5

9.7

3.1

6.5

1.4

0.8

0.6

2.4

62.2

33.7

41.0

16.5

5.5

2024

2010

37.8

19.8

12.9

10.9

6.8

7.1

8.6

2.2

1.9

1.1

2.5

33.9

40.9

21.3

8.6

2021

40.2

20.5

13.0

11.2

7.3

8.5

9.6

2.9

2.2

1.1

2.4

86.0

31.8

39.9

19.3

8.2

35.5

EU-27

2022 2023

39.7

20.1

12.7

10.9

7.4

8.7

9.4

3.2

2.1

1.0

2.1

31.5

39.9

19.1

7.9

32.6

7.0

39.0

20.0

12.7

10.5

7.1

8.5

9.3

3.2

1.9

0.9

2.0

84.8

31.5

40.2

18.9

7.7

2024

By tax base

Some tax types

Progressivity &

fairness

35.0

41.7

31.8

40.3

Tax administration &

considered not collectable) / total revenue (in %) (*)

compliance

8.9

6.6

(1) Forward-looking effective tax rate (KPMG).

(2) A higher value indicates a stronger redistributive impact of taxation.

(*) EU-27 simple average.

(**) Forecast value for 2023. For more details on the VAT gap, see European Commission, Directorate-General for Taxation and

Customs Union, VAT gap in the EU - 2024 report,

https://data.europa.eu/doi/10.2778/2476549

For more data on tax revenues as well as the methodology applied, see the Data on Taxation webpage,

https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en.

Source:

European Commission, OECD

Latvia’s

business-taxation

system

attractive for foreign investors.

It ranked

second in the Tax Foundation’s 2024 International

Tax Competitiveness Index Rankings (

) due to the

strengths of Latvia's corporate-income-tax system,

which only taxes distributed earnings, allowing

companies to reinvest their profits tax-free.

The size of Latvia’s shadow economy is

decreasing.

Surveys of company owners and

managers indicate that Latvia’s shadow economy

was equivalent to 22.9% of its GDP in 2023 (a

decrease from 26.5% in 2022). The biggest

component of the shadow economy is the

underreporting of salaries (estimated to account

for 48.2% of Latvia’s shadow economy), with an

average of 23.6% of total salaries being paid

informally (‘envelope wages’). The construction

(34.2%) and retail (27%) sectors had the highest

estimated shares of shadow activity in 2023 (

Latvia’s VAT gap continues to decrease.

2022, the VAT compliance gap was estimated at

EUR 193 million or 5.0% of the VAT total tax

liability (VTTL), a decrease of 5.2 percentage

points compared with 2021. With an EU VAT

compliance gap of approximately 7.0%, Latvia

ranked 11th among the EU Member States in

2022. Between 2018 and 2022, Latvia’s VAT

compliance gap decreased from 13.3% to 5.0%.

The actionable VAT policy gap (

) was 11.5% in

2022 - a decrease of 1.0 percentage points

compared with 2021. Between 2018 and 2022,

the actionable VAT policy gap decreased from

15.5% to 11.5% (

(

) Tax Foundation (2024): International Tax Competitiveness

Index 2024.

(

) Stockholm School of Economics Riga, Shadow Economy Index

for the Baltic Countries,

Shadow Economy Index for the Baltic

Countries | Stockholm School of Economics in Riga.

(

) The actionable VAT policy gap refers to the portion of the

VAT policy gap that can be influenced by Member States.

Specifically, it relates to the foregone VAT revenues that can

be attributed to reduced rates and exemptions that could

potentially be discontinued or eliminated.

(

)

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

against-vat-fraud/vat-gap_en#paragraph_1530

kom (2025) 0214 - Ingen titel

PRODUCTIVITY

ANNEX 3: INNOVATION TO BUSINESS

Latvia is an ‘emerging innovator’ and its

innovation

performance

increases

relatively slowly.

According to the 2024

edition

the

European

Innovation

Scoreboard (

Latvia’s

innovation

performance stands at only 53.6% of the EU

average and has improved at a slower rate

than the EU average over the last years. This is

caused by a very low R&D intensity, which has

stagnated at around 0.82% of GDP; this is

about a third of the EU average (2.24%) and

well behind that of the other Baltic countries

(see Graph A3.1). Latvia has one of the lowest

business expenditure on R&D (BERD) rates in

the EU (0.30% of GDP). Moreover, the lack of

highly skilled human capital is a major barrier

to both the science base and business

innovation, and private R&D is held back by the

lack of access to finance and low government

support for business R&D.

Graph A3.1:

R&D intensity in the Baltic countries

Public expenditure on R&D

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

EELTLV

2012

EELTLV

2017

EELTLV

2020

EELTLV

2021

EELTLV

2022

EELTLV

2023

Private expenditure on R&D

EU GERD

institutions.

Latvia performs significantly

below the EU average in terms of quality of

research outputs. This is demonstrated by the

percentage of its scientific publications within

the top 10% most cited scientific publications

worldwide, which is substantially below the EU

average (4.55% in Latvia vs 9.64% in the EU in

2021)(

). This is caused, among other things,

by long-standing public underinvestment in

R&D, which has stagnated since 2018 and

stood at 0.53% in 2023, vs the EU average of

0.72% (

). While both the Latvian recovery and

resilience plan (RRP) and its cohesion policy can

positively contribute to improving the research

and innovation (R&I) ecosystem over the next

years, the country needs to further increase

public R&D spending to reach its own

target (

). In addition, the consolidation of

universities and the creation of an innovation

governance model, both part of the RRP, aim to

address fragmentation and increase efficiency.

While these are seen as positive steps, their

impact remains to be seen and there is a need

for continuous monitoring and evaluation going

forward. Latvia could benefit from a long-term

holistic vision for R&I and a centralised body to

coordinate and monitor policy actions and

investments. In addition, Latvia could consider

strengthening performance-based funding for

research performing institutions to foster

excellence, internationalisation and translating

research outputs into innovation (

State support for research and innovation

is fragmented.

National R&I funding

programmes are mostly managed by the

Latvian Council of Science and the Latvian

Investment and Development Agency, but other

ministries are also involved in a small number

of thematic R&I programmes. Cohesion policy

funds, however, are managed by the Central

(

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

Source:

Eurostat

Science and innovative ecosystems

The public research base in Latvia is weak

overall, with only a few high-performing

(

) 2024 European Innovation Scoreboard, Country profile,

Latvia:

https://projects.research-and-

innovation.ec.europa.eu/en/statistics/performance-

indicators/european-innovation-scoreboard/eis-

2024#/eis/countries/LV.

The EIS provides a comparative

analysis of innovation performance in EU countries,

including the relative strengths and weaknesses of their

national innovation systems (also compared to the EU

average).

Percentage of GDP

(

) OECD Economic Surveys: Latvia 2022

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

(

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

Development Plan of Latvia for 2021-2027:

https://www.pkc.gov.lv/sites/default/files/inline-

files/NAP2027__ENG.pdf.

(

) OECD Economic Surveys: Latvia 2022

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

kom (2025) 0214 - Ingen titel

Finance and Contracting Agency, which reports

to the Ministry of Finance. This division led to a

misalignment of funding calls depending on

their source, undermined the development of a

critical mass and reduced the quality of R&I

outputs (

). The new innovation governance

system, including the Innovation & Research

Governance Council set up as part of the RRP,

aims to address this fragmentation, but

continuous assessment and finetuning should

be envisioned to optimise coordination between

funding sources. Better coordination and

strategic planning could allow measures such

as follow-on funding and plug-in schemes to

be put in place in order to provide holistic

support throughout the innovation life-cycle.

Business innovation

Latvia’s innovation potential remains

largely unexploited, with low output and

productivity, and the economy is

dominated by low-tech sectors.

Business

R&D expenditure is critically low at 0.3% of

GDP, significantly below the EU average of

1.49% in 2023; and unlike in other Member

States it is also lower than public R&D

expenditure. The high-tech sectors are limited,

as many international firms conduct their R&D

activities in other countries, and the low-tech

sectors are dominant in Latvia, both of which

contribute to the poor performance (

). All this

is reflected in a very low innovation output in

terms of patents and trademarks, with only

1.0 patent application per billion GDP compared

to the EU average of 2.8 in 2022, and a low

number of researchers employed by

businesses (

). Encouraging businesses to hire

more researchers and fostering R&D activity

could help Latvia strengthen high-tech sectors,

boost productivity and retain talent through the

creation of attractive job opportunities. Latvia

does not currently have any corporate R&D tax

incentives in place, but uses mostly direct

funding to support business innovation.

However, the low level of business innovation

in Latvia suggests that the current support is

insufficient. Consideration could be given to

increasing the volume of funding and

introducing indirect funding, such as refundable

tax credits, and to using public procurement to

stimulate broader R&D activity in businesses

and improve monitoring (

). Moreover, Latvia

should use grants for business innovation

strategically to encourage capacity building

and future innovation activities, for example by

demanding a financial contribution from

private stakeholders or employing researchers.

Low basic digital intensity among Latvian

SMEs hinders their ability to adopt

advanced

technologies.

Despite

improvements in the take-up of cloud

computing and data analytics, Latvia lags

behind in basic digital intensity for SMEs and

advanced technologies such as AI (

Moreover, basic digital skills declined by 5% in

2023 (

). While some promising measures

have been introduced under the RRP, such as

the Digital Innovation Hubs (DIHs) and financial

support

for

SME

digitalisation (

complemented by other EU programmes (

(

) Researchers employed by businesses make up only

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

(

) OECD Economic Surveys: Latvia 2022

https://www.oecd.org/en/publications/oecd-economic-

surveys-latvia-2022_c0113448-en.html.

(

) Adoption of cloud computing stood at 29%, data

analytics usage at 36.9%, basic digital intensity for

SMEs at 48.2% and advanced technologies at 4.5% in

2023 (vs the EU averages of 38.9%, 33.2%, 57.5% and

8%, respectively).

(

) Digital Economy and Society Index

https://digital-decade-desi.digital-

strategy.ec.europa.eu/datasets/desi/charts.

(

) Latvia aims to support 3 500 SMEs through DIHs by

2026.

(

) Latvia participates as an indirect partner in the IPCEI on

Next Generation Cloud Infrastructure and Services.

(

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

The Latvian Research Funding System

https://projects.research-and-

innovation.ec.europa.eu/sites/default/files/rio/report/H20

20%2520PSF_Specific%2520Support%2520Latvia_Fin

al%2520report.pdf

(

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

manufacturing accounts for only 3% (EU average: 6.8%),

and low to medium-low tech manufacturing accounts for

87% of the total manufacturing labour force. Source:

Eurostat.

kom (2025) 0214 - Ingen titel

their scope may be insufficient to address

existing gaps. More ambitious national

initiatives are needed to achieve the EU Digital

Decade targets (

). Higher uptake of these

technologies could also help Latvia to

transition towards high-tech sectors and

increase its competitiveness.

Science-business linkages are improving,

but continued support for applied and

collaborative research is needed.

The

country has been performing relatively well on

relevant indicators such as public-private

scientific co-publications (

) and contractual

research (

However,

science-business

linkages in Latvia are hampered by an

underdeveloped research base and low

innovation activity in the private sector (

). The

new Innovation Fund’s

industry research

programme (

) supporting applied science and

commercial-oriented research, which was

launched in 2024 and will run until 2032, could

bring further improvements. Going forward, it

will be important to systematically improve

collaboration between businesses and research

institutions, for instance by increasing private-

sector representation in university councils (

Ties could be strengthened by incorporating

financial incentives into university funding for

commercialisation

and

private-sector

collaboration. Other options to be considered

include increasing researchers’ share of patent

royalties and highlighting private cooperation in

the evaluations of universities and public

research institutions (

Financing innovation

Access to finance for innovation is still

limited in Latvia.

Despite efforts by the

government to increase investments, Latvia’s

start-up ecosystem still faces a shortage of

venture capital (with current levels about a

fourth of the EU average (

)). Also, most

investments are made at the earlier stages

while funding at later stages is scarce, which is

perceived as a barrier to scaling up innovation

(

). Encouragingly, the start-up ecosystem is

becoming less reliant on government funding,

with the proportion of government-sourced

capital now comparable to that of the other

Baltic countries (

). The 2022-2025 start-up

ecosystem development strategy (

) includes

various activities to address the needs of start-

ups, such as training, mentoring programmes

and conferences. However, these initiatives

have yet to bear fruit and could encounter

barriers such as the lack of highly-skilled

talent.

(

) The Digital Decade policy programme sets out a

pathway for the EU’s digital transformation, including

concrete commitments from Member States to jointly

achieve objectives (e.g. competitiveness, resilience,

sovereignty) and digital targets by 2030.

(

) 8.6% of total publications were public-private scientific

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

(

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

business enterprises as a percentage of GDP.

(

) Innovation Diffusion in Latvia, OECD, 2021

https://www.oecd.org/en/publications/innovation-

diffusion-in-latvia_7d6d0ffc-en.html.

(

)

https://www.researchlatvia.gov.lv/en/long-term-research-

program-will-develop-least-45-technologies-until-2032.

(

) OECD Economic Surveys: Latvia 2024

https://www.oecd.org/en/publications/oecd-economic-

surveys-latvia-2024_dfeae75b-en.html.

(

) OECD Economic Surveys: Latvia 2022

https://www.oecd.org/en/publications/oecd-economic-

surveys-latvia-2022_c0113448-en.html.

(

) LV average 0.019% of GDP in 2023

EU average is 0.078% of GDP.

(

) Innovation Diffusion in Latvia, OECD, 2021

https://www.oecd.org/en/publications/innovation-

diffusion-in-latvia_7d6d0ffc-en.html.

(

) From 2018 to 2023 government funding still accounted

for 27% of capital raised; it was 20% in 2023.

Source: KPMG, LTVC, LVCA, ESTVCA, Baltic Private Equity

and Venture Capital Market Overview 2023

https://www.balticpevcmarket.com/s/2024_KPMG_report

_0514.pdf.

(

) Strategy for the development of the start-up ecosystem

https://www.em.gov.lv/lv/jaunuznemumu-ekosistemas-

attistibas-strategija.

kom (2025) 0214 - Ingen titel

Innovative talent

The lack of human capital is holding back

research

performance,

and

skills

shortages are considered one of the main

barriers to innovation in Latvia.

The low

number of researchers both in business and in

the public sector (1.5 and 3.2 per thousand

active population, respectively, vs the EU

average of 5.7 and 4.2) limits Latvia’s research

and innovation capacity and could also

negatively impact the R&I system’s ability to

absorb funds going forward (

). The number of

doctoral graduates (

) and science, technology,

engineering

and

mathematics

(STEM)

graduates ( ) is low, and the rate of increase,

is insufficient to address the shortage of

researchers in the short to medium term (

The new doctoral model, part of the RRP, has

already increased the number of new doctoral

students but the number of doctoral graduates

is yet to grow, and the dropout rate is still high

(see Graph A3.2). The effect of these measures

on the workforce will therefore only become

significant in the long term. Going forward, it

will be necessary to continue to improve

working conditions for researchers, increase the

number of doctoral students and tenured

positions, and ensure predictable financing (

)

to retain talent in Latvia. The draft human

capital development action plan (

) includes a

number of initiatives, aimed at e.g. increasing

the number and graduation rate of STEM

students, that could help tackle this problem.

However, it could be expanded with measures

to attract and retain PhD students and

researchers. In the short term, facilitating

skilled migration could ease the high-skilled

labour shortages (

Graph A3.2:

Number of doctoral entrants and

graduates

1000

800

Number of students

600

Doctoral graduates

400

200

2020

Doctoral entrants

2021

2022

2023

Source:

Central Statistical Bureau of Latvia

(

) OECD Economic Surveys: Latvia

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

surveys-latvia_25222988

(

) 3 254 doctoral students enrolled, 158 doctoral

graduates and 822 new entrants in 2023 according to

Latvia Statistical office

https://data.stat.gov.lv/pxweb/en/OSP_PUB/START__IZG_

_IG__IGA/IGA010/table/tableViewLayout1/.

(

) 8.3 new STEM graduates per thousand population in

2022.

(

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

high due to low funding for living and weak qualitative

skills of students.

Source: Education at a Glance 2023: OECD Indicators,

https://doi.org/10.1787/e13bef63-en.

(

) OECD Economic Surveys: Latvia 2024

https://www.oecd.org/en/publications/oecd-economic-

surveys-latvia-2024_dfeae75b-en.html

Entrepreneurship

education

well

developed in Latvia, thanks to its policy

prioritisation in recent years.

Since 2014,

fostering students’ creative and entrepreneurial

skills has been a priority of Latvia’s educational

policies, e.g. through the new skills-based

curriculum. Also, entrepreneurship education

has been embedded into national and regional

education policies and initiatives, and the

2021-2027 education development guidelines

(EDG)

emphasise

the

integration

entrepreneurial skills into the education

system. Some challenges persist, such as

cultural attitudes linked to a fear of failure.

(

) Draft human capital development action plan 2025-

2027:

https://tapportals.mk.gov.lv/legal_acts/2d477536-

f88c-439c-a768-7f9cb025f7d9#.

(

) OECD Economic Surveys: Latvia 2022

https://www.oecd.org/en/publications/oecd-economic-

surveys-latvia-2022_c0113448-en.html

kom (2025) 0214 - Ingen titel

Table A3.1:

Key innovation indicators

Latvia

Headline indicator

R&D intensity (gross domestic expenditure on R&D as % of GDP)

Science and innovative ecosystems

Public expenditure on R&D as % of GDP

Scientific publications of the country within the top 10% most cited

publications worldwide as % of total publications of the country

Researchers (FTEs) employed by public sector (Gov+HEI) per thousand

active population

International co-publications as % of total number of publications

R&D investment & researchers employed in businesses

Business enterprise expenditure on R&D (BERD) as % of GDP

Business enterprise expenditure on R&D (BERD) performed by SMEs as %

of GDP

Researchers employed by business per thousand active population

Innovative outputs

Patent applications filed under the Patent Cooperation Treaty per billion

GDP (in PPS €)

Employment share of high-growth enterprises measured in employment

(%)

Digitalisation of businesses

SMEs with at least a basic level of digital intensity

% SMEs (EU Digital Decade target by 2030: 90%)

Data analytics adoption

% enterprises (EU Digital Decade target by 2030: 75%)

Cloud adoption

% enterprises (EU Digital Decade target by 2030: 75%)

Artificial intelligence adoption

% enterprises (EU Digital Decade target by 2030: 75%)

Academia-business collaboration

Public-private scientific co-publications as % of total number of

publications

Public expenditure on R&D financed by business enterprise (national) as %

of GDP

Public support for business innovation

Total public sector support for BERD as % of GDP

R&D tax incentives: foregone revenues as % of GDP

BERD financed by the public sector (national and abroad) as % of GDP

Financing innovation

Venture capital (market statistics) as % of GDP, total (calculated as a 3-

year moving average)

Seed stage funding share (% of total venture capital)

Start-up stage funding share (% of total venture capital)

Later stage funding share (% of total venture capital)

Innovative talent

New graduates in science and engineering per thousand population aged

25-34

Graduates in the field of computing per thousand population aged 25-34

14.35

2.93

8.42

2.62

8.44

2.65

8.73

3.01

8.30

3.17

17.58

3.63

0.01

0.00

66.40

33.60

0.02

19.90

73.90

6.20

0.01

18.10

79.40

2.50

0.02

13.00

81.70

5.20

0.02

19.80

67.30

12.90

0.02

18.90

66.50

14.60

0.08

7.30

44.00

48.70

4.30

0.05

5.91

0.03

7.57

0.04

8.78

0.04

9.04

0.06

8.55

7.71

0.05

8.90

0.02

1.07

16.75

0.87

18.69

1.08

12.23

0.96

1.00

2.82

12.51

0.16

0.11

0.64

0.14

0.10

0.68

0.26

0.15

0.91

0.29

0.16

1.31

0.29

0.12

1.39

0.30

1.46

1.49

0.40

5.72

2.70

0.30

0.54

3.54

3.30

31.13

0.39

3.64

3.00

41.11

0.49

3.94

3.47

51.45

0.48

4.55

3.78

48.74

0.52

3.36

49.02

0.53

3.15

48.74

0.72

9.64

4.24

55.92

0.64

12.29

39.34

0.69

0.53

0.76

0.77

0.81

0.82

2.24

3.45

2012

2017

2020

2021

2022

2023

2024 EU average (1)

USA

22.21

3.72

52.27

36.87

29.04

4.53

59.18

8.83

72.91

33.17

38.86

13.48

0.02

0.00

0.02

0.03

0.00

0.03

0.00

0.05

0.00

0.05

0.03

0.00

0.03

0.00

0.20

0.10

0.25

0.14

0.11

(1) EU average for the last available year or the year with the highest number of country data

Source:

Eurostat, DG JRC, OECD, Science-Metrix (Scopus database), Invest Europe, European Innovation Scoreboard.

kom (2025) 0214 - Ingen titel

ANNEX 4: MAKING BUSINESS EASIER

Latvia has brought forward reforms to

improve its business environment, but

several structural challenges remain.

The

economy faces labour shortages, especially in

strategic sectors, which hinder long-term

investment. Financial constraints persist due to

restrictive lending and late business-to- business

(B2B) payments, although the situation is

improving. Latvia could boost investment by

enhancing public transport infrastructure and

expanding digital infrastructure. Administrative

and regulatory barriers are higher than in Baltic

peers. Digital infrastructure remains weaker in

rural areas.

data (

), the average gap for B2B payments was

16.2 days in 2023

–

above the EU average and

one of the highest in the EU. The public sector

payment gap has improved significantly since

2022 and stood at 12 days in 2023, the second

best in the EU. Overall performance is still far

from that in 2019, when the average gaps were

only two days and four days respectively (

Moreover, 18.2% of Latvian businesses report

payment delays from the public sector (EU

average 16.6%) and 59.4% report that they

experienced late payments in B2B activities (EU

average 47.9%, see Graph A4.1). According to the

EIB Investment Survey, 58% of Latvian enterprises

reported the non-availability of finance as an

obstacle to long-term investment in 2024 (the EU

average was 45%). This is a slight improvement

on 2023 (62%) but is also the highest value

among the three Baltic Member States and is one

of the highest in the EU (see Annex 5). According

to the EIF loan index, Latvia ranks 25th in the EU

when it comes to the accessibility of loans for

SMEs.

Latvia could boost private-sector investment

by improving public transport infrastructure

and continuing the expansion of digital

infrastructure.

According to the World Bank’s

Logistics Performance Indicator, Latvia has room

to improve its transport infrastructure, where it is

lagging behind its Baltic peers (

). 48% of Latvian

firms report transport infrastructure as an

impediment to long-term investment, trailing

Lithuania (42%) and Estonia (26%) (

). Given its

geopolitical situation, the Latvian economy could

profit from and attract more investments by

deepening its connections with the rest of the EU.

The RRP is supporting the completion of the

southern part of Riga Railway Central Station in

order to ensure connectivity by rail between Riga

Airport and the main Rail Baltica line (

). This is a

significant opportunity to address substantial

investment shortfalls in transport infrastructure

(including complementary investments in inland,

(

)

European Payment Report 2023 | Key findings on late

payments, inflation & business growth.

( )

European Payment Report 2023 | Key findings on late

payments, inflation & business growth.

( )

International Scorecard Page | Logistics Performance Index

(LPI)

(

)

EIB Investment Survey 2024 - European Union overview

(

)

Annex to the Council Implementing Decision amending

Implementing Decision of 13 July 2021 on the approval of

the assessment of the recovery and resilience plan for

Latvia.

Economic framework conditions

Non-availability of skilled staff and labour

shortages weigh on long-term investment in

Latvia.

According to the EIB Investment

Survey (

), 83% (the EU average is 77%) of

Latvian businesses report a lack of skilled staff as

a primary obstacle to long-term investment

–

this

is higher than in Latvia’s Baltic peers. Only 15% of

firms in the industrial sector overall report labour

shortages as limiting production (the EU average is

20%), but some economic sectors are heavily

affected. For example, 37% of firms within the

textile sector are constrained by labour shortages

(the EU average is 16%). Strategically important

sectors which are relevant for the twin transition

also face a lack of skilled workers (

), especially in

STEM and ICT professions (

) (see Annex 12). The

Latvian authorities have started to address the

issue by implementing structural reforms which

aim to increase mobility from regions with high

unemployment (see Annex 17).

Latvia’s recovery

and resilience plan (RRP) includes reforms to

improve higher education and adult learning (see

Annex 10).

Restrictive lending and late B2B payments

are financially constraining Latvian firms,

but the situation is improving.

The gap

between the payment terms offered to businesses

and actual payments is one of the largest in the

EU. According to the most recently available

(

)

EIB Investment Survey 2024: European Union overview.

(

)

Republic of Latvia: 2024 Article IV Consultation-Press

Release; and Staff Report.

( )

OECD Economic Surveys: Latvia 2024 | OECD.

kom (2025) 0214 - Ingen titel

airport and seaport links) as well as digital

infrastructure (e.g. the fibre optic cable line along

the railway) (

). Digital infrastructure has been

improving, but Latvia is still lagging behind the EU

when it comes to meeting the Digital Decade

targets (although business digitalisation has

recently accelerated (

Graph A4.1:

Making Business Easier: selected

indicators.

(1) Regulatory

burden

the year. 5G coverage remained low at 53.1% (the

EU average was 89.3%) but grew quickly (26.5%).

Public investment is taking place, but strong

regional disparities persist and challenges such as

low population density are hampering private

investment in digital infrastructure in rural areas.

When it comes to cyber-security, awareness

among enterprises is increasing and 89% of

companies deploy ICT measures (the EU average is

92.8%).

Regulation as a major

obstacle to investment

24.5

41.8

Regulatory and administrative

barriers

49.1

(2) Single

Market

41.6

EU Trade Integration

Material shortages as a

factor limiting production

16.6

(4) Late payments

from public entities

18.2

47.9

from private entities

59.4

Share (%)

EU27

Share of (1) enterprises, (2) average intra-EU exports and

imports in GDP, (3) firms, (4) SMEs.

Sources:

(1) EIB IS, (2) Eurostat, (3) ECFIN BCS, (4) SAFE

survey.

Digital infrastructure is catching up quickly

with EU average levels but challenges

remain, especially in rural areas.

Latvia’s

connectivity has rapidly improved in recent years

but still falls short of EU averages (

). Very high

capacity network (VHCN) coverage reached 71.5%

in 2023. This was still below the EU average of

78.8%, but grew strongly that year by 13.9% (the

EU average was 7.4%). Similarly, fibre to the

premises coverage was 61.9% (slightly below the

EU average of 64%) but grew only slightly during

( )

OECD Economic Surveys: Latvia 2024 | OECD.

(

)

Report on the state of the Digital Decade 2024 | Shaping

Europe’s digital future.

(

)

Latvia 2024 Digital Decade Country Report | Shaping

Europe’s digital future.

Reforms are being brought forward to ease

the administrative and regulatory burden for

businesses, but it is still perceived to be

higher than in

Latvia’s Baltic peers (

). 40%

of businesses in Latvia reported business

regulation as a major obstacle to investment (the

EU average was 22%) (

), by far the highest value

among the Baltic Member States (Estonia: 15%;

Lithuania: 13%). As concerns the OECD’s

Product

Market Regulation indicators, Latvia performs

below the OECD average in the areas of

competition assessment of new regulation and

market entry barriers in service sectors. The

procedures for obtaining licences and permits can

be improved (

). The construction sector is

especially suffering from unnecessarily long and

complex procedures. According to a survey

conducted by the Bank of Latvia among real

estate developers, acquiring all the documentation

needed for the construction process takes much

more time in Latvia than in Estonia or

Lithuania (

). To tackle these issues, the Latvian

authorities have included measures in their

medium-term fiscal-structural plan to detect

excessive overall administrative burden and to

streamline regulatory processes in the real estate

sector (

The costs of ensuring tax compliance are

aligned with the EU average or slightly

below, pointing to an efficient tax collection

(

)

Responsive administration and burden of regulation | Single

Market Scoreboard.

( )

EIB Investment Survey 2024 - European Union overview

(

)

Latvia_PMR country note.

(

)

Financial Stability Report 2023.

(

)

Latvijas Fiskāli strukturālais plāns 2025.-2028.

gadam.

(3) Shortages

kom (2025) 0214 - Ingen titel

system.

The costs of complying with direct and

indirect tax requirements represent between 1%

and 2% of businesses’ turnover. This

is close to

the EU average of 1.9%. In terms of absolute

numbers, Latvian enterprises face lower

compliance costs than the EU average, for

corporate income tax and value added tax (

) (see

Annex 2).

The transposition of EU legislation into

national law is an opportunity to further

accelerate business dynamism.

According to

the OECD, Latvia’s insolvency framework involved

costly and inefficient procedures that impeded the

productive reallocation of resources (

). Since

March 2023, the Latvian authorities have

transposed the Restructuring and Insolvency

Directive (EU) 2019/1023 into Latvian laws that

now apply to all proceedings which have been filed

since September 2023. The overall churn rate of

Latvian businesses was already quite high and

above the EU aggregate in recent years, which

indicates a higher level of business dynamism (

The new insolvency framework is expected to have

a positive impact, so this development could be

enhanced even further.

The entrepreneurial environment has faced

significant challenges in recent years.

The

Global Entrepreneurship Monitor 2024 shows that

Latvia’s

entrepreneurial

environment

has

stagnated with downward tendencies. Latvia’s

National Entrepreneurial Context Index score fell

from 5.3 in 2022 to 5.1 in 2024 (

). In particular,

the rankings for entrepreneurial education at

school (see Annex 12), ease of market entry and

government policy support have fallen sharply (

)

since 2022. Latvia nevertheless still ranks 14th

among GEM economies.

Single market

Latvia is well integrated into the single

market, with its average total trade with

other EU countries accounting for more than

half of its GDP in 2023.

The share of single

market directives which are incorrectly transposed

into national law equals the EU average of 0.8%

and Latvia is the best performer when it comes to

the conformity of its transpositions (it has a deficit

of zero). There were only 10 infringement

proceedings pending in 2023, which was the joint

best value in the EU (Estonia and Luxembourg also

had 10 proceedings pending; the EU average was

26). Moreover, the Latvian SOLVIT centre has

managed to resolve 100% of its cases (the EU

average is 84.9%).

Public procurement

The public procurement framework faces

several structural challenges, but reforms

are being made.

Latvian public procurement

institutions face significant staff-related problems,

including suboptimal staff resources, low and

uncompetitive salaries, and insufficient training

opportunities. These issues can lead to delays,

inefficient public spending and difficulties in

attracting and retaining skilled professionals. The

procurement planning process suffers from issues

of planning, allocated time for procurements, the

workload distribution for procurers, and short

contract durations (

). The Latvian public

procurement system could benefit from greater

centralisation. The purchase of standardised goods

and services (e.g. ICT, software services and

medical drugs) is currently still being done by

multiple municipalities (

). Latvia has introduced

an advisory council for public procurement to

tackle these issues and continues to implement

measures from its RRP that aim to enhance the

professionalisation of procurers as well as the

centralisation of public purchasing (

(

)

Tax compliance costs for SMEs - Publications Office of the

EU.

( )

OECD Economic Surveys: Latvia 2024 | OECD.

(

)

DG ECFIN Productivity fiche, 2025.

(

)

Global Entrepreneurship Monitor 2024/2025 Report: Fear of

failure and slow AI adoption holding back entrepreneurs in

Latvia | Stockholm School of Economics in Riga.

(

)

Entrepreneurship in Latvia - GEM Global Entrepreneurship

Monitor.

(

)

29780-OFPKvdMM5yj8IVWkSjikQc1NAGv2VsPS.pdf

(machine translation).

(

)

OECD Economic Surveys: Latvia 2024 | OECD.

(

)

OECD Economic Surveys: Latvia 2024 | OECD.

kom (2025) 0214 - Ingen titel

Significant progress has been achieved in

implementing socially responsible public

procurement (SRPP) in recent years.

Latvia

has produced a wide range of resources to help

procurement officers in effectively applying SRPP.

These resources include the development of

guidelines, the creation of training materials, the

compilation of international best practices in SRPP,

and the provision of practical models to inspire

and guide efforts.

Few professions appear to be more strictly

regulated than in other OECD countries.

Latvia has stricter regulatory barriers for lawyers

and notaries. These take the form of total bans on

lawyers and notaries engaging in multidisciplinary

activities (

). Latvia could foster competition by

reducing regulatory barriers, particularly in retail

sale of medicine, air transport and natural gas (

(

)

eur-lex.europa.eu/legal-

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

( )

Latvia_PMR country note.

kom (2025) 0214 - Ingen titel

Table A4.1:

Making Business Easier: indicators.

Latvia

POLICY AREA

INDICATOR NAME

2020

Investment climate

Material shortage, firms facing constraints, %

Shortages

Labour shortage, firms facing constraints, %

Vacancy rate, vacant posts as a % of all

available ones (vacant + occupied)

Transport infrastructure as an obstacle to

investment, % of firms reporting it as a major

obstacle

Infrastructure

VHCN coverage, %

FTTP coverage, %

5G coverage, %

7.8

12.1

2.0

16.1

21.4

2.7

22.9

22.7

2.7

12.9

17.3

2.4

11.0

15.3

2.2

10.0

20.2

2.3

2021

2022

2023

2024

EU-27

average

23.2

25.4

62.5

60.7

0.0

25.5

62.7

60.9

42.0

29.9

71.4

61.9

53.1

25.2

13.4

78.8

64.0

89.3

Reduction of regulatory and administrative barriers

Impact of regulation on long-term investment,

Regulatory environment

% firms reporting business regulation as a

34.7

50.3

25.9

major obstacle

Payment gap - corporates B2B, difference in

15.8

10.8

16.0

days between offered and actual payment

Payment gap - public sector, difference in days

18.4

8.7

13.3

between offered and actual payment

Late payments

Share of SMEs

experiencing late

payments, %*

from public or private

entities in the last 6

months

from private entities

in the previous or

current quarter

from public entities in

the previous or

current quarter

39.8

41.8

24.5

16.2

12.0

50.6

15.6

15.1

36.5

38.1

59.4

47.9

18.2

16.6

Integration

Single Market

EU trade integration, % (Average intra-EU

43.5

imports + average intra EU exports)/GDP

EEA Services Trade Restrictiveness Index

Transposition deficit, % of all directives not

transposed

Conformity deficit, % of all directives

transposed incorrectly

SOLVIT, % resolution rate per country

Number of pending infringement proceedings

0.047

0.8

1.0

100

22.0

48.2

0.035

2.0

1.0

100

17.0

57.7

0.035

1.2

0.8

100

12.0

50.5

0.035

0.5

0.4

100

10.0

49.1

0.039

0.8

0.0

100

10.0

41.6

0.050

0.8

0.9

84.9

24.4

Compliance

Public procurement

Single bids, % of total contractors**

Competition and

transparency in public

procurement

Direct awards, %**

7.0

*Change in methodology in 2024: reporting late payments from public and private entities separately.

**Data on single bids for 2024 is provisional and subject to revision. Due to missing data, the EU average of direct awards data is

calculated without Romania.

Sources:

(1) ECFIN BCS, (2) Eurostat, (3) EIB IS, (4) Digital Decade Country reports, (5) Intrum Payment Report, (6) SAFE survey,

(7) OECD, (8) up to 2023: Single Market and Competitiveness Scoreboard, 2024: Public procurement data space (PPDS).

kom (2025) 0214 - Ingen titel

ANNEX 5: CAPITAL MARKETS, FINANCIAL STABILITY AND ACCESS TO FINANCE

Latvian firms do not have access to the

relatively low savings of households, as

direct retail participation in capital markets

is extremely low.

At the same time, the

investment policies of domestic institutional

investors are conservative and oriented abroad.

Moreover, longstanding structural issues constrain

bank lending in Latvia. This leaves internal

financing as the main alternative for Latvian firms.

However, over the last decade, the private equity

and venture capital sector has played a key role in

diversifying corporate financing. With this

relatively well-developed local venture and growth

capital market, Latvia is currently among the most

start-up friendly countries in the world, and strives

to further develop its strategy, with a unique role

for FinTech in it. Latvia’s banking sector is very

small, highly concentrated, and partly dependent

on developments in foreign parent banks. Overall,

it exhibits high resilience to risks and low exposure

to vulnerabilities.

Graph A5.1:

Net savings-investment balance

% of GDP

-5

-10

2017

2018

2019

2020

2021

2022

2023

Private investment, net

Private saving, net

Borrowing from the rest of the world

Lending to the government

Private saving, gross

Source:

AMECO.

Availability and use of domestic

savings

In 2021, Latvia switched from a net foreign

lender to a net borrower.

Over the last decade,

the private savings ratio, net of fixed capital

consumption, fluctuated around its ten-year

average of 6.2% of GDP, reaching a maximum of

10% in 2021 (see Graph A5.1). The net private

investment ratio, which measures the net

contribution of the private sector to capital

accumulation in the country, exhibited a ten-year

average of 3.0% of GDP and reached a maximum

of 5.4% in 2021. At the same time, during the

same period the government balance was in

regular surplus, averaging 0.8% of GDP. Until

2020, the balance between net domestic savings,

net investment, and the structural government

deficits was positive, resulting in net lending by

Latvia averaging 0.8% of GDP, with a peak of

4.8% in 2020. Hence, some of Latvian net savings,

i.e. after accounting for the investments that are

necessary to merely maintain the existing capital

structure of the economy, were used to finance

projects abroad until 2020. In 2021 the situation

changed and Latvia became a net borrower from

the rest of the world.

The Latvian economy exhibits a negative net

international investment position.

Between

2009 and 2023, the NIIP strengthened almost

every year, reflecting an improvement in

international competitiveness, however remaining

in negative territory. As of Q3-2024, total assets

on foreigners reached 141% of GDP, while

liabilities to foreigners stood at 163% of GDP,

resulting in a NIIP equivalent to -22.1% of GDP

(see Graph A5.2). The accumulated net portfolio

investment, which reached 25.5% of GDP as of Q3

2024 and the stock of official foreign reserve

assets amounting to 12.1% of GDP did not suffice

to counterbalance a negative accumulated net

foreign direct investment balance of -48.8%,

together with net other investments of -10.8%.

Thus, the Latvian economy has systematically

been a net capital importer, notably mainly by

means of direct foreign investments into the

country.

Graph A5.2:

International investment position

200

% of GDP

150

100

-50

-100

-150

-200

-250

2017

2018

2019

2020

2021

2022

2023

2024-Q3

Foreign Direct Investment, Assets

Other investment, Assets

Foreign Direct Investment, Liabilities

Other investment, Liabilities

Portfolio Investment, Assets

Official reserve assets

Portfolio Investment, Liabilities

NIIP

Source:

ECB.

kom (2025) 0214 - Ingen titel

Structure of the capital markets and

size of the financial sector

In terms of capital market development,

Latvia lags behind not only the rest of the

EU, but also neighbouring countries.

Despite a

similar economic structure and size, stock

exchanges of Estonia and Lithuania have been

able to achieve a higher level of development.

Whereas the market capitalisation of listed stocks

in Estonia reached 12.2% at the end of Q3-2024,

and 5.9% in Lithuania, it was only 1.2% of GDP in

Latvia, among the smallest percentage in the EU.

In comparison, the EU average is 69.3% of GDP.

Whereas state and local government-controlled

companies account for slightly more than a third

of market capitalisation Lithuania and Estonia,

Latvia has only listed bonds for three state-owned

enterprises. The situation is similar in the debt

securities market: the corporate bond market is

very thin and activity there was very weak even

when low interest rates prevailed in financial

markets over the previous decade.

Graph A5.3:

Capital markets and financial

intermediaries in Latvia

% of GDP

MFIs

opportunities, low interest from institutional and

retail investors, and thus few local opportunities to

raise share capital. Lacking market activity by

institutional investors lowers demand for

corporate stocks and bonds. In terms of the

international market, projects developed in Latvia

are relatively low value, which makes them less

attractive to international investors.

Latvia’s monetary financial sector is very

small compared with the EU average and

concentration is high.

At the end of Q3-2024,

banks’ total assets were equivalent to 71.2% of

GDP, significantly below the EU average of

248.1% and also below the level reached in 2017

(105%). The sector has been shrinking as banks

servicing

non-residents

have

significantly

downsized their operations following the

introduction of stricter anti-money laundering

rules. Consequently, their business volumes and

deposits have notably decreased. This has led

them to transform their business models. The

banking sector is highly concentrated, and

borrowing costs are among the highest in the EU

in almost all lending segments. The top five MFIs

represent more than 88% the sector, vs. an EU

average of 54%. The Latvian banking sector is

dominated by subsidiaries and branches of banks

from Nordic and Baltic countries. Notably,

Swedbank (

) and SEB Banka, which are the two

largest banks in Latvia, are Swedish owned. Due to

its integration with the Nordic and Baltic banking

systems, the financial sector of Latvia depends

partly on developments in parent banks and their

strategic decisions. Latvia’s banking sector may be

exposed to spillover risks from these regions. In

Sweden and other Nordic countries, imbalances on

the real estate market, as well as high private debt

levels are potentially destabilising elements.

The role of the non-bank financial sector in

the financial sector and the economy is still

considerably less important as compared to

other euro area countries.

This is primarily due

to the low level of long-term savings of the

population and the low financial literacy level.

Total assets of insurance corporations against GDP

amounted to 4.1% at the end of Q3-2024, vs. an

(

)

In October 2021, the ownership of the subsidiary banks in

Estonia, Latvia and Lithuania was placed in the holding

company Swedbank Baltics AS which is wholly owned by

Swedbank AB, and which is under the supervision of the

European Central Bank.

Insurance and pension funds

Government

Non-financial corporations

Financial corporations

Insurance corporations

Listed equity

MFIs

Bonds

Assets by sector

Source:

ECB, EIOPA, AMECO.

The

prospects

for

capital

market

development are limited by the low number

of listed enterprises.

Latvia has established a

good market infrastructure, as well as a regulatory

framework that meets international standards,

ensuring adequate market transparency and

investor protection. Nevertheless, local businesses

tend to rely for external funding on bank

intermediation rather than attracting investments

through stock and bond issues or from alternative

sources. This results in few local investment

Pension funds

Investment funds

Other financials

kom (2025) 0214 - Ingen titel

EU average of 54.8%. Most of the pension fund

assets in Latvia consist of funds accumulated in

state-funded pension plans, which at the end of

2023 had accumulated to about half of the total

assets of the non-bank financial sector. According

to Latvijas Banka’s financial accounts statistics, in

2023 the assets, respectively liabilities, of the

participants of Latvia's non-bank financial sector

accounted for 12.3%, respectively 10.7%, of those

of credit institutions.

conditions, which may affect bank customers,

especially non-financial corporations, and limit the

recovery of economic growth in the medium term.

The profitability of credit institutions is high.

In Q3-2024 Latvian banks have achieved a record-

high return on equity ratio (18.1%), significantly

exceeding the EU average (10%). The sharp rise in

market interest rates, the dominance of floating-

rate loans, together with the still resilient quality

of the loan portfolio have led to this significant

increase in banks' profitability. Although the

positive factors have more than offset the

negative ones, the latter have also been

considerable, namely an increase in bank’s

expenses over 2023 (driven by staff pay rises,

inflation and expenditures on consultancy and

other services in some credit institutions), as well

as the amendment to the Corporate Income Tax

Law, the first payment of which was made in

2023. In 2024, profits have been affected

somewhat by the mortgage protection fee (

), but

still stood well above the EU average. The return

on equity ratio as of end Q3-2024 stood at 18.1%,

vs. an EU average of 10%.

Banks’ balance sheets show improved asset

quality.

With an aggregate non-performing loan

(NPL) ratio of 1.2% in Q3-2024, which is below the

EU average of 1.9%, credit quality has improved

significantly over the past decade. With inflation

easing and income growth remaining strong,

households' financial situation is gradually

improving. Additionally, mortgage protection is

also reducing the default risks. At the same time,

the solvency and debt-servicing capacity of non-

financial corporations has weakened somewhat

due to weak economic activity and sharply higher

labour and financing costs. Nevertheless, NPLs

have remained low, partly thanks to renegotiations

and financial hardship relief to prevent

(sometimes pro-actively) the problems from taking

root, avoiding as far as possible a further

migration of some distressed loans to NPLs. Yet,

banks’ aggregate coverage ratio of NPLs by

(

)

The Latvian Parliament, on 6 December 2023, passed

measures to assist mortgage borrowers by reducing their

interest payments for one year by 30%, with a maximum

of 2 percentage points of the interest rate for a given

period. The measure is broad-based and aimed at short-

term relief (for a period of one year). To finance the

measure, a one-off fee of 0.5% of the total amount of

mortgage loan balances will skim profits from banks and

credit providers operating in Latvia in 2024.

Resilience of the banking sector

Overall, the Latvian banking sector exhibits

high resilience to risks.

Latvia’s banking sector

has coped relatively well with the multiple shocks

in recent years, from the pandemic crisis to

Russia’s aggression against Ukraine and the

energy crisis.

The sector’s resilience is bolstered by

strong capitalisation and asset-quality metrics,

with a capital adequacy ratio of 23.8% in Q3-

2024, well above the EU average of 20.1% (see

Table A5.1). The improvement came through the

accumulation of high-quality loss-absorption

capital, as the CET1 ratio increased from 20.5 % in

2023 to 22.5% in Q3-2024, significantly above

the EU average of 16.6%. The three institutions

that were subject to the 2023 EU-wide stress test

(Swedbank AS, AS Citadele banka, and AS SEB

banka) passed successfully even the most adverse

scenario. According to Latvijas Banka, despite

dividend pay-outs, significant credit institutions

maintain sufficiently high voluntary capital buffers

to absorb shocks. Given the current level of

voluntary buffers of credit institutions and their

ability to still capitalise profits, it is expected that

no credit institution will have difficulties in

meeting MREL targets in 2024. Additionally,

capital buffers are supported by the decision of

the Latvian Central Bank in December 2023 to

implement a positive neutral Countercyclical

Capital Buffer rate. This rate has been set at 0.5%

starting in December 2024 and will increase to 1%

in June 2025. The stress test results for other

credit institutions have generally improved, with a

decline in the level of non-performing loans on the

balance sheets of some institutions. The resilience

to market risk, including the revaluation of

securities held to maturity at current market value,

has improved. Overall, the most important

systemic risks to the stability of the financial

sector remain related to the persistently weak

economic activity and generally tight credit

kom (2025) 0214 - Ingen titel

existing provisions remains short of the EU

average by almost 13 percentage points, even

though it increased from 26.2% in 2021 to 29% in

Q3-2024, improving the resilience of credit

institutions in the event of a potential deterioration

in loan quality.

Funding risk remains low in general and

liquidity ratios remain at a good level.

The

loan-to-deposit ratio is low (74.5% in Q3-2024 vs.

106.7% for the EU) as domestic deposits exceed

issued loans significantly. Thanks to the strong

and stable domestic customer-deposit base, credit

institutions do not need to draw on additional

funding from financial markets nor do they rely

heavily on their cross-border parent banking

groups. The liquidity coverage ratio amounted to

167% in Q3-2024, well above the minimum

requirement. Banks have accumulated large

amounts of liquid assets. This is partly driven by

moderate lending growth.

Latvia utilising bank loans less than any other EU

country. At the end of 2023, MFI credit accounted

for merely 15% of the total corporate debt

portfolio, down from 34% in 2010, and among the

lowest in the EU. Listed shares and bonds

represented only 1.3% of all funding sources for

Latvian non-financial corporations. The equivalent

figures for the EU average are 27.2% and 23.8%,

with the overall levels also substantially higher as

a share of GDP (as the overall level of non-

financial corporations funding was 137% in Latvia

and 230% of GDP for the EU average, see Graph

A5.4). The market funding ratio (

) as of end 2023

was 21.2%, compared to an EU average of 49.6%.

Graph A5.4:

Composition of NFC funding in % of

GDP

250

200

% of GDP

100

Resilience of the non-bank financial

intermediaries

Overall, the ability of insurance corporations

to absorb potential shocks remains good, as

their solvency capital ratios remain high.

source of uncertainty to insurers is the purchasing

power of consumers, particularly as the frequency

of natural disasters increases and the scope of

policy coverages widens. Cross-border operations

are crucial for Latvian insurance companies,

similar to those in other small markets, as they aid

in risk diversification and management. Although

non-life insurers have managed to pass on the

cost increases to their customers, the declining

contributions and the attractiveness of other

investment products in times of rising interest

rates put the sustainability of the life insurance

business under pressure.

150

Loans

Bonds

Trade credit and advances

Listed shares

Other equity

Unlisted shares

The sum of NFC liabilities only reflects the total for the NFC

liabilities considered. Reference period 2023.

Source:

Eurostat and FISMA E2 calculations

Sources of business funding and the

role of banks

Firms in Latvia rely less than the EU average

on funding from capital markets and bank

lending.

The relative significance of bank credit to

businesses continues to decline, with companies in

At the same time, 24% of all Latvian firms

believed that their investment activities over

the last 3 years were not sufficient.

This is -

together with the other two Baltic countries- one

of the highest levels of underinvestment among

the EU (EU average of 14%), suggesting that there

is a financing gap relative to investment demand,

especially for SMEs. Moreover, the country has a

high share of finance-constrained firms (14%).

State guarantees, e.g. from the public investment

agency ALTUM, help bridge the financing gap, but

(

) i.e. the volume of corporate bonds and listed shares of NFCs

relative to the volume of those two and bank loans to NFCs.

kom (2025) 0214 - Ingen titel

collateral requirements imposed by banks remain

stringent. This leaves internal financing as the

main alternative to bank funding for Latvian firms.

According to the 2024 EIB Investment Survey,

74% of Latvian firms’ investment needs are

covered by internal funding, compared to an EU

average of 66%.

The financial cycle in Latvia slowed down in

2023, and corporate credit growth went

negative.

Credit growth has been on a general

downward path, both for households (since June

2022) and non-financial corporations (since

November 2022). Demand from borrowers

declined as a result of higher interest rates, and

heightened uncertainty. Over 2024 credit growth

recovered, as lending standards eased on the back

of expectations of monetary policy easing. For

households, the annual credit growth rate for

adjusted loans has gradually edged up from 2.6%

in June 2024 to 5.9% in November 2024. For

NFCs, annual credit growth recovered from -3.4%

in November 2023 reaching 4% in November

2024. Nevertheless, lending in Latvia remains

sluggish, with outstanding loans to NFCs and

households fluctuating around 27% of GDP. This is

nearly 3 times below the euro area average.

Beyond the cyclical factors and monetary

policy tightening, longstanding structural

issues further constrain lending in Latvia.

These issues are reflected in high lending rates

and stringent collateral requirements, most

notably in the corporate lending segment where

interest rate markups have remained high and,

combined with a large share of variable interest

rate loans, have resulted in very high lending rates.

Concentration is amongst the highest in the EU

according to the five-firm concentration ratio. To

reduce high credit costs, it is key to foster

competition in financial markets by reducing

information asymmetries and switching costs for

bank customers and strengthening competition

enforcement.

This reduces corporate demand for bank

loans and forces them to rely on their own

funds as well as other alternatives (other

equity).

Limited access to finance coupled with

high informality is reflected in the 2024 SAFE

survey results. In that survey 30% of Latvian SMEs

indicate that bank loans are relevant for them,

compared to an EU average of 45%, and 29% of

SME’s indicated that equity (other than shares) is

relevant for them vs. an EU average of 12% (

Internal financing accounted for the largest share

of finance for firms in Latvia in 2023. Alternative

financial service providers are competing and

often outcompeting the traditional ones at high

speed. Conducted empirical analysis shows that

the most available financing sources in Latvia,

apart from banking products, are friends and

family, venture capital, business angels, as well as

diverse state support programmes (including EU

grants, Altum). However, Altum’s loan portfolio is

relatively small against the total value of

outstanding loans (a mere 2.5% as of mid-2023).

Capital markets and the participation

of retail investors

SMEs find it difficult to access and take

advantage of Latvia’s capital markets.

In the

2024 SAFE survey 41% of SMEs indicated that

internal funds (retained earnings or sale of assets)

are relevant for them, compared to an EU average

of 30% (

). While the Nasdaq First North Market

offers a trading facility with reduced reporting

requirements, targeting primarily smaller cap

issuances, SMEs and start-ups seeking to list on it

face a significant challenge due to the mandatory

biannual audit of their financial statements.

Moreover, Latvia cannot take advantage of this

SME market because there are no established SME

growth markets in Latvia, nor in the other Baltic

states. Recently, work started on setting up an

SME Initial Public Offering Fund in the Baltics, with

the help from ALTUM for Latvia and ILTE for

Lithuania.

The government is currently reviewing its

strategy for activating capital markets,

including several lines of action to meet the

ambitious

target

stock

market

capitalization of 9% of GDP by 2027.

This

initiative is part of a broader strategy to leverage

over 10 billion EUR in household savings across

Latvia, directing these funds towards vital

investments that can spur sustainable economic

(

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

Results by country, T23, T27.

(

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

Results by country, T20.

kom (2025) 0214 - Ingen titel

growth. Government decisions made earlier in

2021 and 2022 foresee specific instruments to

increase the capitalisation of the stock market and

promote capital attraction and the entry of new

issuers into the stock exchange. From the 10-step

programme, concrete action plans were derived

and included in the National Financial sector

Development Plan for 2021-2023. In May 2023

the government of Latvia approved the initiative

“On further development of the Latvian capital

market” to meet the target of stock

market capitalization of 9% of GDP by 2027. Since

then, progress has been made, but clearly there is

potential for further improvement. More work is

needed to open possibilities for domestic and

foreign capital flows to fund business investment,

to provide investors with an opportunity to invest

in the development of the Latvian economy. In

February 2025 the Bank of Latvia updated the 10-

step programme stating that measures should be

taken to promote the entry of large state-owned

or municipalities-owned companies into the capital

market, notably by including shares in the market.

Graph A5.5:

Composition of household financial

assets per capita and as % of GDP

100

250

200

150

100

first need to reach a sufficient level of

capitalisation. Listing of large state-owned

enterprises and facilitating greater exposure of

pension funds to domestic securities could help

attract investors and raise access to finance.

The role of domestic institutional

investors

The role of the non-bank financial sector in

the financial sector and the economy is still

considerably less important as compared to

other EU countries.

The Latvian insurance

market is relatively small compared to the EU.

Total assets of insurance corporations against GDP

amounted to 4% end of Q2-2024 (vs. 53.4% EU

average). Although the state funded pension

scheme is still in the phase of the build-up of

savings, household savings for retirement account

for the largest share of the non-bank financial

sector's assets. Data show that in relation to GDP,

at the end of Q2-2024, Latvia's pension savings in

all types of pension products (22.3%) exceeded

Lithuania's (11%), and also slightly Estonia’s (19%

in 2019). Most of the pension fund assets in Latvia

consist of funds accumulated in state-funded

pension plans, which at the end of 2023 had

accumulated to almost half of the total assets of

the non-bank financial sector. Due to the growing

contributions to the 2

pillar pension scheme, the

high return on investment, as well as the licensing

of investment platforms in 2021, the role of

Latvia’s institutional investors has been growing

over recent years.

Pension funds have contributed to the

development of the Latvian capital markets,

but their domestic investment remains low.

About half of the portfolio of Latvian pension

assets is bills and bonds, indicating a more

conservative and mostly foreign investment profile

as the local corporate bond market is shallow.

Although the investment rules of second-pillar

pensions have already been relaxed, equity

investment limits for plans registered before the

end of 2017, and private investment fund limits

are still 50% and 25%, respectively. Moreover,

second-pillar pension management companies

cannot invest directly in real estate and face low

per capita (000 EUR) (lhs)

% of GDP GDP (rhs)

Currency and deposits

Investment funds

Listed shares

Other equity

Insurance and pension funds

Bonds

Unlisted shares

HH Debt (liability)

The sum of household assets only reflects the total for the HH

assets considered. Reference period 2023.

Source:

Eurostat and FISMA E2 calculations.

One reason the level of activity in the capital

markets is so low is that the levels of income

and savings are relatively low.

It is also

important to note that the outstanding deposits at

banks significantly exceed the outstanding loans

from banks, which may point to untapped potential

since those savings could be redirected towards

capital markets. Another reason why the

development of the capital markets has been

weak is that there is little, or at times no, interest

from international investors. For the local capital

markets to come onto their radars, they would

kom (2025) 0214 - Ingen titel

concentration limits on equity holdings (

100

Encouraging the build-up of universal funded

supplementary pension schemes would positively

contribute to (i) the sustainability and adequacy of

pension benefits; (ii) investment in equity; (iii)

access to finance; (iv) growth; and (v) innovation.

Strengthening insurance markets could also

help deepen capital markets and close the

funding gap of insurance companies.

The

Latvian insurance sector mainly invests in

collective investment schemes, at 40% of total

assets by end 2023 (compared to 19% for the EU

as a whole), with another 38% held in government

bonds, 8% in corporate bonds, 8% held in cash

and deposits (

101

). However, the pool of premiums

collected by insurance companies is very small in

Latvia, which limits their contribution as potential

buyers of securities in private capital markets.

Health insurance coverage is weak, and life

insurance funds are also small compared to EU

countries due to low household savings and

competition from voluntary contribution (third

pillar) pension funds, which are mostly managed

by large bank subsidiaries.

The participation of domestic institutional

investors in providing funding for start-ups

and venture capital investors is increasing.

Funds raised from pension funds have increased

considerably, while capital is also being raised

from less traditional sources such as endowment

funds and general partners commitments. Recent

data show that pension funds in Latvia accounted

on average for 15% of private equity and venture

capital funds raised over 2023, a figure that is in

line with the one for the other Baltic states and

close to +20% shares for Nordic states (

102

and depends on public co-funding.

According to

the Capital Market Union Dashboard, Latvia lags

Europe in annual venture capital investments

relative to GDP, with 0.02% on average annually

over the period 2021-23 (vs. an EU average of

0.08%). Equally, the country lags in terms of

annual private equity investments relative to GDP

(0.01% of GDP per year on average over 2021-23

vs. an EU average of 0.06%). However, Latvia is an

outlier in terms of making use of crowdfunding

platforms. They represent 0.7% of GDP according

to the latest data available (EU average 0.1%). In

2023, Latvian start-ups raised EUR 758 million

which was predominantly driven by venture capital

(

103

). The establishment of venture capital funds in

Latvia, as in the other Baltic countries, takes place

through co-investments from the state budget, EU

funds, the EBRD and the European Investment

Fund, pension funds, and private investment funds.

There is also high level of cross-border activity in

private equity and venture capital industry, where

fund managers operate across the Baltic

countries.

Latvia is currently working on a strategy for

streamlining the development of start-ups,

and a unique role in this strategy will be

given to FinTech companies.

The memorandum

of cooperation between the Ministry of Economy

and a couple of organisations representing the

Latvian start-up ecosystem "On Latvian Start-up

Ecosystem Development Strategy for 2022-2025”

was signed in 2022. Following a legislative change

to the country’s stock options policy, Latvia is now

ranked by Index Ventures as the most start-up-

friendly country globally, and the country is

striving to continue this trend. The strategy will

serve as a roadmap for the next steps, both in

improving the legal framework and developing the

necessary support instruments (see Annex 3).

The depth of venture and growth

capital

Although the venture capital sector has

developed rapidly, it still lags the EU average

(

100

) OECD (2023),

Annual Survey of Investment Regulation of

Pension Providers 2023,

(

101

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

insurance sector Q4-2023.

(

102

) Source:

Closing the gaping hole in the capital market for EU

start-ups

–

the role of pension funds

–

CEPS.

(

103

) Source: KPMG, LTVC, LVCA, ESTVCA, 2024, Baltic Private

Equity and Venture Capital Market Overview 2023.

kom (2025) 0214 - Ingen titel

Table A5.1:

Financial indicators

Total assets of MFIs (% of GDP)

Common Equity Tier 1 ratio

Total capital adequacy ratio

Overall NPL ratio (% of all loans)

NPL (% loans to NFC-Non financial corporations)

NPL (% loans to HH-Households)

NPL-Non performing loans coverage ratio

Return on Equity

Loans to NFCs (% of GDP)

Loans to HHs (% of GDP)

NFC credit annual % growth

HH credit annual % growth

Stock market capitalisation (% of GDP)

Initial public offerings (% of GDP)

Market funding ratio

Private equity (% of GDP)

Venture capital (% of GDP)

Financial literacy (composite)

Bonds (as % of HH financial assets)

Listed shares (as % of HH financial assets)

Investment funds (as % of HH financial assets)

Insurance/pension funds (as % of HH financial assets)

Total assets of all insurers (% of GDP)

Pension funds assets (% of GDP)

11-17

18-24

25-27

1-3

4-10

Banking sector

2017

108.8

18.4

20.6

5.6

10.4

5.9

35.9

2018

81.0

20.3

22.3

5.3

9.1

5.2

33.0

2019

76.8

22.0

23.4

3.9

7.3

4.2

30.3

2020

82.4

25.7

26.8

4.6

5.9

3.7

28.8

2021

76.8

29.2

29.7

2.1

3.1

1.3

26.2

2022

74.9

23.6

24.1

1.4

2.6

0.8

28.4

2023

71.3

20.5

21.6

1.3

2.0

0.9

28.8

20.3

13.8

14.8

-1.5

2.9

1.9

0.06

21.2

0.09

0.01

36.0

1.0

1.2

22.4

4.0

20.2

2024-Q3

71.2

22.5

23.8

1.2

1.8

1.0

29.0

18.1

13.6

15.1

2.3

5.2

1.2

4.1

23.3

248.4

16.6

20.1

1.9

3.5

2.2

42.1

10.0

30.0

44.5

0.8

0.7

69.3

0.05

49.6

0.41

0.05

45.5

2.7

4.8

10.0

27.8

54.8

23.4

7.6

9.2

9.6

5.2

4.5

10.2

22.6

19.8

18.3

17.1

15.4

15.1

20.2

17.6

16.9

17.1

16.7

15.6

2.7

3.9

-0.8

-1.0

-0.8

10.0

0.5

0.8

1.3

0.5

6.3

3.8

4.8

2.7

2.8

3.3

3.1

2.1

0.09

0.00

0.38

0.12

12.9

13.7

15.6

16.5

21.1

20.7

0.67

0.03

0.04

0.09

0.06

0.13

0.00

0.01

0.02

0.01

0.03

0.02

1.0

0.9

0.8

0.6

0.9

0.7

1.0

1.4

1.1

1.2

1.1

1.4

1.2

18.2

21.8

22.1

22.6

20.1

2.7

2.9

4.8

5.1

4.7

3.9

17.2

19.5

20.9

17.6

Colours indicate performance ranking among 27 EU Member States.

Non-banks sector

Annualized data.

Credit growth and pension funds EU data refers to the EA average.

Source:

ECB, ESTAT, EIOPA,

DG FISMA CMU dashboard,

AMECO.

Financing the green transition

Sustainable finance in Latvia is still in the

initial stages of development.

The average

issuance over 2021-2023 of bonds with

environmental, social, and governance objectives

as a share of total bond issuance was the fifth

lowest in Latvia of all EU member states (

104

However, recently in Latvia there have been

positive examples of local companies managing to

offer investors sustainable and attractive

investment projects. For example, Latvenergo, AST

and Altum have issued green bonds, and in

December 2021, the Treasury issued its first

Sustainability Bond with a maturity of 8 years,

raising EUR 600 mn. In May 2021, Finance Latvia

Association, Financial and Capital Market

Commission, Latvijas Banka, Nasdaq Riga, Latvian

Leasing association and Latvian Insurers

Association have agreed to work together to raise

public awareness of the concept and principles of

sustainability and sustainable finance, as well as

to promote their implementation in business

environment and everyday life.

Financial literacy

Financial literacy is still below the EU

average, despite initiatives to promote

financial education.

Financial literacy is crucial

for promoting retail investor participation in capital

markets but also to familiarise SMEs with

alternatives to bank financing. The Eurobarometer

survey (

105

) shows that only 11% of Latvian

citizens display a high level of financial literacy,

65% a medium level, and the remaining 24% a

low level, compared to the EU average of 18% for

high literacy, 64% for medium, and 18% for low.

This results in a composite financial literacy level

of 36% in 2023, vs. an EU average of 45.5% (see

Table A5.1).

(

104

) Source: AFME CMU Key Performance Indicators, Seventh

Edition, November 2024.

(

105

) Source:

Monitoring the level of financial literacy in the EU -

July 2023 - Eurobarometer survey

kom (2025) 0214 - Ingen titel

ANNEX 6: EFFECTIVE INSTITUTIONAL FRAMEWORK

Latvia’s institutional framework influences

its competitiveness.

Trust in Latvia’s institutions

is around the EU average. Latvia has improved its

legislative process and is working to increase use

of evidence in policymaking. There is scope to

simplify procedures and reduce administrative

burdens. Latvia has a well-educated civil service,

however high turnover rates and lack of digital

skills are concerns. The country is working to

improve the integrity framework. The justice

system continues to perform efficiently.

Graph A6.1:

Trust in justice, regional / local

authorities and in government

0.7

0.6

0.5

0.4

Quality of legislation and regulatory

simplification

Overall performance in developing and

evaluating legislation has improved, getting

close to the EU average

(

108

). Use of regulatory

tools like ex ante impact assessment, public

consultations and reviews of existing regulations is

broadly similar for primary laws and subordinate

regulations. Latvia has more developed impact

assessment and stakeholder engagement than ex

post evaluation, which is also weaker relative to

the EU average. Overall, there is scope to improve

methodology of impact assessments of both

primary and secondary legislation, as well as the

methodology, transparency, oversight and quality

controls of ex post evaluations (Graph A6.2).

Graph A6.2:

Indicators of Regulatory Policy and

Governance (iREG)

4.0

0.3

0.2

0.1

Autumn

Summer

Autumn

Winter

Spring

Winter

Spring

3.5

3.0

2.5

2.0

1.5

1.0

2014 2015

2016

2017

2018

2019 2020 2022

2023

2024

Justice, legal system EU27

Justice, legal system LV

Regional or local public authorities EU27

Regional or local public authorities LV

Government EU27

Government LV

(1) EU27 from 2019; EU28 before

Source:

Standard Eurobarometer surveys

0.5

0.0

Primary laws Subordinate Primary laws Subordinate Primary laws Subordinate

regulations

LV_Stakeholder

engagement

LV_Regulatory Impact

Assessment

LV_Ex-post evaluation of

legislation

Trust in government is around the EU

average, achieving its highest score since

2014.

However, trust in the justice system lags

behind the EU average (Graph A6.1). Aspects which

could

increase public trust in Latvia’s public

administration are lower bureaucracy, and more

transparency about decisions and the use of public

money. Clearer information about procedures and

services and increased user friendliness of the

administration’s digital

services could also improve

citizen’s interactions with Latvia’s

public

administration (

106

). The perceived quality of

government has improved but remains below the

EU average (

107

Methodology

Transparency

2021

Systematic adoption

Oversight and quality control

EU-27

Source:

OECD (2025), Regulatory Policy Outlook 2025 and

Better Regulation across the European Union 2025

(forthcoming).

The recovery and resilience plan focuses on

streamlining

Latvia’s

regulatory

environment, reducing bureaucracy, and

making it easier to do business and innovate.

In 2024, the government approved amendments

to several building regulations (

109

). The

(

108

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

2025. Mid-term assessment. Available at:

link

(

109

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

2028, 15 October 2024,

link

(

106

)

Understanding Europeans’ views on reform needs

- April

2023 - - Eurobarometer survey,

Country Fact Sheet.

(

107

)

Inforegio - European Quality of Government Index

kom (2025) 0214 - Ingen titel

Table A6.1:

Selected indicators on administrative burden reduction and simplification

Ex ante impact assessment of legislation

When developing new legislation, regulators are

required to …

Ex post evaluation of legislation

Is required to consider the consistency of regulations

and address areas of duplication.

Is required to contain an assessment of administrative

burdens.

Is required to contain an assessment of substantive

compliance costs.

Compares the impact of the existing regulation to

alternative options.

Periodic ex post evaluation of existing regulations is

mandatory.

Government uses stock-flow linkage rules when

introducing new regulations (e.g., one-in one-out).

A standing body has published an in-depth review of

specific regulatory areas in the last 3 years.

In the last 5 years, public stocktakes have invited

businesses and citizens to assess the effectiveness,

efficiency, and burdens of legislation.

Identify and assess the impacts of the baseline or

‘do nothing’ option.

Identify and assess the impacts of alternative non-

regulatory options.

Quantify administrative burdens of new

regulations.

Quantify substantial costs of compliance of new

regulations.

Assess macroeconomic costs of new regulations.

Assess the level of compliance.

Identify and assess potential enforcement

mechanisms.

Yes / For all primary laws

For major primary laws

For some primary laws

No / Never

(1) This table presents a subset of iREG indicators focusing on regulatory costs. The indicators refer to primary legislation.

Source:

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

European Union 2025 (forthcoming).

amendments aim to eliminate duplication of data

in mandatory construction documents (

110

Progress was made in leveraging technology to

reduce the administrative burden to citizens and

businesses of complying with tax obligations.

Furthermore, Latvia has planned measures

planned for calculating administrative burdens

using the extended standard cost model. Other

recent reforms promote the use evidence in

policymaking(

111

), citizen participation(

112

), and

transparency. All draft laws and regulations to be

examined by the government can be accessed

online free of charge via the TAP portal (

113

) which

enables citizens to monitor every stage of the

legislative process, from drafting to adoption, and

provide opportunities for public input.

Mechanisms for simplifying regulation can be

further strengthened.

For example, when

(

110

)

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

slogu-buvniecibas-joma?utm_source

(

111

) Ministru kabinets, 2024.

Valsts kancelejas

Analītiskais

dienests

–

praktisks atbalsts datos pamatotas politikas

veidošana.

Available at

link

(

112

)

Ministru kabinets (2024). Noteikumi nr. 639 “Sabiedrības

līdzdalības kārtība attīstības plānošanas procesā”. Rīgā

2024. gada 15. oktobrī (prot. Nr. 44 1. §).

link

(

113

) The TAP portal,

https://tapportals.mk.gov.lv/

developing or evaluating primary legislation, there

is no requirement to quantify or assess

administrative burdens and substantive costs of

compliance of such legislation. Moreover, periodic

ex post evaluation of existing regulations is not

mandatory (table A6.1).

The OECD product market regulation

indicators show that Latvia’s licensing

system is slightly more burdensome than the

EU-27 average and could be further aligned

with best practices.

For example, although the

government keeps an up-to-date online inventory

of all permits and licences required/issued to

businesses by public bodies, there is no

requirement for it to regularly review it and assess

whether such licences and permits are still

required or should be withdrawn. Moreover, most

licences and permits issued/required by public

bodies at any other level of government than

central level have to be periodically renewed (see

also Annex 4). Furthermore, according to a report

monitoring the speeding up permit-granting

procedures for renewable energy and related

infrastructure projects (

114

) there is clearly scope

(

114

) European Commission: Directorate-General for

Energy,

Monitoring the implementation of the Commission

recommendation and guidance on speeding up permit-

granting procedures for renewable energy and related

kom (2025) 0214 - Ingen titel

for further aligning national practices in Latvia

with the guidance to support faster and shorter

procedures for the licensing of renewable energy

projects.

85.4%). While there was little change in overall

performance of digital public services between

2021 and 2023, access to e-health records did

improve (see Table A6.2).

Latvia has a high rate of eID use (70.2%)

compared to the EU average (41.1%).

The

Digital Decade Strategic Roadmap for Latvia until

2030 (

118

)

and Latvia’s recovery and resilience

plan (

119

) include specific measures for improving

the digital skills of students and adults aimed at

overcoming

challenges

for

the

digital

transformation of society and the labour market

including public administration (

120

The country has made progress in digitalising

businesses but still needs to improve digital

capabilities of SMEs

(

121

). To tackle these issues,

Latvia is using funds from its recovery and

resilience plan and from cohesion policy. Key steps

include setting up digital innovation hubs and

providing financial support for SME digitalisation.

By 2026, Latvia plans to assist entities, including

SMEs, through these hubs by issuing 2 000 digital

transformation roadmaps and increase funding for

the adoption of AI and data analytics.

Latvia

developing

the

necessary

infrastructure towards seamless, automated

exchange of authentic documents and data

across the EU.

There are still additional steps to

be taken to become technically ready to connect to

the Once-Only Technical System, part of the EU

Single Digital Gateway (

122

). In 2019, Latvia

notified the eID scheme under the eIDAS

Regulation (

123

). Since legal persons in Latvia are

identified through a natural person, the scheme

may eventually be used for legal persons once

integrations into public services are made. This

(

118

) Digital Decade strategic Roadmap for Latvia 2030

link

(

119

)

Latvia’s RRP supports the digital transition with investments

in the digitalisation of public administration and public

services. The modified plan has further strengthened the

focus on the digital transition, devoting 23% of the available

funds to measures that support digital objectives (up from

21% in the original plan).

link

(

120

)

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

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

roadmap-2030

(

121

) European Commission.

Digital Decade 2024: Country reports

(

122

) European Commission,

Once-Only Technical System

Accelerometer,

Ec.europa.eu.

(

123

) European Commission,

eIDAS Dashboard.

Social dialogue

Latvia has a well-functioning national

tripartite social dialogue, although some

challenges remain regarding representation

and consultation.

The National Council for

Tripartite Cooperation (NTSP) provides the forum

for national tripartite dialogue since 1993. It

brings together representatives of the state

institutions,

with the Employers’ Confederation of

Latvia (LDDK) and the Free Trade Confederation of

Latvia (LBAS). There are several sub-councils in

the NTSP, including for budget, labour affairs,

social protections and healthcare, which work

effectively. Nevertheless, representation, notably

of workers, is limited as there are only two

national level social partners and trade union

density declined to only 11.6% in 2018 according

to the OECD (

115

). Collective bargaining coverage

also continues to decline (27.1% in 2018) (

116

Most negotiations continue to take place at

company level as collective agreements at

industry level remain rare. The ESF+ supports

social dialogue in the 2021–2027 programming

period with around EUR 1,5 million through

capacity building, informative campaigns and

support for collective agreements (

117

Digital public services

The share of digital public services exceeds

the EU average

for both citizens (88.2%

compared to the EU average of 79.4%) and

businesses (87.2% compared to the EU average of

infrastructure projects

–

Final report,

Publications Office of

the European Union, 2025,

link.

(

115

) OECD Data Explorer on Trade union density,

link.

(

116

) OECD Data Explorer on Collective bargaining coverage,

link.

(

117

) For an analysis of the involvement of

Latvia’s

social partners

at national level in the European Semester and the Recovery

and Resilience Facility, see Eurofound (2025),

National-level

social governance of the European Semester and the

Recovery and Resilience Facility.

kom (2025) 0214 - Ingen titel

Table A6.2:

Key Digital Decade targets monitored through the Digital Economy and Society Index

Latvia

2022

Digitalisation of public services

Digital public services for citizens

Score (0 to 100)

EU-27

2024

2023

2022

2024

2023

Digital Decade

target by 2030

EU-27

100

2030

100

2030

100

2030

2021

Digital public services for businesses

Score (0 to 100)

2021

2022

2023

Access to e-health records

Score (0 to 100)

2021

2022

2023

Source:

State of the Digital Decade report 2024

means that Latvian businesses can authenticate

themselves to access public services provided by

other Member States, including those enabled by

the Once-Only Technical System (

124

redeployment to new tasks (

128

). This came amid

efforts to balance public expenditure, including a

freeze on creating new posts at national and local

levels in 2025. Public sector pay increases for

2025 have been capped at 2.6% (

129

Latvia is implementing its 2023-2027 public

administration modernisation plan

(

130

). In

2024, the innovation lab of the State Chancellery

implemented six initiatives under the recovery and

resilience facility (

131

) to drive innovation in

healthcare, justice, bio-region management and

local competitiveness. Moreover, Latvia’s Single

Service Centre became fully operational on

1 January 2025 (

132

). Its aim is to bring together

public service provision under the Central

Resources’ Management System and its self-

service portal for accounting and human resources

management. By 2025, under the recovery and

resilience plan, training is due to be delivered to

16 000 public officials on ethics, anti-corruption

and conflict of interest, and to 20 000 public

officials on customer service, leadership, public

(

128

)

Valsts kanceleja (2024). Valsts pārvaldē samazinās ilgstoši

vakanto amata vietu skaitu. Available at:

link

(accessed

29/12/2024)

(

129

)

Ministru kabinets (2024). Publiskajā pārvaldē 2025. gadā

atlīdzības pieaugumu samazinās līdz 2,6%.

Available

at:

link

(accessed 29/12/2024)

(

130

) In January 2025 the Crises Management Centre was

established under the supervision of the Prime Minister

mandated to monitor and manage civil security risks 24/7.

(

131

)

State Chancellery (2024). Sešus valsts un pašvaldību iestāžu

izaicinājumus šogad risinās Valsts kancelejas Inovācijas

laboratorijā. Available at:

link

(accessed 29/12/2024)

(

132

)

Atveseļošanas fonda plāna Darbības kārtība, par kuru

vienojas Eiropas Komisija un Latvija. Available

at:

link

(accessed 29/12/2024)

Civil service

Latvia continues to have a well-educated

civil service.

The share of public administration

employees with higher education qualifications

(71%) and of those pursuing adult learning (24.9%

points to a relatively high-skilled workforce. Latvia

also has one of the youngest public administration

workforces in the EU with less than 30% of the

civil servants above the age of 49 (

125

). In 2024,

the proportion of women in senior civil service

posts was 58.7%, above the EU-27 average of

46.5% (

126

Staff turnover is a challenge, particularly

among skilled professionals and managers in

public administration.

This impacts institutional

memory, quality and effectiveness of public

policies (

127

). In late 2024, the State Chancellery

launched a ‘vacancy bank’, a virtual pool of posts

unfilled for over 12 months which are available for

(

124

) European Commission,

The Once Only Principle System: A

breakthrough for the EU’s Digital Single Market

(

125

) Eurostat. 2025.

European Union Labour Force Survey.

(

126

)

European Institute for Gender Equality (EIGE), ‘Gender

Statistics Database’, available at:

link

(

127

) OECD (2024),

OECD Economic Surveys: Latvia 2024,

OECD

Publishing, Paris,

https://doi.org/10.1787/dfeae75b-en.

kom (2025) 0214 - Ingen titel

procurement, human resources management and

policy planning and implementation.

Integrity

Businesses consider corruption to be

widespread, despite measures being taken to

mitigate

corruption

risks

public

procurement.

In Latvia, 63% of companies

consider that corruption is widespread (EU average

64%), while only 20% consider that corruption is a

problem when doing business (EU average

36%) (

133

). Moreover, only 23% of companies

believe that people and businesses caught for

bribing a senior official are appropriately punished

(EU average 31%) (

134

). Corruption-related cases

are investigated and prosecuted efficiently,

including as regards various high-level corruption

cases and foreign bribery (

135

). Public procurement

is an area at high risk of corruption in Latvia. 29%

of companies (EU average 27%) think that

corruption has prevented them from winning a

public tender or a public procurement contract in

practice in the last three years (

136

). On 5 October

2023, amendments were adopted to align public

procurement rules with EU legislation. The Latvian

Ministry of Finance also published a handbook for

the Implementation of Risk Management, in order

to increase transparency and integrity in public

procurement (

137

Work is underway in Latvia to adopt

implementing rules on lobbying and to set up

a lobbying register by 2028.

Implementing

rules from the legislation in order to regulate the

promotion of corporate interests and create an

interest representation registry and declaration

system, were delayed and are still under

discussion. The interest representation registry and

declaration system are expected to become fully

operational

1 September 2028.

Their

(

133

) Flash Eurobarometer 543 on businesses’

attitudes towards

corruption in the EU (2024).

(

134

) Ibid.

(

135

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

of Law Report, pp. 12-13.

(

136

)

Flash Eurobarometer 543 on businesses’ attitudes towards

corruption in the EU (2024).

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

of Law Report, p. 17.

137

implementation will help increase transparency

and ensure a level playing field for companies. The

need to introduce sanctions for breaches of the

law will be examined once the system is up and

running.

Justice

The justice system is continuing to perform

efficiently.

The length of court proceedings and

number of pending cases was among the lowest in

the EU. The disposition time in civil and

commercial cases at first instance courts has

decreased slightly, from 209 days in 2022 to

204 days in 2023. The disposition time for

administrative cases at first instance increased

slightly, from 200 days in 2022 to 205 days in

2023. The quality of the justice system is

considered to be good overall. The level of

digitalisation of the justice system remains high,

with digital technology being widely allowed in

court proceedings and well used in courts and

prosecution. In 2023, national stakeholders rated

positively the

usability of the judiciary’s ICT

systems. As regards judicial independence, no

systemic deficiencies have been reported. (

138

)

(

138

) For more detailed analysis of the performance of the justice

system in Latvia, see the upcoming 2025 EU Justice

Scoreboard and the 2024 Rule of Law Report.

kom (2025) 0214 - Ingen titel

SUSTAINABILITY

ANNEX 7: CLEAN INDUSTRY AND CLIMATE MITIGATION

Latvia faces significant challenges regarding

its clean industry transition and climate

mitigation:

Its net-zero manufacturing capacity is

limited and lacks a strong industrial policy

framework, while the adoption of electric vehicles

is hindered by insufficient charging infrastructure.

Addressing greenhouse gas emissions from

buildings appears particularly exigent. The

dependence on imported critical raw materials

needs diversification, and Latvia's energy

efficiency and circular material use rate lag behind

EU averages. This annex reviews the areas in need

of urgent attention in Latvia’s clean industry

transition and climate mitigation, looking at

different dimensions.

Despite the growing interest in electric

vehicles (EVs), their market share remains

comparatively low, with only 6.4% of newly

registered passenger cars being battery

electric vehicles (BEVs) in 2024.

This figure is

significantly lower than the EU average of 14.5%

(

140

). Moreover, the share of BEVs in the passenger

car fleet was 0.7% in 2024 (EU average: 2.2%).

The limited adoption of EVs in Latvia can partly be

attributed to the country's insufficient charging

infrastructure. Latvia has one of the lowest

charging capacities in the EU, both per kilometre of

road and per inhabitant. Although the number of

publicly accessible charging points has doubled

since 2023, the absolute number remains very low

(1 for every 5 cars, or 1 on every 1 300 km of

highway). This lack of charging infrastructure

serves as a significant barrier to the widespread

adoption of EVs(

141

Strategic autonomy and technology

for the green transition

Net zero industry

Latvia’s net-zero

manufacturing capacity

remains very modest, focusing on wind and

hydrogen (

139

The main relevant production

facility is Naco Technologies’ plant in Riga, which

produces nano coatings for electrolysers. Latvia

holds a competitive edge in the production and

export of grid technology components, mainly

switchgears, circuit breakers and electronic control

panels. Additionally, Latvian industry is competitive

when it comes to the production and export of

steel structures are used in wind turbines. The

absence of industrial policy and a dedicated

regulatory framework for net-zero industry means

there are few signals to support the scale up of

manufacturing in net-zero industry.

Given the dominance of road transport in

Latvia and the country's low EV market

share, there is considerable potential to

reduce greenhouse gas emissions in the

sector.

In Latvia, most transport goes via road,

with cars accounting for the largest share of both

passenger transport (74.8%) and freight traffic

(84%).

(

139

) European Commission: Directorate-General for Energy, The

net-zero manufacturing industry landscape across the

Member 2025,

https://data.europa.eu/doi/10.2833/2181110

Critical raw materials

When it comes to critical raw materials,

market operators are dependent on imports,

but diversification is high.

Latvian industry

imports the vast majority of raw materials it needs

as production inputs. In 2023, roughly 28.6% of

direct material input in the economy was imported

(EU average of 22%)(

142

). Especially, coking coal,

copper, titanium and borates are imported, mainly

from non-EU countries in Europe and Asia. Major

trade partners are Turkey, Kazakhstan as well as

Russia. Especially the latter remains a threat to

Latvia’s economic security, as Russia is its sole

supplier of titanium(

143

). Here, the Latvian

economy can benefit from further diversification.

Nevertheless, Latvia’s import concentration index

is comparably low with 0.17 (EU average 0.22).

(

140

)

Statistics | Eurostat

(

141

)

Latvia | European Alternative Fuels Observatory.

(

142

)

Statistics | Eurostat.

(

143

)

RMIS - Country Profiles.

kom (2025) 0214 - Ingen titel

Climate mitigation

Industry decarbonisation

Latvia’s manufacturing industry is making

progress in reducing its greenhouse gas

emissions.

With 11%, industry’s share of total

greenhouse gas emissions in Latvia is among the

lowest in the EU (

144

). In 2022, industrial

production in Latvia emitted 360 g CO2eq of

greenhouse gases per euro of gross value added

(GVA), one third higher than the EU average (270

g). Between 2017 and 2022, the emissions

intensity of Latvia’s industry

declined by 11%, less

than in the EU overall (20%). A major part of

emissions in Latvia’s manufacturing, 59% in 2023,

is related to processes and product use, and only

41% relate to energy use; in the EU as a whole,

the shares are the opposite, 57 to 43.

Latvia’s

manufacturing sector is benefitting

from cleaner energy supplies, but its energy

efficiency lags behind the EU, and its

process-related emissions have increased.

Between 2017 and 2022, the energy-related

emissions intensity of Latvia’s manufacturing

industry declined by 14% since 2017, slightly less

than in the EU overall (16%) (

145

). In the same

period, the share of electricity and renewables in

final energy consumption in manufacturing

increased by 8 percentage points, to 74% in 2022,

the third highest share in the EU. In parallel, the

energy intensity of manufacturing in Latvia has

(

144

)

In 2023. Manufacturing includes all divisions of the “C”

section of the NACE Rev. 2 statistical classification of

economic activities. In the remainder of this section, unless

indicated otherwise, data on manufacturing refer to the

divisions of the NACE section C excluding division C19

(manufacture of coke and refined petroleum products), and

the year 2022. The source of all data in this section is

Eurostat; data following the UNFCCC Common Reporting

Framework (CRF) are from the European Environment Agency

(EEA), republished by Eurostat.

(

145

) For the GHG emissions intensity of GVA related to energy use

and industrial processes and product use respectively, GHG

emissions are from inventory data in line with the UNFCCC

Common Reporting Format (CRF), notably referring to the

source sectors CRF1.A.2

–

fuel combustion in manufacturing

industries and construction and CRF2

–

industrial processes

and product use. The CRF1.A.2 data broadly correspond to

the NACE C and E sectors, excluding C-19. GVA data (in the

denominator for both intensities) are aligned with this

sectoral coverage. Therefore, they are not fully consistent

with the data referred to in other part of this section.

slightly increased, to 2.9 GWh per euro of GVA, and

it remains among the highest in the EU. Between

2017 and 2022, the process and product

use-related emissions intensity of Latvian

manufacturing increased by 7%, in contrast with a

decline by 23% in the EU overall.

Graph A7.1:

GHG emission intensity of

manufacturing and energy-intensive sectors,

2022

4.5

3.5

KG CO

eq / €

2.5

1.5

0.5

C-C19

C17

Latvia

C20

EU-27

C23

C24

Source:

Eurostat.

Among Latvia’s energy-intensive

industries,

the manufacture of non-metallic mineral

products

shows

elevated

greenhouse

emissions

intensity.

Energy-intensive

industries (

146

) account for 11% of

Latvia’s

manufacturing gross value added (2022). Among

these, the manufacture of non-metallic mineral

products had a relatively high emissions intensity

of production, 3.9 kg CO2eq/€ of GVA, above the

EU value of 2.2 kg. In the other sectors, emissions

intensity is comparatively low. The manufacture of

non-metallic

minerals dominates Latvia’s energy-

-intensive industries together, providing 6% of

GVA in the manufacturing sector. After a peak in

2022, production in energy-intensive sectors has

declined in 2023 more than in manufacturing

overall (see graph A7.2).

Latvia has put in place some specific policies

to support the decarbonisation of industries.

Examples include its Green Industry Fund, which

helps companies to adopt energy-efficient

technologies, renewable energy sources and

(

146

) Notably, the manufacture of paper and paper products

(NACE division C17), of chemicals and chemical products

(C20), “other” non-metallic

mineral products (C23; this

division includes manufacturing activities related to a single

substance of mineral origin, such as glass, ceramic products,

tiles, and cement and plaster), and basic metals (C24). To

date, these industries are energy-intensive

–

i.e. consuming

much energy both on site and/or in the form of purchased

electricity

–

and greenhouse gas emissions intensive, in

various combinations.

kom (2025) 0214 - Ingen titel

sustainable materials (

147

). Further efforts are

needed to accelerate decarbonisation.

Graph A7.2:

Manufacturing industry production:

total and selected sectors, index (2021 = 100),

2017-2023

110

105

100

Swift action on decarbonising buildings

appears particularly needed in Latvia.

Between 2005 and 2023, greenhouse gas

emissions from buildings decreased by 10% in

Latvia, much less than by the 33% seen in the EU

overall. Speeding up climate mitigation in this

sector would help protect households and

businesses in Latvia from the impact of the

forthcoming carbon price.

Graph A7.3:

Greenhouse gas emissions in the

effort sharing sectors, 2005 and 2023

MtCO2e

2017

2018

2019

2020

2021

2022

2023

Manufacturing

Manufacture of paper and paper products

Manufacture of chemicals and chemical products

Manufacture of other non-metallic mineral products

Source:

Eurostat

2005

Domestic transport (excl. aviation)

Agriculture

Waste

2023

Buildings (under ESR)

Small industry

Reduction of emissions in the effort sharing

sectors

Latvia is projected to reach its 2030 effort

sharing target if it adopts and implements

the planned additional climate mitigation

measures (

148

In 2023, GHG

from Latvia’s effort

sharing sectors are expected to have been 4%

below those of 2005. By 2030, current policies are

projected to reduce them by 12.7% relative to

2005. Additional

policies considered in Latvia’s

final updated NECP are projected to entail

reductions by a further 7.8 percentage points.

Hence Latvia is projected to overachieve its effort

sharing target, -17%, by 3.5 percentage points (

149

)

once those measures are adopted and

implemented.

Source:

European Environment Agency

Sustainable industry

Circular economy transition

Latvia faces significant challenges in

transitioning to a circular economy, requiring

urgent action to boost its circular material

use rate, fully implement its policy

framework and adopt upstream circularity

measures.

In 2023, Latvia’s circular material use

rate (5%) was less than half the EU average of

11.8% and far behind the EU leaders. Resource

productivity, too, was well below the EU average in

2023, with EUR 1.26 per kg of material consumed

vs. EUR 2.23 per kg as the EU average. Latvia’s

resource productivity has been slightly improving

since 2020. The 2021-2027

action plan ‘Towards

a Circular Economy’

(

150

) adopted in 2020 makes a

positive step towards circularity and shifting

consumption and production patterns. However, it

(

150

) Cabinet Regulations No. 489,

Par Rīcības plānu pārejai uz

aprites ekonomiku 2020.-2027. Gadam,

Link.

(

147

) Notably under the EEA-Norvegian grants project, see

EEA and

Norwegian financial instruments.

(

148

)

The national greenhouse gas emission reduction target is set

out in Regulation (EU) 2023/857 (the Effort Sharing

Regulation). It applies jointly to buildings (heating and

cooling); road transport, agriculture; waste; and small industry

(known as the effort sharing sectors).

approximated inventory data. The final data will be

established in 2027 after a comprehensive review.

Projections

on the impact of current policies (“with existing

measures”, WEM) and additional policies (“with additional

measures”, WAM) as per Latvia’s final updated NECP.

(

149

)

The effort sharing emissions for 2023 are based on

kom (2025) 0214 - Ingen titel

remains quite general lacking quantified concrete

actions and targets and clear strategies to ensure

these initiatives extend beyond niche activities and

are effectively integrated into the broader

economy and society. Despite progress with

initiatives like a beverage packaging deposit

system and updates to green public procurement,

weaknesses persist in separate collection, notably

bio-waste collection, municipal waste recycling and

high reliance on landfilling. There is a need to raise

public awareness about the circular economy and

promote the use of reusable, environmentally

friendly materials in production. This includes

adopting "safe by design" technological solutions,

implementing eco-design principles, developing

innovative circular business models with eco-

efficient technologies and eco-innovations, and

promoting industrial symbiosis where industries

and businesses exchange waste materials, energy

or by-products to improve their resource efficiency

and reduce environmental impact.

Latvia is struggling with waste management

and has a significantly higher material

footprint per capita compared to the EU

average.

Although with 464 kg in 2022, Latvia

produces less waste per capita than the EU

average, 513 kg, waste generation increased by

14% since 2018. With a recycling rate of 50.8%,

Latvia has improved its municipal waste recycling,

but it is at risk of falling short of the 2025 reuse

and recycling targets and the 2035 landfill

reduction goal of 10%, with 44% of municipal

waste still being landfilled. In 2022, Latvia’s

recycling rate for plastic packaging of 47% was

above the EU average of 41%. In 2022, 87% of

construction and demolition waste was recycled,

excluding backfilling, above the EU average of

79.8%. At the same time, the material footprint of

19.6 tonnes per capita is considerably higher that

the EU average of 14 tonnes per person. In 2024,

Latvia introduced bio-waste collection, providing

residents with separate bio-waste containers, but

not yet sufficiently, and local governments

continue to work on this issue. Additionally, as of

July 2024, Latvia introduced an extended producer

responsibility system for new and used textile

products (

151

), thus contributing to their recycling

and

promoting

sustainable

practices.

Current investment in the circularity

transition has been insufficient.

It is

estimated (

152

) that Latvia will need additional

investment worth at least EUR 67 million per year

for the circular economy transition, including

waste management. Of the circular economy gap,

EUR 15 million relates to recent initiatives, such as

eco-design for sustainable products, packaging

and packaging waste, labelling and digital tools,

critical raw materials recycling, as well as

measures proposed under the amended Waste

Framework Directive. The remainder (EUR 43

million) covers further investment needs to unlock

Latvia’s circular economy potential.

Zero pollution in industry

Air emissions intensity from industry in

Latvia is below the EU average and Latvia

meets its emissions reduction commitments

for all air pollutants except ammonia.

Currently, the emissions reduction commitments

under the 2020-2029 National Air Pollution

Control Programme are not fully met, while the

commitments for the year 2030 are projected to

be all met. In 2024, Latvia met its emissions

reduction commitments for air pollutants NO

non-methane volatile organic compounds, sulphur

dioxide and PM

2.5

, but did not meet the ammonia

reduction commitment. The main reason for not

meeting ammonia limit values can be attributed to

agricultural practices, particularly pollution from

livestock farming and the use of fertilisers.

(

151

) Cabinet Regulations No. 359 dd.,

Noteikumi par ražotāja

paplašinātās atbildības sistēmas izveidi un piemērošanu

tekstilizstrādājumiem,

Link.

(

152

)European

Commission, DG Environment,

Environmental

investment needs & gaps assessment programme,

2025

update. Expressed in 2022 prices.

kom (2025) 0214 - Ingen titel

Table A7.1:

Key clean industry and climate mitigation indicators: Latvia

Strategic autonomy and technology for the green transition

Net zero industry

Operational manufacturing capacity 2023

- Solar PV (c: cell, w: wafer, m: module), MW

- Wind (b: blade, t: turbine, n: nacelle), MW

Automotive industry transformation

Motorisation rate (passenger cars per 1000 inhabitants), %

New zero-emission vehicles, electricity motor, %

Critical raw materials

Material import dependency, %

Climate mitigation

Industry decarbonisation

GHG emissions intensity of manufacturing production, kg/€

Share of energy-related emissions in industrial GHG emissions

Energy-related GHG emissions intensity of manufacturing

and construction, kg/€

Share of electricity and renewables in final energy consumption

in manufacturing, %

Energy intensity of manufacturing, GWh/€

Share of energy-intensive industries in manufacturing production

GHG emissions intensity of production in sector [...], kg/€

- paper and paper products (NACE C-17)

- chemicals and chemical products (NACE C20)

- other non-metallic mineral products (NACE C23)

- basic metals (NACE C24)

Reduction of effort sharing emissions

GHG emission reductions relative to base year, %

- domestic road transport

- buildings

2005

Effort sharing: GHG emissions, Mt; target, gap, %

Sustainable industry

Circular economy transition

Material footprint, tonnes per person

Circular material use rate, %

Resource productivity, €/kg

Zero pollution industry

Years of life lost due to PM2.5, per 100,000 inhabitants

Air pollution damage cost intensity, per thousand € of GVA

Water pollution intensity, kg weighted by human factors per bn € GVA

808

567

457

720

9.6

0.1

645

702

571

27.5

0.9

2018

17.2

4.7

1.0

8.6

Latvia

2019

17.3

4.8

1.1

2020

17.0

5.2

1.1

2021

18.7

5.0

1.1

2022

19.3

4.5

1.3

2023

19.6

5.0

1.3

0.17

0.56

3.40

1.34

0.15

0.43

4.06

0.18

2018

7.7

-6.7

0.13

0.36

3.87

0.08

2019

7.1

-8.3

0.10

0.24

4.03

0.06

2020

0.0

-7.6

0.14

0.23

3.27

0.13

2021

1.0

3.8

-4.2

2021

8.7

2017

0.41

52.6

143.2

65.4

2.86

2018

0.44

53.5

149.2

64.0

3.03

Latvia

EU-27

2017

356

0.24

2017

2018

369

0.45

2018

32.9

2019

381

0.63

2019

31.5

- Electrolyzer, MW

- battery, MWh

2020

390

2.56

2020

32.0

2021

404

3.28

2021

31.4

2022

409

6.40

2022

31.7

2023

418

8.83

2023

28.6

Trend

2018

539

1.03

2018

24.2

2021

561

8.96

2021

22.6

Latvia

2019

0.42

54.1

131.8

66.7

2.85

2020

0.39

56.8

130.7

68.7

2.88

2021

0.35

56.8

127.4

69.8

2.69

2022

0.36

57.2

123.3

73.6

2.89

10.7

0.14

0.20

3.89

0.08

2022

-1.9

1.0

-6.0

2022

8.4

2023

-4.0

0.1

-10.1

2023

8.3

2023

58.8

72.8

2.93

EU-27

2017

0.34

44.8

158.4

43.3

1.29

2022

0.27

42.5

132.9

44.2

1.09

7.3

0.73

1.25

2.53

2.79

2018

1.4

21.4

0.68

1.26

2.24

3.49

2023

5.2

32.9

WAM

3.5

Target

-17.0

Trend

WEM

-4.3

EU-27

2018

14.7

11.6

2.1

2021

15.0

11.1

2.3

Source:

Net zero industry:

European Commission:

The net-zero manufacturing industry landscape across Member States: final

report,

2025.

Automotive industry transformation:

Eurostat.

Critical raw materials:

Eurostat.

Climate mitigation:

See

footnotes in the "climate mitigation" section; reduction of effort sharing emissions:

EEA greenhouse gases data viewer;

European

Commission,

Climate Action Progress Report,

2024.

Sustainable industry:

Years of life lost due to PM2.5: Eurostat and EEA,

Harm to human health from air pollution in Europe: burden of disease status,

2024. Air pollution damage: EEA,

EU large industry

air pollution damage costs intensity,

2024. Emissions covered: As, benzene, Cd, Cr, Hg, NH3, Ni, NMVOC, NOX, Pb, dioxins, PM10,

PAH, SOX. Water pollution intensity: EEA,

EU large industry water pollution intensity,

2024. Releases into water covered from

cadmium, lead, mercury, nickel. Other indicators: Eurostat.

kom (2025) 0214 - Ingen titel

ANNEX 8: AFFORDABLE ENERGY TRANSITION

This annex outlines the progress made and

the ongoing challenges faced in enhancing

energy competitiveness and affordability,

while advancing the transition to net zero.

examines the measures and targets proposed in

the final updated national energy and climate

plans (NECPs) for 2030.

Latvia is progressing towards clean energy

production,

building

its

already

extensively decarbonised electricity mix.

The

country has progressed notably in solar power

development

and

has

completed

the

synchronisation project. Challenges remain

regarding high energy prices, grid capacity and

permitting length.

an EU average of 15.4%. The same trend is

observed in gas prices for non-household

consumers, with a taxes and levies component

representing only 2.3% of the total price, 9.3pp

below the EU-average for this component,

supporting a price lower to the EU-average by

7.7%.

Graph A8.2:

Monthly average day-ahead wholesale

electricity prices and European benchmark

natural gas prices (Dutch TTF)

Energy prices and costs

Graph A8.1:

Retail energy price components for

household and non-household consumers, 2024

(i) the Title Transfer Facility (TTF) is a virtual trading point for

natural gas in the Netherlands. It serves as the primary

benchmark for European natural gas prices.

(ii) Baltics and CWE respectively provide average prices in the

Baltic market (Estonia, Latvia, and Lithuania) and central-

western European market (Belgium, France, Germany,

Luxembourg, the Netherlands, and Austria).

Source:

S&P Platts and ENTSO-E

(i) For household consumers, consumption band is DC for

electricity and D2 for gas. Taxes and levies are shown

including VAT.

(ii) For non-household consumers, consumption band is ID for

electricity and I4 for gas. Taxes and levies are shown

excluding VAT and recoverable charges, as these are typically

recovered by businesses.

Source:

Eurostat

Latvian retail energy prices decreased in

2024, both for household and non-household

consumers, and remained below EU-average

levels.

Prices for household consumers decreased

by 14% for electricity and 32% for gas,

respectively lower to the EU average by 10% and

28%. Electricity prices for non-household

consumers were 35% below the EU average and

supported by a low taxes and levies component

amounting to 1.4% of the total price, compared to

With an average of 87.43 EUR/MWh in 2024

(

153

), on a par with the other Baltic states,

Latvia faced wholesale electricity prices

above the EU average (84.7 EUR/MWh). While

prices in Latvia declined early in the year

amid falling natural gas costs, they surged

during the spring/summer, diverging from the

levels registered in Central Western

European (CWE) markets.

Prolonged and

warmer summer heatwaves in the region led to

higher electricity consumption (+5% in June-

August 2024 vs same period in 2023), while a

strained net importing position and limited non-

fossil flexibility exacerbated the supply-demand

gap. This gap was mainly covered by increased

hydro output and costly natural gas-fired

generation (respectively +45% (

154

) and +13% in

June-August 2024 vs same period in 2023),

ramping up especially during peak demand hours.

(

153

) Fraunhofer (ENTSO-E data).

(

154

) ENTSO-E.

kom (2025) 0214 - Ingen titel

Consequently, and more frequently in 2023, these

conditions drove concentrated price spikes in the

evening hours (18h-21h), when solar output

declined, and demand remained high. On the other

hand, average daytime hourly prices throughout

the year were lower compared to 2023, likely

owing to the penetration of newly installed solar

power in Latvia, which generated 0.4 TWh in 2024,

as well as the uptake of solar output in both

Estonia and Lithuania (+20% and +103% in 2024)

(

155

). Prices in the Baltics then stabilised in the

winter, supported by stronger wind generation

compared to 2023(

156

), particularly from Lithuania

(

157

), while Central Western European markets

faced strong price spikes due to considerable

fluctuations in the generation of low renewables.

requirement, with reductions only occurring during

maintenance of individual direct current links. The

synchronisation, as well as the planned

reinforcements of the national grid, will make it

possible to boost the country’s cross-border

trade

capacity.

Latvia’s energy infrastructure (generation,

distribution, transmission) permitting system

involves a structured and integrated

approach throughout the process.

Latvia has

recently dedicated and set up a one-stop-shop for

energy infrastructure permitting. However, the

permitting procedure is not subject to any set

maximum time limits and could be significantly

delayed by the environmental impact assessment.

The connection of new large renewable

generation facilities remains blocked due to

virtual overcapacity of the grid.

The Latvian

electricity

transmission

system

operator

Augstsprieguma Tīkls has refrained from issuing

new grid connection permits since July 2023.

Under the REPowerEU chapter of its recovery and

resilience plan, Latvia set out to prepare a

regulatory framework which would make it

possible for existing electricity networks to be used

more effectively in order to support the connection

of additional renewable generation facilities.

Moreover, Latvia committed to realising significant

investments to upgrade the capacity and flexibility

of its electricity grid. Latvia is also about to adopt

its electricity market law, in particular to address

grid overbooking.

Latvia is taking steps to support non-fossil

flexibility,

including promoting electricity storage

and expanding renewable energy capacities

through the deployment of wind and solar power.

Despite significant regulatory action taken in

the areas of self-consumption and energy

communities, improvements in the legal

framework governing demand-response and

storage would be beneficial.

Rules for

aggregation would be useful to allow for demand-

side response (DSR) and storage to participate in

day-ahead and intraday markets, as well as

ancillary services. On the other hand, Latvia took

significant regulatory steps in the areas of self-

consumption and electricity sharing in 2024, by

amending the Electricity Market Law and the

norms on the trade in and use of electricity.

Additional steps were also taken in the area of

energy communities, through the adoption of the

Flexibility and electricity grids

To strengthen the resilience of the electricity

system, the Baltic states have successfully,

as of 9 February 2025, connected to the

Central Europe synchronous area and

desynchronised from the BRELL system.

addition to the support received under the

Connecting Europe Facility (CEF) for Energy, the

synchronisation support activities are also

supported under the Latvian recovery and

resilience plan. Latvia is expected to carry out

some major grid reinforcements, including the

refurbishment of the existing electricity

interconnection between Latvia and Estonia in the

coming years. Furthermore, plans for 2040 include

the implementation of a Latvia-Sweden and a

Baltic-German electricity interconnection project.

Latvia is part of the Baltic (

158

) capacity calculation

region (CCR). Member States should ensure that a

minimum of 70% of technical cross-border

capacity is available for trading. The general trend

in this CCR is that direct current bidding zone

borders generally meet the 70% capacity

(

155

) Fraunhofer (ENTSO-E data).

(

156

)

In November-December 2024, electricity generation

from wind power amounted to 0.07 TWh in Latvia (+73% vs

same period in 2023), 0.37 TWh in Estonia (+210%) and 0.8

TWh in Lithuania (+53%).

(

157

)

In November-December

2024, Latvia’s net imports

increased by +195% compared to the same period in 2023, due

to higher imports from Lithuania.

(

158

)

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.

kom (2025) 0214 - Ingen titel

Regulation on rules for the registration and

operation of energy communities. These reform

aspects were carried out as part of the

‘Transforming the Energy Sector’ reform package

of Latvia’s recovery and resilience plan. Latvia has

also launched the first small-scale demonstration

projects for energy communities within the

municipality of Marupe (

159

Additional efforts would be beneficial

empower consumers to actively participate

in the energy market.

In Latvia

–

while access to

dynamic-price contracts is ensured

–

the share of

fixed-price contracts for electricity held by

households increased from about 65% in 2022 to

about 85% in 2023 (

160

). Only 15% of households

had a dynamic-price contract in accordance with

Directive (EU) 2019/944. The share of dynamic-

price contracts in the meaning of the Directive

remains significantly lower than the share of

fixed-price electricity contracts among household

customers. This increase of fixed-price contracts

for households of about 20 pps compared to 2022

may be correlated to the share of renewable

energy in the different national wholesale

electricity markets (approx. 8% in Latvia) (

161

Switching rates in electricity contracts decreased

slightly from around 6% to about 4% for

household customers and from around 29% to

about 27% for non-household customers in

2023(

162

). The coverage of households with smart

meters increased slightly from 98% to 99%

compared to 2022(

163

In 2023, electricity accounted for 14.3% of

Latvia’s

final

energy

consumption,

considerably below the EU average of 22.9%,

and this share has remained largely stagnant

in the last decade (

164

When it comes to

households, electricity accounts for 13.2% of final

energy consumption, while in industry it represents

(

159

)

https://www.interregeurope.eu/good-practices/first-energy-

communities-in-latvia-small-scale-demonstration-projects-

at-marupe-municipality

(

160

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

cations/ACER-CEER_2024_MMR_Retail.pdf

(

161

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

lications/ACER-CEER_2024_MMR_Retail.pdf

( ) Idem

162

16.3% (see also Annex 9). For the transport sector,

this share remains negligible at 0.9%. Further

progress in electrification across sectors is

required for cost effectively decarbonising the

economy and bringing the benefits of affordable

renewable generation to consumers.

Renewables and long-term contracts

Renewable sources in Latvia represented

78% of electricity generation over 2024,

compared to 47% in the EU overall (

165

The total renewable energy capacity in

Latvia in 2024 stood at 2312 MW, up 6.8%

from 2023. Latvia increased its long-term

ambition for deployment of renewable

energy.

In other words, it increased its target

contribution for renewable energy to 61% for

2030 (share of gross final energy consumption) in

its final updated national energy and climate plan

(up from the 57% in the draft NECP), which is in

line with the level based on the Governance

Regulation. It is important to ensure that efforts

across sectors are coordinated in order to achieve

the more ambitious goals for 2030 and implement

the requirements of the revised Renewable Energy

Directive, which is due to be transposed by May

2025.

Graph A8.3:

Latvia's installed renewable capacity

(left) and electricity generation mix (right)

“Other” includes renewable municipal waste, solid biofuels,

liquid biofuels, and biogas.

Source:

IRENA, Ember

(

163

) Idem

(

164

)CAGR (compound annual growth rate) of -0.6% between

2013 and 2023 and minimum/maximum share of 14.2% and

15.1%, respectively.

Some efforts have been taken in recent

years to accelerate the deployment of solar

and wind energy.

In 2024, Latvia recorded an

steep increase in the installed capacity for solar

(

165

) Yearly electricity data, Ember.

kom (2025) 0214 - Ingen titel

(+46%, from 319 MW to 466MW) but not in wind

power (128 MW). However, these capacities still

remain significantly below the levels installed in

Estonia and Lithuania. Transport is an area where

considerable efforts are still needed given the low

level of renewables uptake and high greenhouse

gas emissions intensity in this sector. The new

Transport Energy Law, which still awaits its

adoption in 2025, would pave the way for the

action needed to decarbonise the sector.

On permitting, the Latvian framework is

moderately aligned with the Commission’s

Recommendation.

The government introduced

legislation enabling a one-stop shop to centrally

streamline renewable energy installations. This

includes reducing the number of institutions

involved in permit-granting, launching cross-border

cooperation with neighbouring countries, and

revisiting exclusion zone regulations to improve

land access for renewable energy projects.

Implementation remains to be seen, while

additionally, there is room for further

improvement to shorten the permit-granting

procedure for renewable energy sources, especially

for larger onshore wind and solar installations.

This can be achieved, for instance, through

simplified procedures for energy communities as

well as authorities jointly respecting deadlines and

extensions, and taking into consideration the

guidance on speeding up permit-granting

procedures.

energy efficiency obligation scheme to

achieve the targets.

However, the information in

the Latvian final updated NECP is incomplete,

making it impossible possible to assess the

adequacy of the planned measures against the

achievement of the required amount of cumulative

end-use energy savings by 2030. Furthermore,

Latvia has not notified the Commission of its

comprehensive assessment of heating and cooling

identifying the potential for the application of

high-efficiency cogeneration and efficient district

heating and cooling as required by Article 25(1) of

Directive (EU) 2023/1791.

Latvia has the potential to make more

energy efficiency improvements, namely

through

leveraging

additional

private

funding.

Latvia’s national financing framework

mobilising investments in energy efficiency is

mostly composed of grants and different financial

instruments, including in the form of technical

assistance and guarantees. These schemes largely

target the building sector, covering all main

segments such as commercial, public and

residential. For instance, in 2024 Latvia continued

to implement not only the investment schemes

supporting the refurbishment of municipal and

educational buildings, but also the grant schemes

promoting energy efficiency improvements and

the installation of renewable electricity generation

in private residential buildings. Most of the energy

efficiency schemes in the country are (co)financed

by the Recovery and Resilience Facility and by EU

cohesion funds. Additional private funding could be

leveraged, in particular by deploying dedicated

financial instruments for energy efficiency and

supporting the development of the energy services

sector as a key market-enabler for energy

efficiency improvements.

Despite the progress made in building

renovations, additional efforts would be

needed for Latvia to achieve its goals set out

in the long-term renovation strategy.

Latvia’s

efforts in the residential sector to achieve a

meaningful contribution to its 2030 reduction

target for energy consumption by buildings are on

the right track, as residential final energy

consumption fell by around 13% in 2022

compared to 2018. Latvia has, for example,

introduced regulatory adjustment with a view to

facilitating energy efficiency renovations in multi-

apartment buildings. However, greater efforts will

be needed to implement the national long-term

renovation strategy, i.e. achieve a reduction of

Energy efficiency

In 2023, there was a slowdown in the energy

efficiency gains achieved in Latvia.

In 2023,

primary energy consumption (PEC) decreased by a

mere 0.1% to 4.27 Mtoe, while final energy

consumption (FEC) decreased only by 0.8% to 3.9

Mtoe. Compared to 2022, FEC increased in

transport by 2.4% and in industry by 1.6%, while it

decreased in residential by 3.3% and in services by

5.4%. According to the recast Energy Efficiency

Directive, Latvia is encouraged to reach a PEC of

3.8 Mtoe and an FEC of 3.46 Mtoe by 2030. In its

NECP, Latvia aims for a slightly higher target, with

3.85 Mtoe for FEC.

In implementing the energy savings

obligation for the period 2021-2030, Latvia

has chosen alternative measures to the

kom (2025) 0214 - Ingen titel

23% by 2030.

Latvia’s long-term

renovation

strategy is to achieve the renovation of 30% of

multi-apartment buildings by 2030. To facilitate

this, a new support programme worth EUR 171

million will be available in 2025 to implement

energy efficiency measures in multi-apartment

residential buildings, as well as EUR 147 million of

support from the ERDF. In 2022, heating and

cooling represented 83% of the country’s

residential final energy consumption. There are

approximately 400 000 households

–

slightly

below half of total households

–

using gas to heat

their homes, while the heat pump market remains

limited.

average of 0.49%.

Tax measures accounted for

81% of this volume, while the remaining share

were income/price support measures. However,

Latvia’s 2023 Effective Carbon Rate

(

171

) averaged

EUR 62.15 per tonne of CO₂,

below the EU

weighted mean of EUR 84.80(

172

Security of supply and diversification

Latvia has made significant efforts to

diversify energy imports, notably by fully

cutting its dependence on Russian energy,

natural gas, petrol and electricity. However,

Latvia’s energy mix saw little change in 2023

compared to 2022, with fossil fuels still

making up more than half of the country’s

energy consumption.

Oil accounted for 36.8%

and natural gas 15.9% of gross inland

consumption(

166

), while renewables (and biofuels)

maintained a considerable share (45.8)%(

167

Fossil fuel subsidies

In 2023, environmentally harmful (

168

) fossil

fuel subsidies without a planned phase-out

before 2030 represented 0.32%(

169

) of

Latvia’s GDP(

170

), below the EU weighted

(

166

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

focusing on primary energy sources

(

167

) Gross inland consumption (Eurostat).

(

168

) Direct fossil fuel subsidies that incentivise maintaining or

increasing in the availability of fossil fuels and/or use of

fossil fuels

(

169

) Numerator is based on volumes disclosed by the Latvian

authorities via the 2025 NECPR reporting. For all Member

States, it includes public R&D expenditures for fossil fuels as

reported by the IEA (Energy Technology RD&D Budgets) and

excludes, for methodological consistency, excise tax

exemption on kerosene consumed in intra-EU27 air traffic.

(

170

) 2023 Gross Domestic Product at market prices, Eurostat

(

171

) The Effective Carbon Rate is the sum of carbon taxes, ETS

permit prices and fuel excise taxes, representing the

aggregate effective carbon rate paid on emissions.

(

172

) OECD (2024), Pricing Greenhouse Gas Emissions 2024

kom (2025) 0214 - Ingen titel

Table A8.1:

Key Energy Indicators

Latvia

2021

Household consumer - Electricity retail price (EUR/KWh)

Energy & supply [%]

Network costs

Taxes and levies including VAT

VAT

Household consumer - Gas retail price

Energy & supply

Network costs

Taxes and levies including VAT

VAT

Non-household consumer - Electricity retail price

Energy & supply

Network costs

Taxes and levies excluding VAT

Non-household consumer - Gas retail price

Energy & supply

Network costs

Taxes and levies excluding VAT

Wholesale electrity price (EUR/MWh)

Dutch TTF (EUR/MWh)

0.1628

44.5%

29.2%

26.3%

17.4%

0.0351

47.0%

30.8%

22.2%

17.4%

0.1052

52.9%

19.2%

12.8%

0.0234

64.4%

14.9%

4.7%

88.6

n/a

2023

0.3040

58.7%

23.8%

17.5%

17.4%

0.1288

70.7%

10.3%

18.9%

17.4%

0.1351

71.1%

10.1%

1.0%

0.0781

75.7%

5.8%

1.4%

94.1

n/a

2022

0.2632

60.3%

19.7%

20.0%

17.4%

0.0977

71.4%

11.4%

17.2%

15.5%

0.1658

65.7%

12.1%

5.9%

0.0877

77.5%

4.2%

1.4%

225.9

n/a

2024

0.2617

49.7%

32.6%

17.7%

17.3%

0.0880

59.0%

21.4%

19.7%

17.4%

0.1222

67.7%

13.9%

1.4%

0.0480

69.7%

11.0%

2.3%

87.2

n/a

2021

0.2314

36.6%

26.7%

36.7%

14.5%

0.0684

43.7%

22.5%

33.8%

15.5%

0.1242

43.0%

15.8%

30.4%

0.0328

66.2%

7.7%

12.5%

111.0

46.9

2022

0.2649

54.3%

25.3%

20.3%

13.4%

0.0948

61.0%

17.3%

21.7%

11.6%

0.1895

66.5%

10.7%

9.9%

0.0722

77.3%

3.8%

6.1%

233.2

123.1

2023

0.2877

55.6%

24.8%

19.6%

13.8%

0.1121

64.5%

17.1%

18.4%

10.2%

0.1971

63.0%

11.9%

11.2%

0.0672

77.3%

5.3%

7.3%

99.1

40.5

2024

0.2879

47.8%

27.2%

25.0%

14.6%

0.1128

53.9%

18.3%

27.8%

13.6%

0.1661

55.8%

15.5%

15.4%

0.0517

68.7%

7.1%

11.6%

84.7

34.4

2017

Gross Electricity Production (GWh)

Combustible Fuels

Nuclear

Hydro

Wind

Solar

Geothermal

Other Sources

Gross Electricity Production [%]

Combustible Fuels

Nuclear

Hydro

Wind

Solar

Geothermal

Other Sources

Net Imports of Electricity (GWh)

As a % of electricity available for final consumption

Electricity Interconnection [%]

Share of renewable energy consumption - by sector [%]

Electricity

Heating and cooling

Transport

Overall

7 531

3 000

4 381

150

39.8%

0.0%

58.2%

2.0%

0.0%

-64

-1.0%

45.3%

54.4%

54.6%

2.3%

39.0%

2018

6 725

4 170

2 432

122

62.0%

0.0%

36.2%

1.8%

0.0%

909

13.6%

46.1%

53.5%

55.4%

4.7%

40.0%

2019

6 438

4 174

2 108

154

64.8%

0.0%

32.7%

2.4%

0.0%

1 118

16.8%

53.9%

53.4%

57.7%

4.6%

40.9%

2020

5 725

2 940

2 603

177

51.4%

0.0%

45.5%

3.1%

0.1%

0.0%

1 626

24.3%

42.1%

53.4%

57.1%

6.7%

42.1%

2021

5 846

2 990

2 708

141

51.1%

0.0%

46.3%

2.4%

0.1%

0.0%

1 773

25.6%

47.2%

51.4%

57.4%

6.4%

42.1%

2022

5 031

2 016

2 750

190

40.1%

0.0%

54.7%

3.8%

1.5%

0.0%

2 312

34.2%

82.4%

53.5%

61.0%

3.1%

43.7%

2023

6 388

2 083

3 794

271

239

32.6%

0.0%

59.4%

4.2%

3.7%

0.0%

804

12.3%

69.4%

54.3%

61.4%

1.4%

43.2%

2024

67.0%

2020

Import Dependency [%]

of Solid fossil fuels

of Oil and petroleum products

of Natural Gas

Dependency from Russian Fossil Fuels [%]

of Natural Gas

of Crude Oil

of Hard Coal

45.5%

89.6%

105.6%

100.1%

100.0%

#DIV/0!

97.0%

2021

38.3%

93.1%

93.7%

100.0%

#DIV/0!

40.1%

2022

38.2%

193.2%

101.5%

99.8%

22.6%

#DIV/0!

39.9%

2023

32.7%

87.1%

99.1%

100.1%

0.0%

#DIV/0!

0.0%

2020

57.5%

35.8%

96.8%

83.6%

41.0%

25.7%

49.1%

2021

55.5%

37.2%

91.7%

83.6%

40.9%

25.2%

47.4%

2022

62.5%

45.9%

97.8%

97.6%

20.7%

18.4%

21.5%

2023

58.3%

40.8%

94.5%

90.0%

9.3%

3.0%

1.0%

2017

Gas Consumption (in bcm)

Gas Consumption year-on-year change [%]

Gas Imports - by type (in bcm)

Gas imports - pipeline

Gas imports - LNG

Gas Imports - by main source supplier [%]

Lithuania

Estonia

Russia

1.2

-11.7%

1.2

0.0

0.0%

100.0%

2018

1.4

17.5%

1.4

0.0

0.0%

100.0%

2019

1.4

-5.4%

1.4

0.0

0.0%

100.0%

2020

1.1

-17.7%

1.1

0.0

0.0%

100.0%

2021

1.2

6.6%

1.2

0.0

0.0%

100.0%

2022

0.8

-29.0%

0.8

0.0

75.4%

1.0%

22.6%

2023

0.8

-5.0%

0.8

0.7

0.1

80.0%

20.0%

0.0%

Source:

Eurostat, ENTSO-E, S&P Platts

kom (2025) 0214 - Ingen titel

ANNEX 9: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT

Latvia is at a transitional stage in terms of

climate adaptation governance and action on

climate risk assessment. Further action is

essential to boost the level of preparedness

and reduce the impact of economic activities

on the natural environment.

Degraded

ecosystems pose significant risks to the prosperity

and competitiveness of the country. Latvia has

started its transition towards more sustainable

agriculture practices, but the climate and

environmental impacts of its agri-food system still

warrant additional action.

final updated 2024 national energy and climate

plan,

Latvia

partially

analysed

climate

vulnerabilities and risks, including power

fluctuations, infrastructure vulnerabilities and

biodiversity degradation (

175

There is a need to improve the

comprehensive risk assessments.

Adaptation

measures

lack

details

financing,

implementation, scheduling and scalability. A

closer alignment to the modelling could be

beneficial as would preparations to manage the

potential impacts of rising sea levels on coastal

ecosystems, fisheries and aquaculture in the Baltic

region.

Latvian regions and cities are also

developing their own adaptation policies,

although there is limited information on

review processes and progress.

Since 2018,

municipalities have created civil protection plans

that include climate impact assessments. Latvia

also established procedures for climate monitoring

and managing flood risks in high-risk areas.

Latvia draws on a range of funding sources

for climate change adaptation.

Funded by the

state budget, the EU and the European

Environment Agency, investments are focused on

reducing flood and coastal erosion risks, with an

emphasis on ‘green and blue’ solutions. Disaster

management is a priority, with funding allocated

to rescue services, environmental monitoring and

upgrades to infrastructure. The ongoing recovery

and resilience plan includes investments in climate

adaptation such as flood risk reduction

infrastructure and disaster management centres.

Climate adaptation and preparedness

Climate change poses significant risks to

Latvia, mainly due to changes in precipitation

patterns and more frequent extreme weather

events.

Climate change in Latvia affects not just

the environment but also people’s health, safety

and businesses. Key risks include seasonal shifts,

wildfires, the spread of pests and disease and new

invasive species. These changes can lead to more

respiratory and infectious diseases, heat strokes

and floods from heavy rain. Other issues are

power disruptions, variations in hydropower, less

frequent frost without snow, droughts and

damage to infrastructure. There is also less water

flow in summer, causing further challenges (

173

). In

2023,

11% of Latvia’s total area

suffered from

drought.

In the Baltic region, climate change might

also be impacting public health.

This is

particularly due to rising sea surface temperatures

and the rise in eutrophication, which is expected to

increase the spread of waterborne diseases. Vibrio

infections are examples of this happening, and

they have already been linked to the warming of

the Baltic Sea (

174

At national level, Latvia has made some

progress in integrating climate adaptation

into its institutional set-up and planning.

developed a national plan for adaptation to

climate change that will be revised in 2026. In its

(

173

) EEA, 2024,

Climate ADAPT, Latvia/Overview of Existing

Pressures.

(

174

) EEA, 2024,

European Climate Risk Assessment (p.156).

Water resilience

Despite a wealth of water resources and

some improvements made to the ecological

status of surface water bodies, Latvia would

benefit from additional measures to monitor

both surface and groundwater bodies and to

boost its water resilience.

Latvia has 780

surface water bodies and 25 groundwater bodies.

In 2022, Latvia’s water productivity was EUR

137

per m

of abstracted water, on a slight increase

(

175

) Latvia - Final updated NECP 2021-2030, 2024,

Link.

kom (2025) 0214 - Ingen titel

over a five-year period. The Water Exploitation

Index Plus (WEI+) is low, at 0.2 in 2022 (

176

). Latvia

has a 99% compliance rate with the EU Urban

Wastewater Treatment rules. Recent data from the

third river basin management plan for the period

2022-2027 show improvements in the ecological

status of surface waters, with 32.5% now in good

condition. However, their chemical status

assessment has worsened since the last report

with 100% of surface water bodies now reported

as failing to achieve good chemical status, due to

changes in methodology. Only 12% of surface

waters are monitored to assess their chemical

status due to limited monitoring capacities, and

grouping is used to determine the chemical status

for the remainder. Failure to meet good chemical

status is largely due to the presence of ubiquitous

toxic substances, often from transboundary

sources. Groundwater bodies are still classified as

having good quantitative status, but their chemical

status assessment has also declined. The main

forms of pressure on water bodies are point

sources from urban and to a lesser extent

industrial waste water, diffuse sources from

agriculture and hydro-morphological changes and

point sources from urban and to a lesser extent

industrial wastewater. The current level of

financing for water management in Latvia is

around EUR 171 million per year (see Graph A9.2).

However, the needs are estimated to be

substantially higher, leaving a gap of EUR 171

million and undermining the country’s water

resilience. Additional investments are needed to

improve monitoring and support nature-based

solutions, flood prevention and river restoration.

The ongoing recovery and resilience plan includes

investments in flood risk reduction infrastructure.

available data, less than 10% of the country’s

protected habitats have a good status, the fourth

worse result in the EU and below the EU-27

average of 14.7%. By contrast, 39.5% of species

are reported as having a good conservation status,

above the EU average of 27%. Having most

protected habitats in an unfavourable conservation

status impacts Latvia’s climate resilience,

as the

loss of biodiversity impairs ecosystems’ ability to

provide services that help mitigate the effects of

climate change, such as regulating water cycles,

maintaining soil health and storing carbon.

Nature degradation presents significant risks

to the economy and to competitiveness as

Latvia has one of the highest supply chain

dependencies on ecosystem services in the

EU.

The Latvian economy’s supply chain is heavily

dependent on ecosystem services, with 32% of its

gross value added showing a high degree of

dependency (against the EU-27 average of 22%).

In particular, the agriculture, forestry and

electricity sectors have a high degree of supply

chain dependency on ecosystem services. In terms

of overall direct dependency on ecosystem

services (37%) Latvia is below the EU average of

44%. However, several sectors such as agriculture,

forestry, fisheries and construction (see Graph

A9.1). are particularly dependent on ecosystem

services. 100% of the gross value added of these

sectors is directly dependent on ecosystem

services. This means that failure to maintain the

capacity of ecosystems to deliver services could

entail significant costs or even stop production in

these sectors. Protecting and restoring key

ecosystems would help maintain the long-term

competitiveness of these sectors.

Biodiversity and ecosystems

The state of nature and ecosystems in Latvia

affects the country’s climate resilience.

Latvia has rich biodiversity

–

it is home to 61

types of natural habitats and 109 species of EU

importance (

177

). However, according to the latest

(

176

) Values above 20% are generally considered to be a sign of

water scarcity, while values equal or greater than 40%

indicate situations of severe water scarcity.

Seasonal data for Latvia show that there is no water scarcity

even during summer months.

(

177

) EEA, 2019,

Number of habitats and species per Member

State,

Link.

kom (2025) 0214 - Ingen titel

Graph A9.1:

Direct dependency(1) on ecosystem

services(2) of the gross value added generated by

economic sector in 2022

Agriculture

Forestry

Fishery and acquaculture

Mining and metals

Construction

Water utilities

Healthcare delivery

Aviation travel and tourism

Food beverages and tobacco

Supply chain and transport

Public services and others

Electricity

Chemical and materials industry

Electronics

Oil and gas

Real estate

Heat utilities

Automotive

Retail consumer goods and…

Information technology

Banking and capital markets

Insurance and asset…

Digital communications

High

Medium

Low

20%

40%

60%

80% 100%

conservation in Latvia is around EUR 119 million

per year. It has a substantial investment gap of

EUR

894 million, which undermines the country’s

commitment to global biodiversity agreements

and its long-term economic and social

development.

Graph A9.2:

Investment needs and gaps in EUR

million, in 2022 constant prices

1 200

1 000

800

600

400

200

Biodiversity

Baseline

Gap

Water

(1) Dependency based on the sector’s own operations,

excluding value chain operations within countries and across

international value chains. A high dependency indicates a high

potential exposure to nature-related shocks or deteriorating

trends, which means that the disruption of an ecosystem

service could cause production failure and severe financial

loss.

(2) Ecosystem services are the contributions of ecosystems to

the benefits that are used in economic and other human

activity, including provisioning services (e.g. biomass

provisioning or water supply), regulating and maintenance

services (e.g. soil quality regulation or pollination), and cultural

services (e.g. recreational activities).

Source:

Hirschbuehl et al., 2025,

The EU economy's

dependency on nature,

Link.

Source:

European Commission, DG Environment,

Environmental investment needs & gaps assessment

programme, 2025 update.

Sustainable agriculture and land use

Latvia’s carbon removals fall short of its

2030 target for land use, land-use change

and forestry (LULUCF).

Latvia’s LULUCF sector

has become a net greenhouse gas (GHG) emitter

in recent years. Net carbon removals through land

use have fluctuated widely each year since 2017,

with emissions from the sector doubling in the

most recent GHG inventories. Increased logging

and high emissions from organic soils (degraded

peatlands) are the main driving force behind the

country’s LULUCF emissions. To meet its 2030

LULUCF target, additional carbon removals of -0.6

million tonnes of CO

equivalent (CO

eq) are

needed (

179

). The latest available projections show

a gap to target of 5.5 million tonnes of CO

eq for

(

179

) National LULUCF targets of the Member States in line with

Regulation (EU) 2023/839.

Targeted action on nature protection and

restoration is needed for Latvia to meet its

nature restoration targets.

In 2022, 18.1% of

its land was protected, below the EU-27 average

of 26.1%. Latvia would need to restore up to

3 141 km

of habitats listed in Annex I to the

Habitats Directive, corresponding to up to 4.9% of

its land (

178

). Latvia requires EUR 1 billion of

investment per year to effectively protect and

restore its natural capital, mitigate the impacts of

climate change, and maintain the country’s

rich

biodiversity (see Graph A9.2). The current level of

financing for biodiversity and ecosystem

(

178

) European Commission (2022), Impact assessment

accompanying the proposal for a Regulation on nature

restoration.

kom (2025) 0214 - Ingen titel

2030 (

180

). Latvia should prioritize protecting its

natural capital by implementing sustainable land

management practices that enhance carbon

sequestration, as this not only mitigates emissions

but

also

supports

long-term

economic

development by preserving the natural resources

vital to its economy (

181

Although Latvia’s overall greenhouse gas

emissions from agriculture are relatively

moderate, agriculture is still a source of

emissions and continues to have an impact

on air, water and soils.

In 2022, agriculture

generated 2.3 million tonnes of CO

eq, accounting

for around 21.3% of the country’s total emissions

(excluding LULUCF). This includes 1.1 million

tonnes of CO

eq from livestock farming. Wetlands

(including peatlands) are an important driver of

GHG emissions in Latvia’s LULUCF sector

comprising about 38% according to the latest

available data. Large majority of the specific

wetland-related emissions are attributable to peat

extraction for horticulture. The utilised agricultural

area (UAA) in Latvia increased by 5.2% from 1.9

million hectares in 2014 to 2 million hectares in

2023. The country’s nitrogen balance is 15.1

kg of

nitrogen per hectare of UAA and nitrates in

groundwater do not exceed the healthy threshold

for human consumption. As the livestock density

has fallen to the index level of 0.24 in 2020, three

times below the EU average of 0.75, ammonia

emissions have also fallen, dropping 6.7%

between 2018 and 2022. Between 2017-2022,

pesticides were detected at levels exceeding the

set thresholds in almost half of the rivers (47%)

(

182

Support under the common agricultural

policy (CAP) in Latvia is designed to help

achieve the environmental and climate

objectives.

The CAP strategic plan contains

different measures contributing to climate change

mitigation, pollution reduction, biodiversity

conservation and sustainable forestry. The plan

will allocate significant financial resources from

(

180

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

(

181

) A recent JRC study highlights that a 10% increase in natural

capital results in a 0.7% rise in the gross value added (GVA)

within EU regions.

https://publications.jrc.ec.europa.eu/repository/handle/JRC139

761

(

182

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

Europe,

Link.

both the rural development and direct payments

budget for this purpose. Under seven different

eco-schemes, farmers may receive support for

agricultural practices that are beneficial for the

environment and climate, for ecological focus

areas and to carry out agro-ecological practices in

organic farms. Under the rural development

heading, funding is allocated to different agri-

environmental schemes and other support

measures related to the achievement of

environmental and climate objectives. Latvia will

also prioritise the development of organic farming,

supporting the aim to have 18.8% of agricultural

land under organic farming by 2027 (in 2022

15.9% of UAA was under organic farming).

Latvia plans to cover over 70% of the

utilised agricultural area by commitments to

protect and improve soil quality, and over

24% by commitments to protect water

quality.

For example, support will be paid to

reduce the use of pesticides in 682 000 hectares

and thus reduce their negative impacts on the

environment. About 24% (or 460 000 hectares) of

utilised agricultural area is planned to contribute

to the aim of protecting and restoring biodiversity,

including

through

high-quality

agricultural

practices such as buffer strips, environmentally

friendly horticulture and grassland biotope

management.

kom (2025) 0214 - Ingen titel

Table A9.1:

Key indicators tracking progress on climate adaptation, resilience and environment

Climate adaptation and preparedness:

Drought impact on ecosystems

[area impacted by drought as % of total]

Forest-fire burnt area

(1)

[ha, annual average 2006-2023]

Economic losses from extreme events

[EUR million at constant 2022 prices]

Insurance protection gap

(2)

[composite score between 0 and 4]

Heat-related mortality

(3)

[number of deaths per 100 000 inhabitants in 2013-

2022]

Sub-national climate adaptation action

[% of population covered by the EU Covenant of Mayors

for Climate & Energy]

Water resilience:

Water Exploitation Index Plus, WEI+

(4)

[total water consumption as % of renewable freshwater

resources]

Water consumption

[million m

]

Ecological/quantitative status of water bodies

[% of water bodies failing to achieve good status]

Surface water bodies

Groundwater bodies

Biodiversity and ecosystems:

Conservation status of habitats

(6)

[% of habitats having a good conservation status]

Common farmland bird index

2000=100

Protected areas

[% of protected land areas]

Sustainable agriculture and land use:

Bioeconomy's added value

(7)

[EUR million]

Landscape features

[% of agricultural land covered with landscape features]

Food waste

[kg per capita]

Area under organic farming

[% of total UAA]

Nitrogen balance

[kg of nitrogen per ha of UAA]

Nitrates in groundwater

(8)

[mgNO

/l]

Net greenhouse gas removals from LULUCF

[Kt CO

-eq]

14.5

26.6

3.3

(9)

(5)

Latvia

2018

7.35

177

120

2019

19.15

177

2020

1.61

177

2021

4.83

177

2022

0.99

177

1.75

2023

10.71

177

1.75

EU-27

2018

6.77

2021

2.76

24 142

62 981

Latvia

2018

0.2

2019

0.2

2020

0.2

2021

0.2

2022

0.2

2023

EU-27

2018

4.5

2021

4.5

Latvia

68%

EU-27

59%

93%

2018

9.8

103.2

2019

91.8

2020

92.2

2021

97.2

2022

87.8

2023

2018

14.7

72.2

2021

74.4

Latvia

2018

2 262

2019

2 405

2020

2 655

2021

3 324

2022

2023

EU-27

2018

634 378

2021

716 124

14.8

13.3

3.6

1 969

14.8

10.9

3.3

758

15.3

15.1

3.4

2 202

4 944

15.9

7.99

256 077 -

240 984

388 -

(1) The data show the average for the timespan 2006-2023 based on EFFIS - European Forest Fire Information System.

(2) Scale: 0 (no protection gap)

–

4 (very high gap). EIOPA, 2024, Dashboard on insurance protection gap for natural catastrophes.

(3) van Daalen, K. R. et al., 2024, The 2024 Europe report of the Lancet Countdown on health and climate change: unprecedented

warming demands unprecedented action, The Lancet Public Health.

(4) This indicator measures total water consumption as a percentage of the renewable freshwater resources available for a given

territory and period. Values above 20% are generally considered to be a sign of water scarcity, while values equal or greater than

40% indicate situations of severe water scarcity.

(5) European Commission, 2024, 7th Implementation Report from the Commission to the Council and the European Parliament on

the implementation of the Water Framework Directive (2000/60/EC) and the Floods Directive (2007/60/EC) (Third River Basin

Management Plans and Second Flood Risk Management Plans).

(6) For this indicator, the EU average includes figures for the UK under the previous configuration, EU-28.

(7) European Commission, 2023, EU Bioeconomy Monitoring System dashboards.

(8) Nitrates can persist in groundwater for a long time and accumulate at a high level through inputs from anthropogenic sources

(mainly agriculture). The EU drinking water standard sets a limit of 50 mg NO

/L to avoid threats to human health.

(9) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2024

greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839

–

Annex IIa.

Source:

Eurostat, EEA.

kom (2025) 0214 - Ingen titel

FAIRNESS

ANNEX 10: LABOUR MARKET

The Latvian labour market is performing

well, but shows structural challenges, such

as growing labour and skills shortages.

Investments in labour market support in Latvia are

low with spending on active labour market policies

(ALMP) among the lowest in the EU, negatively

affecting vulnerable groups, including young

people, persons with disabilities and women.

Likewise, further support to improving workplace

safety and working conditions would be beneficial

in helping improve labour market productivity and

economic competitiveness. Fair working conditions,

decent wages, work-life balance, and having

access to affordable and quality childcare and

long-term care can all contribute to increased

labour market participation and productivity, as

established in the EU Competitiveness Compass.

Wage growth is catching up with the high inflation

levels seen in 2022 and 2023, However,

disposable household income in Latvia still has to

catch up with the EU average for the country's

market to be attractive for highly skilled workers.

Migration shows promise in helping mitigate

shortages.

Graph A10.1:

Key labour market indicators for

Latvia

remaining consistently above the EU average At

the same time, the unemployment rate increased

by 0.4 percentage points(pps) to 6.9% in 2024 (vs

EU: 59%). The long-term unemployment rate

increased by 0.4pps 2.2% in 2024 and is now

above the 1.9% recorded in the EU. Despite these

positive labour market developments, there are

indications that the market suffers from structural

issues, including an outflow of highly qualified

workers and regional inequalities due to lower

economic activity outside of Riga (e.g. in 2022,

65.6% of Latvia’s GDP came from

Riga vs only

6.7% from Latgale). The ageing of the population

is also leading to a decline in the working-age

population. The activity rate remained relatively

stable at 76.7% in 2024 (vs EU: 75.4%). The crude

rate(

183

) of total population change was negative

at -5.9 in 2023. This was partly due to a lower

birth rate than death rate, which in turn was partly

due to a decline in the temporary settlement of

Ukrainian citizens. The impact of Russia’s war of

aggression against Ukraine continues to be felt

strongly in Latvia, as it significantly reduced the

country's trade with Russia and Belarus (for both

exports and imports) (

184

). The resulting shift in

economic activity has negatively affected specific

industries and the workers employed in them (

185

There is a growing need for reskilling to facilitate

the reallocation of workers to new jobs and to

reduce the growing skills mismatches including in

the green and digital sector (

186

). Addressing the

structural challenges will help Latvia reach its

2030 national target of having at least 80% of

adults in employment.

Labour shortages and skills mismatches pose

challenges in the context of the digital and

green transition.

The relatively low and

decreasing level of digital competency in Latvia

poses a significant risk to increasing productivity.

(

183

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

change during the year (the difference between the

population sizes on 1 January of two consecutive years) to

the average population in that year. The value is expressed

per 1 000 people.

(

184

)

Exports and imports by countries (CN at 2-digit level)

–

Unit,

Flow, Commodity CN at 2-digit level, Countries and Time

period. Piwe.

(

185

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

education sectors.

(

186

)

Autumn 2024 Economic Forecast: A gradual rebound in an

adverse environment - European Commission.

2012

2021

2009

2010

2011

2013

2014

2015

2016

2017

2018

2019

2020

2022

2023

Activity rate 20-64 (rhs)

Unemployment rate 15-74 (lhs)

Long-term unemployment rate 15-74 (lhs)

Youth unemployment rate 15-24 (lhs)

NEETrate 15-29 (lhs)

Source:

Eurostat, LFS

The Latvian labour market continues to

perform well, but structural challenges

persist.

In 2024, the employment rate reached

77.4% (vs EU: 75.8%), surpassing the pre-

pandemic high of 77.3% in 2019 (vs EU: 72.7%),

2024

kom (2025) 0214 - Ingen titel

Contrary to the EU trend, the number of individuals

with basic or above basic digital skills decreased

from 50.8% in 2021 to 45.3% in 2023, well below

the EU average of 55.6%. At the same time, Latvia

experiences shortages in key sectors relevant to

the green transition, including refuse sorters,

forestry labourers, and insulation workers (

187

Latvia has taken steps to address the growing

challenge of skills shortages with the development

of the human capital development strategy.

However, adoption of the strategy is pending, and

systematic green skills development appears to be

lagging.

Migration can help address demographic and

labour market challenges, but the risk of an

outflow of skilled workers remains.

While the

country's accession to the EU in 2004 has brought

many advantages, including free movement of

people, Latvia also has experienced a significant

brain drain over the years, with the heaviest

emigration waves witnessed at the start of the

previous decade. This occurred on the back of the

global recession, which had a particularly sharp

effect on the Latvian labour market. Following the

subsequent economic recovery, net migration

began to stabilise gradually and in 2022 was net

positive for the first time since its accession to the

EU, largely explained by the arrival of Ukrainian

citizens fleeing from Russia’s war of aggression in

their homeland. In fact, by 2024, the number of

foreign workers in Latvia reached 15 558, which is

more than double the amount in 2015 (

188

). On the

other hand, it is also increasingly obvious that

third-country nationals are overqualified, often

occupying vacancies requiring lower qualifications,

regardless of their education status. For example,

38.7% of Ukrainians are hired in low-skilled

occupations (

189

). The share of people with a higher

educational attainment level is rising, yet the

emigration of well-educated and highly skilled

workers could pose significant challenges for

Latvia’s ability to respond to changing skills

(

187

) Source: European Labour Authority 2025 EURES Report on

labour shortages and surpluses 2024, based on data from

EURES National Coordination Offices. Skills and knowledge

requirements align with the

European Skills, Competences,

Qualifications and Occupations

(ESCO) taxonomy on skills for

the green transition, with examples analysed using the ESCO

green intensity index.

(

188

)

Number of Foreign Workers in Latvia Has Doubled Since

2015, Exceeding 15 500 This Year.

(

189

)

Latvia izglītojas 4 tūkstoši, Strada 8,7 tūkstoši Ukrainas

valstspiederīgo | Oficiālās statistikas portāls.

demand. In 2022, 24.71% of emigrants were aged

20-29 years old. Young professionals continue to

emigrate due to high costs for housing, limited

opportunities and low wages. The share of people

with at least upper secondary, post-secondary,

non-tertiary and tertiary education was 84.0% in

2023 vs 75.3% in the EU. Likewise the share of

tertiary graduates was 34.0% vs 30.9% in the EU,

demonstrating the high educational attainment

level in the labour force.

The activation of vulnerable groups can help

tackle labour shortages and benefit

productivity.

The disability employment gap in

Latvia stood at 21.3% in 2024, almost 3 pps

below the EU average but has been increasing by

almost 3 pps since 2023, which calls for increased

activation of this group, which faces a high risk of

social exclusion and poverty (Annex 11). According

to 2022 data, 34.3% of young persons with

disabilities in Latvia were not in employment,

education or training. As for adults with a disability

60% were in employment (

190

), vs 77.4% for adults

overall. Latvia has set a national target of at least

50% of persons with disability being in

employment by 2027, based on national data

(41.4% in 2022). Latvia has progressed well in

recent years in terms of implementing a social

economy (

191

). For example, the Social Enterprise

Law (

192

) has led to a significant increase in the

number of persons with disabilities working in

social enterprises, from 53 in 2020 to 152 in

2024. To support activation of this group, it would

be beneficial if Latvia also continued to invest in

workplace adaptations, and the improvement of

accessibility to public and private buildings and to

support subsidised employment to activate

persons with a disability, which has so far had a

high success rate. In support of this, EUR 40

million under the European Social Fund Plus has

been allocated for promoting the integration of

disadvantaged unemployed and economically

inactive people into the labour market though,

among other things, subsidised jobs, measures to

develop work skills, promotion of job mobility as

well as support services for people with

disabilities. EUR 10.2 million from the ESF+ will

also support social entrepreneurship. Compared to

(

190

)

European comparative data on persons with disabilities -

Publications Office of the EU.

(

191

)

Latvijā sievietes darba tirgū sliktākā stāvoklī nekā vīrieši /

Rakst.

(

192

)

Social Enterprise Law

(Sociālā

uzņēmuma likums),

2018.

kom (2025) 0214 - Ingen titel

the EU, Latvia has a high share of people 65 and

over, who are active participants in the labour

market due to poor social security and pensions.

Their activity rate increased from 13.5% in 2022

to 14.8% in 2023 (vs EU: 6.6%). Health outcomes

are poor (see Annex 14). Old-age poverty in Latvia

is among the highest in the EU.

Female employment is high, yet the

difference in earnings between men and

women remains substantial.

Latvia has a

comparatively high share of women in

employment and the gender employment gap (

193

)

only slightly increased 3.3 pps in 2024, very low

compared to EU average (10.0 pps). Despite this,

women

(15-64

years

old)

remain

underrepresented, with a participation rate of

74.6% compared to 78.9% for men. This can be

attributed at least partly to the very high gender

pay gap (19.0% vs EU: 12.0% in 2024), which is

due to the widespread presence of women in low-

paying sectors.

Large wage increases have raised some

concerns about competitiveness, but wage

levels remain low.

Nominal wages in Latvia grew

by more than 9% in 2022, 2023 and 2024, which

led to real wages growing by 6.5% in 2023 and

7.9% in 2024 (after having decreased by 3.6% in

2022 due to high inflation) (

194

). However, average

wage levels and the standard of living still remain

well below the EU average. At the same time, unit

labour costs increased significantly more than in

most EU Member States, namely by 11.3% in

2022, 13.9% in 2023 and 8.9% in 2024, pointing

to competitiveness issues. A recent tax reform

aims to boost competitiveness and purchasing

power. To raise competitiveness and reduce the

tax

burden,

particularly

for

low-income

households, the government adopted a labour tax

reform in 2024 with changes in personal income

tax and non-taxable minimums, including for

pensioners, coming into force as of 2025. The

reform provides for the easing of the tax wedge

(the taxation of earnings from labour) on low-

income earners and even more so for medium-

income earners. This should help increase the

levels of net disposable incomes and reduce

income inequality, with the Gini coefficient

(

193

) For those aged 20-64 years old; calculated on basis of the

employment rate of men/ the employment rate of women.

(

194

)Based on the European Commission Autumn 2024 economic

forecast.

disposable income to drop from 0.3304 to 0.3286

in 2025 (

195

Poor healthcare indicators and a rapidly

ageing population particularly strain the

labour market.

The total population declined by

0.59% (vs 0.37% growth in the EU), while the

natural change in population, excluding migration,

declined even faster at -0.72% from 2022 to

2023. At the same time, Latvia has continuously

deteriorated since 2015 and is now recording its

lowest birth rates since 1920. The median age

stood at 43.9 years old (vs EU: 44.5 years old) in

2023 and the share of the population aged 65 and

over rose from 18.8% in 2013 (vs EU: 18.3%) to

21.0% in 2023 (vs EU: 21.3%) (

196

). Life

expectancy remains amongst the lowest in the EU

at 75.9 years and the share of the population with

unmet needs for medical care is one of the

highest in the EU (see Annex 14). The projected

gradual increases in the old-age dependency ratio

and in skills shortages (

197

) are expected to put an

additional strain on the labour market, the social

security system and economic growth in the

coming decades. It is therefore important for

Latvia to strengthen labour market and social

resilience, including by boosting the coverage and

the quality of healthcare and social services.

Latvia is taking steps to improve job quality.

The quality of work depends on several factors,

notably employment security, work-life balance,

health and safety at work, access to training,

career development and pay. Latvia has taken

several steps in recent years with a view to create

fairer working conditions, in line with the principles

of the European Pillar of Social Rights. The

government has transposed the Minimum Wage

Directive in 2024, introducing a transparent

minimum wage setting mechanism. Collective

bargaining remains low, hindering quality of jobs.

During the early 1990s, trade union density

exceeded 50% of the workforce, but it dropped to

just 11.6% in 2018 (

198

). Similarly, the collective

bargaining coverage is also low at 27.1% (

199

Successful industrial level agreements have

recently been made in the construction, long-term

(

195

) Based on a Euromod simulation in 2024.

(

196

)

Population structure and ageing - Statistics Explained.

(

197

)

Darba tirgus ziņojums | Ekonomikas ministrija.

(

198

)

OECD Data Explorer • Trade union density.

(

199

)

OECD Data Explorer

• Collective bargaining coverage.

kom (2025) 0214 - Ingen titel

care and fibreglass sectors, but further industry-

level agreements should be encouraged to

improve working conditions and wages.

A further strengthening of workplace safety

and prevention of preventable mortality and

health of the workforce would improve job

quality.

Latvia has some of the highest numbers

of fatal accidents at work, with 2.98 incidents per

100 000 employed in 2022 (vs EU: 1.66 per

100 000 employed). Moreover, in 2021, the

number of preventable causes of mortality stood

at 439 per 100 000 (standardised rate for people

aged under 75) vs 212 per 100 000 in the EU and

the number of treatable causes of mortality at

205 per 100 000 (standardised rate for population

under 75) vs 93 per 100 000 in the EU. The

number of healthy working years is one of the

lowest in the EU with the health expectancy

standing at 63 years at birth (vs EU: 73.0). This

highlights the usefulness of further improving

disease prevention and workplace safety

adaptations in Latvia, given that a healthy

workforce, in addition to its moral added value,

has a much higher potential to increase

productivity, therefore supporting economic

growth.

Job satisfaction is relatively high with

further measures supporting good working

conditions in the making.

While general job

satisfaction is above the EU average (7.6 vs 7.4),

low skilled people (i.e. those who attained an

education below upper secondary level) show

lower job satisfaction than the rest of the

population (

200

). Going forward, Latvia is expected

to adopt a substantial package of amendments to

the Labour Law (

201

) in 2025 for the improvement

of working conditions, incl. improved protection in

cases of a sick child and the introduction of a

flexibility for a 4-day working week (maintaining

40 hours).

Further efforts to prepare the workforce for

the green and digital transitions are needed.

Between 2016 and 2021, employment in the

Latvian environmental goods and services sector

declined by 0.2 pps to 2.8% of total employment

but remained above the EU average (2.7%). The

job vacancy rate in construction, a key sector for

(

200

)

Statistics | Eurostat.

(

201

)

Plānoti apjomīgi grozījumi Darba likumā.

Ko tie paredz? - LV

portāls

the green transition, is below the EU average

(2.8% vs 3.8% in 2023). The greenhouse gas

emission intensity of Latvia’s workforce has

only

slightly improved, decreasing from 11.7 tonnes per

worker in 2015 to 10.8 in 2022 (EU: 12.3 tonnes).

The share of workers (aged 25 to 64) with at least

basic digital skills is at 53.9%, well below the 65%

in the EU. Latvia’s initiatives under its recovery

and

resilience plan focus on improving ICT skills and

increasing the country's number of ICT specialists.

These include training 3 000 specialists in

advanced digital skills by 2027, implementing

targeted programmes to promote STEM education,

i.e., in science, technology, engineering and

mathematics, and increasing regional job mobility.

Despite these efforts, the country’s envisaged ICT

specialist share of 9.8% by 2030 remains

ambitious.

kom (2025) 0214 - Ingen titel

ANNEX 11: SOCIAL POLICIES

While

social

outcomes

show

some

improvement, Latvia still faces persistently

high levels of inequality and still significant

risks of poverty and social exclusion,

particularly impacting older people.

High

inflation in recent years has fallen, but the effects

have yet to trickle down since households continue

to feel the pressure in meeting their essential

needs. The population is ageing and there is

potential to activate the groups that are not yet in

the labour market to meet its needs including in

healthcare and social care. The social protection

system capacity remains limited and access to

quality

services remains uneven across

municipalities, posing risks for sustainable and

inclusive economic growth. Moreover, Latvia’s

middle class, which could play a vital role in

consumption and thus contribute to economic

prosperity, is one of the smallest in the EU. There

is also low upward social mobility for low-income

groups. Addressing these challenges will contribute

to inclusive growth and competitiveness.

Poverty and social exclusion remain high,

despite long-term convergence and recovery

from the COVID-19 pandemic.

The rate of

people at risk of poverty or social exclusion

(AROPE) stood at 24.3% in 2024, standing much

above the EU average of 21.0%. This is now for

the first time lower than the 2020 value (25.1% in

Latvia vs EU: 21.5%). The severe material and

social deprivation rate has fallen from a spike of

7.8% in 2022 to 6.2% in 2023, and in 2024 was

back to the 5.3% low of 2021. This correlates to

the negative socioeconomic impact of the COVID-

19 pandemic, which was most negatively felt in

2022. There is a longer-term downward trend,

with poverty or social exclusion rates in Latvia

falling from 30.0% in 2015 to 24.3% in 2024. This

is largely attributed to the above EU average

economic growth and the continued long-term

convergence process (with real GDP per capita as

a percentage of the EU average growing from

40.6% in 2015 to 45.4% in 2023) as well as some

improvements in the income redistribution system

over this period. Nevertheless, in 2022, the share

of general government expenditure on social

protection was only 13.2% of GDP (EU: 19.4%).

The impact of social transfers (other than

pensions) on poverty reduction has increased

in the longer term from 17.6% in 2015 (EU:

32.0%) to 21.5% in 2024 (EU: 34.4%) but

remains one of the lowest in the EU.

The

adequacy of minimum income was very low in

Latvia, as the income of a recipient was 45% of

the poverty threshold (EU: 55.6%) and 37.8% of

the income of a low wage earner (EU 46.1%).

Sustained efforts will be needed to reach the

national poverty reduction target of 95 000 fewer

people at risk of poverty or social exclusion by

2030, with Latvia so far having achieved about

one third of the envisaged reduction. While the

minimum income reform implemented as part of

the recovery and resilience plan (RRP) has

established a transparent methodology for

minimum income and pensions support, Latvia

could consider exploring further ways to enhance

public spending on social protection and income

support

mechanisms

with

socio-economic

developments (e.g. inflation or wage increases).

Persistent high-income inequality continues

to exacerbate poverty risks.

The S80/S20 ratio

at 6.28 remained among the highest in the EU in

2024 (EU: 4.66). Thus, the income of the richest

20% of the population is more than six times that

of those in the lower quintile. The reducing impact

of taxes and transfers on income inequality is one

of the lowest in the EU (31% vs 49% in the EU)

(

202

). In-work poverty however has fallen by one

percentage point to 8.2% in 2024 and is now in

line with the EU average. A key factor influencing

income inequalities is the high share of low wage

earners (in-market income inequality), while the

coverage of collective bargaining is low (

203

). The

2025 labour tax reform is primarily expected to

benefit middle-income households but will also

positively contribute somewhat to reducing

inequality and poverty(

204

). The reform should be

carefully monitored in the coming years, in line

with income developments.

The extent of work intensity and type of

employment impact the risk of poverty.

The

at-risk-of-poverty rate for households with a very

low work intensity is very high, standing at 77.4%

(EU: 62.9%), compared to 27.9% (EU: 25.2%) for

those with middle-work intensity and 8.0% for

those with high-work intensity (EU: 9.4%). Self-

employed, temporary workers and part-time

workers as well as all those in non-standard forms

(

202

) European Commission, Economic inequalities in the EU, July

2024.

(

203

) European Commission, Economic inequalities in the EU, July

2024.

(

204

) Based on Euromod simulation 2024.

kom (2025) 0214 - Ingen titel

of employment are at a significantly greater risk

of poverty, given the more limited social protection

coverage. In-work poverty is significantly higher

for employees with a temporary contract at 22.5%

in 2022 and 10.7% in 2023, compared to those

with a permanent contract, standing at 7.2% and

7.1% respectively. On the upside, the Latvian

labour market is characterised by a large share of

full-time and permanent employment contracts

(see Annex 10).

While inflation has stabilised, food and

energy prices remain high, affecting

disproportionately lower income households.

General inflation has fallen from a peak of 17.2%

in 2022 (EU: 9.2%) to 1.2% in 2024 (EU: 2.5%).

Over a longer-term perspective, food prices were

66.5% higher (EU: 44.8%) and the energy prices

49.9% higher (EU: 49.2%) at the end of 2024 than

in 2015, affecting disproportionately lower income

households. In response, the Ministry of Economics

is exploring potential mechanisms to cap food

prices in grocery stores in 2024. However, no

measures have so far been adopted. The

continued pressure of high energy costs on low-

income households is partly reflected by an

increase in arrears on utility bills, rising from 5.9%

in 2022 to 7.0% in 2023 (EU: 6.9%). Latvia could

benefit from exploring options to reduce the

energy poverty risk, including through the Social

Climate Fund plan.

Rural areas and certain population groups

are particularly vulnerable.

38.5% of persons

with disabilities were at risk of poverty and social

exclusion in 2023, 19.4 pps higher than those

without disabilities. Moreover, over 50% of

persons with severe disabilities were at risk of

poverty and social exclusion in Latvia in the same

year, which was one of the highest rates in the EU.

In 2024, the persons at-risk-of-poverty and social

exclusion (AROPE) rate in rural areas was 29.4%

(EU: 21.3%) and 19.3% (EU: 21.4%) in the cities,

highlighting a significant rural-urban divide in

Latvia. This is due to lower economic activity,

opportunities and average income in the rural

areas, which also result in higher unemployment

outside of the capital region of Riga (

205

). The risk

of poverty risk has decreased significantly for low-

skilled workers (i.e. with qualifications of ISCED

levels 0-2) from 37.5% in 2022 (EU: 29.0%) to

29.2% in 2023 (vs EU: 29.4%). This development

(

205

)

Bezdarba statistika | Nodarbinātības valsts aģentūra

correlates with the increase in the minimum wage

from EUR 500 to EUR 620 in 2023. The risk of

poverty for medium-skilled workers (i.e. with

qualifications of ISCED levels 3-4), however, has

increased from 21.3% in 2022 to 23.2% in 2023

and remains much above the EU average of

14.4%. The two groups represent 16.0% (EU:

24.7%) and 50.0% (EU: 44.4%) of the total

population respectively. The figures highlight the

scale of the need for both upskilling and better

working conditions. Women also face a higher risk

of poverty or social exclusion than men at 26.3%

vs 22.0% in 2024 respectively. This is probably

due to women working in sectors with lower wages

and their lower participation in the labour market

(74.4% for women vs 79.0% for men).

The number of children at risk of poverty or

social exclusion is rising.

The at-risk-of-poverty

and social exclusion rate for children remains well

below the EU average at 17.9% vs 24.2% in 2024,

which is below the 2019 value of 18.7% (EU:

22.8%). Children at risk of poverty and social

exclusion are facing higher levels of unmet

medical needs and are more exposed to living in

overcrowded housing (

206

). In 2023, Latvia adopted

a national action plan to implement the European

Child Guarantee (ECG), highlighting its intentions to

improve the monitoring and support of vulnerable

children. Further work is needed to reduce the

gaps in support for the most vulnerable groups, as

the current support mechanisms and the national

ECG action plan lack a targeted approach (

207

Latvia has so far not set a national target for

2030 to reduce the number of children at risk of

poverty.

The risk of poverty is especially high for

older people, primarily impacted by low

pension adequacy.

In 2024, 42.9% of persons

over the age of sixty-five were at risk of poverty

(EU: 19.4%). Pension adequacy is relatively low.

The aggregate replacement ratio has decreased

from 0.50 in 2023 to 0.44 in 2024 with the gap to

the EU average now markedly widening. By

contrast to the EU, where the aggregate

replacement ratio for pensions is by 0.04 pps

higher for men than women, it is 0.04 pps lower

(

206

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

population -

Statistics | Eurostat.

(

207

) Given that the support schemes for children in Latvia are

universal and the income assessment and the provision of

social services is with the municipalities.

kom (2025) 0214 - Ingen titel

for men compared to women in Latvia.

Nevertheless, men have higher contributions based

on their wages throughout their careers and also

receive higher old-age pensions, with the average

standing at EUR 547.90 vs EUR 495.90 for women

in 2023 (national average EUR 513.70). Pensions

as share of GDP is one of the lowest in the EU,

standing at 7.9% vs EU average 12.9% in 2021.

Latvia has taken steps in recent years to improve

pension adequacy through indexation, raised non-

taxable minimums and the reintroduction of

pension supplements for those who retire(d)

between 2012 and 2028 for the years worked

until 1996. However, it would be beneficial to

continue working on raising pension adequacy in

order to alleviate the very high old-age poverty

rate (e.g. through the acceleration of a base

pension reform or a strengthened indexation

mechanism).

Social services remain under-developed, and

their quality varies across municipalities.

Social services are provided mostly by

municipalities with the richer ones in the position

to offer higher quality and a broader range of

services than the poorer ones. The reform

‘minimum basket of social services’, of which the

first phase entered into force in January 2025,

aims to implement a minimum set of social

services that each of the municipalities must

provide in order to allow for a more equitable

access to social services across the country. The

ESF+ and ERDF will contribute to the

implementation of the minimum services basket

with a combined allocation of EUR 97.5 million for

the development of community-based services.

The success of the reform will depend largely on

the provision of the necessary financial support to

all municipalities. Implementation will require a

thorough consideration of the needs and the

regional disparities taking into account the current

quality of offers at the individual municipality.

Increasing defence spending due to the

geopolitical situation risks weakening the

much-needed funding of the social protection

system further.

For years, Latvia has had low

levels of general government expenditure on social

protection. This situation has been exacerbated by

Russia’s war of aggression against Ukraine, as

defence spending has since grown significantly

from 2.4% of GDP in 2022 to 3.1% in 2023. The

required funds have been provided through cuts in

government expenditure in both healthcare (with a

budget down from 5.6% in 2023) and social

protection (down from 14.0% in 2022 to 13.6% in

2023). In its 2025 budget, Latvia has earmarked

indicatively 3.45% of GDP for defence, which

might further increase the risk of cuts to the social

protection budget in the years to come. The social

protection budget is nevertheless crucial for

improving social cohesion and resilience, and

particularly needed in the EU external border

region of Latgale as it has been disproportionally

affected by the war.

Graph A11.1:

Share of population aged 65 or over,

on 1st January and by sex, 2023, 2030, 2040, and

2050.

35%

30%

25%

20%

15%

10%

2023

2030

Males

Females

2040

2050

2023

2030

2040

2050

Estimated/provisional values for the EU in 2023. Eurostat

baseline projections of population for 2024 onwards.

Source:

(1) Eurostat (demo_pjangroup, proj_23np)

Demographic ageing and poor healthcare

indicators indicate a growing demand for

quality long-term care services.

The population

of Latvia is ageing, with the share of people aged

sixty-five and above expected to increase by more

than 45% between 2023 and 2050. Latvia also

shows some of the weakest healthcare outcomes

in the EU (see Annex 14). However, the number of

people aged sixty-five and above, who actually

receive long-term care (LTC) services, stands at

only 9% of the total population in this age cohort,

while the demand for residential LTC and home

care is growing. In the capital city of Riga, the

waiting lists for residential care reached more

than 800 people by mid-2024, while the number

of people receiving home care grew substantially

from 5 800 people in the first half of 2023 to

6 300 people in first half of 2024. To address the

rising challenge of LTC needs with appropriate

policies, it is important for Latvia to develop its

data collection and monitoring system for LTC. The

data collection should provide information about

existing care services and number of places

available, the number of people on waiting lists

and average waiting times and also about regional

disparities in offer, places and waiting times. This

kom (2025) 0214 - Ingen titel

would be an important policy planning tool with a

view to the strong expected increase in such cases,

due to the ageing population.

Access to affordable and quality LTC services

are limited, and healthcare outcomes are

poor.

Public spending on LTC stood at 0.5% of

GDP, remaining much lower than the EU average

of 1.7% in EU in 2022. Public spending on home

care is particularly low at 17% of total LTC public

spending, compared to 28.8% in EU in 2022. The

share of the older population (sixty-five or over) in

need of LTC, who used formal home care services

in the past twelve months was far below the EU

average (14.6% vs 28.6% in the EU in 2019).

Considering this situation, the implementation of a

minimum social services basket and the

development of a sustainable LTC financing model

in the coming years remains vital. The situation is

made worse by formal and informal LTC worker

shortages, which require specific policy action to

attract and retain social care workers.

House prices have sharply increased over the

last decade.

House prices have almost doubled

over the last decade in nominal terms. The growth

in house prices has moderated in more recent

years (+3.7% in 2023, following two years of

sharp increases with +10.9% in 2021 and +13.8%

in 2022). House prices are estimated to be

overvalued by around 15% and have increased

slightly further in 2024 (+5.4% in Q3-2024 year-

on-year). House sales and building permits have

fallen since 2021, showing adjustment to higher

interest rates.

Overall, housing affordability has remained

stable over the last decade and new housing

supply remains low.

Since 2015, house prices

have grown slightly faster than household income

and the standardised house price-to-income ratio

steadily rose until 2022 (13% increase between

2015 and 2022) but corrected in 2023, with the

overall increase standing at 6% from 2015 to

2023. At the same time, this ratio remains below

its long-term average. The ratio of dwellings per

capita has increased by 6% since 2015, reflecting

a stable number of dwellings and a decrease in

population (-5% since 2015). Despite a mild

increase over the past years, the ratio of house

completions per capita remains among the lowest

in the EU. Residential building permits have been

stable over the past years. Latvia’s process for

issuing building permits is lengthy and includes

excessive red tape around building regulations.

Taking into account the cost of mortgages, the

borrowing capacity of households worsened over

the past decade since an average household needs

a significantly higher share of its annual income

for mortgage repayments. While the rental market

is very small, the ratio of new rents to incomes

has fallen over the last decade.

There is a shortage in quality housing.

While

the housing cost overburden was lower than the

EU average (6.7% vs EU 8.2%) and falling in line

with the EU trend, the existing housing stock is of

poor quality and the offer for affordable new

housing is very limited (

208

), which has an impact

on labour mobility, especially in the regions. While

Latvia has very high levels of property ownership

(70% outright and 10% with mortgage)

investments in the existing properties is limited,

due to high poverty and low wealth of the middle

class. The overcrowding rate is the second highest

in the EU at 39.3% in 2024, the share of the

population having neither a bath nor a shower in

their dwelling is the second highest in the EU (9%

in 2020). In response to these challenges, Latvia

has adopted an Affordability Housing Strategy for

2023-2027 and also launched an Affordable

Housing Fund for the development of low-cost

municipal rental apartments under the RRP. The

European Regional Development Fund (ERDF) will

also invest EUR 70 million in the development of

social housing. Yet, more efforts are required for

the construction of and the renovation towards

high quality housing, to meet the EU objectives of

climate neutrality in a socially just manner,

protecting specifically the lower income and more

vulnerable households.

Social housing remains inadequate and a

comprehensive national strategy to address

homelessness is lacking.

In 2023, more than

5 000 people were on a waiting list for social

housing, with the average waiting time for

municipal housing in Riga standing at six and a

half years. The existing stock of social housing is

small (2% from total number of dwellings vs EU

7.5%) and of poor quality (in 2018, only 1 046

free municipal apartments out of 3 286 were

deemed adequate for living). At the same time,

data collection on homelessness is limited (with

data only available in municipal shelters).

According to the latest national estimates for

homelessness (2022), 5 977 people are homeless,

(

208

) see Housing Guidelines 2023-2027.

kom (2025) 0214 - Ingen titel

representing 0.32% of the total population. Of

these, 19% are women and 81% are men(

209

There is also no targeted strategy to address

homelessness at the national level, despite both

the Ministry of Welfare and the Ministry of

Economics working towards potential solutions. At

municipal level, Latvia has successfully piloted the

Housing First approach in Riga, Valmiera and

Liepaja with the support of the European Social

Fund. Latvia could benefit from further upscaling

its approach in other municipalities.

(

209

) OECD Country Notes on Homelessness data.

kom (2025) 0214 - Ingen titel

ANNEX 12: EDUCATION AND SKILLS

Skills shortages, unequal access to quality

education and low levels of adult learning

hamper

Latvia’s

competitiveness.

The

education system performs comparatively well

overall but faces challenges in tackling territorial

gaps in basic skills proficiency and ensuring quality

education throughout the country. Rapidly

changing labour market needs, including those

stemming from the green and digital transitions

and other technological changes, together with

Latvia’s shrinking workforce, put pressure on the

education and training systems to better equip

young people and adults with a broad range of

relevant skills. Higher education and vocational

education and training (VET) do not yet adequately

respond to labour market needs, leading to skills

mismatches. A low share of science, technology,

engineering and maths (STEM) graduates and low

levels of digital skills further exacerbate skills

shortages. Targeted policies are in place and key

reforms are under way at all levels of education

but will require sustained efforts and monitoring

and evaluation to ensure their effectiveness.

Ensuring a sufficient supply of quality early

childhood education and care (ECEC) remains

a priority.

In 2024, 96.1% of children from 3 to

school age were enrolled in ECEC, and thus already

surpassed the EU target of 96% by 2030.

However, the share of children under three

enrolled in formal ECEC which has risen steadily

over the past decade, experienced a sharp decline

in 2024, dropping by 10pps to now 24.9%. This is

far below both the EU average of 39.2% and the

Barcelona target of 41% by 2030. Latvia’s

Education Law stipulates that all children are

legally entitled to a place in ECEC from the age of

18 months. However, there is a shortage of public

places in ECEC in some areas, especially in

municipalities close to Riga. The government’s

guidelines on the development of education for

2021-2027 include the goal to improve access to

ECEC for 1-4-year-olds. The move to competence-

based teaching and learning has been under way

in preschools since 2019.

Latvia’s education system produces good

results in basic skills, but further

improvement would sustain future skills

development.

The proportion of 15-year-olds

underachieving in reading, mathematics and

science, as measured by the OECD Programme for

International Student Assessment (PISA), has

remained consistently below the EU average since

2013, and Latvia is one of the top-performing EU

countries in science proficiency. Even so, more

than 20% of 15-year-olds have insufficient basic

skills in mathematics and reading (22.2% and

22.8% in 2022 vs the EU average of 29.5% and

26.2% respectively), which could harm future skills

development. The proportion of top-performing

students is below the EU average in all three

domains and has been for the past decade.

Students’ socio-economic

status has a

limited influence on learning achievement,

but disparities between areas and types of

school are significant.

Latvia’s proportion of

early leavers from education and training (ELET)

among 18-24-year-olds is among the lowest in

the EU (7.9% in 2024) and is well below both the

EU average of 9.3% and the EU target of less than

9% by 2030. According to PISA 2022, Latvia has

one the smallest socio-economic gaps in

underachievement

mathematics

(28.0

percentage points (pps) against an EU average of

37.1 pps). The rate of underachievement among

students from the bottom quarter of the

distribution also remains well below the EU

average (36.9% vs 48.0%). However, basic skills

proficiency

levels

vary

significantly

geographical area and type of school. The PISA

2022 results confirm that access to quality

education still depends on place of residence:

larger urban schools, particularly in Riga, continued

to perform much better than smaller rural schools.

The differences are even greater between

different types of school, with students from state

‘gymnasiums’ scoring significantly higher than

students from high schools and basic schools, with

differences of 52 and 72 score points respectively.

The government is pursuing a policy of

streamlining the school network, which is expected

to help overcome territorial disparities.

Renewing the teaching workforce is a

challenge with long-term consequences for

the quality of education.

Despite government

efforts, teaching remains a relatively unattractive

option for young graduates, and teacher shortages

are becoming apparent. Retraining programmes

for future teachers have proven successful and

continue to attract new participants, both with and

without teaching experience. However, with 37.5%

of teachers older than 55 (EU average

24.8%) (

210

), the number of new participants is

(

210

) Eurostat.

kom (2025) 0214 - Ingen titel

unlikely to be sufficient to replenish the teaching

workforce.

Latvia is reforming the VET system and has

become more flexible, but the employability

of VET graduates remains low.

VET reforms

are ongoing and aim to move towards a more

flexible and modular approach. In 2023, Latvia

passed regulatory amendments that improved VET

qualification recognition, including for the partial

completion of a professional qualification. The

reform has also introduced the issuing of

qualifications in digital format. In 2023, all VET

institutions were assigned a role to lead the

coordination of the design and revision of VET

curricula in at least one sector. In addition, in

2024, Latvia introduced a VET graduate tracking

tool(

211

). The number of upper secondary

vocational students increased slightly from

24 120 in 2021 to 24 885 in 2022, but the share

of vocational students at upper secondary level

remained well below the EU average (at 41.1% vs

49.0% in the EU). While conditions for VET uptake

are improving, the employment rate of recent VET

graduates stood at 74.8% in 2023, well below the

81% EU average, which poses a risk for attracting

future VET students. The level of post-secondary

non-tertiary vocational education graduates

decreased from 1 670 in 2021 to 1 370 in 2022,

in line with the fall in the number of tertiary

education graduates. The share of employees with

upper secondary or non-tertiary vocational

education stood at just 27.4% in 2023, falling

from 29.1% in 2022 and remaining far below the

EU average of 35.5%.

Vocational education programmes in Latvia

are mainly school-based and

Latvia could

benefit from a further implementation of the

work-based learning approach. Since 2015, Latvia

has introduced apprenticeship-type schemes

labelled as work-based learning (

212

), which

provides for a flexible curriculum. However, the

introduction of a more business-led learning

process could benefit employability and labour

market outcomes. To achieve this, it would be

essential to strengthen cooperation between

educational institutions and employers and to

strengthen social partners’ capacity for a more

effective collective bargaining and dual learning

(

211

)

Education and Training Monitor 2024

(

212

)

VET in Europe database | Vocational education and training

in Europe | Latvia | CEDEFOP

uptake. Yet, collective bargaining coverage stands

at only 27.1% of all employees(

213

), and its

influence on the dual learning development and

uptake is thus reduced.

The proportion of young adults with a

tertiary educational qualification is high, but

a wide gender gap persists.

In 2024, 45% of

Latvian 25-34-year-olds had a tertiary educational

qualification, above the EU average of 44.2% and

in line with the EU-level target of 45% by

2030(

214

). However, while the tertiary educational

attainment (TEA) rate of young women (56.8%) is

significantly above the EU average of 49.9%, the

rate for men is well below (33.9% vs 38.7%). The

resulting gender gap is one of the widest in the EU.

Graph A12.1:

Unemployment rate by educational

attainment (annual) - Latvia

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

% labour

force 20-64

High skilled

Medium skilled

Low skilled

(1) Unemployment rates, ages 20-64 (% of labour force)

Source:

Eurostat, LFS [lfsa_urgaed]

There is scope to improve green competences

and skills in school, VET and higher

education.

Less than a third of Latvian schools

offered all or nearly all their eighth graders

opportunities to take part in activities related to

environmental sustainability (EU-17: 48%) (

215

Latvian students have one of the lowest levels of

(

213

)

OECD Database on collective bargaining systems was

published; OECD temporary archive

(

214

)

Eurostat: edat_lfse_03.

(

215

)

2022 International Civic and Citizenship Education Study

(ICCS). The average in the 17 Member States surveyed was 48%.

kom (2025) 0214 - Ingen titel

knowledge about sustainable development among

the EU countries surveyed, even though most

teachers (61%) have received training on

environmental sustainability.

The number of higher education graduates in

STEM remains low despite policy efforts.

The

government has been promoting STEM subjects by

gradually increasing the proportion of publicly

financed study places in STEM fields and reducing

places in social sciences to steer demand to fields

linked to high added-value economic sectors. The

Latvian recovery and resilience plan (RRP) sets out

various reforms of the higher education system

that aim to align university courses with industrial

needs and to increase the attractiveness of

research careers. However, the number of STEM

graduates is still low, especially among women:

among 2022 graduates, 19.7% were STEM

graduates, one of the lowest shares in the EU

(average 26.6%). Of these, only about a third

(33.1%) were women (or 6.5% of all graduates,

compared to an EU average of 9.4%). At 14.7 per

thousand, the proportion of STEM graduates

among the population aged 20-29 has not

changed significantly over the past decade and

remains lower than the EU average of 23 per

thousand. However, the share of ICT graduates is

increasing steadily and remains above the EU

average (5.4% vs 4.5% in 2022) (

216

). Only 43.9%

of all medium-level VET pupils were enrolled in

STEM fields in 2022 (36.2% EU wide).

Latvia is taking steps to boost its innovation

potential by increasing the number of PhD

graduates, with support from the Recovery

and Resilience Facility (RRF).

A new doctoral

model was launched in the 2024/2025 academic

year. The new model ensures adequate pay for

doctoral students during their studies and provides

for a unified PhD process. Implementation will be

gradual, with completion scheduled for early 2027.

The lack of researchers and PhD graduates is

widely perceived as a barrier to strengthening

Latvia’s

research and innovation system and as a

threat to its competitiveness. In 2022, there were

0.3 PhD graduates per thousand inhabitants aged

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

In addition, the government is pursuing its efforts

to make higher education funding more efficient

and performance based. A new regulatory

framework has been developed for allocating base

(

216

) DESI indicators.

funding for scientific activities to scientific

institutions. The framework sets out a link between

the results of the international evaluations of

these scientific institutions’ activities and the

scientific activity base funding they receive.

The skills level plays a key role in the quality

of jobs, poverty rates and economic

competitiveness.

Latvia faces some of the

highest levels of poverty and social exclusion in

the EU (see Annex 11): low-skilled workers (i.e.

with qualifications of ISCED levels 0-2) are much

more at risk of poverty (29.2% in 2023 vs 29.4%

in the EU) than those with tertiary education (7.5%

vs7.2% in the EU). This correlates with the fact

that Latvia has very high-income inequality (see

Annex 11), with a wage distribution system that

puts the lower-skilled at a significantly higher risk.

The Latvian labour market experiences

considerable skills shortages

(see Annex 10),

which hinders economic growth. Real GDP per

capita has been catching up over the years,

reaching EUR 13 300 in 2023, but it remains well

below the EU average of EUR 29 800. This

highlights the need for the continued development

of the workforce and the adult learning system,

with a strong focus on upskilling the lowest skilled

workers, which also helps reduce poverty.

Skills shortages are growing, which poses a

risk to labour market adaptability, in light of

the green and digital transitions.

The Latvian

labour market is facing growing labour and skills

shortages, with the general job vacancy rate

standing at 2.7% in 2023, down 0.2 pps from

2022 but up from 2.2% in 2020. Broken down by

sector, the job vacancy rates show that Latvia

faces significant shortages in construction (2.8%),

manufacturing

(2.5%),

information

and

communication (2.5%) and healthcare and social

work (2.6%) (

217

). According to long-term

forecasts (

218

) these shortages will only intensify,

affecting, in particular STEM occupations,

construction, social care and healthcare (see

Annexes 11 and 13). Growing shortages can harm

the Latvian labour markets’ adaptability to the

green and digital transitions.

(

217

)

Statistics | Eurostat

(

218

)

Darba tirgus ziņojums | Ekonomikas ministrija

kom (2025) 0214 - Ingen titel

The number of individuals with basic or

above at least basic digital skills fell from

50.8% in 2021 to 45.3% in 2023, which is

significantly below the EU average of 55.6%.

The rate is also the lowest in the Baltics, with

62.6% in Estonia and 52.9% in Lithuania having

basic or above basic digital skills in 2023. Under

the RRF, EUR 95 million are dedicated for digital

upskilling. In 2025, Latvia will launch training

programmes for climate neutrality for some 5 500

workers, affected by the peat sector transition,

with support from the Just Transition Fund (JTF).

At the same time, Russia’s war

of aggression

against Ukraine has harmed trade and key sectors,

such as transport and manufacturing. This will

require continued investments in upskilling and

reskilling the workforce.

Latvia would benefit from an expansion of

the current adult learning and training offer,

especially for groups underrepresented in

training.

The percentage of adults who reported

having participated in education or training in the

last 12 months (

219

)rose from 47.5% in 2016 to

52.2% in 2022. However, this rise was due to an

increase in guided-on-the-job training without

which the percentage of adults participating in

education or training in the last 12 months would

have fallen from 39.0% in 2016 to 34.1% in

2022, which is considerably short of

Latvia’s 2030

target of at least 60%. Certain groups (i.e. men,

those aged 45 and older, low-skilled people,

unemployed people, rural inhabitants) show

significantly lower participation rates than the

average. Only 26.5% of men, compared to 41.3%

of women, took part in education or training in

2022, while people in cities’ participation rate was

2.9 pps higher (at 40.4%) than those living in rural

areas. Likewise, only 13.6% of low-skilled (ISCED

levels 0-2) compared to 54.7% of high-skilled

(ISCED levels 5-8) adults took part in education

during that year compared to 54.7% of high-

skilled (ISCED levels 5-8). This is reflected in the

findings of the State Audit Control report of

2022 (

220

), which highlighted that adult education

in Latvia fails to reach those with lower skills, who

are those most in need of it.

Efforts to establish a sustainable adult

learning and training framework are

underway, with the support of the EU funds.

On the other hand, Latvia has made a significant

reform commitment in the context of the RRP to

establish a sustainable and socially responsible

support framework for adult learning. Measures

include supporting employers’ needs-based

training, piloting individual learning accounts

(ILAs), launched in 2024, and piloting sectoral

skills funds for a more sustainable financing

model. In addition, Latvia put in place a common

framework for assessing basic digital skills in

formal, non-formal and informal education in

2024 (

221

). With the support of the European Social

Fund Plus (ESF+), Latvia will continue to support

adult education based on the individual needs of

adults for 28 000 employed people (with funding

of EUR 29.4 million). These people will be provided

with support for acquiring and improving the skills

or qualifications necessary for the labour market.

This includes involving 14 000 employed residents

with a low level of education in training. Latvia is

also expected to develop a systemic approach to

monitoring the quality of adult education.

Graph A12.2:

Participation in education and

training by educational attainment level, 2022

All ISCED 2011 levels

Less than primary, Upper secondary and

primary and lower

post-secondary non-

secondary education

tertiary education

(levels 0-2)

(levels 3 and 4)

Latvia

Tertiary education

(levels 5-8)

(1) % of people aged 25-64; Formal and non-formal

education and training (excluding guided-on-the-job training)

Source:

Eurostat - adult education survey (AES 2022)

(

219

) Eurostat:

Adult Education Survey-

participation in education

and training excluding guided on-the-job training

( )

Vai pieaugušo izglītība sasniedz tai izvirzītos mērķus un

atbilst darba tirgus vajadzībām?

| Valsts Kontrole

220

(

221

)

A common framework for the assessment of basic digital

skills, the identification and planning of training needs and the

assessment based on DigComp | Izglītības un zinātnes ministrija

kom (2025) 0214 - Ingen titel

ANNEX 13: SOCIAL SCOREBOARD

Table A13.1:Social

Scoreboard for Latvia

Social Scoreboard for Latvia

Adult participation in learning (during the last 12 months, excl. guided on

the job training, % of the population aged 25-64, 2022)

Early leavers from education and training

(% of the population aged 18-24, 2024)

Equal opportunities and

access to the labour market

Share of individuals who have basic or above basic overall digital skills

(% of the population aged 16-74, 2023)

Young people not in employment, education or training

(% of the population aged 15-29, 2024)

Gender employment gap

(percentage points, population aged 20-64, 2024)

Income quintile ratio

(S80/S20, 2024)

Employment rate

(% of the population aged 20-64, 2024)

Dynamic labour markets

and fair workingconditions

Unemployment rate

(% of the active population aged 15-74, 2024)

Long term unemployment

(% of the active population aged 15-74, 2024)

Gross disposable household income (GDHI) per capita growth

(index, 2008=100, 2023)

At risk of poverty or social exclusion (AROPE) rate

(% of the total population, 2024)

At risk of poverty or social exclusion (AROPE) rate for children

(% of the population aged 0-17, 2024)

Impact of social transfers (other than pensions) on poverty reduction

(% reduction of AROP, 2024)

Social protection and

inclusion

Disability employment gap

(percentage points, population aged 20-64, 2024)

Housing cost overburden

(% of the total population, 2024)

Children aged less than 3 years in formal childcare

(% of the under 3-years-old population, 2024)

Self-reported unmet need for medical care

(% of the population aged 16+, 2024)

Critical situation

To watch

Weak but improving Good but to monitor

On average

Better than average

Best performers

34,1

7,9

45,3

10,7

3,3

6,28

77,4

6,9

2,2

126,1

24,3

17,9

21,5

21,3

6,7

24,9

8,4

(1) Update of 5 May 2025. Members States are categorised based on the Social Scoreboard according to a methodology agreed

with the EMCO and SPC Committees. Please consult the Annex of the Joint Employment Report 2025 for details on the

methodology (https://employment-social-affairs.ec.europa.eu/joint-employment-report-2025-0).

Source:

Eurostat

kom (2025) 0214 - Ingen titel

ANNEX 14: HEALTH AND HEALTH SYSTEMS

Latvia’s health system faces significant

challenges. These need to be addressed if the

country is to improve the health of its

population and social fairness, while

boosting the competitiveness of its economy.

Key challenges include: (i) low life expectancy,

linked to high preventable and treatable mortality;

(ii) limited access to healthcare; (iii) suboptimal

funding and cost-effectiveness of the health

system; (iv) an insufficient focus on disease

prevention; and (v) shortages of healthcare

workers.

Life expectancy at birth in Latvia rebounded

close its pre-COVID-19 level but was still

among the lowest in the EU in 2023.

Moreover,

there are striking gender gaps in health outcomes.

Women can expect to live around 10 years longer

than men, one of the widest gender gaps in life

expectancy in the EU. However, they can only

expect to live around 2.4 years longer than men in

good health. The rate of treatable mortality is

among the highest in the EU, suggesting

shortcomings in the effectiveness of the health

system. Diseases of the circulatory system

(‘cardiovascular diseases’) and cancer remain the

leading causes of death, with mortality rates

higher than the EU average. Latvia participates in

several joint actions funded by EU4Health aimed

at reducing the burden of cardiovascular diseases,

cancer, diabetes and respiratory diseases.

Graph A14.1:

Life expectancy at birth, years

81.3

75.7

100 000 population) compared to the EU average

of 1 017 (

222

). Between 2022 and 2040, the

working age population in Latvia is forecast to

shrink by 1.2% every year as a result of lower

birth rates (EU-level projection: 0.3%).

Graph A14.2:

Treatable mortality

per 100 000 population

196.4

91.3

188.6

89.2

185.5

91.7

205.0

93.3

200.7

89.7

2018

2019

Latvia

2020

2021

2022

Age-standardised death rate

(mortality that could be

avoided through optimal quality healthcare)

Source:

Eurostat (hlth_cd_apr)

80.4

75.5

80.1

80.6

74.5

81.4

75.6

73.1

2019

2020

Latvia

2021

2022

2023

Source:

Eurostat (demo_mlexpec)

The weak health outcomes negatively impact

Latvia’s

workforce,

productivity

and

competitiveness.

In Latvia, mortality at working

age as a proportion of total mortality is among the

highest in the EU, exacerbating the effects of

population ageing on a shrinking labour force. The

rate of potential productive life years lost due to

non-communicable diseases, such as cancer and

cardiovascular diseases, is high (2 512 per

Health expenditure in Latvia remains low, as

does the share of health spending covered by

public funds.

In 2022, health spending per

inhabitant was among the lowest in the EU and

less than two thirds of it was funded by the public

purse. The

government’s

medium-term forecast

(data from January 2025) suggests that public

spending on healthcare as share of GDP will drop

each year between 2025 and 2028, falling from

4.8% in 2025 to 4.1% in 2028. This implies that

public spending on healthcare will remain below

the target of 6% of GDP by 2027 set out in

Latvia’s

2021-2027 Public Health Policy

Guidelines. The low level of public funding for

healthcare limits its accessibility, leading to high

waiting times, high levels of unmet needs and high

out-of-pocket spending for healthcare. In relation

to this, Latvia received a country-specific

recommendation in 2024 to strengthen the

adequacy of healthcare. Hospitals report that their

allocated funding cannot cover either the growing

demand for healthcare or the planned patient

numbers, and signal that this will lead to

postponed surgeries and increased waiting times.

Under its recovery and resilience plan (RRP), Latvia

aims to develop and implement new service

models for healthcare in order to use health

resources more efficiently.

(

222

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

kom (2025) 0214 - Ingen titel

Table A14.1:Key

health indicators

2019

Cancer mortality per 100 000 population

Mortality due to circulatory diseases per 100 000 population

Current expenditure on health, purchasing power standards, per capita

Public share of health expenditure, % of current health expenditure

Spending on prevention, % of current health expenditure

Available hospital beds per 100 000 population**

Doctors per 1 000 population*

Nurses per 1 000 population*

Mortality at working age (20-64 years), % of total mortality

Number of patents (pharma / biotech / medical technology)

Total consumption of antibacterials for systemic use,

daily defined dose per 1 000 inhabitants****

292.6

770.6

1 436

60.1

2.6

423

3.3

n.a.

22.0

13.9

2020

296.5

783.5

1 563

63.6

3.1

416

3.3

n.a.

21.2

11.9

2021

283.6

859.5

2 110

69.5

5.1

406

3.4

4.2

22.1

11.6

2022

280.0

806.2

1 928

64.9

2.8

394

3.4

4.2

22.1

15.0

2023

n.a.

22.1

14.9

EU average*

(latest year)

234.7 (2022)

336.4 (2022)

3 684.6 (2022)

81.3 (2022)

5.5 (2022)

444 (2022)

4.2 (2022)*

7.6 (2022)*

14.3 (2023)

29 (2023)***

20.0 (2023)

*The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple

average is used based on 2022 (or latest 2021) data except for Luxembourg (2017). Doctors’ density data

refer to practising

doctors in all countries except Greece, Portugal (licensed to practise) and Slovakia (professionally active). Density of nurses: data

refer to practising nurses (EU recognised qualification) in most countries except France and Slovakia (professionally active) and

Greece (hospital only). **‘Available hospital beds’ covers somatic care, not psychiatric care. ***The EU median is used for patents.

Source:

Eurostat database; European Patent Office; ****European Centre for Disease Prevention and Control (ECDC) for 2023.

Out-of-pocket payments account for a greater

proportion of health spending in Latvia than the

EU average. The largest share of out-of-pocket

payments

goes

towards

outpatient

pharmaceuticals. To improve the affordability of

medicines, Latvia expanded the list of

reimbursable medicines, raised the level of public

reimbursement and put in place a new pricing

model as from 1 January 2025. This new model

aims to incentivise pharmacies to sell more

affordable medicines, imposes price caps on

manufacturers (to align prices with those in

Lithuania and Estonia) and only permits price

changes once per year. Furthermore, co-payments

from patients for prescriptions will only be

required when they start the treatment, with

subsequent refills exempt from additional charges.

As regards public health, Latvia has scope to

step up its efforts on disease prevention.

The

share of spending directed at prevention stood at

2.8% of total spending on health in 2022, much

lower than the EU average of 5.5%. The rate of

preventable mortality is among the highest in the

EU, linked to a high prevalence of behavioural risk

factors. Latvia is among the EU countries with the

highest alcohol consumption, highest smoking

rates, lowest consumption of fruit and vegetables,

and lowest levels of physical activity outside

working time. Latvia plans to strengthen health

promotion and disease prevention with the support

of the cohesion policy funds in 2021-2027.

Furthermore, the Ministry of Health recently

proposed an action plan for 2025-2029 to combat

the rise of obesity. The plan includes: (i) public

awareness

campaigns;

(ii)

state-funded

consultations for obese patients with nutrition

specialists; and (iii) training for healthcare

professionals. Several measures

under Latvia’s

RRP also aim to improve the planning and

implementation of public health policy, for

example, the development of guidelines for

epidemiologically safe healthcare, and studies in

the areas of infectious diseases, vaccination and

antimicrobial resistance.

While several investments and reforms

supported by the Recovery and Resilience

Facility and the cohesion policy funds aim to

improve the quality and adequacy of health

services, access to healthcare remains

limited.

In 2023, the proportion of the Latvian

population reporting unmet needs for medical care

was significantly higher than the EU average

(7.8% vs 2.4%) and had increased since 2022. The

most recent data show a further increase to 8.4%

in 2024. Such unmet needs are mainly due to

financial reasons and waiting times, with lower

income groups affected the most. The magnitude

of differences between income groups in Latvia is

among the highest in the EU. Furthermore, and

specifically among people who declared having

medical needs, the gap between people below and

above the poverty threshold (defined as 60% of

the median equivalised income) is higher in Latvia

than the EU average. A range of measures under

the RRP and the cohesion policy aim to improve

health system accessibility. These include

investments in: (i) hospital infrastructure and

medical equipment; (ii) healthcare digitalisation;

(iii) new service delivery models; (iv) setting up a

network of hospitals specialising in the treatment

and care of cancer patients; (v) developing and

implementing recommendations for integrated

care; and (vi) improving the provision of human

resources for healthcare.

kom (2025) 0214 - Ingen titel

Latvia faces persistent shortages of health

professionals, which hamper the provision of

healthcare.

The number of practising nurses per

1 000 population (4.2 in 2022) is one of the

lowest in the EU. The Ministry of Health has

estimated that the health sector has a shortfall of

around 4 900 nurses. The number of doctors per

1 000 population is also below the EU average

(3.4 vs 4.2 in 2022). Working conditions are a

major deterrent to entering the national health

service, especially low pay. A significant proportion

of doctors (46.9%) and nurses (39.1%) are aged

55 and over, raising concerns about the long-term

accessibility of health services. In 2024, Latvia

received a country-specific recommendation to

address labour and skills shortages in the health

sector. Accordingly, the government approved a

health workforce development strategy for 2025-

2029, as part of Latvia’s RRP. The strategy sets

out to attract and retain staff in the national

health service by creating better and more

motivating working conditions, and by introducing

new professions and roles, as well as new

approaches to medical education (such as

simulation training).

The

potential of Latvia’s

health system to

drive innovation and foster industrial

development in the EU medical sector

remains largely untapped.

According to

Eurostat data, Latvia does not report any specific

public expenditure on health research and

development. This is reflected in the very low

number of European patents granted (only two in

2023, among the lowest in the EU) in the

combined

areas

pharmaceuticals,

biotechnologies and medical technologies (

223

Latvia also reports low clinical trial activity (

224

Latvia plans to accelerate the digitalisation

of its health system, with support from EU

programmes.

The shares of individuals accessing

their personal health records online or using online

health services (excluding phone) instead of in-

person consultations both increased in 2024

compared to 2020, although there is considerable

room for further deployment. Investments to

advance the digital transformation of Latvia’s

health sector are planned under the cohesion

policy in 2021-2027.

As part of Latvia’s RRP, a

(

223

) European Patent Office,

Data to download | epo.org.

(

224

) EMA (2024),

Monitoring the European clinical trials

environment,

p. 9.

digital health strategy running until 2029 was

approved by the government. The strategy aims to

improve the availability and interoperability of

health data, and to boost the development and

use of digital services in the health sector. The

digitalisation of the health sector will also benefit

from broader cross-sectoral investments in the

national digital space under the RRP. Thanks to

these investments, the envisaged national

centralised data management platform will also

be in a position to provide access to healthcare

datasets. The RRP also includes a specific

investment to collect reference genome data from

Latvian citizens as part of the European ‘1+ Million

Genomes’ initiative. The aim is to strengthen

Latvia’s genetic research and digital capacity.

Furthermore, Latvia participates in the EU4Health-

funded joint action TEHDAS2 (

225

), which aims to

facilitate the implementation of the European

Health Data Space.

(

225

)

Second Joint Action Towards the European Health Data

Space

–

TEHDAS2 - Tehdas

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HORIZONTAL

ANNEX 15: SUSTAINABLE DEVELOPMENT GOALS

This Annex assesses Latvia’s progress on the

Sustainable Development Goals (SDGs) along

the

dimensions

competitiveness,

sustainability,

social

fairness

and

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

poverty, fight inequalities and tackle climate

change and the environmental crisis, while

ensuring that no one is left behind. The EU and its

Member States are committed to this historic

global framework agreement and to playing an

active role in maximising progress on the SDGs.

The graph below is based on the EU SDG indicator

set developed to monitor progress on the SDGs in

the EU.

Latvia is improving on SDGs related to

competitiveness

(SDGs 4, 9) but needs to

catch up with the EU average on SDGs 8 and

Latvia has low, albeit slowly increasing, gross

Graph A15.1:

Progress towards the SDGs in Latvia

domestic expenditure on R&D (SDG 9). In 2023,

this stood at 0.82% of GDP (EU average: 2.24%).

The share of households with a high-speed

internet connection (SDG 9) was 71.4% in 2023,

below the EU average of 78.8%. Sustainable

economic growth indicators (SDG 8) are below the

EU average and moving away from the targets.

The material footprint increased over the five

years from 2018 to 2023, reaching 19.6 tonnes

per capita in 2023 (EU average: 14.2 tonnes per

capita). While Latvia is performing better than the

EU average on general employment indicators, the

level of fatal accidents at work stood at 2.98

accidents per 100 000 workers in 2022 (EU

average: 1.66). Strengthening digital skills (SDG 4)

remains a challenge, as only less than half of

adults have at least basic digital skills (45.3% in

2023; EU average: 55.6%). Reforms and

investment under the recovery and resilience plan

(RRP) focus on further developing digital

infrastructure and equipment and on improving

digital skills at all levels.

For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable

development in the European Union’;

for

details on extensive country-specific data on the short-term progress of Member States:

Key findings

–

Sustainable development

indicators - Eurostat (europa.eu).

A high status does not mean that a country is close to reaching a specific SDG, but signals that it

is doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past

five years. The calculation does not take into account any target values, as most EU policy targets are only valid for the aggregate

EU level. Depending on data availability for each goal, not all 17 SDGs are shown for each country.

Source:

Eurostat, latest update of 28 April 2025. Data refer mainly to the period 2018-2023 or 2019-2024. Data on SDGs may

vary across the report and its annexes due to different cut-off dates.

kom (2025) 0214 - Ingen titel

While Latvia performs well (SDGs 2, 7, 14) or

is improving (SDGs 9, 11, 12, 13) on several

SDGs related to

sustainability,

it is moving

away from its targets for SDG 6 and 15.

Addressing SDG 7 (Affordable and clean energy) in

particular, the share of renewable energy in total

energy consumption increased from 40% in 2018

to 43.2% in 2023, and was well above the EU

average (24.6% in 2023).

Latvia’s RRP includes

measures to address some of the energy-related

challenges, in both the REPowerEU chapter and

Component 1 (Climate change and environmental

sustainability). While Latvia is improving on

SDG 13 (Climate action), it needs to catch up with

the EU average, in particular on climate change

mitigation. Net greenhouse gas emission from the

land use, land-use change and forestry sector

(LULUCF) increased to 71.7 tonnes CO

eq. per km

in 2023, it is far higher than the Latvian value five

years earlier (-7.5 tonnes in 2018). Average CO

emissions from new passenger cars stand at

132.1 g CO

per km, well above the EU average of

107.6 g in 2023. Latvia is moving away from

targets for SDG 6 (Clean water and sanitation)

while the status is better than the EU average. In

particular, the share of inland water bathing sites

with excellent water quality has decreased from

87% in 2018 to 69.2% in 2023, the EU average

being at 78.6%. Drought impact on ecosystems

involves 10.7% of the country’s area, while the EU

average stands at 3.6% in 2023. On SDG 15 (Life

on land), Latvia is moving away from its targets

for the SDG. The share of forest area stands at

52.9% in 2022, well above the EU average of

38.7%. The biochemical oxygen demand in rivers

was 1.36 mg O

per litre in 2022, well below the

EU average of 2.73 mg O

per litre.

As regards the SDGs related to

social

fairness,

Latvia performs well on indicators

related to quality education (SDG 4) and

affordable and clean energy (SDG 7), and is

improving on indicators for no poverty

(SDGs 1) and gender equality (SDG 5). At the

same time, Latvia is moving away from the

targets for SDG 3 (Good health and well-

being), SDG 8 (Decent work and economic

growth) and SDG 10 (Reduced inequalities),

and needs to catch up with the EU average

on these targets.

While some indicators related

to poverty (SDG 1) are improving, Latvia is still

underperforming compared to the EU average.

This concerns in particular the severe housing

deprivation rate (11.6% in 2023; EU average:

4.0%) and people at risk of monetary poverty after

social transfers (22.5% in 2023; EU average:

16.2%). As regards good health and well-being

(SDG 3), Latvia is moving away from its targets

and needs to catch up with the EU average. The

share of people with good or very good self-

perceived health has not considerably improved

over the years and stands at 47.6% of the

population, compared to the EU average of 67.9%

in 2023. Unmet need for medical care has

increased over the years and stands at 7.8% of

the population, compared to the EU average of

2.4% in 2023 Latvia is also underperforming

compared to the EU average on SDG 10 (Reduced

inequalities): the urban-rural gap for the risk of

poverty or social exclusion accounted for 10.4% in

2023, (EU average: 0.2%) while purchasing power

adjusted GDP per capita was 71 in 2024 (EU =

100). . The RRP includes measures to reduce

regional disparities, improve the social safety net

and encourage social integration and inclusion in

Latvia. It also aims to contribute to the

accessibility, efficiency and resilience of Latvia’s

health system.

Latvia is improving on the SDGs related to

macroeconomic stability

(SDGs 16, 17), but

still needs to catch up with the EU average

on SDGs 8 (Decent work and economic

growth) and 16 (Peace, justice and strong

institutions).

In recent years, Latvia’s real GDP

per capita increased, going from EUR 15 820 in

2019 to EUR 17 510 in 2024 (EU average was

EUR 33 530 in 2024). The investment share of

GDP is above the EU average (24.9% of GDP, vs

22.4% for the EU in 2023). Latvia’s performance

on the quality of its institutions, including trust in

institutions, is below the EU average but improving

(SDG 16 on Peace, justice and strong institutions).

The Corruption Perception Index in Latvia is 59,

slightly below the EU average of 62 (score scale of

0 (highly corrupt) to 100 (very clean)). The RRP

includes several measures 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.

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ANNEX 16: CSR PROGRESS AND EU FUNDS IMPLEMENTATION

Latvia faces structural challenges in a wide

range of policy areas, as identified in the

country-specific recommendations (CSRs)

addressed to the country as part of the

European Semester.

They refer, among other

things, to taxation policy, social protection,

reduction of inequalities, accessible healthcare,

affordable housing, skills, education and training,

and research and innovation. In addition, they

cover investment in energy, renewables and

energy efficiency, sustainable transport, digital

infrastructure and access to finance.

The Commission has assessed the 2019-2024

CSRs considering the policy action taken by

Latvia to date and the commitments in its

recovery and resilience plan (RRP).

At this

stage, Latvia has made at least ‘some progress’ on

84% of the CSRs (

226

and ‘limited progress’ on

12% (Table A16.2).

EU funding instruments provide considerable

resources

Latvia

supporting

investments and structural reforms to

increase competitiveness, environmental

sustainability and social fairness, while

helping to address challenges identified in

the CSRs.

In addition to the EUR 1.969 billion

funding from the Recovery and Resilience Facility

(RRF) in 2021-2026, EU cohesion policy funds (

227

)

are providing EUR 4.4 billion to Latvia (amounting

to EUR 5.2 billion with national co-financing) for

2021-2027 (

228

) to boost regional competitiveness

and growth. Support from these instruments

combined represents around 16.3% of 2024 GDP

(

229

). The contribution of these instruments to

different policy objectives is outlined in Graphs

A16.1 and A16.2. This substantial support comes

on top of financing provided to Latvia under the

2014-2020 multiannual financial framework,

(

226

) 7% of the 2019-2024 CSRs have been fully implemented,

14% substantially implemented, and some progress has

been made on 63%.

(

227

) In 2021-2027, cohesion policy funds include the European

Regional Development Fund, the Cohesion Fund, the

European Social Fund Plus and the Just Transition Fund. The

information on cohesion policy included in this annex is

based on adopted programmes with the cut-off date of 5

May 2025.

(

228

) European territorial cooperation (ETC) programmes are

excluded from the figure.

(

229

) RRF funding includes both grants and loans, where

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

which financed projects until 2023 and has had

significant benefits for the economy and Latvian

society. Project selection under the 2021-2027

cohesion policy programmes has accelerated,

while significant volumes of investment are yet to

be mobilised.

The Latvian RRP contains 63 investments

and 25 reforms to stimulate sustainable

growth and strengthen social protection,

especially in the area of healthcare,

education and skills.

A year before the end of

the RRF timespan, implementation is well on its

way with 56% of the funds disbursed. At present,

Latvia has fulfilled 38% of the milestones and

targets in its RRP (

230

). Increased efforts are

needed to ensure completion of all RRP measures

by 31 August 2026. While the implementation of

Latvia’s RRP is well underway, challenges remain.

Latvia could benefit from strengthening its

administrative capacity and improving execution

strategies to help mitigate delays and

administrative hurdles. EU-funded construction

projects are at risk of delayed delivery due to the

construction sector’s strained capacity, caused by

competing demands, regulatory burden and

external factors.

Latvia also receives funding from several

other EU instruments,

including those listed in

table A16.1. Most notably, the common

agricultural policy (CAP) provides Latvia with an EU

contribution of EUR 2.4 billion under the CAP

strategic plan for 2023-2027 (

231

). Furthermore,

operations amounting to EUR 39 million (

232

) have

been signed under the InvestEU instrument backed

by the EU guarantee, improving access to

financing for riskier operations in Latvia.

(

230

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

requests.

(

231

)

An overview of Latvia’s formally approved strategy to

implement the EU’s common

agricultural policy nationally

can be found at:

https://agriculture.ec.europa.eu/cap-my-

country/cap-strategic-plans/latvia_en

(

232

) Data reflect the situation on 31.12.2024.

kom (2025) 0214 - Ingen titel

Graph A16.1:

Distribution of RRF funding in Latvia

by policy field

million) and individual needs-based learning

(EUR 29.4 million), targeting 48 000 employed and

self-employed people by 2029.

Other

funds

are

contributing

competitiveness in Latvia, for instance

through open calls.

The Connecting Europe

Facility has financed strategic investments in rail

transport such as the Rail Baltica, the development

of alternative fuel infrastructure in the air and

maritime sectors, the integration of the energy

market including the synchronisation of the Baltic

States with the EU’s electricity system

and in 5G

connectivity along transport corridors, along Via

Baltica. Horizon Europe has supported research

and innovation, from scientific breakthroughs to

scaling up innovations, with widening participation

and spreading excellence and Climate, Energy and

Mobility as top priorities in Latvia. The Technical

Support Instrument (TSI) has, for instance,

supported the green transition through developing

technological solutions and production possibilities

for sustainable aviation fuel (SAF). It also indirectly

contributed to the reform of enhancing the digital

transition in the Latvian RRP through an enhanced

understanding of the competition issues of

selected digital markets.

Latvia’s RRP also contains ambitious

measures

improve

the

business

environment and competitiveness.

As part of

the measures covered by payment requests over

the past year, major reforms and investments

have been implemented aimed at fuelling

economic growth. This includes, for instance, the

award of contracts to develop four industrial parks

across Latvia, aiming to boost regional growth by

upgrading infrastructure, attracting businesses,

and creating high-value jobs.

EU funds are playing a significant role in

promoting environmental sustainability and

green transition in Latvia during the current

seven-year EU budget (multiannual financial

framework).

The ERDF is investing over EUR 76

million in systems for climate-related disaster

prevention and resilience, as well as resource

efficiency, creating an additional capacity of

80 000 tonnes a year for waste recycling. ERDF

investments are also expanding renewable energy

production capacity, thereby increasing the share

of renewables in final energy consumption and

reducing dependence on fossil fuels. Furthermore,

the CAP strategic plan allocates EUR 299.6 million

from rural development and EUR 439 million from

Green transition

Digital transformation

Smart, sustainable and

inclusive growth

Social & territorial cohesion

Health & resilience

Next generation

(1) Each RRP measure helps achieve the aims of two of the

six policy pillars of the RRF. The primary contribution is shown

in the outer circle, while the secondary contribution is shown

in the inner circle. Each circle represents 100% of the RRF

funds. Therefore, the total contribution to all pillars displayed

on this chart amounts to 200% of the RRF funds allocated.

Source:

European Commission

Graph A16.2:

Distribution of cohesion policy

funding across policy objectives in Latvia

Smarter Europe

Greener Europe

Connected Europe

Social Europe

Europe closer to citizens

JTF specific objective

Source:

European Commission

Cohesion policy funds aim to increase the

productivity and competitiveness of Latvia’s

firms and improve the business environment.

The European Regional Development Fund (ERDF)

supports nearly 1 700 small and medium-sized

enterprises in developing skills for smart

specialisation, innovation and entrepreneurship.

Latvia is leveraging the Strategic Technologies for

Europe

Platform

(STEP)

boost

its

competitiveness, allocating EUR 57 million to STEP

priorities focusing on clean and resource-efficient

technologies, energy independence and renewable

energy capacity. The European Social Fund Plus

(ESF+) on the other hand, invests EUR 40.6 million

in active labour market policies to improve the

qualifications and skills of 44 000 unemployed

people by 2029. An additional EUR 46.6 million

from the ESF+ supports adult education, split

between sector-based programmes (EUR 17.2

kom (2025) 0214 - Ingen titel

direct payments to environmental and climate

objectives. Six eco-schemes will support

environmentally beneficial farming practices,

including ecological focus areas and agro-

ecological practices in organic farms. The plan

aims to increase organic farming to 18.8% of

Latvia’s agricultural land by 2027, supported

agri-environmental

schemes

and

other

environmental measures under rural development

funding.

Latvia’s RRP, including the REPowerEU

chapter, has a comprehensive set of reforms

and investments for the green transition.

Measures covered by the payment requests

submitted over the last year include, among

others, measures to upgrade the electricity grid

and develop energy communities. This includes the

entry into force of the necessary regulatory

framework for a timely implementation of the

REPowerEU chapter's investments, which will

contribute to overall energy security in the country

and to the resilience of electricity networks in the

context of increasing needs for additional grid

capacity and for grid flexibility.

Promoting fairness, social cohesion and

improving access to basic services are

among the key priorities of EU funding in

Latvia.

The ERDF support will provide access to

new or modernised healthcare facilities for the

majority of the Latvian population increasing the

capacity of the healthcare system. It will also

expand classroom capacity in education facilities

by more than 15 000 places. Complementing ERDF

infrastructure investments, Latvia’s ESF+ allocates

EUR 68 million to promoting social cohesion

through

deinstitutionalisation,

developing

community-based and family-oriented care

services for children and adults with a disability.

The programme aims to set up over 250 service

centres by 2029, supporting 2 800 individuals at

risk of social exclusion.

Latvia’s RRP contains several reforms and

investments related to fairness and social

policies.

As part of measures covered by payment

requests over the past year, Latvia has

implemented reforms and investments in the

fields of education and affordable housing. This

includes agreements between the development

finance institution Altum and real estate

developers which will deliver more than 300 low-

rent apartments across the regions, fostering

affordable housing and enhancing labour mobility.

Moreover, over 35,000 laptops have been provided

to municipalities and schools, boosting educational

quality and ensuring that students from socially

vulnerable groups have access to digital solutions,

enabling their participation in remote learning and

improving educational equity. The Technical

Support Instrument (TSI) has been supporting

Latvia in contributing to a socially fair transition

towards climate neutrality by addressing the social

impacts of the inclusion of greenhouse gas

emissions from buildings and road transport into

the EU ETS by supporting Latvia to develop a

Social Climate Plan.

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Table A16.1:Selected

EU funds with adopted allocations - summary data (million EUR)

Instrument/policy

RRF grants (including the RepowerEU allocation)

RRF loans

Allocation 2021-2026

1 969.2

Disbursed since 2021 (1)

1094.3

Disbursed since 2021 (3)

(covering total payments to the

Member State on commitments

originating from both 2014-

2020 and 2021-2027

programming periods)

2 604.5

1 477.9

670.9

393.3

62.5

102.2

Instrument/policy

Allocation 2014-2020 (2)

Allocation 2021-2027

Cohesion policy (total)

European Regional Development Fund (ERDF)

Cohesion Fund (CF)

European Social Fund (ESF, ESF+) and the Youth Employment

Initiative (YEI)

Just Transition Fund (JTF)

Fisheries

European Maritime, Fisheries and Aquaculture Fund (EMFAF)

and the European Maritime and Fisheries Fund (EMFF)

Migration and home affairs

Migration, border management and internal security - AMIF,

BMVI and ISF (4)

The common agricultural policy under the CAP strategic

plan (5)

Total under the CAP strategic plan

European Agricultural Guarantee Fund (EAGF)

European Fund for Agricultural Development (EAFRD)

4 640.7

2 665.8

1 246.6

728.2

4 434.3

2 565.5

956.2

721.0

191.6

139.8

134.9

70.9

Allocation 2023-2027

2 409.1

1 722.1

687.0

197.9

65.4

Disbursements under the

CAP Strategic Plan (6)

715.1

631.4

83.7

(1) The cut-off date for data on disbursements under the RRF is 31 May 2025.

(2) Cohesion policy 2014-2020 allocations include REACT-EU appropriations committed in 2021-2022.

(3) These amounts relate only to disbursements made from 2021 onwards and do not include payments made to the Member

State before 2021. Hence the figures do not comprise the totality of payments corresponding to the 2014-2020 allocation. The

cut-off date for data on disbursements under EMFAF and EMFF is 29 April 2025. The cut-off date for data on disbursements

under cohesion policy funds, AMIF, BMVI and ISF is 5 May 2025.

(4) AMIF - Asylum, Migration and Integration Fund; BMVI- Border Management and Visa Instrument; ISF - Internal Security Fund.

(5) Expenditure outside the CAP strategic plan is not included.

(6) The cut-off date for data on EARDF disbursements is 5 May 2025. The information on EAGF disbursements is based on the

Member State declarations until March 2025. Disbursements for the Direct Payments (EAGF) started in 2024.

Source:

European Commission

kom (2025) 0214 - Ingen titel

Table A16.2:Summary

table on 2019-2024 CSRs

Latvia

2019 CSR 1

Ensure that the nominal growth rate of net primary government expenditure does not exceed 3.5 % in

2020, corresponding to an annual structural adjustment of 0.5 % of GDP.

Reduce taxation for low-income earners by shifting it to other sources, particularly capital and property,

and by improving tax compliance.

Ensure effective supervision and the enforcement of the anti-money laundering framework.

2019 CSR 2

Address social exclusion notably by improving the adequacy of minimum income benefits, minimum old-

age pensions and income support for people with disabilities.

Increase the quality and efficiency of education and training in particular of low-skilled workers and

jobseekers, including by strengthening the participation in vocational education and training and adult

learning.

Increase the accessibility, quality and cost-effectiveness of the healthcare system.

2019 CSR 3

Focus investment-related economic policy on innovation,

the provision of affordable housing,

transport, in particular on its sustainability,

resource efficiency and energy efficiency, energy interconnections

and digital infrastructure, taking into account regional disparities.

2019 CSR 4

Strengthen the accountability and efficiency of the public sector, in particular with regard to local

authorities and State-owned and municipal enterprises and the conflict of interest regime.

2020 CSR 1

Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact,

to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery.

When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal

positions and ensuring debt sustainability, while enhancing investment.

Strengthen the resilience and accessibility of the health system including by providing additional human

and financial resources.

2020 CSR 2

Provide adequate income support to the groups most affected by the crisis

and strengthen the social safety net.

Mitigate the employment impact of the crisis, including through flexible working arrangements,

active labour market measures and skills.

2020 CSR 3

Ensure access to liquidity support by firms and in particular small and medium-sized enterprises

Front-load mature public investment projects

and promote private investment to foster the economic recovery.

Focus investment on the green and digital transition, in particular on research and innovation,

clean and efficient production and use of energy,

sustainable transport

and digital infrastructures.

2020 CSR 4

Continue progress on the anti-money-laundering framework.

Assessment in May 2025

Some progress

Not relevant anymore

Some progress

Substantial progress

Some progress

SDG 1, 2, 8, 10

SDG 8, 16

SDG 8, 10, 12, 16

SDG 8, 16

Relevant SDGs

Some progress

SDG 4

SDG 3

SDG 9, 10, 11

SDG 1, 2, 8, 10, 11

SDG 10, 11

SDG 6, 7, 9, 10, 11, 12, 13

SDG 9, 10, 11

SDG 9, 16

Not relevant anymore

SDG 8, 16

Some progress

Substantial progress

Some progress

Full implementation

Some progress

Substantial progress

Some progress

Limited progress

Some progress

Substantial progress

SDG 3

SDG 1, 2, 10

SDG 8

SDG 4, 8

SDG 8, 9

SDG 8, 16

SDG 8, 9

SDG 9

SDG 7, 9, 13

SDG 11

SDG 9

SDG 8, 16

(Continued on the next page)

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Table (continued)

2021 CSR 1

In 2022, maintain a supportive fiscal stance, including the impulse provided by the Recovery and

Resilience Facility, and preserve nationally financed investment. Keep the growth of nationally financed

current expenditure under control.

When economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal

positions and ensuring fiscal sustainability in the medium term.

At the same time, enhance investment to boost growth potential. Pay particular attention to the

composition of public finances, on both the revenue and expenditure sides of the budget, and to the

quality of budgetary measures, in order to ensure a sustainable and inclusive recovery. Prioritise

sustainable and growth-enhancing investment, in particular investment supporting the green and digital

transition.

Give priority to fiscal structural reforms that will help provide financing for public policy priorities and

contribute to the long-term sustainability of public finances, including, where relevant, by strengthening

the coverage, adequacy, and sustainability of health and social protection systems for all.

2022 CSR 1

In 2023, ensure that the growth of nationally financed primary current expenditure is in line with an

overall neutral policy stance, taking into account continued temporary and targeted support to

households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Stand ready

to adjust current spending to the evolving situation.

Expand public investment for the green and digital transitions, and for energy security taking into

account the REPowerEU initiative, including by making use of the Recovery and Resilience Facility and

other Union funds.

Pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions.

Broaden taxation, including of property and capital,

and strengthen the adequacy of healthcare

and social protection to reduce inequality.

2022 CSR 2

Proceed with the implementation of its recovery and resilience plan, in line with the milestones and

targets included in the Council Implementing Decision of 13 July 2021.

RRP implementation is monitored by assessing RRP payment requests and analysing

reports published twice a year on the achievement of the milestones and targets. These

are to be reflected in the country reports.

Progress on the cohesion policy programming documents is monitored under the EU

cohesion policy.

Some progress

Substantial progress

Some progress

SDG 7, 9, 13

SDG 7

SDG 8, 9

Not relevant anymore

SDG 8, 16

Not relevant anymore

SDG 8, 16

Not relevant anymore

SDG 8, 16

Not relevant anymore

SDG 8, 16

Limited progress

Not relevant anymore

SDG 8, 16

Not relevant anymore

SDG 8, 16

Not relevant anymore

Limited progress

Some progress

SDG 8, 16

SDG 8, 10, 12

SDG 3

SDG 1, 2, 10

Submit the 2021–2027 cohesion policy programming documents with a view to finalising their

negotiations with the Commission and subsequently starting their implementation.

2022 CSR 3

Improve access to finance for small and medium-sized enterprises through public lending and

guarantee schemes aimed at facilitating investments of strategic importance, in particular the green

transition and regional development.

2022 CSR 4

Reduce overall reliance on fossil fuels and diversify imports of fossil fuels

by accelerating the deployment of renewables,

ensuring sufficient interconnection capacity, diversifying energy supplies and routes

and reducing overall energy consumption through ambitious energy efficiency measures.

2023 CSR 1

Wind down the emergency energy support measures in force, using the related savings to reduce the

government deficit, as soon as possible in 2023 and 2024. Should renewed energy price increases

necessitate new or continued support measures, ensure that such support measures are targeted at

protecting vulnerable households and firms are fiscally affordable and preserve incentives for energy

savings.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net

primary expenditure in 2024 to not more than 3,0 %.

Preserve nationally financed public investment and ensure the effective absorption of grants under the

Facility and of other Union funds, in particular to foster the green and digital transitions.

For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and

sustainable consolidation, combined with investments and reforms conducive to higher sustainable

growth, in order to achieve a prudent medium-term fiscal position.

Broaden taxation, including of property and capital, and

strengthen the adequacy of healthcare and

social protection.

2023 CSR 2

Continue the steady implementation of its recovery and resilience plan and swiftly finalise the

REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the

speedy implementation of cohesion policy programmes, in close complementarity and synergy with the

recovery and resilience plan.

2023 CSR 3

Improve access to finance for small and medium-sized enterprises through public lending and

guarantee schemes aimed at facilitating investments of strategic importance, in particular in the areas

of the green transition and regional development.

Substantial progress

SDG 8, 16

No progress

SDG 8, 16

Full implementation

SDG 8, 16

Some progress

SDG 8, 16

Limited progress

Some progress

SDG 8, 10, 12

SDG 3

SDG 1, 2, 10

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.

Some progress

SDG 8, 9

(Continued on the next page)

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Table (continued)

2023 CSR 4

Reduce overall reliance on fossil fuels

by accelerating the deployment of renewable energy, in particular onshore and offshore wind energy

and solar energy,

and strengthening energy efficiency measures, for example through new financing and support

measures to meet the targets of the long-term renovation strategy.

Ensure sufficient capacity of interconnections to increase security of supply and continue

synchronisation with the Union electricity grid.

Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the

green transition.

2024 CSR 1

Submit the medium-term fiscal-structural plan in a timely manner.

In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net

expenditure in 2025 to a rate consistent with, inter alia, maintaining the general government deficit

below the 3% of GDP Treaty reference value and keeping the general government debt at a prudent

level over the medium term.

Broaden taxation, including of capital and property, and

strengthen the adequacy of healthcare

and social protection.  

2024 CSR 2

Continue with the swift and effective implementation of the recovery and resilience plan, including the

REPowerEU chapter, ensuring completion of reforms and investments by August 2026. Accelerate the

implementation of cohesion policy programmes. In the context of the mid-term review continue focusing

on the agreed priorities, taking action to better address persistent regional disparities and inequalities

while considering the opportunities provided by the Strategic Technologies for Europe Platform initiative

to improve competitiveness. 

2024 CSR 3

Improve the business environment by reducing the administrative and regulatory burden for companies

and improving access to finance for small and medium-sized enterprises, including through public

lending and guarantee schemes aimed at facilitating investments of strategic importance and boosting

competition in the financial markets.

Some progress

Substantial progress

Some progress

Full implementation

SDG 8, 16

SDG 7, 9, 13

SDG 7

SDG 7, 9, 13

SDG 4

Full implementation

SDG 8, 16

Limited progress

Some progress

SDG 8, 10, 12

SDG 3

SDG 1, 2, 10

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. Progress with the cohesion policy is monitored in the context of the Cohesion

Policy of the European Union.

Some progress

SDG 8, 9

Address labour and skills shortages, in particular in STEM, and in other specialisations needed for the

green and digital transition, as well as in the social and healthcare sectors, including through targeted

upskilling and reskilling,

as well as improved working conditions. 

2024 CSR 4

Accelerate the deployment of wind and solar energy by improving permit-granting procedures

and promoting demand-side flexibility.

Foster the transition to a circular economy through eco-innovation and sustainable resource

management practices.

Some progress

SDG 4

Some progress

Limited progress

Some progress

No progress

SDG 8

SDG 7, 9, 13

SDG 7

SDG 6, 12, 15

Source:

European Commission

kom (2025) 0214 - Ingen titel

ANNEX 17: COMPETITIVE REGIONS

Latvia’s

regional

economic

landscape

presents both significant challenges and

emerging opportunities for development.

While substantial disparities exist between the

capital region and other areas, several regions

show promising growth trajectories based on a mix

of traditional sectors like wood processing, food

production and manufacturing of electronics and

pharmaceuticals, alongside emerging sectors such

as information technology and electronics.

Map A17.1:

GDP per head (in purchasing power

standard), NUTS 3, 2022

rate over the same period. Latgale remains

disadvantaged both in terms of GDP per capita

and moderate growth of GDP.

Competitiveness

Regional competitiveness in Latvia is

strongly influenced by labour productivity

patterns, which reveal both challenges and

opportunities for economic convergence.

While all regions currently perform below the EU

average in productivity (measured as GDP per hour

worked), there are notable variations in

performance. The capital region Rīga (71%) and

Pierīga (84%) show relatively strong productivity

levels, approaching EU averages and exceeding the

average for less developed EU regions (64%). This

suggests potential for knowledge spillovers to

other regions. However, the significant productivity

gap between these leading regions and areas like

Latgale (36%) points to untapped potential for

productivity gains through targeted investments in

technology, skills and innovation capacity.

Addressing these productivity differences would

help boost regional competitiveness and ensure

more balanced economic development across

Latvia.

The quality of the government in Latvia

–

measured by the European Quality of

Government Index at the subnational level

–

is below the EU average, and regions have

limited fiscal autonomy.

The Quality of

Government Index (

233

) has improved since 2010,

driven by improvement in all its subcomponents

(corruption, quality and impartiality of public

services). The planning (NUTS 3) regions, however,

have limited fiscal autonomy and administrative

capacity

–

their revenue depends heavily on

earmarked government transfers. This lack of

fiscal autonomy affects the capacity of local

governments to plan and implement investments.

Increasing tax autonomy and reducing the

percentage of earmarked transfers (i.e. better

multi-level governance) would improve the

planning

regions’ capacity to attract investment

(

234

). Positive developments in local governance

(

233

)

European Quality of Government Index 2024| University of

Gothenburg

(

234

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

Source:

Eurostat

GDP per capita varies significantly between

Latvian regions.

In 2022, the capital region of

Rīga had a GDP per capita the EU average (100),

reaching 109%. This was more than double the

GDP per capita of all other NUTS 3 regions in

Latvia. In 2022, GDP per capita in the other

NUTS 3 regions ranged from 34% of the EU

average in the easternmost region, Latgale (which

is also a border region, bordering both Belarus and

Russia), to 51% in Pierīga (Map A17.1)

Between

2013 and 2023, GDP per head in Vidzeme and

Rīga grew annually at a rate of 4.6% and 2.8%

respectively. Kurzeme (2.2%) and Pierīga,

estimated at 2.4%, registered the lowest growth

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Table A17.1:Selection

of indicators at regional level in Latvia

GDP per

head

(PPS)

Real GDP

per head

growth

Productivity

Real

Productivity

Real

- GDP per productivity - GDP per productivity

Net

person

growth

hour

growth

migration

employed (per person worked

(per hour

(PPS)

employed)

(PPS)

worked)

Average

annual net

crude

migration

rate (%)

2014-2023

3.2

-1.3

-5.5

-6.0

-1.6

7.7

-5.8

-3.8

GDP (PPS)

Real GDP

growth

million

Average

Index

annual

EU-27 = 100

% change

Average

Index

annual

EU-27 = 100

% change

2022

European Union (27 MS)

Latvia

Kurzeme

Latgale

Rīga

Pierīga

Vidzeme

Zemgale

15905280

48497

4061

2891

23133

6959

3058

3548

2022

100

109

2014-2023

1.7

2.4

0.9

1.6

2.2

2.9

3.3

3.0

2014-2023

1.6

3.1

2.2

3.3

2.8

2.4

4.6

4.1

2022

100

2013-2022

0.7

2.0

1.1

1.6

1.2

2.8

3.2

2.8

2022

100

2013-2022

0.9

2.6

0.7

1.6

5.2

5.0

3.2

Source:

Eurostat and JRC

include improving the local population's ability to

participate in decision-making. The right to hold

municipal referendums as of autumn 2024 and

the new 'participatory budgets' for citizen projects

in municipalities (mandatory from 2025) as of

2025 could improve the quality of governance and

civic engagement in the regions.

There is lack of access to finance in Latvia’s

lagging regions (Latgale, Kurzeme, Vidzeme

and Zemgale).

There is a very weak uptake of

financial instruments (such as guarantees)

supported by cohesion funding (channelled via

Altum, the national promotional institution),

particularly in Latgale. Enterprises in the regions

are not prepared to take up more sophisticated

financial products. This creates obstacles to

business investment. Offering financial literacy

workshops for businesses could help reduce

information gaps.

Significant

socio-economic

differences

between urban and rural areas persist in

employment and skills.

People living in rural

areas have on average a lower level of

educational attainment. While Latgale, home to

Daugavpils University and the Rezekne Academy

of Technology, has a strong higher education offer,

this has not translated into greater post-secondary

educational attainment for its population.

Cooperation between higher education institutions

and employers would help address skills gaps and

develop a strong regional proposition for investors

in high value added sectors. Also, it would be

helpful to develop targeted regional programmes

to attract and retain talent (

235

Latvia faces significant transport challenges,

with limited access to and within some of its

lagging regions, which significantly hampers

their attractiveness.

Latgale’s road density is

the second lowest in the country, sitting among

the 2% of EU regions with the lowest road density

(measured by km per km

). Also rail transport

performance in the region is poor, resulting in the

lowest rail accessibility in Latvia(

236

), and putting it

in the bottom 8% of all EU regions. More attention

could be paid to developing strong foundations for

businesses to thrive by providing good

infrastructure, such as road and railway

connections. In particular, improving the regional

connectedness of the lagging regions (notably to

Rīga) for businesses, talent and visitors would help

strengthen

their

attractiveness

and

237

competitiveness ( ).

(

235

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

(

236

) The rail indicators capture the % of population within a 120

km radius that can be reached in 90 minutes, as developed

by Eurostat

(

237

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

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Rural regions are also lagging behind in

innovation, as illustrated by patent

applications data.

Patent applications to the

European Patent Office per million inhabitants

were nearly 10 times higher in Rīga and Pierīga

than in the (rural) rest of the country. Latgale

registers fewer EU trademark patents per capita

than 93% of EU regions. High-tech patent

applications per million inhabitants stood at 1.1 in

2012, lower than the national average of 3.2 and

significantly lower than the EU average of 17.4. All

of these are clear signs of lack of innovative

activity in Latvia’s lagging regions, in particular

Latgale (

238

With GDP per capita at just 34% of the EU

average and despite a growth rate above the

Latvian average, Latgale is struggling to

catch up.

These economic challenges are

amplified by poor transport connectivity. The

region also faces depopulation and ranks among

the lowest performing regions in the EU for

innovation and patent activity. However, recent

NATO activities and the new action plan for the

eastern border of Latvia (2025-2027) could boost

R&D and regional development, particularly in

dual-use goods and infrastructure (

239

The recent focus on eastern border regions,

and Latgale in particular, thanks to a number

projects

could

offer

significant

development opportunities.

In this context, the

national action plan to develop the eastern border

of Latvia from 2025 to 2027 lays down policy

priorities for the first time and identifies specific

funding for the region, acknowledging the special

challenges for this EU external border region. The

EU, together with partners, has also stepped up

support

address

structural

underdevelopment challenges. The OECD’s project

‘Rethinking regional attractiveness in the region of

Latgale’ analyses the economic and tourism

potential of the region as it undergoes a difficult

transition away from the Russian and Belarussian

markets. The World Bank’s ‘Catching-up

regions

initiative’ is being implemented in all Baltic

countries and aims to develop practical project

pipelines that will boost the local economy in

Latgale.

Social fairness

Latvian regions are experiencing rapid

depopulation.

Between 2014 and 2023 the

Latvian population decreased by 6.7% (

240

). In

three regions (Kurzeme, Vidzeme and Latgale) the

population has fallen by more than 10% since

2013. The biggest loss was observed in Latgale (-

17.1%). In

Rīga the population decreased by 5.7%,

whereas the population in the surrounding region

of Pierīga increased by 5.9%.

Significant disparities exist between urban

and rural areas in Latgale in providing

(public) services.

There are major differences in

the quality and level of public services. The

absence of common standards for public services

across local governments results in uneven service

quality, further driving depopulation in rural areas,

where local budgets are generally lower (World

Bank, 2024). Although the 2020 administrative

territorial reform has helped optimise local

government budgets, significant differences in

budget allocation and debt levels persist.

Table A17.2:Socio-economic

indicators by degree

of urbanisation, 2024

Cities

Population with high educational attainment

(% of population aged 25-64)

Early leavers from education and training

(% of population aged 18-24)

NEET: Neither in employment nor in education

or training (% of population 15-34)

At-risk-of-poverty or social exclusion

(% of total population)

Housing cost overburden

(% of total population)

Towns and

Rural areas

suburbs

44.4

7.7

12.3

23.3

7.2

29.9

11.4

14.3

29.4

5.7

48.1

4.4

10.8

19.3

7.6

Source:

Eurostat

(

238

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

(

239

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia

Lack of access to housing in the regions

undermines regional competitiveness efforts.

Businesses and municipalities in Latvia’s rural

regions view lack of housing as a serious obstacle

to attracting skilled workers who require quality

(

240

) Average annual change per 1000 residents.

100

kom (2025) 0214 - Ingen titel

modern housing (

241

). The construction of new

dwellings as a proportion of the housing stock is

lowest in Latgale

–

in 2024, only 3.3% of all new

housing in Latvia was constructed in Latgale,

compared to 75% of new builds in Rīga

(

242

). The

key reason concerns access to finance: those

wishing to settle in regions more than 100 km

from Rīga face difficulties obtaining mortgages,

even with a sufficient and stable income (as the

saving rate in Latvia is one of the lowest in the

EU). Latgale has the lowest rate of mortgages,

standing at less than 2% of municipal GDP in

2023, compared to over 30% in the Rīga

metropolitan area. Conversely, the region has

considerably higher interest rates for mortgages

than Rīga and other regions

(

243

). In 2023, around

9% of the population in Latvian cities were living

in a household affected by housing cost

overburden (

244

), while the corresponding rate for

rural areas with a majority of private houses was

5.5%. So, while housing expenses are lower in

Latvia’s

lagging regions than in Rīga

and

surroundings, housing conditions seem less

favourable in the rural regions (such as Latgale).

Expanding the range of rental housing providers

(for example through municipalities playing a

more active role) or initiatives like the Housing

Affordability Fund could help to increase rental

options as well as affordable housing (

245

). An RRP

pilot project for affordable rental housing in the

regions aims to attract more private investment in

this sector, but more focused efforts would

accelerate and increase the scale of housing

investments in the regions.

Sustainability

The green energy transition and the

associated increase in renewables offer

unique opportunities for less developed

regions, particularly for their rural areas.

However, while Latvia is a beacon for foreign

direct investment in renewable energy, there is

currently a moratorium within 80 km of the

eastern border. This largely prevents the lagging

region of Latgale from benefiting from investment

in renewables, notably wind (

246

In 2023, the untapped potential of solar,

wind and hydro power in the Latvian regions

was large, positioning all regions, except the

capital region of Rīga, in the 10% bottom of

all EU regions.

At 5.6%, Latvia’s green

employment in sustainable sectors shows

considerable room for expansion, particularly when

compared to the EU average of 15.1%. In 2022,

access to alternative fuel infrastructure, at 43.15

(

247

), was above the average of less developed

regions (29), but still far from the EU average

(287) (

248

). Latgale, like most non-capital Latvian

regions (except Pierīga), has much room for

improvement in green transport, with hybrid and

electric vehicles comprising only 0.1% of the

region’s fleet, well below the EU average of 2.6%

(

249

(

241

)

Latvia’s Plan 2024-2027

for implementation of Housing

Accessibility Guidelines (2024).

(

242

) Central Statistics Bureau of Latvia, 2024,

Ekspluatācijā

pieņemto jauno dzīvokļu skaits reģionos, valstspilsētās un

novados

– Ēku veids, Laika periods un Teritoriālā vienība.

PxWeb.

(

243

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

Finanšu Pieejamības Pārskats 2024.

(

244

) The housing cost overburden rate is the percentage of the

population living in households where the total housing costs

(‘net’ of housing allowances) represent more than 40% of

disposable income (‘net’ of housing allowances).

(

245

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

(

246

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

(

247

) Measured as number of electric vehicle charging points

within 10 km.

(

248

) Indicators of access to alternative fuel infrastructure are

based on calculations by DG REGIO and the JRC, using data

from the European Alternative Fuels Observatory (EAFO),

Eurostat, TomTom and Eco-Movement.

(

249

) OECD (2025): Rethinking Regional Attractiveness in the

Region of Latgale, Latvia.

101