25/02/2015-The Latvian economy is among the fastest-growing in the euro area, but continued reforms will promote a rapid and sustainable pace of convergence with upper-income countries while limiting the risk of repeated boom-and-bust cycles, according to the OECD Economic Survey of Latvia.
The Survey, presented in Riga by OECD Chief Economist Catherine L. Mann and Latvian Economics Minister Dana Reizniece-Ozola, notes that Latvia bounced back strongly from the global economic crisis and has shown noteworthy capacity to adjust to external shocks. Despite a slowdown in 2014 and a challenging international environment, GDP is projected to grow by 3.2% in 2015 and 3.9% in 2016.
“Latvia’s transformation and economic convergence since the 1990s has been impressive, but there is more to do”, Ms Mann said. “Reducing high levels of inequality and the risk of poverty will be challenging. Continued efforts on structural policies are needed to dismantle the various obstacles hindering Latvian firms’ productivity and sustainable convergence with Europe. And additional policies should be put in place to limit the repetition of boom-bust cycles.”
The Survey, which feeds into Latvia’s ongoing OECD accession process, points out that inequality is high, compared to other OECD countries, and risks of poverty or social exclusion are above those seen in the EU. Better targeting of social benefits to low-income households is needed to address poverty risks, while lowering taxes on low-paid jobs would promote formal employment, reduce inequality and include more Latvians in the social security system.
Productivity gains – notably via international trade, integration into global value chains and investment into knowledge based capital – will be essential to stimulate further income convergence, the Survey said. Improving the business environment, by reducing entry barriers and red tape, should be the first step. Improving governance of state-owned enterprises and ensuring connectivity of network industries will also be key, the Survey says.
Planned reforms of vocational education and training, including the extension of work-based learning, should proceed to improve the skills and capacities of Latvia’s workforce.
As recent history has shown, Latvia is highly exposed to external shocks, which can be costly to both the economy and the state of public finances, with deficits and debt both rising during the crisis. To counter a boom-bust cycle, the OECD recommends that Latvia build up a reserve to cope with future adverse macroeconomic shocks; maintain adherence to its fiscal discipline law, which aims to ensure that budgetary policies do not accentuate fluctuations in the economy; and continue careful monitoring of the financial sector, particularly as concerns risks related to the large share of non-resident deposits.
An Overview with the main conclusions is available at http://www.oecd.org/countries/latvia/economic-survey-latvia.htm. You are invited to include this Internet link in reports on the Survey.
***NOTE TO EDITORS***
The Economic Survey of Latvia feeds into the country’s ongoing OECD accession process, which was launched in October 2013, on the basis of the May 2013 decision by the OECD Council to open accession discussions with Colombia and Latvia.
Latvia is currently working through an Accession Roadmap, which sets out the terms, conditions and process for its accession to the Organization. The Accession Roadmap calls for a series of in-depth reviews conducted by 21 OECD technical committees, which, in turn, will provide a formal opinion to the OECD Council on Latvia’s willingness and ability to implement OECD standards and of its policies and practices as compared to OECD best policies and practices in the relevant area.
These reviews are seen as an opportunity to support the Latvian authorities in pushing forward reforms in line with OECD standards and best practices. There is no set timeline or end date for the accession process, and progress made ultimately depends on the ability of Latvia to respond to recommendations made by OECD committees, formed by its Members, in order to successfully complete the technical reviews.
The 34 member OECD promotes policies that improve the economic and social well-being of people worldwide. The Organisation provides a forum in which governments can work together to share experiences and seek solutions to common problems.
The OECD's current members are: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
For further information on Latvia’s accession process, go to: http://www.oecd.org/countries/latvia/oecd-sets-out-roadmap-for-latvias-membership.htm.
Journalists should contact the OECD Media Division (firstname.lastname@example.org, +33 1 4524 9700).