Russia’s war of aggression against Ukraine has led to higher energy prices and disruptions in trade and supply chains, weighing on economic growth. Economic convergence had already slowed down before the pandemic, calling for accelerating structural reforms. Rising spending pressures related to defence, internal security, health and old age poverty need to be addressed by raising spending efficiency and tax revenue, while the tax burden should be shifted from labour towards other income, property, and environmental taxes. Continuing to improve the capacity of the public sector, fostering investment and innovation and addressing skilled labour shortages are key for raising potential growth. Low credit supply is a main factor for weak investment and should be tackled by fostering competition and deepening capital markets. High informality, which hinders access to finance and distorts the level playing field, should be addressed by reducing labour taxes for low-wage earners, improving tax enforcement and continuing to fight corruption. Strengthening the power of the Competition Council to enforce competitive neutrality of state-owned enterprises and challenge regulation that restricts competition would help to foster business dynamism and innovation. Addressing skilled labour shortages will require facilitating skilled migration and investing more in human capital.

Further reading

• Latvia: Raising investment to support growth and increase living standards, Blog post
• Press release | Communiqué de presse

Housing affordability and quality are pressing challenges in Latvia. While Latvian households spend, on average, less on housing than their OECD peers, many are stuck in poor quality housing. Residential investment has stagnated since 2008, and the housing stock has been insufficiently maintained. In the face of these challenges, public support for housing is limited and an underdeveloped rental market further limits affordable housing alternatives. This report provides an in-depth assessment of housing affordability challenges and identifies policy actions to address them. The report is the result of the work of an interdisciplinary team bringing together the Economics Department and the Directorate for Employment, Labour and Social Affairs. The report contributes to the cross-cutting OECD Horizontal Project on Housing. 

The Latvian government established the Housing Affordability Fund in mid-2022, a long-term self-sustaining financing model to channel investment into affordable housing. The fund is now being scaled up to ensure lasting impact on the Latvian housing market. This report identifies options for institutional arrangements, funding and financing opportunities, and operational tools to achieve this aim. It draws on the rich and diverse experiences of four peer countries in establishing and operating revolving fund schemes for affordable housing (Austria, Denmark, the Netherlands and Slovenia), and also reflects findings from engagement with a range of stakeholders in the Latvian housing sector.