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Europe 2020 in Latvia

The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 18 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council.

Country overview

In 2012, the Latvian economy was by far the fastest growing in the EU. Latvia has asked the Commission and the European Central Bank for a convergence assessment in view of adopting the euro from January 2014.

Latvia has made some progress with regard to the 2012 CSRs, and the prospects for future implementation are encouraging The adoption of the Fiscal Discipline Law is welcome, and the proposed reforms in the education and science sectors respond well to the challenges identified by the Commission, though implementation will be difficult. The liberalisation of the electricity market is a positive step, though further action is needed to prepare for the opening of the gas market and improve energy efficiency.

In the medium- to long term, Latvia faces a number of challenges, in particular to maintain sound fiscal policy and reduce the size of the shadow economy. Other challenges relate to the quality of vocational education, social assistance, R&D spending and innovation performance, energy and the efficiency of the judiciary. European structural funds for 2014-2020 will provide an important source of public investment to support Latvia in meeting these challenges.

2013 European Commission's recommendations for Latvia in brief

The Commission has issued six country specific recommendations (CSRs) to Latvia to help it improve its economic performance. These are in the areas of:

  1. Sustainable public finances
    Latvia managed to significantly reduce its deficit in 2012 and has a relatively low level of government debt. However, in order not to lose its current strong position it is important that Latvia maintain fiscal discipline. There is a high level of tax on low income earners in Latvia, which contributes to employment levels for this group which are well below the EU average. In order to increase employment incentives for low-earners and to maintain a sustainable financial position Latvia should shift taxes towards property or the environment, which are relatively low. It should also continue with efforts to improve tax compliance.
  2. Youth and long term unemployment
    At just under 25% youth unemployment has been declining in Latvia, but is still high. The government has taken some good steps already to tackle youth and long term unemployment, but more still needs to be done, for example, by implementing a youth guarantee and improving vocational education and training.

     

  3. Poverty reduction
    40% of the population in Latvia is at risk of poverty or social exclusion – one of the highest rates in the EU. To address this problem the government should improve the coverage and adequacy of the social welfare system and take particular measures to address child poverty.
  4. Higher education and research systems
    Latvia has proposed ambitious reforms to its higher education system, which if properly implemented, should have a positive impact on quality. This should be carefully monitored and further modernisation of research institutions should also be pursued.
  5. Energy market and efficiency
    Latvia's energy and carbon intensity is more than double the EU average. Large energy efficiency gains could be achieved in the buildings sector, however the implementation of housing insulation projects has so far been slow and further efforts are needed. To increase security of supply and enable the proper functioning of the labour market Latvia should open its natural gas market to competition and improve its cross-border interconnections.
  6. Judiciary reform
    A number of inefficiencies in the Latvian civil justice system, such as lengthy proceedings and backlogs of cases, are having a negative impact on the business environment. The government has introduced some measures to improve the situation, but more should be done, including putting in place a comprehensive human resources policy for the judiciary.

See how Latvia compares with other EU Member States in key areas


European Semester Documents