OECD - OECD Economic Surveys: Latvia 2019

Source : Central Statistical Bureau of Latvia; Eurostat.

StatLink https://doi.org/10.1787/888933925863

Macroeconomic policies are sound . The ECBs policy interest rates are low and fiscal policy is broadly neutral , as the phasing in of personal and corporate income tax reform is compensated by higher excise taxes and spending restraint in some other areas.

While wage growth has been buoyant, for now, inflation looks stable and credit growth is weak. Core inflation has been firmly anchored around 2%. While private sector debt and non-performing loans have fallen fast to comfortable levels and the banking sector is well capitalised, credit growth remains close to nil. Banks remain cautious after heavy losses, partly caused by inefficient insolvency procedures, in the aftermath of the 2008 crisis. The widespread under-declaration of income also plays a role.

Table A. Economic growth will remain robust
Source : OECD Economic Outlook 105 database.

Anti-money laundering efforts have been stepped up. Latvia banned its banks from servicing certain types of high risk shell companies and oversaw a reduction in non-resident deposits by more than 60 % to reduce money-laundering risks. Based on recommendations of international experts (Moneyval, 2018) the new government, assisted by the OECD, works on implementing an action plan that would strengthen the quality and capacity of Latvias supervisory, control and law enforcement bodies and enhance international cooperation on anti-money laundering and combating of terrorism financing.

Income inequality and poverty remain high. Living standards have improved fast overall, but regional disparities in income per capita are pronounced. Social protection is limited and housing conditions are poor for a relatively large share of the population. Taxes and benefits could do more to lower inequality.