IMF Executive Board Concludes 2026 Article IV Consultation with the Republic of Latvia
IMF News, September 21, 2026
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- Published: September 21, 2026
Overview
- Executive Board concluded the Article IV consultation and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- The authorities consented to publication of the Staff Report prepared for this consultation.
- Latvia faces significant structural challenges and rising public spending pressures, including higher outlays for defense, pension, healthcare, the green transition, and energy security.
Macroeconomic outlook and risks
- Recent performance:
- Real GDP growth: rebound from no growth in 2024 to 2.1 percent in 2025, driven by private investment and public consumption.
- Headline inflation: rose in 2025 driven by higher food prices; core inflation remained elevated amid persistent services inflation and strong nominal wage growth.
- Headline inflation has remained elevated in recent months, reflecting higher energy prices linked to the war in the Middle East.
- Projections:
- Real GDP growth is expected to decline to 1.8 percent in 2026.
- Inflation is expected to increase due to persistent supply disruptions in oil, gas, fertilizers, and petrochemicals.
- Risks and scenarios:
- Downside growth risks: a prolonged war in the Middle East; heightened geopolitical and trade tensions; weaker external demand from key European trading partners.
- Upside growth factors: faster EU fund disbursement; accelerated structural reforms.
- Upside inflation risks: higher energy and food prices and wage pressures.
- Tighter global financial conditions could reduce inflation.
Fiscal position and policy recommendations
- Fiscal pressures:
- Rising medium- and long-term spending pressures from higher defense spending, population aging (pensions and healthcare), energy security investments, and reversing the temporary diversion of pension contributions.
- Heightened uncertainty from rising energy prices due to a prolonged war in the Middle East and escalating trade tensions.
- Recommended stance and measures:
- Fiscal policy should become neutral amid resilient demand and elevated inflation, with any energy support targeted and temporary.
- If further global energy disruptions occur, allow automatic stabilizers to operate while keeping the headline fiscal deficit on a declining path between 2027–2031.
- Discretionary energy support: limited, temporary, and targeted at vulnerable households; temporary support for viable firms facing high energy costs could be considered with strict eligibility criteria.
- Avoid windfall taxes on energy companies.
- Adopt a credible medium-term fiscal strategy to preserve fiscal buffers, address spending pressures, and reduce public debt.
- Anchor public debt at 50 percent of GDP over the medium term.
- Achieve the medium-term debt objective via gradual fiscal consolidation supported by public sector reforms, reallocation away from lower-priority spending, and improved spending efficiency (e.g., streamlining school and hospital networks).
- Revenue mobilization should be integral to consolidation: raise property tax revenue, reduce income tax exemptions, improve VAT compliance.
- Restore the 1 percentage point of social contribution rate from the first to the second pension pillar by 2029 and strengthen the defined-contribution pension pillars, including through higher contribution rates.
- Recognize that efficiency gains in current spending alone are unlikely to be sufficient given relatively weak health outcomes; increased public spending will also be needed to strengthen healthcare.
Structural reforms to boost productivity and investment
- Constraints on convergence:
- Slow income convergence with the euro area due to weak total factor productivity growth and limited capital deepening; skill mismatches and labor market frictions weigh on productivity.
- Policy priorities:
- Boost investment, productivity, innovation, and AI adoption.
- Facilitate labor mobility and increase labor force participation via active labor market policies, incentives for pensioners to work after retirement, and linking retirement ages to future life expectancy gains.
- Improve housing affordability and quality, particularly through renovations and energy-efficiency upgrades; support state-backed mortgage program in regional areas if targeted.
- Strengthen workforce skills and AI adoption: strengthen education, training, and reskilling programs; improve alignment of workforce skills with labor market needs; increase participation in STEM fields; support AI adoption among SMEs.
- Improve firms’ access to finance, reduce administrative burdens, and foster stronger integration with EU markets: broaden access to finance through capital market development, fintech innovation, and targeted support for SMEs, accompanied by strong oversight.
- Further strengthen energy security: deepen integration with European electricity markets, strengthen and expand grid connectivity, and diversify renewable energy sources.
Financial sector and macroprudential policy
- Banking sector:
- Latvia’s banks have ample capital and liquidity; implementation of the CRR3 framework improved most banks’ capital adequacy ratios.
- Staff reiterates that the solidarity contribution on banks should be phased out as planned in 2027.
- Nonbank sector and supervision:
- Growing nonbank lending, particularly to lower-credit-quality borrowers, warrants close monitoring and oversight.
- Support for planned transfer in 2027 of licensing and supervisory responsibilities for nonbank consumer lenders from the Consumer Rights Protection Center (PTAC) to the Bank of Latvia to strengthen oversight and safeguard financial stability.
- The currently neutral macroprudential stance is appropriate, but authorities should extend and adapt the macroprudential framework applied to banks to cover the nonbank financial intermediation sector.
- AML/CFT:
- Latvia has continued to strengthen its AML/CFT framework, as confirmed by the MONEYVAL evaluation.
External position
- Assessment:
- Latvia’s external position is currently moderately weaker than that implied by fundamentals and desirable policies.
- Policy implications:
- Fiscal adjustment and structural reforms to boost productivity should help the external sector reach a balanced position.
Key statistics (selected, as reported)
- Real GDP (percentage change): 2021: 6.9; 2022: 1.9; 2023: -0.9; 2024: 0.0; 2025: 2.1; 2026: 1.8; 2027: (Proj. column present without value in source).
- Private consumption (percentage change): 2021: 8.1; 2022: 5.1; 2023: 0.1; 2024: 0.8; 2025: 2.0; 2026: 2.2.
- Public consumption (percentage change): 2021: 3.7; 2022: 0.4; 2023: 2.5; 2024: -0.4; 2025: 7.0.
- Gross capital formation (percentage change): 2021: 23.8; 2022: -6.6; 2023: 1.5; 2024: -5.3; 2025: 18.3; 2026: 3.8; 2027: 4.0.
- Gross fixed capital formation (percentage change): 2021: 6.8; 2022: 0.3; 2023: 5.0; 2024: -7.0; 2025: 9.8; 2026: 4.2; 2027: 4.4.
- Nominal GDP (billions of euros): 2021: 32.3; 2022: 36.1; 2023: 39.6; 2024: 40.7; 2025: 43.0; 2026: 45.7; 2027: 48.4.
- GDP per capita (thousands of euros): 2021: 17.1; 2022: 19.2; 2023: 20.9; 2024: 21.6; 2025: 23.1; 2026: 24.6; 2027: 26.1.
- Gross national saving (percent of GDP): 2021: 21.7; 2022: 19.9; 2023: 20.7; 2024: 20.6; 2025: 20.3.
- Gross capital formation (percent of GDP): 2021: 25.7; 2022: 24.7; 2023: 21.5; 2024: 24.1; 2025: 24.5.
- HICP headline, period average: 2021: 17.2; 2022: 1.3; 2023: 3.0.
- HICP headline, end-period: 2021: 7.9; 2022: 3.4; 2023: 4.1; 2024: 2.6.
- HICP core, period average: 2021: 11.2; 2022: 4.5; 2023: 3.5.
- Unemployment rate (LFS; period average, percent): 2021: 7.6; 2022: 6.5; 2023: 6.7.
- Nominal wage growth: 2021: 11.7; 2022: 7.5; 2023: 11.9; 2024: 9.7; 2025: 7.7; 2026: 6.2.
- Consolidated General Government (percent of GDP):
- Total revenue: 2021: 38.9; 2022: 39.5; 2023: 42.2; 2024: 41.3; 2025: 41.6; 2026: 41.4.
- Total expenditure: 2021: 44.6; 2022: 43.6; 2023: 42.9; 2024: 44.0; 2025: 45.4; 2026: 44.8; 2027: 45.8.
- Basic fiscal balance: 2021: -5.7; 2022: -3.9; 2023: -3.4; 2024: -1.7; 2025: -4.0; 2026: -3.2; 2027: -4.4.
- ESA fiscal balance: 2021: -7.2; 2022: -4.9; 2023: -2.3; 2024: -2.5; 2025: -3.0; 2026: -4.2.
- General government gross debt: 2021: 45.9; 2022: 44.4; 2023: 46.2; 2024: 46.9; 2025: 47.1; 2026: 48.8.
- Credit to private sector (annual percentage change): 2021: 7.1; 2022: 13.5.
- Broad money (annual percentage change): 2021: 6.1; 2022: 5.6.
- Current account balance: 2021: -4.1; 2022: -5.5; 2023: -3.8; 2024: -1.5.
- Trade balance (goods and services): 2021: -3.7; 2022: -1.6; 2023: -4.6; 2024: -5.4; 2025: -5.2.
- Gross external debt: 2021: 114.3; 2022: 108.8; 2023: 101.3; 2024: 97.7; 2025: 99.5; 2026: 99.1; 2027: 96.6.
- Net external debt (gross external debt minus gross external assets): 2021: 10.4; 2022: 8.6; 2023: 8.3; 2024: 8.9; 2025: 15.0; 2026: 14.5.
- U.S. dollar per euro (period average): 2021: 1.18; 2022: 1.05; 2023: 1.08; 2024: 1.13.
- REER (period average; CPI based, 2005=100): 2021: 125.1; 2022: 130.3; 2023: 139.0; 2024: 138.0; 2025: 139.7.
- Terms of trade (annual percentage change): 2021: -2.8; 2022: 2.9; 2023: 1.1; 2024: 1.2.
IMF Executive Board Concludes 2026 Article IV Consultation with the Republic of Latvia (Press Release No. 26/294), September 21, 2026.