{
  "title": "Republic of Latvia: Selected Issues",
  "publication": "IMF Staff Country Reports, September 5, 2024",
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  "summary": "This paper assesses recent developments in Latvia’s competitiveness and productivity in the context of Baltic economies. Latvia’s export market share has declined in recent years reflecting weakening external demand and the effects of EU trade sanctions, but only limited loss of competitiveness.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Assesses recent developments in Latvia’s competitiveness and productivity in the context of Baltic economies.\n- Finds Latvia’s export market share has declined in recent years reflecting weakening external demand and the effects of EU trade sanctions, but only limited loss of competitiveness.\n- Concludes that promoting productivity growth via structural reforms and capital investment is key to preserving competitiveness and building resilience against future shocks."
    },
    {
      "heading": "Key findings",
      "content": "- Latvia faces weakening competitiveness.\n- Latvia’s real effective exchange rate appreciation in recent years has been greater than that implied by its productivity trend, leading to a narrowing competitiveness buffer.\n- Latvia’s total factor productivity growth boost post-global financial crisis is unlikely to be sustained without structural reforms and efforts to increase capital investment.\n- A decade-long weak investment, large infrastructure gaps, aging and emigration, and insufficient accumulation in skills weigh on Latvia’s productivity growth and competitiveness.\n- These factors pose risks that Latvia could be caught in a middle-income trap with low growth and slow convergence to euro area income level.\n- Boosting productivity is needed to meet challenges presented from Russia’s war in Ukraine and the ongoing transitions to sustain income convergence."
    },
    {
      "heading": "Risks and constraints",
      "content": "- Weak external demand and EU trade sanctions have contributed to declining export market share.\n- Narrowing competitiveness buffer due to real effective exchange rate appreciation exceeding productivity-implied levels.\n- Structural constraints: weak investment over a decade, large infrastructure gaps, demographic pressures (aging and emigration), and insufficient skills accumulation."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Significantly higher investment is required for sustained convergence to euro area income levels.\n- Promote productivity growth through structural reforms and increased capital investment to preserve competitiveness and build resilience against future shocks.\n- Address infrastructure gaps, labor force aging and emigration, and skills accumulation as priorities to avoid a middle-income trap.\n\nInternational Monetary Fund. Republic of Latvia: Selected Issues. September 5, 2024.\n\n---\n\n Content in this bundle\n\n- Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024\n  - Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: September 5, 2024",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9798400287817.002",
    "Assesses recent developments in Latvia’s competitiveness and productivity in the context of Baltic economies.",
    "Finds Latvia’s export market share has declined in recent years reflecting weakening external demand and the effects of EU trade sanctions, but only limited loss of competitiveness.",
    "Concludes that promoting productivity growth via structural reforms and capital investment is key to preserving competitiveness and building resilience against future shocks.",
    "Latvia faces weakening competitiveness.",
    "Latvia’s real effective exchange rate appreciation in recent years has been greater than that implied by its productivity trend, leading to a narrowing competitiveness buffer.",
    "Latvia’s total factor productivity growth boost post-global financial crisis is unlikely to be sustained without structural reforms and efforts to increase capital investment.",
    "A decade-long weak investment, large infrastructure gaps, aging and emigration, and insufficient accumulation in skills weigh on Latvia’s productivity growth and competitiveness.",
    "These factors pose risks that Latvia could be caught in a middle-income trap with low growth and slow convergence to euro area income level.",
    "Boosting productivity is needed to meet challenges presented from Russia’s war in Ukraine and the ongoing transitions to sustain income convergence.",
    "Weak external demand and EU trade sanctions have contributed to declining export market share.",
    "Narrowing competitiveness buffer due to real effective exchange rate appreciation exceeding productivity-implied levels.",
    "Structural constraints: weak investment over a decade, large infrastructure gaps, demographic pressures (aging and emigration), and insufficient skills accumulation.",
    "Significantly higher investment is required for sustained convergence to euro area income levels.",
    "Promote productivity growth through structural reforms and increased capital investment to preserve competitiveness and build resilience against future shocks.",
    "Address infrastructure gaps, labor force aging and emigration, and skills accumulation as priorities to avoid a middle-income trap.",
    "**Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024**"
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