## Republic of Latvia: Selected Issues

_IMF Staff Country Reports, September 5, 2024_

## Source details

**Canonical URL:** [Republic of Latvia: Selected Issues](https://www.imf.org/en/publications/cr/issues/2024/09/05/republic-of-latvia-selected-issues-554556)

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- [Markdown version](/en/publications/cr/issues/2024/09/05/republic-of-latvia-selected-issues-554556/index.md)
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## Bibliographic details
- Published: September 5, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400287817.002

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### Overview
- 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.

### Key findings
- 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.

### Risks and constraints
- 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.

### Policy recommendations
- 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.

*International Monetary Fund. Republic of Latvia: Selected Issues. September 5, 2024.*

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## Content in this bundle

- **Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024**
  - [Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024 (Markdown version)](/-/media/files/publications/cr/2024/english/1lvaea2024002.pdf.md){rel="alternate" type="text/markdown"}
  - [Republic of Latvia: Selected Issues; IMF Country Report No. 24/285; August 2, 2024 (PDF)](/-/media/files/publications/cr/2024/english/1lvaea2024002.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2024/09/05/republic-of-latvia-selected-issues-554556_