On 16 June 2016 the IMF published on its website a staff report following the conclusion of discussions with Latvia under Article IV of the IMF’s articles of agreement.
Growth increased to 2.7% in 2015 and investment grew at 2.1% following a previous contraction. The general government deficit was around 1.3% of GDP. Tax revenues were supported by strong wage growth and by improved tax compliance.
The medium term outlook is considered to be broadly positive but higher productivity and additional fiscal space are required to achieve inclusive growth and employment. Structural reforms are required in a number of areas to maintain competitiveness and improve equity. These reforms must aim to improve the investment climate; enhance infrastructure; improve the efficiency of the judicial system and insolvency regime; and encourage innovation.
The grey economy is an obstacle to achieving full potential as it hinders the efficient allocation of resources and curtails budget revenues. Efforts should be made to improve participation in the formal economy.
Additional fiscal space is required in the medium term to strengthen the social safety net and boost productive public spending. The government is planning to raise more tax revenue and the IMF recommends the use of the ongoing reviews of tax and expenditure to consider comprehensive reform to improve incentives and spread the tax burden equitably.
