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2019 OECD Economic Surveys: Latvia 2019

image of OECD Economic Surveys: Latvia 2019

Latvia enjoys strong economic growth and the catch up with living standards in higher income OECD countries continues. Much remains to be done, though, to close the remaining gap and improve equal access to social protection and economic opportunities. Latvia faces one of the fastest declines in its working age population among OECD countries due to ageing and migration. Strong productivity growth is needed to counter this demographic challenge and improve living standards faster. The Economic Survey calls for more investments in skills, research and innovation and efforts to strengthen competition. It also stresses the need for more spending on health, social protection and housing for a more inclusive society. The capacity of the judiciary and law enforcement agencies needs to be strengthened to improve trust in institutions, address corruption, high levels of informality and money laundering issues.

SPECIAL FEATURE: STRONGER PRODUCTIVITY GROWTH

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Policies for stronger productivity growth

Latvia’s productivity growth is held back by weak innovation and inefficient resource allocation. The shortage of skilled workers which constrains innovation and the adoption of digital technologies must be addressed through further alignment of vocational and tertiary education with labour market demand. Strengthening the innovation ecosystem by improving the quality of research and collaboration between firms and research institutions would help to diffuse digital technologies more widely across the economy. Fighting widespread informality, improving the low debt recovery through a more efficient insolvency regime, and reducing substantial state ownership would improve the allocation of resources. Latvia also relies heavily on EU funds to finance its important structural policies. The continuity of the most effective EU funded policy instruments needs to be ensured in the medium term, by integrating them into the national budget.

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