Key developments and challenges

Latvia is emerging from the deepest recession since the onset of transition. Ensuring sustained growth and a reduction in unemployment in future years will depend on further improvements in competitiveness and diversification, focusing on the production and export of products which are more intensive in skills and technology. This will need to be supported through a business environment that is more conducive to innovation.

Credit to the private sector is still contracting and non-performing loans have reached record levels. The need to revive bank credit to the private sector, in particular to small and medium-sized enterprises (SMEs), remains a key challenge. The re-privatisation of the former Parex Banka would support this objective and allow the unwinding of crisis-related interventions.

More competition and greater private sector participation will be important to raise efficiency levels in all segments of the power sector (generation, transmission and distribution). In the electricity market, systems for future regional market integration with Baltic neighbours and other Nordic countries need to be established.