Latvia overview

In Latvia we focus on:

Supporting investments in energy security and energy efficiency. The EBRD is focussing in particular on promoting and financing new renewable energy generation capacity and improving energy efficiency.

Strengthening the financial sector. The EBRD has played an important role in restructuring and turning around the systemically important Parex bank. Further engagement in the financial institutions sector will focus on strengthening financial sector stability as well as supporting credit recovery, developing private equity and mezzanine capital financing, particularly to SMEs.

Improving the competitiveness of the export sector. The EBRD is prioritising support for export--oriented firms as well as for cross-border investments by Latvian companies elsewhere in the Baltics or CIS region. The Bank is paying particular attention to supporting investments designed to improve energy efficiency in order to further boost competitiveness.

Policy dialogue. We are conducting policy dialogue with the Latvian authorities with regard to ongoing reforms in the financial sector in close cooperation with the European Commission. The EBRD is continuing to support the improvement of corporate governance in Latvia, particularly in unlisted and state-owned enterprises. In the public sector, policy dialogue is focussed on improving procurement and increasing transparency. Efforts continue to encourage the development of PPPs and supporting legislation, in particular with regard to roads and other infrastructure.

As well as being a country where the EBRD works, Latvia is also an EBRD donor. Latvia takes an active part in the Eastern Europe Energy Efficiency and Environment Partnership Fund and contributed €10,000 for activities in Ukraine in 2015.

The EBRD’s latest strategy for Latvia was adopted on 10 February 2016.

EBRD forecast for Latvia’s real GDP growth in 2018 3.9%

EBRD forecast for Latvia’s real GDP growth in 2019 3.5%

GDP growth in Latvia accelerated further, to 4.7 per cent in the first half of 2018, underpinned by a rebound in investment and still-solid household consumption. Following two consecutive years of contraction, investment growth turned positive and registered double-digit growth in 2017 and in the first half of 2018. The surge in investment coincides with improved EU funds utilisation, as well as a recovery in private sector investment. The latter is mainly financed by companies’ own funds, rather than credit growth, which remains subdued, partly because of the government’s ambition to decrease the foreign share of deposits in Latvia’s banking sector.

New legislation to reduce transactions between Latvian banks and shell companies was approved in April 2018 as fallout of the ABLV bank failing after being accused of money laundering by the US authorities. Consequently, the share of foreign deposits dropped from 30 per cent in March to a record-low level at 20.5 per cent in August, while the aim of the government is to cut it to only 5 per cent of all deposits. While the law will likely have a negative impact on GDP growth in the short term, it is aimed at strengthening the resilience of the banking sector.

GDP growth is expected to slow down to 3.9 per cent and 3.5 per cent, this and next year, respectively. In the short term, household consumption is forecast to remain solid, backed by higher wages and lower unemployment.

Latvia in the EBRD’s 2018-19 Transition Report

Latvia in the latest beeps survey