Latvia’s budget plans have been assessed as compliant with the European Union’s (EU) fiscal discipline rules, which sends a positive signal to investors, as the country is pursuing sound budgetary policy despite a difficult geopolitical situation, said Valdis Dombrovskis (New Unity), European Commissioner for Economy and Vice-President responsible for An Economy that Works for People.
The European Commission’s (EC) Representation in Latvia informed LETA that the EC has presented the 2025 European Semester Spring Package for Member States, which includes country reports and recommendations. The Spring Package analyses the main economic and social challenges across the EU and provides policy guidance aimed at strengthening competitiveness, prosperity, and resilience.
Dombrovskis noted that the EC has supported Latvia’s request to apply flexibility within the EU’s fiscal rules to significantly increase defense spending. However, he stressed that public debt sustainability must be preserved; therefore, this flexibility is limited to 1.5% of gross domestic product annually until 2028 and is intended solely to strengthen national security.
According to Dombrovskis, it is also crucial to continue structural reforms that foster innovation, attract foreign investment, improve the business environment, and ensure investment in skills development. The overarching goal is to enhance the competitiveness of Latvia’s economy and improve citizens’ quality of life.
“It should be emphasized that not all reforms—such as reducing administrative burdens—require major financial resources. Excessive bureaucracy is often cited as the main obstacle to business development and investment. That’s why the EC calls for decisive action to address these issues,” Dombrovskis said.
The EC recommends that Latvia increase its overall defense spending and preparedness, adhere to the maximum allowed growth rate of net expenditure, and make use of the national derogation clause to boost defense investment.
Additionally, the EC urges Latvia to ensure its public finances can accommodate growing structural spending needs—including in defense, healthcare, and social protection. This could be achieved, for instance, by broadening the tax base toward less growth-distorting sources, integrating informal economic activity into the formal economy, and redirecting spending to priority areas identified in the Public Expenditure Review.
The EC emphasizes that implementation of the Recovery and Resilience Plan (RRP), including the REPowerEU chapter, must be accelerated to meet reform and investment deadlines. Latvia is also encouraged to speed up the execution of cohesion policy programs and leverage the opportunities provided by the mid-term review.
To enhance competitiveness, the EC urges Latvia to make full use of EU instruments such as InvestEU and the European Strategic Investment Platform. Latvia is also encouraged to simplify regulations, improve regulatory tools, and reduce administrative burdens on businesses. Improving access to finance for small and medium-sized enterprises (SMEs)—including by fostering competition in financial markets and promoting public lending and guarantee schemes—should be prioritized to support strategic investments in areas like the green transition, innovation, and regional development.
The EC calls on Latvia to increase private investment in research and innovation, for example, by further reforming higher education to strengthen cooperation between academia and business. Latvia should also reduce its reliance on fossil fuels and improve energy security by accelerating the deployment of renewables, particularly wind and solar.
Furthermore, Latvia should improve permitting procedures and grid access, promote energy storage and demand-side flexibility, and reduce both primary and final energy consumption and carbon intensity. Key actions include strengthening energy efficiency—especially in buildings—and encouraging electrification.
To decarbonize transport, the EC recommends promoting the adoption of electric vehicles, expanding infrastructure for renewable transport fuels, and increasing the availability of charging stations. Latvia should also improve resource efficiency and support the shift to a circular economy through eco-innovation and sustainable resource management.
The EC highlights the importance of addressing labor and skills shortages, particularly in science, technology, engineering, and mathematics (STEM), as well as in sectors critical to the green transition, digitalization, and social and healthcare services. Measures should include targeted skills development, retraining programs, and improved working conditions.
Social protection systems should be strengthened to reduce inequality—this includes enhancing the adequacy of old-age pensions and improving access to quality social services, particularly home care, while maintaining fiscal responsibility.
Finally, the EC urges Latvia to strengthen the accessibility and quality of the healthcare system by providing additional financial and human resources, expanding the basket of publicly funded services, and reducing out-of-pocket expenses for patients. It also recommends increasing the availability and quality of affordable, energy-efficient housing, including through renovation initiatives.
Source: BNS
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