The Concluding Statement, issued June 13, says Latvia's key priorities are "to contain inflation and to address long-standing challenges to productivity, investment, and labor supply."
"Fiscal policy would need to be tighter in the short-term to help reduce inflationary pressures, while ensuring that any energy support, if required, is well targeted. Fiscal reforms should focus on public investment, pension, health, education, and growth-enhancing tax reform," the IMF advises.
Financial sector policies should continue heightened monitoring of risks and devise contingency plans, while accelerating corporate reforms could help reverse Latvia’s weak investment, the IMF adds.
"Latvia is facing an inflation shock, slow growth, and geopolitical headwinds," the IMF warns, while "Amid high uncertainty, the balance of risks is tilted to the downside."
"Latvia’s income convergence has already been lagging the other Baltic countries. The geopolitical situation and high inflation will likely depress investment and productivity, with serious implications for future prosperity. To secure high long-term growth in a low inflation environment, Latvia needs to lift productivity, increase investment, and overcome skilled labor shortages," says the IMF.
Growth is projected to slow to 0.9 percent in 2023 from 2.8 percent in 2022, then in 2024, growth is projected to rebound to 2.7 percent. Headline inflation is projected to retreat to 10.4 percent in 2023. In 2024, headline inflation is projected to slow to 3.4 percent, while core inflation is projected to measure 11 percent in 2023, before falling to 5 percent in 2024.
"Fiscal reforms should focus on public investment, pension, health, education, and growth-enhancing tax reform," said the IMF.
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’). Missions are undertaken as part of regular (usually annual) consultations. The IMF's team conducted meetings in Riga during May 31–June 13, 2023. The full Concluding Statement can be read here.
