IMF says more reforms needed in Latvia

The International Monetary Fund (IMF) on Thursday released details of its latest forecasts for Latvia, at the end of its annual review of the Latvian economy.

The so-called Article IV consultation finished on June 10 and drew generally positive conclusions.

"Executive Directors commended the steady economic progress in Latvia, and the generally favorable macroeconomic conditions despite the current slowdown. They noted that the medium-term outlook is broadly positive; however, higher productivity and additional fiscal space are needed to support inclusive growth and employment," it said.

"Directors emphasized the need for continued structural reforms across a wide range of areas to enhance productivity, maintain competitiveness, and improve equity. This would be vital to maintain the pace of income convergence with the rest of Europe.

"Reforms are needed to improve the investment climate; enhance public infrastructure; strengthen the governance of state-owned enterprises; improve the efficiency and effectiveness of the judicial system and insolvency regime; and encourage innovation," the IMF said.

Other measures are needed to improve labor participation and align education and vocational training with market demand, while wages need to be monitored to ensure they do not impact competitiveness by exceeding productivity gains.

"Directors noted that the gray economy is preventing Latvia from achieving its full potential by hindering the efficient allocation of resources, creating an unfair playing field, and curtailing budget revenues. They called for further efforts to improve participation in the formal economy alongside measures to enhance public services and garner public support," the IMF said.

The IMF predicted real GDP of 2.5% this year (above the Latvian central bank's latest estimate of 2.0%) with nominal GDP worth just over €25 billion. 

    

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