OECD verdict on Latvia: more reforms needed

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The Organization for Economic Cooperation and Development sometimes dubbed the "rich countries' club" and which Latvia hopes to join soon, delivered its latest overview of the nation's economic health on Wednesday.

According to the 2015 OECD Economic Survey of Latvia, the Latvian economy is among the fastest-growing in the euro area, but reforms need to continue to "promote a rapid and sustainable pace of convergence with upper-income countries while limiting the risk of repeated boom-and-bust cycles." 

Despite a slowdown in 2014 and a challenging international environment, GDP is projected to grow by 3.2% in 2015 and 3.9% in 2016, the OECD said - figures markedly higher than the 2% figure for this year predicted by Finance Minister Janis Reirs just hours before the report was published.

“Latvia’s transformation and economic convergence since the 1990s has been impressive, but there is more to do”, said the OECD's Catherine Mann at a press conference held at the Economics Ministry to introduce the report.

“Reducing high levels of inequality and the risk of poverty will be challenging. Continued efforts on structural policies are needed to dismantle the various obstacles hindering Latvian firms’ productivity and sustainable convergence with Europe. And additional policies should be put in place to limit the repetition of boom-bust cycles.”

The survey, which feeds into Latvia’s ongoing OECD accession process, points out that inequality is high, compared to other OECD countries, and risks of poverty or social exclusion are above those seen in the EU.

Better targeting of social benefits to low-income households is needed to address poverty risks, while lowering taxes on low-paid jobs would promote formal employment, reduce inequality and include more Latvians in the social security system, the OECD recommends.  

Improving governance of state-owned enterprises and ensuring connectivity of network industries will also be key, the survey says, while planned reforms of vocational education and training, including the extension of work-based learning, should proceed to improve the skills and capacities of Latvia’s workforce.

"To counter a boom-bust cycle, the OECD recommends that Latvia build up a reserve to cope with future adverse macroeconomic shocks; maintain adherence to its fiscal discipline law... and continue careful monitoring of the financial sector, particularly as concerns risks related to the large share of non-resident deposits."

An overview of the report with the main conclusions is available here.

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