Reforms can support growth and equity in Latvia, OECD says | WPN World People News

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

The Survey, presented in Riga by OECD Chief Economist Catherine L. Mann and Latvian Economics Minister Dana Reizniece-Ozola, notes that Latvia bounced back strongly from the global economic crisis and has shown noteworthy capacity to adjust to external shocks. 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.

“Latvia’s transformation and economic convergence since the 1990s has been impressive, but there is more to do”, Ms Mann said. “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.

Productivity gains – notably via international trade, integration into global value chains and investment into knowledge based capital – will be essential to stimulate further income convergence, the Survey said. Improving the business environment, by reducing entry barriers and red tape, should be the first step. Improving governance of state-owned enterprises and ensuring connectivity of network industries will also be key, the Survey says.

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.

As recent history has shown, Latvia is highly exposed to external shocks, which can be costly to both the economy and the state of public finances, with deficits and debt both rising during the crisis. 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, which aims to ensure that budgetary policies do not accentuate fluctuations in the economy; and continue careful monitoring of the financial sector, particularly as concerns risks related to the large share of non-resident deposits.

Source: Organization for Economic Co-operation and Development