Republic of Latvia: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Latvia

The 2025 Article IV Consultation discusses that Latvia’s successful convergence to euro area income levels has slowed. Gross domestic product per capita has fallen behind, due to weak total factor productivity and limited capital deepening. The government faces growing fiscal demands from pensions, health care, defense, energy security, and climate transition, requiring preserved fiscal space for future crises. The fiscal strategy should focus on mobilizing revenue and improving the efficiency of public spending, to preserve fiscal buffers and address rising medium- and long-term spending pressures. Also, to ensure adequate retirement income, the defined contribution pillars of the pension system should be strengthened. Financial sector policies should reassess the solidarity contribution on banks and continue to monitor banks’ exposure to the commercial real estate sector. Structural reforms should target measures to promote investment and allocative efficiency, which are crucial to reignite growth, accelerate convergence, and increase government revenue.