Republic of Latvia: 2026 Article IV Consultation-Press Release; and Staff Report

The 2026 Article IV Consultation discusses that Latvia faces significant structural challenges and public spending pressures. Latvia’s slow convergence in per capita income with the rest of the euro area reflects weaker total factor productivity growth and limited capital deepening, which have constrained labor productivity growth. Meanwhile, rising fiscal pressures arise from higher outlays for defense, pension, healthcare, the green transition, and energy security. Fiscal policy should pursue a credible medium-term fiscal consolidation strategy to preserve fiscal space, address spending pressures, and reduce public debt, while improving the efficiency of spending and strengthening the defined-contribution pension pillars. Financial sector policies should closely monitor growing nonbank lending, while ensuring that the solidarity contribution on banks is phased out as planned in 2027. Structural reforms should focus on boosting investment and productivity, reducing administrative and regulatory burdens, and enhancing energy security, while strengthening financial intermediation and deepening financial markets to support firm investment and growth.