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Economic Development of Latvia Report 2020 ECONOMIC DEVELOPMENT OF LATVIA RIGA 2020 ISSN 2661-5118 Ministry of Economics ECONOMIC DEVELOPMENT OF LATVIA RIGA 2020 Comments, questions or suggestions are welcome: To the Ministry of Economics Brīvības iela 55, Rīga, LV-1519 Phone 371-67013100 Fax 371-67280882 E-mail: [email protected] Website: http://www.em.gov.lv Report prepared by: O.Barānovs (editor, 1., 6.5.), T.Buls (2.), I.Šnīdere (3.1., 3.2., 4.1., 4.3., 4.4., 4.6., 4.7., 4.8., 4.9., 6.1.), L.Stelmaka-Leja (3.2., 6.6.), I.Skribāne (3.3., 6.2., 6.3., 6.7., 6.9.), E.Gergelevičs (3.4., 4.2.), J.Ušpelis (4.5.), J.Salmiņš (5.), V.Skuja (6.4.), L.Neiders (6.8., 6.9.), N.Ozols (7.1., 7.2., 7.3., 7.4.), A.Rožkalne, U.Rogule-Lazdiņa (7.4.), Č.Gržibovskis (8.1., 8.2.), G.Silovs (8.2.), K.Priedīte (8.2., 11.1.), J.Reinsone (8.3.), E.Kudure-Ševčuka (8.3., 16.), J.Zakovics, E.Pētersone, I.Vanka-Krilovska, A.Šmukste (9.), S.Siliņa (9., 10.), I.Baltābola (9., 11.2.), M.Jansons, V.Krūmkoka, L.Blūmentāle, I.Jakunova, E.Ozoliņš-Ozols, A.Zimele, A.Lazdiņš (10.), L.Bergholde, D.Tetere (11.1.), D.Klinsone (11.2.), Ģ.Blumers, D.Fricbergs (11.3.), D.Armane, I.Karpoviča, M.Zjurikova (12.1.), L.Kundziņa, K.Strode (12.2.), A.Neimanis, M.Ramanis (12.3.), H.Rimša (12.3, 12.4.), O.Feldmane (13.), E.Kalnkambers (14.), I.Kalniņa, I.Šīrava (15.), S.Gertmane (16.). All figures and data, unless indicated otherwise, have been obtained from the Central Statistical Bureau of the Republic of Latvia. The data of the European Union have been obtained from Eurostat. The data of the Bank of Latvia and the Financial and Capital Market Commission have been used in the description of balance of payments and the bank and monetary indicators of Latvia. The data of the Treasury have been used in the description of financial indicators. © Ministry of Economics, 2020 Reference mandatory in case of reprinting and quoting ISSN 2661-5118 3 OPENING STATEMENT Experts of the Ministry of Economics have prepared the current 2020 Report on the Economic Development of Latvia. The report assesses the economic situation, as well as forecasts the prospects of economic development. 2020 was full of challenges. The Covid-19 pandemic has had a strong and lasting impact on the socio-economic situation on a global scale. However, we can view the current situation as an opportunity to strengthen sustainability of our economy. Until this autumn Latvia had managed to cope with the challenges posed by Covid-19 relatively well. One of the lowest Covid- 19 infection rates in Europe were observed in Latvia. This was achieved due to effective and timely reaction on the part of the government. The impact of the Covid-19 pandemic on the economy was also comparatively smaller. However, since autumn we have faced a new outbreak of the Covid-19 pandemic. This means that we should not relax and should be vigilant. Uncertainty about the impact of Covid-19 on economic development is still extremely high because it is unclear how long and widely the virus will continue to spread across Europe and globally. Specialists of the Ministry of Economy forecast a fall in GDP within 5-6% in 2020, while the economy will resume growth again in 2021. I would like to note that Latvia has developed a clear strategy to overcome the crisis caused by the Covid-19 pandemic and has highlighted policy directions to strengthen its economy in the post-crisis period. At the end of May 2020, the government approved the Latvian economic recovery plan “Strategy for Latvia for Mitigation of the Consequences of the Crisis Caused by Covid-19” developed by the Ministry of Economics together with entrepreneurs, industry experts and organisations representing businesses. To overcome the crisis, the strategy proposes to take three consecutive steps: to stabilise the economy in 2020, to refocus the economy in 2021-2022, and the growth phase would start from 2023. During the stabilisation phase, a set of measures are being taken, first of all, aimed at stabilising the financial situation of the population and businesses in conditions of the Covid-19 crisis and limiting the spread of the virus in Latvia. The re-orientation phase is intended for creating new opportunities for entrepreneurs and citizens, with an emphasis on innovation, digital transformation, lifelong learning and focusing on structural economic change by purposefully adapting state aid mechanisms. Furthermore, in the growth phase a set of medium-term support measures are expected to be developed to transform the national economy based on the dynamic development of exports of goods and services, ensuring economic growth through productivity growth, automation, digital transformation, support for business growth and fast-growing industries and ecosystems. The Strategy is regularly complemented by specific action plans in each of the five action lines: “Human Capital”, “Innovation”, “Business Environment for Export Capacity”, “Access to Finance” and “Infrastructure”. To mitigate the effects of the Covid-19 crisis, by 2023, it is proposed to provide public and private investment of 2.2 billion euro for the implementation of infrastructure projects. To mitigate the effects of the Covid-19 crisis, entrepreneurs will also have a number of aid programmes available in 2021, as well as we have submitted a number of proposals for reforms under the European Recovery and Resilience Facility, contributing to transformation of the economy, productivity and digitalisation, the availability of housing, including rental housing, and energy efficiency. The Ministry of Economics pays special attention to the promotion of export capacity. In Latvia, it is important to provide aid not only to already exporting companies, but also to create opportunities for new exporters by supporting companies in the internationally competitive industry and the promotion of their products on export markets. Work is ongoing on a new instrument for overcoming the effects of the Covid-19 crisis to boost employment for exporting taxpaying companies and businesses in the tourism sector. Support for all companies affected by government-imposed security measures to limit the Covid-19 virus is extended. The criterion of the decline in working capital over the last three months for the downtime allowance has been substantially changed, thus providing financial support to all those who are currently unable to work and receive remuneration due to the measures imposed by the government. Similarly, support for working capital is extended without setting a NACE code criterion. This will make it possible for entrepreneurs to “hibernate” and then continue their economic activity. ECONOMIC DEVELOPMENT OF LATVIA | MINISTRY OF ECONOMICS | 2020 4 There are plans to create a “green corridor” to reduce bureaucracy and administrative processes for effective attraction of local and foreign investors. At the same time, measures will be developed, in cooperation with economic operators to reduce business costs to maintain export capacity. Human capital plays an important role in promoting competitiveness. Therefore, ongoing reforms in the education system should be pursued with the emphasis on strengthening the quality of learning of exact and natural sciences in basic education and secondary education. Since the labour market is becoming increasingly variable, for the purposes of reducing the unemployment caused by the Covid-19 crisis it is necessary to move towards the establishment of a sustainable and functional adult education system. By 2023, 165 thousand people are planned to be involved in adult education. The Employment Board consisting of three ministers – Minister of Economics, Minister of Education and Science and Minister of Welfare – ensures more harmonised cooperation between all the parties involved in anticipation of labour market changes and introduction of necessary anticipatory changes, thus enabling society to adapt to the expected changes in a more timely manner. Given the negative impact of the Covid-19 crisis on the labour market, in 2020, the work of the board focused on developing proposals for measures to overcome the Covid-19 crisis and economic recovery in support of adult education and employment. In order to stimulate discussions and find the most effective solutions to boost productivity, the Ministry of Economics continues cooperation with the LV PEAK thinktank of the University of Latvia and the Tripartite Cooperation Sub-Council for Competitiveness and Sustainability (TCSCS). In 2020, TCSCS discussed industrial policy, upskilling of employees and other matters. The EU Single Market, which was created more than 25 years ago to form an integrated, economic growth-oriented group of countries, is facing a historic challenge. Various restrictions imposed by Member States due to Covid-19, partly restored internal border controls, the withdrawal of the United Kingdom from the European Union, the disruption of international supply chains and other factors have an impact on the benefits of the EU Single Market, which seem to be self-evident in everyday life – travelling, working, learning, doing business freely. In all cooperation formats, the Ministry of Economic implements activities aimed at maintaining and sustaining the principles of the functioning of the EU Single Market in order to promote closer EU integrity, unity and competitiveness for further growth. Latvia should be ready to embrace challenges related to the changes brought by Brexit, the withdrawal of the United Kingdom from the block of the EU countries. In this context, the Ministry of Economics continues to provide informative support to businesses and the population to help form a clear understanding of changes in practical life and business. Cooperation with other EU countries will continue, in particular, for the purposes of strengthening competitiveness of the Baltic – Scandinavian region. Support programmes of the EU funds are successfully implemented, providing the opportunity to invest 4.4 billion euro in the development of Latvia.
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