Latvia: Country fact sheet
- Content Type
- Country Data and Maps
- Economist Intelligence Unit
- No abstract is available.
- Summary, Economy, Background, Fact sheet
- Political Geography
Annual data 2020 a Historical averages (%) 2016-20 Population (m) 1.9 Population growth -1.1 GDP (US$ bn; market exchange rate) 33.5 Real GDP growth 1.6 GDP (US$ bn; purchasing power parity) 42.7 Real domestic demand growth 2.2 GDP per head (US$; market exchange rate) 17,715 Inflation 1.7 GDP per head (US$; purchasing power parity) 22,604 Current-account balance (% of GDP) 1.0 Exchange rate (av) €:US$ 0.88 FDI inflows (% of GDP) 2.3 aActual.
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Background: After being annexed by the Soviet Union in 1940, Latvia regained independence in 1991 and moved swiftly to adopt a free-market economy. The political scene has been characterised by a weak left, supported mainly by the large ethnic-Russian minority, and a dominant but fragmented right. Governments have tended to be fractious and short-lived, but successive administrations have shown a high degree of policy continuity, especially in meeting the requirements for EU, euro zone and OECD entry (in 2004, 2014 and 2016 respectively). In July 2019 Egils Levits replaced Raimonds Vejonis as president. The current prime minister is Krisjanis Karins, from the New Unity (JV) party. The next parliamentary election is scheduled for October 2022.
Political structure: Latvia is a parliamentary republic. The legislature is the 100-seat, unicameral Saeima, which sits for a four-year term and is elected by proportional representation through party lists. The president is elected by the Saeima for a period of four years and a maximum of two consecutive terms. The president is the head of state and appoints the prime minister, subject to approval by the Saeima, with which most powers rest.
Policy issues: Pandemic response takes priority, but the main policy goals beyond that are to strengthen economic growth, raise living standards, reduce inequality and shrink the grey economy, especially via improved tax collection. Latvia is also under pressure to implement anti-money-laundering recommendations made by the Council of Europe.
Taxation: Starting in 2018, Latvia moved from a flat personal income tax rate of 23% to a progressive taxation policy with three rates-of 20%, 23% and 31.4%. The flat 15% corporate profit tax rate was replaced with zero tax on reinvested profits and 20% otherwise. Employers are required to make social security contributions amounting to 23.59% of an employee's salary, and employees contribute 10.5%. A tax rate of 15% is levied on capital gains and 10% on other income from capital. Real estate tax is 1.5%. Value-added tax (VAT) is levied at 21%, with a lower rate of 12% for medicines and certain utilities.
Foreign trade: The current account shifted from a large deficit to a surplus of 8.2% of GDP in 2009, as the economic slump led to a sharp fall in imports and exports, and to large write-offs in the value of foreign direct investment. The current account registered modest deficits in 2018-19, but returned to surplus in 2020. Exports, especially to the EU, are dominated by low-value-added goods; Latvian products will need to move up the value chain if the country is to avoid external imbalances and achieve sustained income growth.
Major exports 2019 % of total Major imports 2019 % of total Machinery & equipment 24.5 Machinery & equipment 13.7 Transport equipment 15.3 Metals 7.1 Chemicals 12.1 Chemicals 6.6 Metals 9.5 Transport equipment 5.0 Leading markets 2019 % of total Leading suppliers 2019 % of total Lithuania 17.1 Lithuania 18.6 Russia 15.3 Germany 12.2 Estonia 12.1 Poland 9.8 Germany 7.3 Estonia 9.1
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