Latvia’s economic growth is currently weaker than expected and there is a number of things Latvia can do to “push” growth forward, LETA was told by the Governor of the Bank of Latvia Mārtiņš Kazāks.
He pointed out that the weak growth of the economy is currently due to two factors. Firstly, the economy is also weak in Latvia’s main trading partners and in Europe as a whole. Until growth appears there, our export sector will be weak and will drag down the overall growth of the Latvian economy. Secondly, it can be seen that household incomes are growing and purchasing power is recovering, but insecurity is still quite high, and households prefer to accumulate rather than spend.
“The economy is weak and weaker than expected, and not just in Latvia, but in Europe in general. After a good start at the beginning of the year, spring took longer, and the summer economy still hasn’t come into play,” said the head of the central bank.
However, he stressed that it does not mean we have to sit and wait when households finally start spending or the situation in export markets improves.
“There is a number of things Latvia can do to push economic growth forward. I’ll mention a couple. Timely and wise use of EU structural funds in order to enhance economic growth and to make the economy more productive. The next is the administrative burden. In cases when it is excessive, it needs to be lowered without delay. Here we can mention the construction regulation, the insulation regulation. All of these are things that have been in discussion for a long time,” said Kazāks.
He stressed that when it comes to the use of European Union funds, there should also be a change of mindset when setting targets. For example, it is not necessary to set the creation of new jobs as the main goal, because there are few employees in Latvia, and this is not an unlimited resource. Instead, it is better to shift the focus to creating more efficient processes, to new products and to creating higher-yielding jobs.
Lowering the administrative burden can help make economic processes faster and cheaper, as well as grant businesses greater and more tangible benefit than a review of some tax.
The number of workers is also highly important to economic growth and in the last five years the number of workers in Latvia has decreased, whereas in Lithuania and Estonia it has increased. Estonians and Lithuanians, among others, have been more skilled in using the local workforce, as the involvement in the labour market is higher than in Latvia. The number of people working in Lithuania has also increased significantly due to Ukrainian and Belarusian refugees.
“This means that not only have we not attracted as much labour as Lithuanians and Estonians, but we are also not using the existing labour resource as efficiently. We also see a tendency in Latvia that, despite a slight decrease in the number of employed persons, its share in the public sector is growing and in the private sector is becoming smaller. This trend is, of course, unsustainable. Consequently, efforts must be made to return people to the private sector and to use this resource more efficiently. It is also a crucial element for faster economic growth,” stressed Kazāks.
He also pointed out that Latvia’s problem is not a lack of ideas, Latvia’s problem is delaying or not taking decisions.
“We have to be brave. In my opinion, this is what the Lithuanians have shown over the last ten years: they received, set high goals, worked together, sometimes took risks and are now a success story for the Baltic region. I see no reason why, ten years from now, Latvia could not be a success story for the Baltic region. We have all the prerequisites for this,” said the governor of the Bank of Latvia.