Republic of Latvia: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Latvia

International Monetary Fund

No 2023/330, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2023 Article IV Consultation highlights that Latvia is facing an inflation shock, slow growth, and geopolitical challenges. The government will have to continue to deal with the spillovers in the Baltic region from the Russian invasion of Ukraine and the impact of sanctions imposed on Russia and Belarus, the cost-of-living crisis, and energy security. These short-term concerns are adding to the long-term policy challenge of sustaining the income convergence process. Latvia’s income convergence has already been lagging the other Baltic countries. Amid high uncertainty, the balance of risks is tilted to the downside. The main risks stem from an escalation of the war and associated sanctions, which could result in renewed increases in energy prices, energy supply disruptions in Europe, and weaker external demand. Global financial conditions could further tighten, with spillovers to Latvian banks and domestic credit growth. The paper recommends that structural policies should facilitate the green transition, reduce skill shortages, and boost productivity.

Keywords: income convergence; shock support measure; inflation shock; government finance statistics yearbook; inflation momentum; bank credit risk indicator; Inflation; Energy prices; Fiscal stance; Baltics; Europe (search for similar items in EconPapers)
Pages: 81
Date: 2023-09-15
New Economics Papers: this item is included in nep-cis and nep-ger
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