Today, President of Latvia Egils Levits welcomed Mārtiņš Kazāks, Governor of the Bank of Latvia, to the Riga Castle for discussion on current economic situation in Latvia, impact of COVID-19 on growth projections and financial sector agreement to support Latvia’s sustainability.
On the growth rate of the economy, it was noted that faster GDP growth is expected in the second half of this year and in 2022, with COVID-19 still being the main factor, which could slow this growth down, and rapid vaccination being the factor, which would enable economy to fully reopen again. Due to global energy and food price increase, and demand for products restricted by COVID-19, Latvia could experience up to 3% higher inflation in the months to come, but it is expected to drop towards the end of the year. Governor Kazāks also claimed that government support to businesses and people, such as benefits for COVID-19 standby and other kinds of problems, should be phased out gradually as pandemic restrictions are lifted one by one.
As regards to huge financial resources made available to Latvia through the European Union Recovery and Resiliency Facility for investing in growth in the coming years, President Levits underlined the importance of creating a competent and independent advisory body/think tank, which would advise the government and the society on how to build strategies for national growth and well-informed reform plans for the future. Governor of the central bank mentioned that economic restructuring is due in Latvia and investments into research and development are required to help Latvia become a more innovative and sustainable society in the future.
On the planned tax reform and mandatory social contributions from 1 July 2021, Governor Kazāks said that generally tax burden on labour should continue to go down and contributions should decrease, but other compensating measures are needed. Special tax relief programmes carried over from the previous economic crisis have created injustices in existing tax system and that needs to be changed. President and Governor also greed that tax policy has direct impact on how economy transitions to climate neutrality. Sustainable and forward-leaning social policy reforms should contribute to less inequality and more welfare for Latvian residents.
Egils Levits acknowledge the importance of financial sector’s Memorandum of Cooperation for improving Latvia’s sustainability. Governor of the Bank of Latvia said that the Memorandum of Cooperation was signed by financial sector actors, such as Finance Latvia, Financial and Capital Markets Commission, Bank of Latvia, Nasdaq Riga, Latvian Leasing Association and Latvian Insurers Association, on 19 May. By signing the memorandum, parties have agreed to work together on promoting public awareness about the meaning and guiding principles of sustainability and sustainable finances and how to apply them in business and everyday life.
Mārtiņš Kazāks also commented on information about possible abandoning of mandatory contributions under the second pension tier of Latvia. Central bank does not consider it a viable step. These contributions are the social insurance of the retired, in addition to most Latvians still not having enough savings.