2016 Index of Economic Freedom

Latvia

overall score70.4
world rank36
Rule of Law

Property Rights50.0

Freedom From Corruption55.0

Limited Government

Government Spending58.4

Fiscal Freedom84.8

Regulatory Efficiency

Business Freedom78.6

Labor Freedom59.5

Monetary Freedom84.8

Open Markets

Trade Freedom88.0

Investment Freedom85.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 2.0 million
  • GDP (PPP):
    • $48.2 billion
    • 2.4% growth
    • 2.7% 5-year compound annual growth
    • $23,707 per capita
  • Unemployment:
    • 10.0%
  • Inflation (CPI):
    • 0.7%
  • FDI Inflow:
    • $473.5 million
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The Latvian economy has made a notable recovery from the severe shock of the recent global financial crisis. Particularly since mid-2010, with determined budget-cutting measures, the political leadership has demonstrated solid commitment to reform, and Latvia is now better positioned than many other countries in the region to sustain resilient economic growth.

Economic Freedom Snapshot

  • 2016 Economic Freedom Score: 70.4 (up 0.7 point)
  • Economic Freedom Status: Mostly Free
  • Global Ranking: 36th
  • Regional Ranking: 17th in Europe
  • Notable Successes: Trade Freedom and Business Freedom
  • Concerns: Corruption and Labor Freedom
  • Overall Score Change Since 2012: +5.2

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Background

Latvia regained its independence from the Soviet Union in 1991 and joined the European Union and NATO in 2004. Prime Minister Laimdota Straujuma of the conservative Union Party returned to power after the October 2014 elections. She heads a three-party coalition that also includes the National Alliance and the Union of Greens and Farmers. The pro-Russian Harmony party is the biggest party despite not gaining power, although its total vote share fell by 5 percent. Latvia’s economic standing and credit rating have improved following pro-market reforms. Low productivity remains a problem, and there is a large underground economy. Latvia joined the eurozone in 2014.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 55.0 Create a Graph using this measurement

Although it is a crime under Latvian law to offer or accept a bribe or to facilitate an act of bribery, corruption exists at every level of government, and very few officials have ever been prosecuted and convicted. Judicial independence is generally respected, and property rights are protected, but the public is still distrustful of a judicial system that it views as inefficient, politicized, and corrupt.

Limited GovernmentView Methodology

The individual income tax rate is a flat 23 percent, and the corporate tax rate is a flat 15 percent. Other taxes include a value-added tax and excise taxes. The overall tax burden equals 27.7 percent of total domestic income. Government spending amounts to 37.2 percent of GDP. The budget deficit has been declining in recent years, and public debt is about 40 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory framework is relatively efficient, and the business start-up process has been streamlined. The labor market lacks flexibility; non-salary costs of employing workers are high, and restrictions on work hours are rigid. Inflation is expected to remain low, partly reflecting the sharply lower global oil price forecast and the absence of fuel subsidies, but the ongoing liberalization of electricity tariffs will be felt by businesses and consumers.

Open MarketsView Methodology

EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. State-owned enterprises operate in several sectors. The financial sector has undergone regulatory adjustments since early 2009, with the government providing capital injections. Banking remains stable, and the number of non-performing loans is declining.

Country's Score Over Time

Bar Graph of Latvia Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Latvia to other economic country groups Download Charts

Regional Ranking

rank country overall change
1Switzerland810.5
2Ireland77.30.7
3Estonia77.20.4
4United Kingdom76.40.6
5Denmark75.3-1.0
6Lithuania75.20.5
7The Netherlands74.60.9
8Germany74.40.6
9Luxembourg73.90.7
10Iceland73.31.3
11Czech Republic73.20.7
12Georgia72.6-0.4
13Finland72.6-0.8
14Sweden72-0.7
15Austria71.70.5
16Norway70.8-1.0
17Latvia70.40.7
18Poland69.30.7
19Cyprus68.70.8
20Spain68.50.9
21Belgium68.4-0.4
22Macedonia67.50.4
23Armenia67-0.1
24Malta66.70.2
25Slovakia66.6-0.6
26Hungary 66-0.8
27Albania65.90.2
28Bulgaria65.9-0.9
29Romania65.6-1.0
30Portugal65.1-0.2
31Montenegro64.90.2
32France62.3-0.2
33Serbia 62.12.1
34Turkey62.1-1.1
35Kosovo61.4N/A
36Italy61.2-0.5
37Slovenia60.60.3
38Croatia59.1-2.4
39Bosnia and Herzegovina58.6-0.4
40Moldova57.4-0.1
41Greece53.2-0.8
42Russia50.6-1.5
43Belarus48.8-1.0
44Ukraine46.8-0.1
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