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Latvia's economic growth is expected to slow down because of delays in the absorption of EU funding, as well as persistent geopolitical tensions and volatility of the economic environment.

Still, notwithstanding the current slowdown, economic growth is likely to pick up in the second half of this year and in 2017, the IMF predicts. Latvia's economic growth is expected to accelerate on the absorption of EU funding and stronger global economic growth.

The IMF stressed that Latvia has to carry out structural reforms to promote and maintain growth in the medium-term. The reforms are necessary to promote investment, productivity growth and to increase competitiveness.

The IMF also called on Latvia to clamp down on its shadow economy, which currently is preventing Latvia from fulfilling its potential. Measurable achievements in the area of public services could be a motivation to reduce the shadow economy, Kelmanson said.

The IMF pointed to serious risks to Latvia's economic growth, such as weak growth in Latvia's trade partner countries in the eurozone and Russia, geopolitical tensions, lending stagnation and delaying of structural reforms.

In the future, it will not be easy for Latvia to ensure further productivity growth, which so far has been an essential factor helping reduce income inequality, the IMF said. Productivity, however, requires increased attention, as labor force shortages in Latvia are becoming increasingly serious because of demographic issues and emigration. Productivity can be increased by implementing structural reforms.

The IMF mission also analyzed Latvia's fiscal policy, concluding that in the future Latvia will need a fiscal space to boost its social security net and ensure productive public spending.

This spring, the IMF mission worked for two weeks in Latvia.

The mission's previous visit to Latvia took place in December 2015.