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As recently as in June, the OECD projected the Latvian economy to grow by 3% this year.

Latvia’s GDP growth forecast for 2018 has been upped to 3.7% from 3.5%.

The harmonized consumer price growth forecast has been cut to 2.7% from 2.8% for this year and left unchanged at 2.3% for 2018.

The OECD says in the survey that the Latvian economy has been showing robust growth on the back of a strong track record of implementing structural reforms. Wage growth has been supported household consumption and catch-up with higher-income OECD countries may have resumed following the 2008-2009 crisis. Government finances are solid and private sector indebtedness is lower than in many other OECD countries.

Joblessness has dropped, although it still remains high, and many young Latvians are emigrating. Informal economic activity is still widespread. Improving access to housing, health care and education would improve economic opportunities for low-income households, but this requires additional government spending, according to the OECD report.

The OECD also notes Latvia’s improving export performance, including the diversification of products and destinations, although Latvian exports still heavily rely on low value-added, natural resource intensive products, reflecting in part low skills and weak innovation.

High long-term unemployment, weak social security nets and high labor taxes for workers on low pay contribute to widespread poverty. Unemployment is especially high in Latvia’s eastern regions. Many low-income households are inadequately housed. Their access to costly health care services is limited.

To reduce poverty, the OECD recommends raising taxes on real estate and energy, as well as to expand the corporate tax base by lifting tax exemptions.

To combat informal economic activity, the OECD recommends increasing the financial independence of the Corruption Prevention and Combating Bureau (KNAB), to improve the ICT use in enforcing tax laws and make the appointment of judges free of political influences.

To help young people from low-income families obtain the qualifications necessary in the labor market the OECD suggests raising funding for vocational schools and their students from such families.

Although Latvia’s expenditure on infrastructure is high, the quality of the infrastructure still falls short of quality standards in high-income countries. To improve the situation, the OECD recommends applying the same cost-benefit tests as are applied to EU-funded projects.

To improve access to health care, the OECD recommends reducing out-of-pocket payments, especially for low-income people.

Latvia has been the strongest reformer among members of the Organization for Economic Co-operation and Development (OECD) this year, OECD Secretary-General Angel Gurria said during the presentation of the organization’s survey of Latvia today.

Gurria noted that this is the OECD’s first economic survey of Latvia since the country’s accession to the organization, and that in 2017 Latvia stood out among other OECD members as the “top reformer”.

Gurria also praised Latvia’s successful economic development saying that its budget has been kept in balance and Latvia’s government debt against GDP was at around 40% as compared to the OECD average of 100%. The indebtedness of the Latvian private sector has also remained relatively small, financial markets confidence is high and unemployment is dropping.

At the same time, the OECD head commended Latvia’s efforts to raise tax revenue and the planned tax reform.

In Gurria’s words, reforms are not something that can just be started and finished, they have to be a way of thinking, always keeping further change and development in mind. The OECD still sees serious challenges facing the Latvian economy, such low productivity, discrepancy between skills and market demand, as well as a shortage of innovation.

Gurria said that Latvia needs to achieve substantial progress in these areas so that Latvian exports included more high-added-value products and services. Latvian exports should move away from low added value and natural resources intensive products. It is also necessary to improve the accessibility of health care, housing and jobs, he said.

Latvia joined the OECD in July 2016.