Budget, Education and Science, EU – Baltic States, Financial Services, GDP, Latvia, Legislation, Markets and Companies

Yesterday the European Commission released its country-specific recommendations that, according to Zemitis, are now much more detailed.

In the recommendations for Latvia, the Commission notes that the deviation from the medium-term objective in 2015 and 2016 must be limited to the allowance linked to the systemic pension reform. Latvia is also advised to improve vocational educationn and training, speed up the curricula reform and increase the offer of apprenticeships.

The Commission also wants Latvia to ensure that the new financing model of the higher education system rewards quality. Latvia should better target research financing and inject incentive in private investment in innovation on the basis on of the Smart Specialization Framework.

The Commission believes that Latvia has to take concrete steps to reform social assistance, ensuring adequacy of benefits, and take measures to increase employability, as well as reduce the high tax wedge for low-income earners by shifting tax burden to other sources less detrimental to growth.

Furthermore, Latvia has to take action to improve accessibility, cost-effectiveness and quality of the healthcare system and link hospital financing to performance mechanisms.

In the Commission's opinion, Latvia must improve efficiency of the judicial system, by increasing accountability of all parties (including insolvency administrators), by providing adequate means to fight tax evasion and by strengthening the role of the Judicial Council.

Furthermore, Latvia is expected to improve the public service legislation to strengthen the conflict of interest regime and link remuneration to responsibilities.

Latvia may have to consolidate its 2016 budget by 0.3% of GDP, the Commission emphasizes. The Commission points out that defense spending cannot be classified as one-off measure, and notes that structural reforms are needed in healthcare, albeit not at the expense of higher budget deficit.

"The Commission has no objections to Latvia's plans to increase defense spending and carry out reforms to healthcare, however, Latvia must not spend more than it can afford. The Commission is not convinced that Latvia will have the money it is planning to spend on these areas," said Zemitis.

Overall, Latvia has implemented the previous recommendations issued by the Commission, but in many areas there could have been better progress, for instance, in fiscal policy and tax reforms, higher and vocational education, energy, and judicial affairs. In the meantime, social assistance reforms have not advanced, and progress with healthcare reforms has been insufficient.