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"Latvia has to keep following a responsible fiscal policy and moving towards the medium-term budgetary objectives. The European Commission has granted Latvia permission to use the requested deviation from the medium-term budgetary objective for structural reforms in order to carry out its health sector reform, but to a limited extent, because Latvia is already using an allowance linked to the development of the second pillar of its pension system," Dombrovskis said.

Regarding the tax burden, Dombrovskis indicated the European Commission advises easing it for low-paid employees, shifting the tax burden towards environmental and property taxes and improving tax compliance.

Representatives of the Finance Ministry explained that Latvia has been allowed to increase its budget deficit by 0.1% of GDP in 2017, or an estimated EUR 35 million. The allowed deviation makes up 0.5% of GDP, but Latvia is already using 0.4% of GDP in relation to the development of the second pillar of the pension system.

In accordance with the European Commission's recommendations, Latvia has to ensure that the deviation from the adjustment path towards the medium-term budgetary objective in 2016 and 2017 is limited to the allowance linked to the systemic pension reform and the major structural reform in the healthcare sector.

The Commission also says that Latvia needs to improve the adequacy of social assistance benefits and step up measures supporting recipients in finding and retaining work, including through increased coverage of activation measures. It has also been recommended to speed up the curricula reform in vocational education, establish with the involvement of social partners a regulatory framework for apprenticeship – type schemes and increase their offer. Improve the accessibility, quality and cost – effectiveness of the healthcare system.

Latvia has also been advised to pursue the consolidation of research institutions and provide incentives for private investment in innovation, strengthen the conflict of interest prevention regime and set up a common legal framework for all public employees, as well as increase the accountability and public oversight of insolvency administrators.

The European Commission on Wednesday released its analysis of economic and social challenges in EU member states or the so called recommendations to the member states.

As reported, Latvia was going to ask the European Commission permission to slightly expand its budget deficit as it reforms its health sector.