Economics, Energy, EU – Baltic States, Investments, Latvia, Transport

In the energy sector, investment in electricity and gas networks is needed in Latvia to improve security of supply and connections between the European Union's markets.

In the transport sector, investments are needed for better cross-border connectivity, including implementing the Rail Baltica project, and ensuring high quality and safe infrastructure.

Investment in energy efficiency is equally important, as the country's energy intensity is amongst the highest in the EU with potential for significant efficiency gains in residential buildings, district heating, and transport, the document says.

Investment in Latvia has been quite volatile in recent years, declining considerably during the crisis in 2008-2009, and then rebounding sharply in 2011-2012. Investment dropped again in 2013 and is forecast to recover marginally by 0.5% in 2014 as business sentiment is affected by geopolitical tensions. A more substantial recovery is expected in 2015-2016 but there are still significant risks due to the country's exposure to current geopolitical tensions.

The main challenge relates to low public investment in sectors where there are insufficient private incentives. On the one hand, the government is committed to maintaining a low-tax environment to support private investment and, on the other hand, significant needs for spending on social protection, healthcare and education restrain government resources from investing in infrastructure and research and development, which lag behind EU standards. Facing external security risks, the government recently committed to increase its defense budget, further limiting its capacity to boost investment in other sectors, the Commission said.

The Commission unveiled a much-touted plan today to inject EUR 315 billion into the EU's ailing economy, the DPA news agency reports.

The Commission proposed Tuesday to set up a new fund, managed by the European Investment Bank, to finance infrastructure projects in areas such as broadband data connections, energy and transport, education, research and innovation.

The idea has been touted by Commission President Jean-Claude Juncker. His plan is to use EU money to encourage private investors to put their money into projects considered at present to be too risky.

Under the proposal, the existing EU budget will be used to finance a EUR 16 billion guarantee, while the EIB will commit EUR 5 billion. This in turn should attract a 15-fold volume in private investments, totaling EUR 315 billion, according to Commission estimates.

The EU's executive also hopes that member states will contribute extra funding. To encourage them, the commission said it will take a "favorable position" towards such commitments when assessing national budget plans.