2015 Index of Economic Freedom

Latvia

overall score69.7
world rank37
Rule of Law

Property Rights50.0

Freedom From Corruption53.0

Limited Government

Government Spending59.2

Fiscal Freedom84.4

Regulatory Efficiency

Business Freedom82.1

Labor Freedom61.5

Monetary Freedom83.8

Open Markets

Trade Freedom88.0

Investment Freedom85.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 2.0 million
  • GDP (PPP):
    • $38.9 billion
    • 4.1% growth
    • -1.3% 5-year compound annual growth
    • $19,120 per capita
  • Unemployment:
    • 10.9%
  • Inflation (CPI):
    • 0.0%
  • FDI Inflow:
    • $808.3 million
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Latvia’s economic freedom score is 69.7, making its economy the 37th freest in the 2015 Index. Its score has increased by 1.0 point since last year, with improvements in freedom from corruption, the management of government spending, and monetary freedom outweighing declines in labor freedom, business freedom, and fiscal freedom. Latvia is ranked 17th out of 43 countries in the Europe region, and its overall score is above the regional and world averages.

Commitment to pursuing greater economic freedom has pushed Latvia higher in the “moderately free” category over the past five years. Since 2011, economic freedom in Latvia has increased by 3.9 points, the second highest overall score increase in Europe during that period. Most impressive, Latvia recorded no score declines, sustaining improvements in all 10 economic freedoms except property rights and financial freedom, scores for which were unchanged. In the 2015 Index, Latvia has recorded its highest economic freedom score ever.

Latvia’s ongoing transition to a free-market economy has been facilitated by openness to global commerce and efficient regulation. Prudent fiscal policies and low taxes have limited the government’s presence in the economy and fostered a dynamic private sector. Although Latvia remains poised to continue to reap the benefits of advancing economic freedom, more institutional reforms must be implemented to shore up a weak judiciary and the property rights regime and to tackle pervasive corruption effectively.

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Background

Latvia regained its independence from the Soviet Union in 1991 and joined the European Union and NATO in 2004. Prime Minister Laimdota Straujuma of the conservative Union Party heads a four-party coalition that also includes the National Alliance, the Reform Party, and the Union of Greens and Farmers. Latvia’s economic standing and credit rating have improved following pro-market reforms. Low productivity remains a problem, and there is a large underground economy. Latvia joined the eurozone in 2014.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 53.0 Create a Graph using this measurement

In a 2013 Transparency International poll, 25 percent of Latvians reported paying bribes to government officials. In late 2013, the long-time prime minister resigned after suspicions that a supermarket collapse in Riga that killed over 50 people was due in part to corruption in the construction safety permit process. The judicial system is independent, but improvements are needed.

Limited GovernmentView Methodology


Latvia’s top individual income tax rate is 24 percent, and its top corporate tax rate is 15 percent. Other taxes include a value-added tax and a tax on capital gains. The overall tax burden equals 27.6 percent of gross domestic product. Public expenditures correspond to 36.9 percent of total domestic production, and public debt equals 32 percent of gross domestic output.

Regulatory EfficiencyView Methodology

Incorporating a business takes four procedures on average, and no paid-in minimum capital is required, but completing licensing requirements remains time-consuming. Despite reform efforts, the relatively rigid labor market hinders dynamic job growth. The government created a social support mechanism for poor households to limit potential increases in rates following full opening of the electricity market in 2014.

Open MarketsView Methodology

EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Latvia generally welcomes foreign investment, but foreign ownership of agricultural land is restricted. The banking sector, largely recapitalized since the recent global financial crisis, has recovered its financial stability. The number of nonperforming loans has declined.

Country's Score Over Time

Bar Graph of Latvia Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Switzerland80.5-1.1
2Estonia76.80.9
3Ireland76.60.4
4Denmark76.30.2
5United Kingdom75.80.9
6Lithuania74.71.7
7Germany73.80.4
8The Netherlands73.7-0.5
9Finland73.40.0
10Luxembourg73.2-1.0
11Georgia730.4
12Sweden72.7-0.4
13Czech Republic72.50.3
14Iceland72-0.4
15Norway71.80.9
16Austria71.2-1.2
17Latvia69.71.0
18Belgium68.8-1.1
19Poland68.61.6
20Cyprus67.90.3
21Spain67.60.4
22Slovakia67.20.8
23Armenia67.1-1.8
24Macedonia67.1-1.5
25Hungary 66.8-0.2
26Bulgaria66.81.1
27Romania66.61.1
28Malta66.50.1
29Albania65.7-1.2
30Portugal65.31.8
31Montenegro64.71.1
32Turkey63.2-1.7
33France62.5-1.0
34Italy61.70.8
35Croatia61.51.1
36Slovenia60.3-2.4
37Serbia 600.6
38Bosnia and Herzegovina590.6
39Moldova57.50.2
40Greece54-1.7
41Russia52.10.2
42Belarus49.8-0.3
43Ukraine46.9-2.4
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