2021 Index of Economic Freedom

Latvia

OVERALL SCORE72.3
WORLD RANK30
Rule of Law

Property Rights74.7

Judicial Effectiveness55.9

Government Integrity47.7

Government Size

Tax Burden76.7

Government Spending57.6

Fiscal Health96.6

Regulatory Efficiency

Business Freedom76.5

Labor Freedom73.8

Monetary Freedom79.6

Open Markets

Trade Freedom84.0

Investment Freedom85.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 1.9 million
  • GDP (PPP):
    • $59.5 billion
    • 2.2% growth
    • 3.1% 5-year compound annual growth
    • $32,204 per capita
  • Unemployment:
    • 6.5%
  • Inflation (CPI):
    • 2.7%
  • FDI Inflow:
    • $789.2 million

Latvia’s economic freedom score is 72.3, making its economy the 30th freest in the 2021 Index. Its overall score has increased by 0.4 point because of improvements in judicial effectiveness and other factors. Latvia is ranked 17th among 45 countries in the Europe region, and its overall score is above the regional and world averages.

The Latvian economy has retained its mostly free rank for the fifth year in a row. To expand economic freedom further, the government needs to strengthen the judiciary, rededicate itself to curbing corruption, and continue to make reforms in banking oversight as it deals with the effects of several major money-laundering scandals in the financial sector.

IMPACT OF COVID-19: As of December 1, 2020, 210 deaths had been attributed to the pandemic in Latvia, and the economy was forecast to contract by 6.0 percent for the year.

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Background

Latvia regained its independence from the Soviet Union in 1991, joined the European Union and NATO in 2004, and joined the eurozone in 2014. Despite the fact that his center-right New Unity party holds the fewest seats in parliament, Arturs Krišjanis Karinš became prime minister in January 2019. He heads a five-party coalition that excludes only the Union of Greens and Farmers and the pro-Russian Harmony party. Latvia’s small, open economy relies heavily on exports. Transit services are highly developed, as are timber and wood processing, agriculture and food products, and the machinery manufacturing and electronics industries. Corruption remains a serious concern as evidenced by a recent series of high-profile bribery and money-laundering scandals.

Rule of LawView Methodology

Property Rights 74.7 Create a Graph using this measurement

Judicial Effectiveness 55.9 Create a Graph using this measurement

Government Integrity 47.7 Create a Graph using this measurement

Latvia recognizes the full spectrum of property rights, including mortgages and liens. There are few problems with unclear legal titles, and property registration is efficient. The judiciary is independent but widely regarded as subject to political influence. There are reports of corruption and lack of transparency in public procurement. The government is trying to strengthen anticorruption enforcement and improve the functioning of its Anti-Corruption Bureau.

Government SizeView Methodology

The top individual income tax rate is 31.4 percent, and the top corporate tax rate is 20 percent. The overall tax burden equals 30.7 percent of total domestic income. Government spending has amounted to 37.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.6 percent of GDP. Public debt is equivalent to 36.8 percent of GDP.

Regulatory EfficiencyView Methodology

Latvia’s business freedom score, a relative indicator, has declined slightly, not because of changes in Latvia’s own business environment but because of improvements in other countries. Labor force participation and the value added per worker relative to the minimum wage have increased, improving labor freedom. The government provides subsidies for electricity, heating, agriculture, transportation, and other sectors.

Open MarketsView Methodology

As a member of the EU, Latvia has 45 preferential trade agreements in force. The trade-weighted average tariff rate (common among EU members) is 3 percent, with 639 EU-mandated nontariff measures in force. Latvia has an additional four country-specific nontariff barriers. The overall investment regulatory framework is relatively efficient. In general, rules regarding foreign investment are not burdensome. The financial sector has regained stability.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland81.9-0.1
2Ireland81.40.5
3United Kingdom78.4-0.9
4Estonia78.20.5
5Denmark77.8-0.5
6Iceland77.40.3
7Georgia77.20.1
8Lithuania76.90.2
9Netherlands76.8-0.2
10Finland76.10.4
11Luxembourg760.2
12Sweden74.7-0.2
13Austria73.90.6
14Czech Republic73.8-1.0
15Norway73.40.0
16Germany72.5-1.0
17Latvia72.30.4
18Armenia71.91.3
19Cyprus71.41.3
20Bulgaria70.40.2
21Malta70.20.7
22Belgium70.11.2
23Azerbaijan70.10.8
24Spain69.93.0
25Poland69.70.6
26Romania69.5-0.2
27North Macedonia68.6-0.9
28Slovenia68.30.5
29Portugal67.50.5
30Serbia 67.21.2
31Hungary67.20.8
32Kosovo66.5-0.9
33Slovak Republic66.3-0.5
34France65.7-0.3
35Albania65.2-1.7
36Italy64.91.1
37Turkey64-0.4
38Croatia63.61.4
39Montenegro63.41.9
40Bosnia and Herzegovina62.90.3
41Moldova62.50.5
42Russia61.50.5
43Belarus61-0.7
44Greece60.91.0
45Ukraine56.21.3
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