2022 Index of Economic Freedom

Latvia

OVERALL SCORE74.8
WORLD RANK18
Rule of Law

Property Rights88.5

Judicial Effectiveness75.1

Government Integrity61.1

Government Size

Tax Burden76.4

Government Spending53.2

Fiscal Health91.4

Regulatory Efficiency

Business Freedom81.9

Labor Freedom62.4

Monetary Freedom83.8

Open Markets

Trade Freedom79.2

Investment Freedom85.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 1.9 million
  • GDP (PPP):
    • $60.1 billion
    • -3.6% growth
    • 1.6% 5-year compound annual growth
    • $31,509 per capita
  • Unemployment:
    • 8.2%
  • Inflation (CPI):
    • 0.1%
  • FDI Inflow:
    • $873.0 million

Latvia’s economic freedom score is 74.8, making its economy the 18th freest in the 2022 Index. Latvia is ranked 13th among 45 countries in the Europe region, and its overall score is above the regional and world averages.

Latvia’s economic growth has waxed and waned in the past half decade, ending up negative in 2020 before reviving in 2021. However, a five-year record of solid economic freedom has held relatively steady. With gains in scores for rule of law matched by losses in scores for tax burden and government spending, Latvia’s overall level of economic freedom is unchanged from 2017, and the country remains near the middle of the “Mostly Free” category. Monetary freedom, trade freedom, and investment freedom are relatively strong, but labor freedom and financial freedom exhibit weaknesses.

IMPACT OF COVID-19: As of December 1, 2021, 4,213 deaths had been attributed to the pandemic in Latvia, and the government’s response to the crisis ranked 69th among the countries included in this Index in terms of its stringency. The economy contracted by 3.6 percent in 2020.

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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 2019. He heads a four-party coalition that includes the New Conservative Party (JKP), For Development/For!, and the National Alliance. 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 Law

Property Rights 88.5 Create a Graph using this measurement

Judicial Effectiveness 75.1 Create a Graph using this measurement

Government Integrity 61.1 Create a Graph using this measurement

The full spectrum of property rights is recognized. Expropriations are extremely rare. Improvements in the judicial system are still needed to accelerate the adjudication of cases, strengthen the enforcement of court decisions, and upgrade professional standards. There are reports of corruption and lack of transparency in public procurement. Relatively few government officials have been prosecuted and convicted for corruption.

Government Size

The top individual income tax rate is 31.4 percent, and the top corporate tax rate is 20 percent. The overall tax burden equals 31.2 percent of total domestic income. Government spending has amounted to 39.5 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.7 percent of GDP. Public debt is equivalent to 45.5 percent of GDP.

Regulatory Efficiency

The Latvian economy is known for innovation and for being a regional transportation hub, but there is also a significant shadow economy. Labor costs are relatively low by European Union standards. There is a shortage of available workers. The government provides subsidies for electricity, heating, agriculture, transportation, and other sectors.

Open Markets

As a member of the EU, Latvia has 46 preferential trade agreements in force. The trade-weighted average tariff rate (common among EU members) is 2.9 percent with 640 EU-mandated nontariff measures in force. In general, rules regarding foreign investment are not burdensome. Investment regulations are relatively transparent. The small financial sector is open and stable.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland84.22.3
2Ireland820.6
3Luxembourg80.64.6
4Estonia801.8
5Netherlands79.52.7
6Finland78.32.2
7Denmark780.2
8Sweden77.93.2
9Iceland77-0.4
10Norway76.93.5
11Germany76.13.6
12Lithuania75.8-1.1
13Latvia74.82.5
14Czech Republic74.40.6
15Austria73.8-0.1
16Cyprus72.91.5
17United Kingdom72.7-5.7
18Georgia71.8-5.4
19Malta71.51.3
20Bulgaria710.6
21Portugal70.83.3
22Slovenia70.52.2
23Slovak Republic69.73.4
24Belgium69.6-0.5
25Poland68.7-1.0
26Spain68.2-1.7
27Croatia67.64.0
28Romania67.1-2.4
29Hungary66.9-0.3
30Albania66.61.4
31France65.90.2
32North Macedonia65.7-2.9
33Italy65.40.5
34Armenia65.3-6.6
35Serbia65.2-2.0
36Bosnia and Herzegovina63.40.5
37Azerbaijan61.6-8.5
38Greece61.50.6
39Moldova61.3-1.2
40Kosovo60.1-6.4
41Montenegro57.8-5.6
42Turkey56.9-7.1
43Russia56.1-5.4
44Ukraine54.1-2.1
45Belarus53-8.0
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