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Latvia: Economic and Political Outline
Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline
Since its independence from the former Soviet Union, Latvia has implemented market-oriented reforms. The country's economy has since then experienced a very good performance due to a constant growth in domestic consumption and the contribution of foreign investment. In addition, Latvia became a member of the EU on May 1st, 2004, and has benefited from large European subsidies (EUR 1.8 billion between 2004 and 2008).
However, the country's economy showed signs of overheating between 2005-2007 and subsequently was strongly affected by the financial crisis of late 2008, its GDP had dropped of 17% and the unemployment rate reached 17% in 2010. After three years of recession, which placed the economy and the country's social fabric in jeopardy, the Latvian economy returned to strong growth in 2011. The deep structural reforms undertaken as part of the assistance program provided jointly by the IMF and EU in late 2008 enabled Latvia to boost its exports, partly because of improved competitiveness. Latvia has a well trained and inexpensive workforce .
Latvia's goal is now to join the eurozone in 2014. In the currently unfavorable European context, the country needs to continue working towards the consolidation of public finances and a return to price stability. Unemployment is expected to remain high in 2012 (around 16%) and informal economy still represents over 30% of GDP. The government's target of a growth rate of 4% in 2012 appears ambitious given the deteriorating external environment of Latvia and the current rate of price increase.
| Main Indicators | 2009 | 2010 | 2011 | 2012 (e) | 2013 (e) |
| GDP (billions USD) | 25.89 | 24.01 | 27.41e | 28.62 | 30.09 |
| GDP (Constant Prices, Annual % Change) | -18.0 | -0.3 | 4.0e | 3.0 | 4.0 |
| GDP per Capita (USD) | 11,448 | 10,680 | 12,226 | 12,804 | 13,504 |
| General Government Gross Debt (in % of GDP) | 32.8 | 39.9e | 39.6e | 40.5 | 43.4 |
| Inflation Rate (%) | 3.3 | -1.2e | 4.2 | 2.3 | 2.2 |
| Unemployment Rate (% of the Labor Force) | 17.3 | 19.0 | 16.1 | 14.5 | 13.0 |
| Current Account (billions USD) | 2.24 | 0.86 | 0.28 | -0.14 | -0.40 |
| Current Account (in % of GDP) | 8.6 | 3.6e | 1.0e | -1.3 | - |
Source: IMF - World Economic Outlook Database ; World Bank , Last Available Data
Note: (e) Estimated Data
The agricultural sector contributes about 4% to the GDP and employs 7.7% of the population. It is dominated by cattle breeding, in addition to the production of grain, sugar beets, potatoes and vegetables. Apart from timber, which is largely exported, Latvia has almost no natural resources. The country has to import all its energy products, mainly from Russia. Fishing and forestry are also important parts of its primary sector.
The industrial sector contributes about 24% to the GDP and employs about 28% of the workforce. The construction, metallurgy, industrial food-processing, and mechanical engineering sectors are booming. Latvia is well known as an important producer of railway equipment, radios, refridgerators, medication, wood and steel products.
The Latvian economy is driven by the services sector which contributes more than 72% to the GDP and employs over 60% of the Latvian active population. Thanks to attractive fiscal regulation, Latvia has developped a large financial services sector. The country offers a corporation tax rate of 15%, on of the lowest within the European Union.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 8.7 | 25.0 | 66.3 |
| Value Added (in % of GDP) | 4.1 | 21.8 | 74.1 |
| Value Added (Annual % Change) | 3.2 | 2.2 | -1.4 |
Source: World Bank - Last Available Data.
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| Monetary Indicators | 2006 | 2007 | 2008 | 2009 | 2010 |
| Latvian Lat (LVL) - Average Annual Exchange Rate For 1 USD | 0.56 | 0.51 | 0.48 | 0.51 | 0.53 |
Source: World Bank - Last Available Data.
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Distribution of Economic freedom in the world
Source: 2011 Index of Economic freedom, Heritage Foundation
Note: The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
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The Latvian market is open and competitive. The EU, of which Latvia has been a member since 2004, is its largest trade partner, followed by Russia.
With its 530 km-long Baltic coastline, Latvia is bordered by Belarus and Russia to the east, Estonia to the north and Lithuania to the south. Its position allows it to function as a bridge between the two major economic areas of the EU and the CIS.
In terms of foreign trade, Latvia's main customers are Russia, Lithuania, Estonia and Germany. Its main suppliers are Lithuania, Germany, Russia, Poland and Estonia. The country exports mainly wood and coal, mineral fuels & oils, iron and steel, machinery and electrical and electronic equipment. Imports, which dropped by 50% since the 2008 crisis, resumed in 2011. Key trading partners are Lithuania, Germany, Russia, Poland, Estonia, Sweden and Finland. Latvia mainly imports machinery, chemicals, fossil fuel and electricity and vehicles.
| Foreign Trade Indicators | 2007 | 2008 | 2009 | 2010 | 2011 |
| Imports of Goods (million USD) | 15,322 | 16,143 | 9,793 | 11,483 | 15,945 |
| Exports of Goods (million USD) | 8,308 | 10,144 | 7,699 | 9,455 | 13,161 |
| Imports of Services (million USD) | 2,678 | 3,152 | 2,240 | 2,192 | 2,574 |
| Exports of Services (million USD) | 3,666 | 4,482 | 3,782 | 3,625 | 4,354 |
| Imports of Goods and Services (Annual % Change) | 14.7 | -11.2 | -33.5 | 8.6 | - |
| Exports of Goods and Services (Annual % Change) | 10.0 | 2.0 | -14.1 | 10.3 | - |
| Imports of Goods and Services (in % of GDP) | 62.4 | 56.5 | 45.4 | 54.2 | - |
| Exports of Goods and Services (in % of GDP) | 42.3 | 42.8 | 43.9 | 53.4 | - |
| Trade Balance (million USD) | -6,898 | -6,014 | -1,822 | -1,546 | - |
| Trade Balance (Including Service) (million USD) | -5,896 | -4,666 | - | - | - |
| Foreign Trade (in % of GDP) | 104.7 | 99.3 | 89.3 | 107.6 | - |
Source: WTO - World Trade Organization ; World Bank , Last Available Data
| Main Customers (% of Exports) |
2011 |
| Lithuania | 17.8% |
| Estonia | 13.9% |
| Russia | 10.6% |
| Germany | 8.3% |
| Sweden | 6.1% |
| See More Countries | 43.3% |
| Main Suppliers (% of Imports) |
2011 |
| Lithuania | 18.7% |
| Germany | 12.1% |
| Russia | 8.7% |
| Poland | 7.9% |
| Estonia | 7.2% |
| See More Countries | 45.4% |
Source: Comtrade, Last Available Data
Source: Comtrade, Last Available Data
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The executive branch of government is directly or indirectly dependent on the support of the parliament, often expressed through a vote of confidence. Legislative power is vested in both the government and the parliament. The government does not have the power to dissolve the parliament. The people of Latvia enjoy considerable political rights.
Source: Worldwide Press Freedom Index 2011, Reporters Without Borders
Note: The world rankings, published annually, measures the violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position is assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire sent to partner organizations,150 RWB correspondents, journalists, researchers, jurists and activists of human rights, including the main criteria - 44 in total - to assess the situation of press freedom in a given country. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
Map of freedom 2010
Source: Freedom House
Note: The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
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