Latvia political briefing: Latvian Domestic Policy Outlook for 2023

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Weekly Briefing, Vol. 69. No. 4 (LVA) January 2024

 

Latvian Domestic Policy Outlook for 2023

Institute of Economics of the Latvian Academy of Sciences

 

 

 

Summary

In 2024, Latvia’s domestic policy strategically addresses national development with a focus on security, education, healthcare, and economic recovery. The state budget prioritizes internal and external security in response to geopolitical tensions and cybersecurity threats, dedicating additional funds for border security, cybersecurity, and defence, aiming to reach 2.4% of GDP. Educational reforms include a significant salary increase for teachers and transitioning to Latvian as the sole language of instruction, reflecting a commitment to national identity and educational excellence. In healthcare, increased funding is allocated for service quality, accessibility, and mental health, alongside salary hikes for healthcare professionals. Social policies emphasize inclusivity, enhancing pensions, supporting vulnerable groups like orphans and children with disabilities, and transforming the Child Protection Centre to focus more on support and education. Economically, Latvia anticipates moderate growth, driven by private consumption, public expenditure, and EU funding, despite challenges from regional disparities and external conflicts. The minimum wage has been raised, and fiscal management has been effective in reducing inflation, contributing to economic stability, and making Latvia an attractive business destination. These comprehensive policies in Latvia’s 2024 domestic agenda highlight a balanced approach between addressing immediate challenges and fostering long-term sustainable growth, demonstrating resilience and strategic foresight in navigating complex global dynamics.

 

Introduction

As the world navigates through a labyrinth of challenges in 2024, marked by evolving geopolitical tensions, cybersecurity threats, and the ongoing ripple effects of the COVID-19 pandemic, understanding the domestic policies of nations becomes crucial. Latvia, a nation at the crossroads of these global dynamics, is responding through its strategic policy decisions. This article provides a nuanced perspective on Latvia’s approach to fortifying its national security amidst Russian-NATO tensions, bolstering its educational and healthcare systems in the face of deglobalization and pandemic recovery, and adapting its economy to the imperatives of energy security and climate risk.

 

State Budget Allocation

The 2024 State Budget of Latvia, as approved by the national Parliament in December 2023, reflects the country’s strategic focus on internal and external security, education, and health, underlining these as its main national priorities. The consolidated state budget revenue for 2024 is planned to be EUR 14.5 billion, with expenditures amounting to EUR 16.2 billion. This marks a significant increase compared to the 2023 budget, with planned revenue up by EUR 1.763 billion and expenditures by EUR 1.538 billion.

The general government, encompassing the entire structure of state and local government as well as social security institutions, is expected to raise a total of €17.8 billion in revenue and €19.1 billion in expenditure. The overall budget deficit is projected at EUR 1.3 billion, which is approximately 2.8% of the country’s Gross Domestic Product (GDP).

In response to the current geopolitical situation, hybrid warfare threats, and economic challenges, the 2024 budget has been carefully crafted with a strong emphasis on strengthening national security and sustainability. This includes an additional EUR 486.4 million earmarked for enhancing internal and external security, healthcare provision and quality, as well as education.

Specifically, an additional EUR 91.9 million is allocated to security measures, including raising salaries of employees in the interior and judiciary, enhancing state border security, developing border infrastructure, and bolstering cybersecurity and firefighter and rescuer capacities. The defence budget is set to be 2.4% of the GDP in 2024, with plans to increase it to 3% by 2027.

Education receives an additional EUR 119.5 million, focusing on increasing salaries for teachers with the lowest hourly rates, and investing in higher education, science, and the transition to Latvian as the sole language of instruction. Healthcare is another key priority, receiving an additional EUR 275 million. This funding is directed towards improving healthcare services and reducing patient queues, reflecting the government’s commitment to national sustainability and wellbeing.

Latvia’s economic growth in 2024 is forecasted to be moderate, with estimates ranging from 2.0% to 2.4%. This follows a challenging 2023, where the economy experienced a contraction due to high inflation and weak export performance. The growth in 2024 is expected to be driven primarily by private consumption and public expenditure, along with EU-funded investments and a gradual rebound in external demand. The weak growth in 2023 was influenced by the war in Ukraine and its impact on trade and business confidence. The expected recovery in 2024 is seen as a response to the easing of these pressures.

After experiencing significantly high inflation rates in the previous years, Latvia is projected to see a reduction in inflation to around 2.0% to 3.2% in 2024. This decline is attributed to factors such as a decrease in energy prices, the European Central Bank’s monetary policy, and base effects. The inflationary pressures in Latvia had surged in 2022 and early 2023, primarily driven by soaring energy and food prices and disrupted supply chains. The rapid deceleration to single digits by mid-2023 and further to about 1% by the end of 2023 sets the stage for a more stable inflation environment in 2024.

A notable economic change in 2024 is the increase in the minimum monthly wage from €620 to €700 for full-time employment. This increment has implications for the state social insurance mandatory contributions (VSAOI). Self-employed individuals with monthly incomes below €700 must make quarterly VSAOI contributions of 10% for pension insurance, while those earning €700 or more are required to make VSAOI contributions from a minimum base of €700 at 31.07% for all insurance types, and 10% for pension insurance from the difference between actual earnings and the VSAOI object. The labour market in Latvia is expected to tighten in 2024 and 2025. This is due to an increasing demand for labour, a shortage of supply, and demographic challenges like an aging population.

Latvia’s public finances are expected to remain manageable, with government deficits forecasted around -3.5% of GDP in 2023-2024. The country’s fiscal situation reflects the stimulus measures implemented during the COVID-19 crisis and the economic downturn in 2022-2023. Latvia’s external debt, though a legacy of past deficits, is on a downward trajectory, with a positive trend expected to continue in the next two years. This aspect of financial management is crucial for maintaining economic stability and investor confidence.

Latvia offers a strong business environment, ranking well in terms of property rights, judicial effectiveness, and trade freedom. The business environment benefits from Latvia’s regulatory and legal frameworks, which are generally favourable for business activities. The country’s performance in global indices, such as the Heritage Foundation’s Index of Economic Freedom and the World Bank Institute’s Worldwide Governance Indicators, reflects strengths in several economic aspects but also highlights areas for improvement, including government integrity and labour freedom.

The economic outlook is not without its challenges and uncertainties. Key issues include regional inequalities, labour market mismatches, and the overarching impact of the war in Ukraine. Moreover, potential fluctuations in energy prices and supply disruptions pose risks to the inflation outlook. Latvia’s economic recovery will be influenced by how these challenges are navigated and the effectiveness of policy responses to mitigate their impact.

In summary, Latvia’s economic outlook for 2024 suggests a period of moderate recovery, influenced by a combination of improved private consumption, public expenditure, and external factors. However, the country must navigate through various challenges, including geopolitical risks, labour market dynamics, and fiscal management, to sustain this recovery trajectory.

 

Social Sphere in 2024

The retirement age in Latvia in 2024 has been set at 64 years and 9 months for those with an insurance period of no less than 15 years. Additionally, individuals with an insurance period of over 30 years can opt for early retirement two years prior to the general retirement age. For 2024, this early retirement age is 62 years and 9 months. A significant addition in 2024 is the pension supplement for old-age and disability pensions calculated from January 1, 2012, to December 31, 2014. This supplement, amounting to €1.52 per insurance year accumulated until December 31, 1995, aims to acknowledge long-term contributions to the social system.

From January 1, 2024, Latvia has increased the minimum amounts for pensions and benefits. The minimum old-age pension base rose from €157 to €171, with a similar increase for people with disabilities since childhood. The calculation for the minimum old-age pension amount is based on a 1.1 coefficient applied to the calculation base, with an additional 2% increase per insurance year exceeding 15 years. The minimum disability pension base has also increased from €157 to €171, with a higher rate for childhood disability cases.

The year 2024 marks a rise in minimum income thresholds for social assistance from local governments. The guaranteed minimum income (GMI) threshold for the first or only person in a household is now €137, with an increase for additional household members. This adjustment aims to better address the needs of low-income households.

Latvia has raised the support for orphans and children left without parental care after reaching adulthood. The calculation of benefits is now based on a higher median income, providing a more substantial financial safety net for these vulnerable groups. The year 2024 also introduced comprehensive home care services, including palliative care and state-funded social care, emotional support, and technical aids. This service is available for adults with an official recommendation for home palliative care.

Latvia has notably increased the family state benefit supplement for children with disabilities to €160 per month. This increase also applies to children suffering from celiac disease. Additionally, the benefit for persons with a disability since childhood requiring care has been raised to €413.43. A key initiative in 2024 focuses on children with autism spectrum disorders. These children and their families now have access to multi-professional team support and peer assistance, along with various rehabilitative methods, including applied behaviour analysis (ABA) therapy, occupational therapy, speech therapy, and special education sessions.

Latvia is enhancing support for young adults who have aged out of out-of-family care up to the age of 21, or 24 if they continue their education. The state provides financial support to municipalities for offering social mentor services, financial aid, and group activities to help these young adults develop essential social skills.

In a significant shift, the State Child Rights Protection Inspection’s functions and name have been changed to the Child Protection Centre. This transformation redirects the focus from a controlling entity to a more supportive and educational role, emphasizing inter-institutional collaboration in ensuring children’s rights and reducing risks. The Centre now functions as a coordinating body, providing support, education, and advice to children, adolescents, families, and professionals. Its supervisory role over child rights remains intact, including oversight of guardianship courts and competence in administrative violation cases related to child abuse.

For 2024, Latvia has taken significant strides in enhancing its social welfare system, reflecting a committed effort to improve the living standards and support mechanisms for its citizens. These changes not only provide immediate relief to various segments of the population but also lay a foundation for a more inclusive and robust social safety net. By addressing the needs of the elderly, children, especially those with special needs, and other vulnerable groups, Latvia demonstrates a strong commitment to social equity and welfare.

 

Education Policies

In 2024, Latvia’s education system has witnessed a series of transformative changes, impacting various aspects from educators’ salaries to curriculum reforms. A significant development this year has been the increase in educators’ salaries. The minimum monthly wage for teachers has been raised by 12.2%, from 1224 to 1374 euros for a 36-hour weekly workload. This amendment, effective from January 1, 2024, stems from revisions to the Cabinet of Ministers’ regulations dating back to July 5, 2016. In the realm of preschool education, there has been an even more notable increase of 23.1% in wages, raising salaries from 1240 to 1526 euros for a 40-hour weekly workload. This change aligns with the Constitutional Court’s decision to equalize the minimum salary of preschool educators with other general education teachers.

In the area of student evaluation, a new approach is being implemented starting September 1, 2024. This approach includes formative, summative, and monitoring assessments, offering a more comprehensive view of student progress and abilities. Alongside this, the pass rate threshold for state examinations has been increased. For the 2023/2024 academic year, students must achieve a minimum of 15% to pass, and this requirement will rise to 20% from September 1, 2024.

Another notable reform is the introduction of mandatory national defence education and the reintroduction of history as a separate subject in secondary schools from the 2024/2025 academic year. The goal of national defence education is to foster patriotism and equip students with skills to defend the country in times of crisis. The decision to bring back history as a separate subject stem from concerns that the “Skola 2030” competency approach had led to insufficient historical knowledge among students.

The transition to education exclusively in the Latvian language is also ongoing, following amendments to the Education Law and General Education Law in 2022. This gradual shift aims to strengthen national identity and linguistic unity, with various grades transitioning to instruction solely in the state language over a phased timeline.

In higher education, a significant shift is the gradual introduction of an institutional funding model, starting with the Riga Technical University. This new model focuses on performance-based funding, emphasizing the importance of successful student education and progress. Furthermore, the government has implemented new regulations to provide doctoral candidates with grants for their research, addressing the need for more support in doctoral education and research.

Finally, the professional education sector is witnessing enhancements with over 10.3 million euros in EU funds being allocated to develop modern curricula and support institutions in delivering high-quality education. Additionally, a new monitoring tool will be launched to track the employment outcomes of professional education graduates, providing valuable data on the alignment of education with labour market needs.

These extensive reforms in Latvia’s education system in 2024 mark a significant step towards improving educational standards, aligning them with market demands, and preparing students for future challenges. The increased investment in educators’ salaries, curriculum reforms, and the integration of national values into education demonstrate Latvia’s commitment to fostering a robust and forward-looking education system.

 

Healthcare in 2024

In 2024, the Latvian healthcare system has undergone significant transformations, reflecting the country’s commitment to improving healthcare quality and accessibility. A notable aspect is the increase in the healthcare budget to 1.88 billion euros. This boost in funding, which includes an additional 275 million euros, aims to enhance service quality and accessibility, raise healthcare professionals’ salaries, expand the range of compensated medications, and improve services in oncology. Additionally, it focuses on providing better care for women and children and emphasizes mental health services and preventive measures.

Changes in healthcare service provisions have also been made. Dentists and midwives are now authorized to determine temporary work incapacity, reflecting a broader shift towards efficiency and improved patient access to medical services. Special attention is given to specific patient groups such as those with oncology and diabetes. For instance, the age limit for state-funded insulin pumps has been extended. Oncology patients can now benefit from state-funded gamete collection and storage services, ensuring their ability to have biological children after treatment.

In the realm of psychiatric care, new services for long-term psychiatric patients include state-funded dental services and eyewear. This addresses the physical health needs of psychiatric patients that are often overlooked. The expansion of state-funded neurological and internal disease treatment services in day hospitals further improves patient care. Preventive healthcare has also seen enhancements, with the extension of the state-funded HPV vaccination program to boys up to 17 years and pertussis vaccinations for pregnant women and teenagers.

Improvements in healthcare accessibility are evident for law enforcement personnel, with increased compensation limits for healthcare services. In the E-health system, significant updates have been made. All laboratory test results are now consolidated and freely accessible, enhancing patient access to health information. The system’s accessibility is safeguarded using qualified electronic identification tools, ensuring data security and patient privacy.

The salary increase for healthcare personnel is a strategic move to retain and motivate staff. The legal establishment of pharmacists’ roles in healthcare provision underlines their importance in patient care and as part of multidisciplinary healthcare teams. Medical internship periods have been limited to ensure high training standards and patient safety. Furthermore, new services in medical institutions have been introduced, and revisions have been made to the calculation of family doctors’ capitation money to reflect their year-round work more accurately.

Despite the repeal of the Covid-19 Infection Spread Management Law, certain regulations remain, including those for health damage compensation due to Covid-19 vaccines. Enhancements in educational opportunities for healthcare personnel focus on maintaining and developing their skills for effective and evidence-based healthcare.

Patient safety and care quality continue to be prioritized, with initiatives aimed at enhancing these aspects across healthcare institutions. New regulations concerning individuals who have violated the law, particularly regarding compulsory medical measures and treatment arrangements, have been implemented.

Looking forward to the rest of 2024, significant developments are expected in palliative care and the deployment of defibrillators in public spaces. The introduction of mobile palliative care teams is a major step in providing comprehensive home-based care for patients with life-limiting illnesses. Lastly, an increase in the premium for health and accident insurance, which is exempt from income tax, provides greater incentives for personal health insurance coverage.

These changes collectively signal a comprehensive and progressive effort in the Latvian healthcare system, aiming to improve the quality, accessibility, and efficiency of healthcare services. This approach not only addresses the immediate needs of various patient groups and healthcare workers but also lays a foundation for sustainable healthcare development. The focus on preventive healthcare through extended vaccination programs and the emphasis on mental health signify a shift towards a more holistic view of health and well-being.

 

Conclusions

In 2024, Latvia’s domestic policy demonstrates a comprehensive approach, addressing national development through strategic enhancements in budget allocation, social welfare, education, and healthcare. The state budget prioritizes security, education, and health, reflecting Latvia’s response to geopolitical challenges and internal needs. Significant investment in security, including border and cybersecurity, highlights a proactive stance amid global uncertainties. The education sector sees a commendable rise in teachers’ salaries and a pivotal shift to Latvian as the sole instructional language, reinforcing national identity and educational excellence. The healthcare sector benefits from increased funding aimed at improving service quality, expanding medication access, and emphasizing mental health, indicating a holistic approach to well-being. Social policies exhibit Latvia’s commitment to inclusivity, with reforms in the pension system, enhanced support for vulnerable groups like orphans and children with disabilities, and the transformation of the Child Protection Centre, showcasing a shift towards a more supportive role in child welfare. Economically, Latvia faces a moderate recovery driven by private consumption, public expenditure, and EU funding, despite challenges like regional disparities and external conflicts. The significant reduction in inflation and effective fiscal management contribute to economic stability, enhancing Latvia’s business and investment appeal. Overall, Latvia’s 2024 domestic policy balances immediate concerns with long-term sustainability goals.

 

 

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