Fiscal outlook
Latvia recorded a 1.8% deficit and a debt-to-GDP ratio of 46.6% in 2024.
Deficit measures the extent of borrowing in a given 12 months. Debt-to-GDP compares the full public debt to the dimensions of the economic system. Each are at present used to find out how a lot borrowing a member state is allowed to undertake. Nonetheless, neither measure in itself determines a authorities’s capability to maintain greater ranges of public funding. Fiscal sustainability relies on development, the multiplier results of funding, rates of interest, inflation, the construction of the economic system and exterior dangers resembling local weather change. NEF advocates transferring away from strict numerical debt targets.
Rising local weather prices
In August 2025, the Latvian authorities declared a state of emergency in agriculture, in response to wreck brought on by persistent rainfall, frost, and flooding. Beneath fiscal constraints, this enabled the federal government to supply the sector with monetary help rapidly. In July 2024, Latvia skilled a significant storm, leading to energy outages for round 30,000 households and inflicting intensive injury throughout the nation. Nearly 69% of the Latvian coast is very weak to coastal erosion and enhancing the hazard of flooding and impacting the fishing trade. Likewise, forests, which have traditionally been certainly one of Latvia’s most essential financial assets, are beneath stress, with pests and ailments turning into widespread.
What NEF’s modelling exhibits
Organisation for Financial Co-operation and Growth (OECD) projections present Latvia’s GDP declining by 10% by 2050 and 15% by 2070 beneath present insurance policies. Our modelling exhibits the next:
- Beneath present insurance policies (BAU – enterprise as common), Latvia’s debt is 50 pps greater than the climate-agnostic baseline in 2050 and 173 pps greater in 2070.
- With early EU mitigation and enough adaptation spending, debt is 63 pps greater in 2050 and 113 pps in 2070.
- Delayed EU investments and inadequate adaptation ends in greater debt ranges of 61 pps in 2050 and 109 pps in 2070.
- EU early motion mixed with international cooperation ends in 11 pps greater debt ranges than the climate-agnostic baseline in 2050 and 6 pps decrease ranges in 2070.
- Progressive taxation, resembling a wealth tax, mixed with EU early motion would improve debt by 27 pps in 2050 and by 35 pps in 2070 in comparison with the climate-agnostic baseline.
Notice that Latvia is an outlier: early motion seems extra expensive than late motion. This displays top-down, assumption-heavy modelling and ought to be interpreted as illustrative relatively than as forecasts. Adaptation prices allotted on the idea of GDP, CRI rating and inhabitants and find yourself giant relative to GDP: beneath an early motion state of affairs, adaptation funding reaches round 2.4% of GDP in Latvia. For all different international locations it’s under 2%. In contrast, Latvia ranks comparatively low when it comes to GDP losses from local weather injury beneath BAU.
Picture: iStock
