Publication: Latvia's Macroeconomic Options in the Medium Term: Fiscal and Monetary Challenges of EU Membership
Loading...
Published
2004-05
ISSN
Date
2013-06-21
Author(s)
Editor(s)
Abstract
Latvia's experience over the past decade shows that economic growth and real convergence can no longer be assumed to be exogenously driven processes determined by given technological improvements and relatively higher factor returns. Instead, it is an endogenously driven process led by many variables, including policy variables. European Union membership clearly brings enormous economic benefits to Latvia. However, it also brings important challenges on the macroeconomic front, especially prior to the adoption of the euro. Substantial progress has been made toward fiscal consolidation since the mid-1990s but several risks remain. Given the facts that domestic demand remains buoyant and that Latvia will have to accommodate the expenditure commitments associated with NATO and EU membership while simultaneously aiming to fulfill the medium-term goal of a balanced budget, a more prudent fiscal policy should be the main short-term policy objective. The authorities should therefore reassess their current medium-term budget framework and strengthen their fiscal rules so that off-budget spending is eliminated and controls over spending ministries and local government finances are reinforced. They should also rethink any further tax reductions until a clear strategy is designed for compensating for projected losses in government revenues. Monetary policy can contribute to sustainable growth and job creation in Latvia in the medium and long term by providing an environment for price stability. It will have to be complemented by further microeconomic reforms and prudent wage developments aligned with productivity growth.
Link to Data Set
Citation
“Monga, Celestin. 2004. Latvia's Macroeconomic Options in the Medium Term: Fiscal and Monetary Challenges of EU Membership. Policy Research Working Paper;No.3307. © World Bank. http://hdl.handle.net/10986/14111 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication It’s Not (Just) the Tariffs: Rethinking Non-Tariff Measures in a Fragmented Global Economy(Washington, DC: World Bank, 2025-10-22)As tariffs have declined, non-tariff measures (NTMs) have become central to trade policy, especially in high-income countries and regulated sectors like food and green technologies. Although NTMs may serve legitimate goals, they could also sort countries and firms into or out of markets based on compliance capacity and differences in product mix. Documenting recent advances in the estimation of ad valorem equivalents (AVEs), this paper uncovers new patterns of use and exposure of NTMs. High-income countries rely more heavily on NTMs relative to tariffs, while low- and middle-income countries face steeper AVEs on their exports. Firm-level evidence shows that NTMs disproportionately affect smaller firms, leading to market exit and concentration. Poorly designed NTMs can harm productivity and welfare, while coordinated, capacity-aware use can deliver inclusive outcomes. Policy design, transparency, and diagnostics must evolve to reflect the growing role—and risks—of NTMs in a fragmented global trade landscape.Publication Monitoring Global Aid Flows: A Novel Approach Using Large Language Models(Washington, DC: World Bank, 2025-11-04)Effective monitoring of development aid is the foundation for assessing the alignment of flows with their intended development objectives. Existing reporting systems, such as the Organisation for Economic Co-operation and Development’s Creditor Reporting System, provide standardized classification of aid activities but have limitations when it comes to capturing new areas like climate change, digitalization, and other cross-cutting themes. This paper proposes a bottom-up, unsupervised machine learning framework that leverages textual descriptions of aid projects to generate highly granular activity clusters. Using the 2021 Creditor Reporting System data set of nearly 400,000 records, the model produces 841 clusters, which are then grouped into 80 subsectors. These clusters reveal 36 emerging aid areas not tracked in the current Creditor Reporting System taxonomy, allow unpacking of “multi-sectoral” and “sector not specified” classifications, and enable estimation of flows to new themes, including World Bank Global Challenge Programs, International Development Association–20 Special Themes, and Cross-Cutting Issues. Validation against both Creditor Reporting System benchmarks and International Development Association commitment data demonstrates robustness. This approach illustrates how machine learning and the new advances in large language models can enhance the monitoring of global aid flows and inform future improvements in aid classification and reporting. It offers a useful tool that can support more responsive and evidence-based decision-making, helping to better align resources with evolving development priorities.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication The State of Global Services Trade Policies: Evidence from Recent Data(Washington, DC: World Bank, 2025-10-28)The economic environment for services trade has changed dramatically over the past 15 years, driven by rapid technological progress that has expanded the possibilities for exchanging services. How has trade policy responded to these changes? How do policy stances in a wide range of service sectors compare across economies? With its unprecedented global coverage, the Services Trade Policy Database and the associated Services Trade Restrictions Index, developed jointly by the World Bank and the World Trade Organization, help address these questions. This paper makes three principal contributions. First, it offers an in-depth discussion of the current state of services trade policies and their differences across 134 economies and 34 services subsectors. Second, the paper reveals how recent (2016–22) changes in policy stances have seen progressive liberalization by lower-income economies but stabilization or even slight policy reversals in high-income economies. This dynamic differs fundamentally from the trend that unfolded after the Great Recession over 2008–16. Third, the paper shows the implications of policy changes over the past six years on services trade costs, and it showcases how the Services Trade Policy Database’s regulatory information can inform trade negotiations, regulatory analysis, and policy making. Alongside these contributions, the paper documents updates to the Services Trade Policy Database’s economy and sector coverage and explains the latest methodological improvements made to the World Bank–World Trade Organization Services Trade Restrictions Index.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication A Medium-Term Macroeconomic Strategy for Algeria : Sustaining Faster Growth with Economic and Social Stability, Volume 1. Main Report(Washington, DC, 2003-05)This study is part of a series of analytical works on Algeria prepared by the Bank, with the aim of laying out the framework, and facilitating the dialogue for elaborating the Bank's Country Assistance Strategy for Algeria. Companion studies include: "A Private Sector Development Strategy Note: A Diagnostic on Foreign Direct Investment in Algeria" (FIAS). This report is divided into three parts. It presents a diagnostic of the slow growth performance, by benchmarking Algeria's performance against other comparator countries, with the aim of identifying the key bottlenecks to better long-term growth performance in Algeria". Building on this analysis, experience from transition economies, and diagnostics in the companion reports, the second part reviews options in structural reforms to encourage the development of the private sector, by strengthening the investment climate and furthering Algeria's transition to the market. the third part examines options to strengthen the fiscal framework, to insulate the fiscal stance from volatile hydrocarbon fiscal revenues and secure fiscal sustainability, so as to achieve a sustained acceleration of growth. More technical background material of the analysis is presented in the annexes, in volume two.Publication Slovenia : From Yugoslavia to the European Union(Washington, DC: World Bank, 2004)The main objective of the book is to analyze Slovenia's threefold transition in the context of a broader transition process in Central and Eastern Europe and to contribute toward filling the obvious gap in the literature on this subject. The book provides an overview of the most important developments faced by Slovenia during its transition-the achievements, the problems, and the challenges-and discusses the lessons that have been learned and the main challenges that Slovenia can expect to face. Interdisciplinary in character, the book focuses on socioeconomic and political aspects and integrates them into the existing pool of knowledge about the transition process.Publication Sri Lanka : From Peace Dividend to Sustained Growth Acceleration(World Bank, Washington, DC, 2012-09)Following the cessation of hostilities in May 2009, the Government of Sri Lanka has announced a suitably ambitious macroeconomic vision to capitalize on the peace dividend. Its goals include growing at 8 percent or more per year and lowering government indebtedness from around 80 to 60 percent of GDP by 2015. This paper's main finding is that while some post-conflict bounce is only to be expected, sustaining high growth presents significant challenges. A substantial rise in the national investment and savings rates will be needed to sustain growth rates of 8 percent even when accompanied by a significant rise in total factor productivity growth. With the government's balance sheet constrained by its desire to lower public indebtedness, private investment will need to become the engine of growth. This places high priority on better infrastructure, clear signals about the relative roles of the public and private sectors, and hard budget constraints and competition both to strengthen the investment climate and spur technological upgrading in pursuit of faster productivity growth.Publication Kyrgyz Republic Public Expenditure Review Policy Notes : Strategic Setting(Washington, DC, 2014-05)The current approach to fiscal policy is delivering suboptimal outcomes for the citizens of the Kyrgyz Republic. The past five years have been difficult for the Kyrgyz Republic, with one shock following another. Government spending ballooned to 39 percent of GDP in 2012 one of the highest ratios among developing countries globally, as the authorities tried to mitigate the shocks. However, despite increases in spending, the quality of health services remains poor; above 80 percent of 15 year-olds are classified as illiterate; wages in the public sector are low; and only 6 percent of social assistance reaches the poorest members of society. In addition, risks are mounting in the pension system, few instruments exist to support the vulnerable and the physical capital stock is depreciating, especially in the energy sector. This Public Expenditure Review (PER) focuses on the effectiveness, level, and composition of public spending in number of sectors. The objective of this synthesis note is to better understand the overall environment for fiscal policy as well as the nature and composition of public revenues and expenditures. The sectoral policy notes review the challenges and options in specific sectors, namely, education, health, pensions, social protection, and energy as well as cross-cutting themes such as the wage-bill and public investment management and intergovernmental relations. While more detailed sector-specific recommendations are contained in the sectoral policy notes, more general recommendations on fiscal policy will also contribute to sustainable fiscal consolidation.Publication Tanzania Economic Update, December 2013 : Raising the Game--Can Tanzania Eradicate Extreme Poverty?(Washington, DC, 2013-12)The special focus of this fourth economic update is as much a concern for policymakers as for ordinary citizens. This economic update discusses a bold new way of lessening extreme poverty by transferring cash directly to the most vulnerable people. In Tanzania, the success of a similar program piloted by the Tanzania Social Action Fund (TASAF), which includes conditional cash transfers as well as public works for productive infrastructure, is also very encouraging as shown by an independent evaluation. Although cash transfers are promising, as this update discusses, there are risks associated with implementation on a large scale. It will be essential to ensure effective targeting and sound monitoring. And the decision to scale up needs to be embedded in strategic thinking about medium-term fiscal sustainability. The economic update also discusses the state of the economy more broadly. Strong and stable economic growth and gradually declining inflation have been the hallmarks of Tanzania's recent economic performance. Tanzania needs to strike the right balance between making large capital investments and maintaining fiscal discipline. Tanzania needs to maintain fiscal discipline and continue to keep the country's debt and debt-service at acceptable levels to consolidate the gains achieved over the past decade. In this context, the report is organized in two parts: part one is the state of the economy; and part two is money to people: can conditional cash transfers make a difference?
Users also downloaded
Showing related downloaded files
Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises(Washington, DC: World Bank Group, 2013-10-28)Eleventh in a series of annual reports comparing business regulation in 185 economies, Doing Business 2014 measures regulations affecting 11 areas of everyday business activity: Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, Closing a business, Employing workers. The report updates all indicators as of June 1, 2013, ranks economies on their overall “ease of doing business”, and analyzes reforms to business regulation – identifying which economies are strengthening their business environment the most. The Doing Business reports illustrate how reforms in business regulations are being used to analyze economic outcomes for domestic entrepreneurs and for the wider economy. Doing Business is a flagship product by the World Bank and IFC that garners worldwide attention on regulatory barriers to entrepreneurship. More than 60 economies use the Doing Business indicators to shape reform agendas and monitor improvements on the ground. In addition, the Doing Business data has generated over 870 articles in peer-reviewed academic journals since its inception.