OECD Economic Surveys: Latvia 2019

Annex. Progress in structural reforms

Abstract

This Annex reviews actions taken on recommendations from previous Economic Surveys that are not covered in tables within the main body of the Key Policy Insights. Recommendations that are new to this Survey are listed at the end of the Executive Summary and the relevant chapters.

 

Main recommendations	Action taken since September 2017
Fiscal Policy
Reinforce countercyclical liquidity buffers.	A fiscal security reserve was included in the 2017 and 2018 budgets and is foreseen in budgetary plans for 2019 and 2020.
Continue to comply with the European Union’s fiscal rules and make full use of available fiscal space, including the flexibility mechanisms, to fund structural reforms.	Budgetary plans comply with the EU and national fiscal rules and use allowed deviations for implementing structural reforms (e.g. 0.4% and 0.5% of GDP in 2018 and 2019 respectively to finance healthcare reforms).
Ensure that local governments are sufficiently resourced and autonomous by increasing their tax revenues, reducing the share of earmarked revenues, and improving the equalisation system.	Since 2018, to ensure the stability and predictability of tax revenues, local governments receive a special grant from the state budget. The “Medium-Term Budget Framework for 2018, 2019 and 2020” stipulate that the amount of local governments tax revenues together with the special grant should reach 19,6% of total state budget tax revenue. An evaluation of the financial equalisation system is planned.
Fighting informality
Restore the funding of the State Audit Office to at least pre-crisis levels.	The funding for the State Audit office has increased in 2018 and is set to reach its pre-crisis level in 2019. The allocation of resources and performance indicators have improved.
Remove political influence in the appointment of judges.	Powers of the Judicial Council have been strengthened in 2018. The Council appoints court presidents, transfers judges to vacant positions and determines the procedure for nominating and appointing candidate for the office of the Chief Judge of district and regional courts.
Improving the insolvency framework
Strengthen the specialisation of judges	The judicial map reform has been completed in 2018, making the specialisation of judges possible. Specialisation also occurs at the court level in specific areas (e.g. industrial property rights, competition rights).
Establish a transparent framework for out-of-courts settlements such as arbitrage or mediation for commercial and business cases.	Amendments to the Arbitration Law which strengthened supervision of out-of-court procedures entered into force in 2017.
Improve the skills of law enforcement officials and insolvency administrators to deal with fraud.	A large training programme to enhance the capabilities of law enforcement officials and judges is ongoing. In particular, extensive training is provided on insolvency, economic and financial crimes (e.g. the “Justice for Growth” project initiated in 2018), and corruption prevention.
Improving competition
Introduce boards in all commercially oriented state-owned enterprises.	All large commercially oriented state-owned enterprises have boards since end-2016. The introduction of boards in medium-sized state-owned enterprises is being evaluated and discussed with business representatives and the Competition Council.
Extend corporate management best practices to port authorities and municipal corporations.	Annual reports on port activities and decisions by port authorities are published online. Draft legislation to strengthen information requirements for municipal companies (scope and monitoring) is under discussion in parliament.
Strengthen co-operation with border agencies of neighbouring countries by aligning border procedures and formalities.	Cooperation agreements have been signed with Russia and Belarus to improve border procedures as well as transport crossings in 2018.
Continue improving the connectivity of energy networks with the rest of the European Union.	In June 2018, Latvia signed with other Baltic countries the Political Roadmap which aims at the synchronisation of the electricity networks with the Continental European Network by 2025. In January 2019, Latvia and Estonia have started the construction works of the Latvia – Estonia third power transmission network interconnection.
Introduce incentive regulation for the prices of monopoly services set by the infrastructure manager and the incumbent rail service operator.	No action taken.
Set wages of managerial staff in the railway regulator independently from the Transport Ministry.	Discussions on options to strengthen the Independence of the Latvian Railway Administration are ongoing.
Improving access to affordable housing
Improve legal certainty in rental regulation and encourage out-of-court procedures.	A draft law foresees a requirement for rental contracts to be registered in the land register. Non-compliant landlords will not have access to a new accelerated dispute settlement procedure, which is expected to shorten procedures from 2-4 years to 4 months. Information campaigns to promote mediation services have been organised in 2017 and 2018
Simplify the administrative process for obtaining a building permit.	The administrative burden in construction is being gradually reduced, with additional exemptions for the approval of the Construction Board and harmonisation of electronic construction plans.
Provide more funding for low-cost rented housing in areas of expanding employment.	The government plans to support municipalities to build affordable rental apartments by providing long-term loans from the State Treasury at low interest rates.
Expand the mobility programme, which provides temporary support for relocation and transport.	Since March 2018 the mobility allowance is available for workers relocating to Riga. Its scope and amount have also been raised.
Create a nation-wide registry that allows eligible persons to apply for housing assistance where they expect better job opportunities.	No action taken. Housing assistance is provided only by municipalities and according to local rules.
Require housing developers to allocate a proportion of their dwellings as affordable units.	No action taken.
Strengthening innovation capabilities
Increase government funding of innovation support programmes with strong evaluation results.	The government expanded the innovation voucher scheme that finances firms’ purchase of technology extension services.. Discussions have been started about the design of the Norwegian Grants programme “Business Development, Innovation and SMEs” that will provide subsidies to firms for the development and implementation of new innovative products and technologies. It is expected that the programme will be opened in 2020 with a total budget of EUR 14.7 million.
Green Growth
Ensure that feed-in tariffs for renewable energy production are cost-effective.	Feed-in tariffs to promote renewable energy generation remain on hold and a reform of the existing support scheme for the electricity produced from renewables has been initiated in spring 2018.
Offer financial support to foster energy efficiency gains in the housing sector, in particular to credit-constrained households.	In some municipalities (e.g. Riga, Daugavpils, Jēkabpils), property tax rates are reduced against energy efficiency investments.
Provide stronger incentives to improve efficiency in district heating.	In 2017 and 2018, two selection rounds were organised for EU-funded projects on energy efficiency in district heating. 104 projects have been implemented, with co-financing amounting to around EUR 53 million.