LATVIA

The Republic of Latvia is a parliamentary constitutional republic and “an independent democratic republic”, according to article 1 of the 1992 Constitution, which dates back to Latvia's independence, and which was re-ratified in 1993. As a unitary state, it has a President as head of state and a Prime Minister as head of government. The country has a unicameral Parliament (the Saeima) composed of 100 representatives elected by direct popular vote for a four-year period. The Parliament elects the President for a period of four years. The Prime Minister is nominated by the President, with the support of a majority in the Parliament. The country has been a member of the European Union since 2004.

The 1992 Constitution does not have any specific provisions giving local self-government a constitutional foundation. However, some articles of the Constitution refer to subnational governments. The Constitutional Court considers Art.101 on citizen participation in local authority activities as a safeguard for local self-government and that the highest law on local governance is the European Charter of Local Self Government, ratified in 1996.

The decentralisation process began in 1993 with a series of laws regulating SNGs. The most important was the 1994 Local Government Act, which defines the general framework for SNGs including their organisation, responsibilities and finances. The law provides that “local governments, within the scope of their competence and the law, shall act independently”. This Act has been amended several times since. It was completed by the 1995 Act on Local Governments Budgets and the 1998 Act on Equalisation of Self-Government Finance (amended in 2015). According to Art. 96 of the Law on Local Governments, municipalities are regularly consulted by the central government through the Latvian Association of Local and Regional authorities and participate in the decision-making process, in particular concerning fiscal issues.

The same year, the Act on Administrative Territorial Reform was adopted to promote municipal amalgamations. The reform was postponed several times, and only became effective on 1 January 2009, following the adoption of The Act on Elections of the Republic city council and municipality council of 2008 and the Act on Administrative Territories and Populated Areas of 2008. It resulted in the abolition of the district level (rajons) and the simplification of the municipal landscape. Municipal amalgamations were further promoted by another territorial reform, adopted in June 2020 by the Parliament and implemented in July 2021 after the municipal elections, under the Law on Administrative Territories and Populated Areas. It aims to develop economically viable administrative territories by merging municipalities, in order to ensure an efficient functioning, to strengthen the capacity and autonomy of municipalities, and to create an attractive environment for investments and employment.

Five planning regions were established at the supra-municipal level by the central government through the Act on Regional development to replace the 26 abolished districts. The planning regions were legal entities under public law but not directly elected. They have indirectly elected regional councils, made up of municipal representatives, acting as “inter-municipal cooperation” bodies created for the purpose of coordinating spatial planning, economic development, public transportation, management of investment programmes (including European Union funds). The regional development council elects the chair and executive director (head of the administration of the planning region). In 2021, the territorial reform provided the five planning regions with the status of administrative regions to perform the shared competences of the central government and municipalities. The conditions of operation of these regions is governed by a law, which was developed by the Cabinet of Ministers in 2021 and submitted to the Parliament.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
33 municipalities (Novads) 10 state cities (Pilseta)			43
Average municipal size: 15 909 inh.
43			43

OVERALL DESCRIPTION: Latvia’s territorial organisation is the result of two successive large territorial reforms conducted in 2009 and 2021. The 2009 reform changed the organisation from dual-level municipalities to single-level municipalities: 524 local authorities (municipalities, rural territories, district towns, “republican cities”) were merged in one single tier of government, comprising 110 municipalities (Novads) and 9 “republican cities” (Republikas Pilseta) under state jurisdiction. The 2021 administrative-territorial reform merged the 119 local authorities into 43 municipalities.

REGIONAL LEVEL: There are five planning regions (Kurzeme, Zemgale, Rīga, Vidzeme and Latgale) since the 2021 territorial reform, which are not elected bodies. The average population size of the regions was 412 400 inhabitants in 2021, from 227 500 in Zemgale to 993 600 in Riga region. The latter was the home of more than half of the Latvian population (52%) and contributed to about 69.6% of national GDP in 2019.

MUNICIPAL LEVEL: The 2021 territorial reform divided the newly established 43 local authorities into 10 state cities (valstspilsēta) and 33 municipalities (novadi). The status of a state city was granted to 10 municipalities (Daugavpils, Jelgava, Jēkabpils, Jūrmala, Liepāja, Ogre, Rēzekne, Rīga, Valmiera and Ventspils) in July 2021 and will be provided to two additional (Koknese and Iecava) as of July 2022. Municipalities include towns (novada pilsēta) and villages (pagasti), the latter comprising less than 5 000 inhabitants.

State cities are urban administrative territories, with well-developed commercial activities, transport and community jurisdiction facilities, social and cultural infrastructure, as well as a minimum population threshold of 25 000 inhabitants. The other municipalities are the result of the merger of several rural administrative territories or of urban towns and the surrounding rural administrative territories. Despite this distinction between state cities and municipalities, their competences and sources of revenue are the same.

Each local government has a local council (dome) as a legislative body. Its members and councillors are elected by direct universal suffrage for four-year mandates. Members of the local council then elect the chairperson (priekšsēdētājs) of the council for a four-year term. The 2021 reform provides that new municipalities will take over the institutions, financial resources, property, rights and liabilities of the former municipalities.

Municipalities are largely populated on average, which has been reinforced by the reform. Prior to the reform, at the beginning of 2021, Latvian municipalities amounted on average to around 15 909 inhabitants (median size 6 400 inhabitants) with large disparities in terms of demographic size, from 940 inhabitants for the smallest to 614 600 inhabitants in Riga, which is the largest and the capital city. Around 41% of municipalities had fewer than 5 000 inhabitants and 6% less than 2 000 inhabitants.

HORIZONTAL COOPERATION: Cooperation between municipalities, which is authorised by the Local Government Act, is well developed in areas such as cultural and sporting activities, education and transport services. The Latvian Association of Local and Regional Governments (LALRG) is piloting a project during 2021-2024 to facilitate inter-municipal cooperation in Latvia, with implementation of pilot actions aiming to enhance cooperation and promote the development of local authorities.

The Local Government Act, enacted in 1994 and amended several times since then, regulates the organisation of local authorities and their competences. Local governments have three types of competences: mandatory autonomous functions set out by law, autonomous functions performed as voluntary initiatives and delegated functions on behalf of the state. Each type of task has to match its own funding source. When the central government delegates tasks to municipalities, it must ensure that those municipalities have the resources necessary for the performance of such tasks. The Latvian system also includes a general residual clause of competence.

Municipal competences cover the provision of basic services, such as housing, local planning and community amenities, environment, education and social assistance and services. The capital of Riga has additional powers, which comprises the support of central government functions, some foreign diplomatic missions and assistance for international organisations, as well as the maintenance and development of infrastructure of national importance. Municipalities also rely on local public companies to provide local public services. At the end of 2019, there were 90 “capital companies”, which are controlled by local authorities and mainly operate in the areas of water supply and sanitation and waste management. The 2021 reform should increase some consolidation on local companies, which were too small to operate at an efficient scale in many cases.

The five planning regions, established in 2002 and reformed in 2021, have shared competences with state and local authorities, which include spatial planning and public transport.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Registration services (birth, land registry, etc.); Collecting statistical information
2. Public order and safety	Municipal police; Public order and civil protection
3. Economic affairs / transports	Economic development (facilitating economic activity); Licencing for commercial activities; Public transport; Local roads; Public infrastructure
4. Environment protection	Public management of municipal forests and water; Waste management
5. Housing and community amenities	Local planning; Social housing; Public space; Water and heating supply; Waste management
6. Health	Hospital maintenance; Health care
7. Culture & Recreation	Sports; libraries; Local museums; Culture
8. Education	Pre-school; Primary and Secondary education; Organisation of continuing education for teaching staff
9. Social Welfare	Personal social services; Child protection; Elderly; Disabled

Scope of fiscal data: municipalities and local government organisations, as well as capital companies controlled and financed by local governments.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: Revenue and expenditure assignments to local authorities are specified by the 1994 Local Government Act. Other key pieces of legislation relating to fiscal matters and fiscal relationships between national and local governments are the Act on the Budgets and Financial Management of 1994, the Act on Local Governments Budgets of 1995, as amended, the 1998 Act on Local Government Finance Equalisation, amended in 2015, and the Act on Taxes and fees of 1995, as amended. The LALRG and the state jointly prepare a Draft Protocol on a regular basis, which notably includes SNG tax and non-tax revenue forecasts, transfers, loans, guarantees, local financial equalisations, to prepare the Draft State Budget and Draft Framework Law that is then submitted to the Parliament.

The Law on Local Government Budget prescribes strict conditions for budget planning and execution for local authorities. SNGs must develop their budget no later than two months after the proclamation of the Annual State Budget Law. The budget allocated to the SNGs may not exceed the amounts planned in the budget. Additional conditions for planning and implementation of subnational budget in order to reduce the impact of economic or social risks are only authorised by the Cabinet of Minister.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	3 628	11.3%	26.1%	100.0%
Inc. current expenditure	2 881	8.9%	24.6%	79.4%
Compensation of employees	1 704	5.3%	45.1%	47.0%
Intermediate consumption	763	2.4%	37.1%	21.0%
Social expenditure	191	0.6%	4.4%	5.3%
Subsidies and current transfers	198	0.6%	14.7%	5.5%
Financial charges	24	0.1%	11.4%	0.7%
Others	1	0.0%	12.8%	0.0%
Incl. capital expenditure	747	2.4%	34.5%	20.6%
Capital transfers	17	0.1%	4.4%	0.5%
Direct investment (or GFCF)	730	2.3%	41.1%	20.1%

EXPENDITURE: The share of SNG expenditure in GDP and total public expenditure is in line with the OECD average for unitary countries (respectively 12.7% of GDP and 27.5% of public expenditure in 2020) but below the EU27 average (18.3% of GDP and 34.3% of public expenditure). The share of staff expenditure in SNG expenditure is particularly high (47.0% vs 30.2% on average in the unitary countries of the OECD and 32.1% in the EU27). The share of SNG in public staff spending is also high (45.1%), in line with international standards (41.4% in OECD unitary countries and 53.6% in the EU27). These high ratios correspond for the large part to teacher wages. In fact, Latvian public employment as a share of the active working population is the highest among EU countries, with local authorities accounting for the majority of public sector employees. The 2021 territorial reform is however expected decrease local staff spending through a strong amalgamation process.

DIRECT INVESTMENT: SNG investment amounted to a small share of public investment in 2020 (34.5%) compared to international standards (48.9% on average in OECD unitary countries and 54.4% in the EU27). Latvian SNG investment has been severely affected by the 2008 crisis and fiscal consolidation measures, as well as the COVID-19 crisis. In addition, it is heavily dependent on the cycles of EU Funds. Over the 2014-2020 period, the country received EUR5.6 billion from the Structural and Investment Funds (ESIF) (around 3% of GDP annually) and EUR 4.5 billion from the Cohesion Funds. Investment is expected to decrease in 2021 due to the completion of the 2014-2020 programming period and should increase again in 2022 with the start of the 2021-2027 period.

Local authorities can use public-private partnerships (PPPs) to finance investment projects, since the adoption of the “Concession Law” of January 2000 and the validation of the concept of concession promotion (ie attracting private capital for state functions) in April 2022. The Latvian Investment and Development Agency (LIDA), created along with the concept, is responsible for the elaboration and promotion of PPPs. The Cabinet of Ministers also published a “Guideline for Promoting Latvia and Private Partnership” in 2005, together with an “Action Plan”, followed by the “Law on Public-Private Partnership” in 2009. Additionally, a PPP advisory council has been set in 2009 to improve the coordination between PPP competent bodies. Since 2017, the council is composed of representatives from the state, its agencies, the Association of Local and Regional Governments, the Association of Large Cities and private bodies.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	3 474	10.8%	-	100.0%
1. General public services	216	0.7%	13.8%	6.2%
2. Defence	0	0.0%	0.0%	0.0%
3. Security and public order	49	0.2%	6.9%	1.4%
4. Economic affairs/transports	585	1.8%	31.4%	16.9%
5. Environmental protection	50	0.2%	24.9%	1.4%
6. Housing and community amenities	321	1.0%	96.1%	9.2%
7. Health	324	1.0%	19.6%	9.3%
8. Recreation, culture and religion	288	0.9%	58.3%	8.3%
9. Education	1 285	4.0%	55.1%	37.0%
10. Social protection	356	1.1%	8.7%	10.2%

A significant share of SNG expenditure is allocated to education, in particular for the payment of teachers’ salaries and the financing of the maintenance and operating costs of educational facilities. Education accounts for 37.0% of SNG expenditure, a much larger percentage than the OECD unitary countries and EU27 averages (respectively 18.8% and 18.5%) as well as 4.0% of GDP (vs. 2.3% in OECD unitary countries and 3.0% in EU27). Economic affairs and transport is the second most important area of SNG spending (16.9%), followed by social protection (10.2%), health (9.3%) and housing and communities (9.2%). SNGs in Latvia are also responsible for the majority of public spending in housing and community amenities (96.1%) and, to a lesser extent, in recreation, culture and religion (58.3%) and education (55.1%).

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	3 579	11.1%	28.8%	100.0%
Tax revenue	1 809	5.6%	26.3%	50.5%
Grants and subsidies	1 473	4.6%	-	41.2%
Tariffs and fees	253	0.8%	-	7.1%
Income from assets	13	0.0%	-	0.4%
Other revenues	31	0.1%	-	0.9%

OVERALL DESCRIPTION: The level of SNG revenue in GDP and public revenue is below the EU27 average in 2020 (respectively 17.9% of GDP and 38.8% of public revenue) but close to the average of OECD unitary countries (12.7% and 31.6% respectively). The main source of SNG revenue is taxes, which are, however, mostly shared. Tax revenue accounted for half of SNG revenue in 2020, well above the OECD average for unitary countries (35.4%) and the EU27 average (40.1%). By contrast, the share of grants and subsidies is lower than the averages for the OECD unitary countries and EU27 (respectively 53.3% and 46.6%), while revenues coming from local public services (tariffs and fees) and property income account for a small share of SNG revenue, below OECD and EU27 averages.

TAX REVENUE: As a share of GDP and as a percentage of public tax revenue, SNG tax revenue is above the OECD average for unitary countries (4.5% and 18.7% respectively). According to the 1994 Act on Taxes and fees, all taxes are “state taxes”. As a result, there are no own-source taxes in Latvia in a technical sense. All taxes benefiting SNGs are apportionments in the collection of some state taxes, i.e. shared taxes.

The most significant shared tax is the personal income tax (PIT). Its receipts represented 86.0% of SNG tax revenue in 2020, 43.5% of SNG revenue and 4.8% of GDP. The PIT is regulated and collected by the State Revenue Service. It is partially redistributed to municipalities according to residence criteria. In 2020, each local authority received 80% of the tax collected in its territory. Municipalities with wealthy residents receive more money than a similar authority with the same number of inhabitants but having less economic capacity. As of January 2021, the municipal share of PIT decreased from 80% to 75% and the monthly threshold for non-taxable revenue base increased, representing a decrease of revenue for local governments. By contrast, SNGs will receive additional revenue with the introduction of the minimum mandatory state insurance contribution. The central government aims to finance rising teacher and health wages with this tax reform.

Another important local tax is the property tax levied on all land and buildings, either used for commercial or housing purposes since 2010. 100% of receipts are redistributed to municipalities. In 2020, it accounted for 13.5% of local tax revenue, 6.8% of local revenue and 0.8% of GDP, slightly below the OECD average (1.0% of GDP in 2019). It is a fully local voluntary tax, but it is collected at the central government level. Local governments can however modify the tax rate since 2013 within limits set by the state. The uniform application of the property tax tends to be distorted by local practices. Some local authorities provide property tax rebates which are more than compensated for by income tax revenue, leading to tax competition between local governments.

Municipalities also receive a share of the tax on lotteries and gambling, as well as a share of the natural resource tax, which must be used for environmental protection purposes only. From 2020, amendments to the Law on Lotteries and Gambling Fee and Tax have increased the rate on gambling machines by 44% and by 20% on roulette, card and dice games. The distribution between central and local government has also been changed to the detriment of municipalities (90% from 75% for the state vs. 10% from 25% for the municipalities). Regarding the natural resource tax, the tax is split into sub-taxes (tax on pollution, radioactive waste and incineration of dangerous waste). The tax revenue share for hazardous waste disposal will also be reduced for municipalities from 100% to 80% in 2021 and for municipal waste disposal from 100% to 90% in 2022 and 85% in 2023. The tax rate on air pollution, on the other hand, increased as of January 2021.

GRANTS AND SUBSIDIES: Nearly all grants from the central government are earmarked and, in 2020, 85.2% of them were current grants against 14.8% of capital grants. Transfers include, in particular, grants for the remuneration of teachers, road maintenance and construction, investment projects or financing of EU projects.

The main non-earmarked grant is the Local Government Finance Equalisation Fund (LGFEF). The local government financial equalisation system was created in 1995 to compensate for the significant differences in the financial capacity among local governments in Latvia and regulated in 1998 through the Law on Local Government Finance Equalisation. The LGFEF aims at balancing the different tax capacities (measured by revenues from PIT and property tax) and an estimation of the “financial needs” related to the municipalities’ responsibilities, which is itself calculated using several demographic criteria. The share of the LGFEF is significant for some municipalities. The central government’s contribution to the equalisation fund increases on an ongoing basis (it has quadrupled in recent years) and further increased in 2020 to compensate SNGs from the tax relief measures during the pandemic. The draft budgetary plan 2021 also provided an increase of the grants by 10% in 2021.

The equalisation law was amended in 2015 and a new system was introduced in 2016. It contains revised principles for the evaluation of demographic and income criteria and takes into account the property tax, in order to bring the incomes of the less wealthy local governments closer to those of wealthier municipalities. However, the law does not take into consideration the local cost of public service provision, which could contribute to increase inequalities among local authorities. The Cabinet of Ministers is planning to revise the law in light of the 2021 administrative-territorial reform.

OTHER REVENUE: Other revenue come from user charges and fees for administrative services, issuance of official documents and certificates, ownerships of animals, advertisement, delivery of construction permits and other administrative offences. In 2020, tariffs and fees accounted for 0.8% of GDP and 7.1% of SNG revenue. Revenue generated by asset sales and rentals, as well as by local public companies, represented 0.4% of the SNG revenue in 2020.

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	2 996	9.3%	17.0%	100.0%	-
Financial debt	2 337	7.3%	15.2%	78.0%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	0	-	-	0.0%	0.0%
Loans	2 337	-	-	78.0%	100.0%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	659	-	-	22.0%	-

FISCAL RULES: The budget process is governed by the Law on Budget and Financial Management for both central and local government, including a budget balance rule for municipalities.

DEBT: SNGs can only borrow long term to finance investment projects (“Golden Rule). However, they do not have free access to the banking system or the capital market, as loans must be contracted with the State Treasury or within specific funding programmes. Borrowing from another institution must be justified and authorised by the Ministry of Finance. SNG borrowing cannot exceed 20% of current revenues in a given year (excluding earmarked grants and contributions to the Equalisation Fund). In case of non-compliance, the National Treasury can apply sanctions, and SNGs may be placed under supervision. Total local borrowing is overseen by an interministerial Council for Loans and Guarantees. However, in 2020, the borrowing limit for SNGs was increased by EUR 150 million to promote investment projects relevant for the recovery and for the reconstruction of the “Mezaparks” grand open-air stage. This higher limit was extended in 2021.

In 2020, SNG debt amounted to 7.3% of GDP, well below the OECD average for unitary countries (14.5% of GDP) and the EU27 average (13.9% of GDP). As a share of public debt, however, Latvian local debt is slightly above the OECD average for unitary countries (10.5% of public debt) and the EU27 average (15.4%). Financial debt (“Maastricht debt”) makes up the bulk of total outstanding debt (78.0%), the remaining part being composed of insurance pensions. Financial debt is composed exclusively of loans as local governments cannot issue debt securities.

TERRITORIAL MANAGEMENT OF THE CRISIS: The Cabinet of Ministers set the Regulation N 662 “Epidemiological Safety Measures for the Containment of the Spread of Covid-19 Infection”, complemented by other laws such as the “Law on the Management of the Spread of COVID-19 Infection”, to determine and coordinate measures in response to the pandemic across the levels of governance. The “Cross-Sectoral Coordination Centre” (PKC), which was composed of experts, also presented advices to the central government to manage the crisis. The Centre is now preparing to be merged with the state Chancellery. At the local level, SNGs had to publish the binding regulations they wanted to implement on their territory in the official gazette (Latvijas Vēstnesi)” and to send them to the Ministry of Environmental Protection and Regional Development for information within the three working days after signature.

The management of the pandemic and the 2021 administrative-territorial reform reinforced coordination at the municipal level. Eight municipalities have established strong common working relations in order to deal with the sanitary crisis and its consequences. By sharing supplies and planning joint responses, these municipalities were able to provide free protective equipment to older persons in the region when the use of masks in public transport became mandatory.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The central government supported SNGs‘ drop in revenue by increasing their borrowing limit for investment projects in 2020 and 2021. It also authorised them to borrow for converting or renovating social housing in order to meet standard requirements. Additionally, the share of local authorities in co-financed projects with the central government has been reduced from 25% to 15% of the project costs and to 10% for investment projects. Municipalities also received state loans as part of the government „Loan Program“ to increase their share in local capital companies when the turnover of the company declined by more than 50% due to the pandemic and to support municipal investment projects with short-term impact on the economy and employment. In this way, the government supported around 307 local investment projects in 2020, which totalled EUR 134.6 million (of which EUR 99.6 million through state loans), and more than 111 investment projects in 2021, notably for energy-efficiency of buildings and green projects.

Municipalities supported families and companies in response to the pandemic. They had the right to postpone companies‘ rent payment deadlines by taking decisions either on all taxpayers or on specific categories of taxpayers in order to support their liquidity. Tax deferrals for households and companies were also made possible, over a period of up to three years, if the delay resulted from the Covid-19 crisis. Advances of PIT payments from the income for the year 2020 were suspended in 2020 and made only on a voluntary basis. Additionally, municipalities provided allowance to vulnerable households that were affected by the crisis (the state covering 50% of the allowance cost), with a limit of EUR 40 per month per person over a three-month period. Local authorities also granted EUR 50 for each child under 18 for households receiving the allowance during the state of emergency.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Subnational revenue decreased by 5.9% between 2019 and 2020, mainly driven by the drop in tax revenue (-9.7%) and tariffs and fees (-15.9%). On the tax revenue side, the PIT sharply decreased by 10.2% in 2020, while the property tax was quite resilient (-1.8%). The fall in tax proceeds mainly resulted from the pandemic, but also from the changes in redistribution between the state and municipalities in regard to the reform of the taxes on gambling and natural resources in 2020. This decline is expected to be even higher in 2021 with the tax reform on PIT redistribution (from 80% to 75% of the PIT will be allocated for local governments). In 2020, the drop in revenue from taxes and tariffs was not fully compensated by state grants, which increased by a tiny 1.3%. Transfers from the state were expected to increase in 2021, notably earmarked grants to teachers.

On the spending side, total municipal expenditure was relatively stable, while capital expenditure decreased slightly. The stability of expenditure in 2020 mainly reflects lower municipal good and services spending during the lockdown and restrictive measures (e.g. thermal energy, heating, motor fuel). The evolution of capital expenditure largely relies on EU funds cycle, with less investment expected in 2021 due to the completion of the EU funds for the 2014-2020 programming period. The higher municipal borrowing limit for investment projects should have a positive impact on investment in 2021.

As a result, SNGs recorded a deficit in 2020 and their debt increased by 3.0%. The growth in municipal debt was attributable to rising financial debt (+3.5%), entirely financed by loans. By contrast, the general government’s debt increased by a sharp 12.8% in 2020, due to the support package implemented in response to the pandemic.

ECONOMIC AND SOCIAL STIMULUS PLANS: The Latvian government has established a national Recovery and Resilience Plan in line with the EU Recovery and Resilience Facility (RRF), giving priorities to green and digital transition projects, but also to the reduction of regional disparities and the strengthening of social inclusion. The plan will be supported by EUR 1.8 billion of grants over 2021-2026, of which 38% targeted for climate objectives and 21% for digital transition.

To further boost SNG investment, the central government implemented a National Development Plan for 2021-2027, which provides planned public investment objectives. The most relevant investment needs for regional development comprise public infrastructure for energy-efficient municipal buildings, road, waste management, pre-schooling and sustainable outdoor spaces. As part of the COVID19 recovery plan, the central government supported 17 municipal investment projects in the above mentioned sectors through its Loan Program, which amounted to EUR 4.6 million in 2021.