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Europe > Latvia, Republic of

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Cover IMF Working Papers
The Direct Employment Impact of Public Investment
Marian Moszoro
We evaluate the direct employment effect of the public investment in key infrastructure—electricity, roads, schools and hospitals, and water and sanitation. Using rich firm-level panel data from 41 countries over 19 years, we estimate that US$1 million of public spending in infrastructure create 3–7 jobs in advanced economies, 10–17 jobs in emerging market economies, and 16–30 jobs in low-income developing countries. As a comparison, US$1 million public spending on R&D yields 5–11 jobs in R&D in OECD countries. Green investment and investment with a larger R&D component deliver higher employment effect. Overall, we estimate that one percent of global GDP in public investment can create more than seven million jobs worldwide through its direct employment effects alone.
Keywords:
employment effect; job content; employment impact; job elasticity; job intensity; construction employment; job multiplier; Public investment spending; Employment; Job creation; Income; Global
Cover IMF Staff Country Reports
Republic of Latvia: Selected Issues
International Monetary Fund. European Dept.
This paper discusses potential growth and its drivers for Latvia 6 years after the growth turnaround and presents projections for the medium term. As the labor force is projected to decline, implementation of policies to increase investment and support total factor productivity (TFP) growth will be essential to ensure income convergence going forward. The level of potential growth has direct consequences for Latvia’s convergence path. Latvia’s GDP per capita was about 62 percent of the EU-15 average in 2015. A better understanding of potential output is important for policy setting. For example, an estimate of the output gap enters the fiscal reaction function through the cyclical adjustment of the fiscal balance and therefore directly influences policy makers’ assessments of whether fiscal policy should respond to deviations from potential. Potential output is an elusive concept and can be defined in various ways. Potential output is generally defined according to the Okun concept as the level of output consistent with stable inflation, while short-run deviations of actual from potential output, due to the slow adjustment of wages and prices to shocks, reflect the output gap—or economic slack.
Keywords:
ISCR; CR; Latvia; capital stock; support total factor productivity; IMF staff calculation; statistics Latvia; PF approach; imputed TFP series; Total factor productivity; Potential output; Output gap; Capacity utilization; Global
Cover IMF Working Papers
A Tale of Two Sectors: Why is Misallocation Higher in Services than in Manufacturing?
Daniel A Dias
,
Christine J. Richmond
, and
Carlos Robalo Marques
Recent empirical studies document that the level of resource misallocation in the service sector is significantly higher than in the manufacturing sector. We quantify the importance of this difference and study its sources. Conservative estimates for Portugal (2008) show that closing this gap, by reducing misallocation in the service sector to manufacturing levels, would boost aggregate gross output by around 12 percent and aggregate value added by around 31 percent. Differences in the effect and size of productivity shocks explain most of the gap in misallocation between manufacturing and services, while the remainder is explained by differences in firm productivity and age distribution. We interpret these results as stemming mainly from higher output price rigidity, greater labor adjustment costs and more informality in the service sector.
Keywords:
WP; service sector; Misallocation; productivity; firm-level data; structural transformation; Gelbach decomposition; productivity shock; efficiency gain; TFP distribution; factor share; productivity distribution; balance-sheet data; industry classification; industry level; manufacturing sector industry; output price rigidity; ol tne; output wedge; Services sector; Total factor productivity; Manufacturing
Cover IMF Staff Country Reports
Republic of Estonia: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper analyzes income convergence and medium-term growth potential for Estonia. Estonia’s potential growth is projected to average some 3 percent over the next five years and 2.75 percent over the next two decades, implying continued income convergence with European Union levels, albeit at only half its historical pace. A number of policy enhancements could lift growth above this central projection. These include a greater operational policy focus on raising productivity growth, scaling up a number of envisaged pro-growth programs, supporting the upgrading of traditional industries as a second leg of innovation policy, and fully restoring Estonia’s high investment.
Keywords:
ISCR; CR; TFP growth; labor force; potential GDP; structural unemployment; capital stock; unemployment rate; Total factor productivity; Aging; Productivity; Western Europe; Europe; Central and Eastern Europe; Global; growth record; FDI inflow; R&D expenditure; staff team of the International Monetary Fund; qualification mismatch; Labor force participation
Cover IMF Staff Country Reports
Baltic Cluster Report: Staff Report for the 2014 Cluster Consultation
International Monetary Fund. European Dept.
This 2014 Cluster Consultation report examines common themes and challenges facing the three Baltic countries—Estonia, Latvia, and Lithuania. It identifies common features and common challenges, and discusses policies—both national and joint—that could help to address these challenges. The Baltic economies have performed well during the last two decades. The global financial crisis exposed vulnerabilities that had built up in the Baltics, but the postcrisis recovery revealed inherent strengths as well. This report highlights that national policies are necessary to address all of the challenges, but collaboration is also important in some areas.
Keywords:
ISCR; CR; country; authority; IMF pilot project; economy; consultation; staffs assessment; skill mismatch; staffs discussion; export product mix; NAIRU estimate; Credit; Exports; Labor taxes; Unemployment; Baltics; Global
Cover IMF Staff Country Reports
Former Yugoslav Republic of Macedonia: Selected Issues Paper
International Monetary Fund. European Dept.
The Macedonian labor market exhibits a high unemployment rate, yet does not demonstrate obvious and large enough constraints on the demand or supply side. Considerable achievements can be made by maintaining macroeconomic stability, attracting FDI, and closing the educational gaps. The second paper assesses ways in which the Macedonian financial sector could better contribute to growth and real convergence, taking stock of where the sector stands and its recent developments. Streamlining bankruptcy procedures, improving collateral and systematic collection and publication of real estate sales data, and revisiting the interest rate cap may serve to moderately boost credit supply.
Keywords:
ISCR; CR; bank; wage; financing; labor market; credit growth; reservation wage; private sector; Macedonian bank; financing model; credit supply; brain drain; equilibrium credit level; Credit; Wages; Commercial banks; Labor markets; Global; Eastern Europe; Europe; Central and Eastern Europe; Central Asia
Cover IMF Working Papers
Adjustment Under a Currency Peg: Estonia, Latvia and Lithuania During the Global Financial Crisis 2008-09
Miss Catriona Purfield
and
Mr. Christoph B. Rosenberg
The paper traces the Baltics’ adjustment strategy during the 2008-09 global financial crisis. The abrupt end to the externally-financed domestic demand boom triggered a severe output collapse, bringing per capita income levels back to 2005/06 levels. In response to this shock, the Baltics undertook an internal devaluation that relied on unprecedented fiscal and nominal wage adjustment, steps to preserve financial sector stability as well as complementary efforts to facilitate voluntary private debt restructuring. One-and-half years on, the strategy is making good progress but not yet complete. Confidence in the exchange rate was maintained, the banking system was supported by its parent banks, external imbalances and inflation have largely disappeared, competitiveness is improving, and fiscal deficits are gradually being brought back towards pre-crisis levels. However, amid record levels of unemployment, further reforms are needed to foster a return to more balanced growth, fiscal sustainability, and a healthier banking system.
Keywords:
WP; Lithuania; wage; Estonia; swap line; unemployment rate; Internal devaluation; boom bust; competitiveness; wage adjustment; fiscal adjustment; global financial crisis; Baltics; wage reduction; reductions in Latvia; market share; government takeover; economy earnings; Wages; Unemployment; Currencies; Labor markets; Global
Cover IMF Staff Country Reports
Republic of Latvia: Statistical Appendix
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Keywords:
ISCR; CR; Latvia; exchange rate; foreign currency; current account; broad money; economic activity; liquidity ratio; Budget planning and preparation; Agroindustries; Commercial banks; Credit; Middle East; Western Hemisphere; Baltics; Central Asia; East Asia
Cover IMF Staff Country Reports
The Republic of Latvia: Statistical Appendix
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Keywords:
ISCR; CR; Latvia; budget; budget institution; commercial bank; exchange rate; economic activity; foreign currency; private sector; broad money; Budget planning and preparation; Agroindustries; Public sector; Commercial banks; Baltics; Middle East; Western Hemisphere; Central Asia; East Asia
Cover Pension Reform in the Baltics
Pension Reform in the Baltics
Issues and Prospects
Mr. Jerald A Schiff
,
Mr. Axel Schimmelpfennig
,
Mr. Niko A Hobdari
, and
Mr. Roman Zytek

Abstract

This paper provides an overview of efforts in the Baltic countries to reform their pension systems, and examines the choices facing these countries in their continued reform efforts. Early reforms were aimed at correcting the flaws of the inherited Soviet system and, in particular, at shoring up the finances of the pension systems and reducing their distortionary impact. The Baltic countries have been in the forefront of transition economies in their pursuit of pension reform. They have taken important steps to shore up the long-run financial health of their existing pension funds and made preparations for the implementation of a three-pillar scheme. Although a move toward a fully funded pension system can potentially make an important contribution to the objectives of pension reform, such a change is neither necessary nor sufficient to meet these goals. The existing PAYG pension system can, at least in theory, be made sustainable by an appropriate adjustment of payroll tax rates and expected lifetime pension benefits, although the average replacement rate implied by such changes may well be fairly low, reflecting the expected demographic developments.

Keywords:
OP; PAYG; pension; cost; saving; retirement age; transition cost; savings-investment balance; PAYG system; financing gap; lifetime pension benefits; Pension spending; Pensions; Pension reform; Aging; Retirement; Baltics