There is more to do to 'push' economic growth forward - Kazaks

RIGA - Latvia's economic growth is currently weaker than expected and there are a number of things Latvia needs to do to "push" growth forward, Bank of Latvia President Martins Kazaks told LETA in an interview.

He pointed out that the economy's weak growth at the moment was linked to two factors. First, the economy is also weak in Latvia's main trading partners and in Europe as a whole. As long as there is no growth there, our export sector will remain weak and drag down the overall growth of the Latvian economy. Second, household incomes are rising and purchasing power is recovering, but insecurity is still quite high and households are choosing to save rather than spend.

"The economy is weak and weaker than expected, not only in Latvia but in Europe as a whole. Figuratively speaking, after a good start to the year, spring has dragged on and summer has not yet arrived in the economy," said the central bank governor.

However, he stressed that this did not mean sitting back and waiting for households to finally start spending or for export markets to improve.

"There are a number of things that Latvia needs to do to 'push' economic growth forward. To name but a few. Timely and smart use of EU structural funds to strengthen economic growth, to make the economy more productive. Next is the administrative burden. Where it is excessive, it must be reduced without hesitation. Here we can mention building regulations, insulation regulations. These are all things that have been discussed for a long time," said Kazaks.

He stressed that the use of EU funds should also be subject to a change in thinking when setting targets. For example, the creation of new jobs should not be set as the main objective, because there are few employees in Latvia and this is not an unlimited resource. Instead, it is better to change the focus to creating more efficient processes, to creating new products and to creating more productive jobs.

Reducing administrative burdens can make economic processes faster and cheaper, with greater and more lasting benefits for businesses than revising a tax.

The number of employed people is also key to growth and has been declining in Latvia over the last five years, while in Lithuania and Estonia it has been rising. Estonians and Lithuanians have been more adept at using local labor, with higher labor market participation than in Latvia. In Lithuania, the number of workers has also increased significantly due to Ukrainian and Belarusian refugees.

"This means that not only have we not attracted as much labor as the Lithuanians and Estonians, but we are also not using our existing labor resource as efficiently. In Latvia, we also see a trend that, despite a slight decline in the number of people employed, the share of the public sector is growing and the share of the private sector is declining. This trend is, of course, unsustainable. We must therefore try to bring people back into the private sector and use this resource much more efficiently. This is also a very important element for faster economic growth," Kazaks stressed.

He also pointed out that Latvia's problem is not a lack of ideas, but delaying or not taking decisions.

"We have to be bold. I think this is what the Lithuanians have shown over the last ten years - they have stood up for themselves, set high goals, worked together, sometimes took risks and now they are a success story of the Baltic region. I see no reason why Latvia cannot be the success story of the Baltic region in ten years' time. We have all the prerequisites for that," said the President of the Bank of Latvia.