On 22 June 2026, the EU Council adopted a recommendation outlining Latvia's economic, social, employment, structural and budgetary policies for the coming years. The Council calls on Latvia to adhere to a maximum net expenditure growth of 3.6% in 2026, 3.4% in 2027, and 3.3% in 2028, while addressing structural challenges in public finances, competitiveness, and social protection. The recommendation is part of the European Semester cycle and follows the Commission's country-specific recommendations published in May 2026.
The Council notes that Latvia's general government deficit is projected at 3.3% of GDP in 2026 and 4.3% in 2027, with debt rising from 48.8% of GDP by end-2026 to 53.8% by end-2027. Defence expenditure, at 3.2% of GDP in 2025, is projected to increase to 4.1% of GDP in 2026. The national escape clause under the reformed Stability and Growth Pact is activated for 2025-2028, allowing Latvia to deviate from the recommended net expenditure growth rates to accommodate defence spending. The Commission did not propose opening an excessive deficit procedure for Latvia.
tax revenue stood at 34.9% of GDP in 2024, well below the EU average of 39.4%, while the shadow economy remains at 21.4% of GDP. Low public spending on healthcare and projected low pension adequacy require action. The Council recommends that Latvia raise additional tax revenue, reduce the shadow economy, and increase spending efficiency. It also calls for improving access to finance, boosting R&D expenditure, and strengthening cooperation between businesses and academia.
The recommendation impacts Latvia's government, which must balance fiscal consolidation with defence and social spending; businesses, which may face higher taxes but benefit from improved access to finance; and citizens, who could see better healthcare and pensions if reforms are implemented. The Council's recommendation is non-binding but carries political weight; Latvia is expected to report on progress in its next National Reform Programme. The European Parliament will discuss the recommendation in its autumn session.