Latvia Economic and Defence Update

LATEST DEVELOPMENTS IN LATVIA AND CHALLENGES Latest developments Priorities of the new Government are: national security and foreign policy, education, energy, climate and environment, competitiveness and improving the quality of life To accelerate the transition to renewable resources, a new Ministry for Climate and Energy in Latvia has been created and it has started to operate as of January 2023 On March 9, the Saeima adopted the law on the State budget for 2023 and the budget framework for 2023, 2024 and 2025. Strengths 1 Flexible economy with strong recovery prospects 2 Investment and export driven economic growth 3 4 Prudent fiscal management in pre-COVID years providing fiscal capacity to absorb external shocks Well-capitalized and liquid banking sector, with tight AML/CFT regime 5 Good progress made to diversify sources of energy supply and ensure energy security. Limited energy dependence from Russia 6 7 NATO membership provides a security guarantee and defence co-operation to defer potential external aggression Mitigate the impact of higher energy prices on the most vulnerable Structural transformation of the economy (inc.EU funds, Recovery and Resilience plan) Challenges Inflation Defence Economic growth Energy security Increase the military and defence capabilities as part of NATO membership Diversify energy supply sources and energy supply routes

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