Riga residents rarely visit this northern town – but its financial and economic situation paradoxically resembles a micro-model of that in which most of the provinces of Latvia find themselves.
In 2025, the Valka municipality demonstrated the largest decrease – by 16.3% – in the share of personal income tax. The latter also tends to decrease – by more than one and a half percent per year.
The Ministry of Finance released a special information message about Valka for today’s government meeting – noting, however, that the municipality is by no means an outsider, as 11 municipalities in Latvia have an even worse situation. But everything, as they say, is understood in comparison!
Borderline State
The Estonian side of the former town of Livonia, divided between the freedom-loving republics in the early 1920s, has historically fared better. Valga is usually characterized by higher salary levels and better budgetary financial conditions compared to Latvian Valka.
Latvian residents often prefer to work in Estonia, where the minimum wage is higher (946 euros compared to 780 euros). Latvian Valka has become a center for “alcohol tourism,” especially for residents of Estonia and Finland, due to lower alcohol excise taxes in Latvia. Meanwhile, Estonian Valga offers a wider range of shopping centers and often lower food prices. Valka is experiencing financial difficulties, partly because Latvians registered in Estonia pay taxes to the Estonian budget, depriving the Latvian town of tax revenues.
The Estonian city boasts a better state of social infrastructure, such as hospitals, where equipment has been modernized. Due to differences in legislation (for example, during the Covid-19 pandemic), restrictions on the operation of beauty salons, services, and trade often varied, creating unequal conditions for businesses. Despite the differences, the towns function as a common territory. Residents actively move between the two countries, taking advantage of both sides.
Valka boasts a monument to the strong manager Ulmanis. Photo by the author.
Into the Woods for Berries and Logs
Here’s what capital officials know about the economy of the Valka surroundings.
Located in a wooded area, the Valka municipality focuses on timber harvesting, lumber production, and woodworking, including active forest purchasing. The local forestry industry includes primary processing, including lumber production, as well as the harvesting of non-timber resources. The region has farms specializing in berry cultivation (blueberries, strawberries) and beekeeping, and apple cider is actively produced. Rural tourism is quite developed in the Valka municipality – for example, the “Leinieki” farm conducts cheese-making tours; “Oshumayas” restores flood meadows through livestock grazing.
Surviving on Assistance
The Valka municipality applied to the central authorities back in 2024 for a short-term loan of 400,000 euros to manage its budget and finances. As of March 1, 2026, the Valka municipality had repaid 240,000 euros, or 60%, of the mentioned loan.
The municipality created its own (100% ownership) capital company SIA Valkas namsaimnieks and independently provides heat energy and water supply services to the population. The Valka municipality charges residents fees and settles with the entity providing heat energy services, while the local authority itself ensures the provision of water supply services. Meanwhile, the accumulation of debt was exacerbated by the debts of LLC Utilitas Valka, which produces heat energy – amounting to 150,000 euros.
The Town Owes a Million
As of February 1, 2026, the total accounts receivable of the Valka municipality amounted to 1,063,750 euros. As stated in the document from the Ministry of Arvils Ašeradens (“New Unity”):
“ The Ministry of Finance concluded that:
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- the financial problems of the municipality are related to the disorganized provision of heat energy and water supply services to residents;
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- the bills issued to the population for heating do not cover the actual costs of the service;
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- the municipality has large accounts receivable, a significant portion of which consists of residents' debts for received heating services, which are not significantly decreasing.”
The new year began with a reduction in debt by 494,905 euros, which, however, was related to the sale of… a boiler house. “From which the long-standing debt to the heat producer was paid, current taxes, and partially tax deferrals.” Meanwhile, the State Revenue Service also showed understanding and postponed the payment of taxes of 362,442 euros until January 20, 2027.
An Auditor is Coming
However, the municipality's liabilities currently account for 37% of the total balance, exceeding the maximum established limit of 30% for municipalities. Therefore, the Ministry of Finance appealed to the State Audit Office – so that auditors would go to Valka and find out what else could be done to “avoid generating long-term fiscal risks.”
The European Union will also come to the rescue – construction of new social and rental apartments funded by the ERAF fund is beginning in Valka. The project on Robert Zamuel Street will cost 1,524,600 euros, of which the municipality must contribute 228,290 euros, but it owns the building being renovated, where 14 families will live. “The current number of apartments in the municipality is insufficient to meet demand, as confirmed by the long waiting lists for housing,” the Ministry of Finance document states.
However, it is quite possible that when new residents appear in the renovated building, they will still go to work in the neighboring republic…
NEEDS
The Valka municipality lacks funds for a number of urgent expenses in 2026 amounting to 303,400 euros. Among them:
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purchase of buses for transporting schoolchildren,
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purchase of computer equipment (52 computers),
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elimination of discrepancies in the Janis Cimze Gymnasium identified in the State Audit Bureau inspection report.
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