Misallocation of resources has significantly slowed productivity growth in Latvia, concluded the International Monetary Fund (IMF) in its report.
As the IMF reminds, the Latvian economy has faced issues with competitiveness over the last 20 years, and labor productivity growth is slowing down.
The report emphasizes the importance of government policy to support the market entry of quality enterprises, facilitate the effective exit of less productive firms, and improve resource allocation efficiency to stimulate productivity growth in Latvia.
According to the IMF, improving productivity growth indicators is crucial for restoring the competitiveness of the Latvian economy and maintaining fiscal space.
Experts note that the efficiency of resource allocation and the dynamism of companies are critical for productivity growth. For instance, when less productive firms exit the market, capital and labor are redistributed in favor of more efficient companies, contributing to overall productivity growth. By reducing misallocation of resources and aligning the distribution of capital and labor among enterprises, productivity can be significantly enhanced.
The IMF strongly recommends that the Latvian authorities eliminate barriers faced by new enterprises, thereby promoting productivity growth. Despite the active entry of new companies into the Latvian market, experts advise attracting higher-quality enterprises.
The IMF recommends improving the allocation of both capital and labor, which, along with increasing company dynamism, can contribute to productivity growth.
The conclusions are based on data as of July 31 of this year.
