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184 Economic crisis, health systems and health in Europe: country experience
Public administration reforms. There were reductions in the number of
ministries and public agencies.
From early 2010, economic growth slowly resumed and GDP increased by
5.5% in 2011, mainly driven by an increase in exports. Since then, private
consumption has been gradually stabilizing but public consumption is very low
because of the budget consolidation measures implemented in 2010. However,
these measures allowed Latvia to keep its budget deficit well below the target
agreed with the EU and the IMF, in order to comply with the Maastricht
stability criterion on budget deficits in 2013 and 2014; the country joined the
Eurozone and adopted the euro as its national currency in 2014. In addition,
after the initial deflation caused by the crisis, prices grew again (at 4.4% in 2011)
and GDP grew at about 5% in 2012 and 4% in 2013 (Ministry of Finance,
2012; Eurostat, 2013a). The situation in the labour market was expected to
gradually improve in subsequent years; however, increases in employment are
likely to be moderate (on average 2% per year) as growth will mainly depend
on productivity increases (Mitenbergs et al., 2012).
On 22 December 2011, the IMF's Board supported the closure of Latvia's
international loan programme. Of €7.5 billion that was made available, Latvia
used only €4.5 billion. The IMF country report released in early 2012 stated
that Latvia achieved many of its main objectives: “International reserves have
recovered to above pre-crisis levels and the exchange-rate peg has held. The
financial sector has strengthened, while fiscal adjustment … has preserved
fiscal sustainability. Competitiveness has improved but this was accompanied
by a collapse in output, high unemployment, and (despite the programme's
emphasis on emergency safety nets) increasing poverty, while external debt and
problem assets in the banking sector have also increased” (IMF, 2012, p. 4).
1.3 Broader consequences
With strong economic growth, the level of registered unemployment had been
steadily falling in recent years, from 14.4% in 2000 (Tragakes et al., 2008) to
5.7% in 2007 (Economist Intelligence Unit, 2009). However, low saving rates,
likely encouraged by the easy availability of credit, made Latvian households
more vulnerable to economic shocks. In 2007, the household savings rate
in Latvia was the lowest in Europe and it was the only country in Europe
with a negative savings rate (-4.3%). 3 Low (but positive) savings rates were
also recorded in other Baltic countries (Lithuania, Estonia) and the United
Kingdom, compared with an average of 10.8% in the EU27 (Eurostat, 2009).
3 A negative savings rate means that households spend more than they receive as regular income, and finance some of
their expenditure through credit or, to a lesser extent, through exceptional resources such as gains arising from the sale of
(mostly financial) assets or running down cash/deposits. One factor that might have contributed to this negative savings
rate was tax evasion (grey economy).