Shadow economy in Latvia has risen to 26.6%

• Published date: 16 May 2022
• Publication title: LETA

RIGA, May 16 (LETA) - In 2021 the shadow economy in Latvia grew by 1.1 percentage points, reaching 26.6 percent of the national gross domestic product (GDP), said Arnis Sauka, director of the Sustainable Business Center of the Riga School of Economics (SSE Riga), at the annual shadow economy conference today.

t the same time, Lithuania reported a rise of 2.7 percentage points to 23.1 percent of GDP, while Estonia reported a 2.5 percentage points rise in shadow economy to 19 percent of GDP.

In monetary terms, the total lost tax revenue from the shadow economy in Latvia exceeds EUR 2.7 billion. Due to the Covid-19 pandemic, the size of the shadow economy in 2021 has also increased in Lithuania and Estonia.

ccording to the calculations of the shadow economy index, which have been carried out in the Baltic states since 2009, the level of the shadow economy in Latvia tended to decrease in 2015 and 2016, when it reached 21.3 percent and 20.7 percent of GDP, respectively. While in the following years, the size of the shadow economy in Latvia either did not change significantly or increased: In 2017, the shadow economy in Latvia was 22 percent of GDP, in 2018 - 24.2 percent, in 2019 - 23.9 percent, in 2020 - 25.5 percent, but in 2021 - 26.6 percent of GDP.

n increase in the shadow economy in 2021 is also observed in Lithuania and Estonia. Namely, compared to 2020, the shadow economy in Estonia increased by 2.5 percent in 2021, reaching 19 percent of GDP. In Estonia, this is the highest figure of the shadow economy since 2012, when the shadow economy reached 19.2 percent of GDP.

While in Lithuania, the size of the shadow economy increased by as much as 2.7 percent in 2021, reaching 23.1 percent of GDP. In Lithuania, this is the highest indicator of the size of the shadow economy since 2009. Thus, most likely, due to the Covid-19 pandemic, the shadow economy in 2021 has increased in all three Baltic countries. Although the difference between the size of the shadow economy in Latvia and Lithuania is relatively smaller than in previous years, it is still highest in Latvia.

Sauka noted that that policy makers, especially in Latvia, have not done well in reducing the shadow economy even in the years of economic growth, before the pandemic. This year, in addition to the Covid-19 pandemic, there has also been uncertainty, incl. economic uncertainty caused by the war Russia has started in Ukraine.

"In such very difficult circumstances, the reduction of the shadow economy in the...