The work group of the Ministry of Finance (MoF), together with line ministries and social and cooperation partners, has prepared the draft Recovery and Resilience Facility (RRF) plan for Latvia. It is planned to submit the draft for review to the Government at the beginning of February.
Advisor to the Minister for Finance Ints Dālderis emphasises: "The RRF provides for the possibilities for Latvia to carry out transformation of economy and to introduce the necessary structural changes that would raise productivity and promote transition to a green and digital economy, by reducing the social and economic impact caused by the COVID-19 crisis. Nevertheless, to make it possible for Latvia to receive this funding, we need to put aside individual ambitions and to be able to agree upon the objectives and reforms that would, in the long run, ensure the largest benefit for our country."
The work group under the leadership of the Ministry of Finance has prepared the draft RRF plan for Latvia. The work on introduction of the RRF will be organised in six directions - climate change and sustainability, digital transformation, transformation of economy and productivity reform, health, reducing inequality and the rule of law. Following the EC recommendations, 20% of the RRF funds are planned to be allocated to digitisation and 37% - for achieving climate objectives.
The RRF funding provides for a significant additional financial support from the European Union (EU) for the purposes of implementation of reforms. In order to efficiently allocate this funding, the necessary structural reforms and investment projects must be carefully considered, including them into the national RRF plan. Furthermore, the RRF contributions must be closely linked to the recommendations from the EU Council for the relevant Member State. The guaranteed available funding for Latvia comprises EUR 1.65 billion; therewith, for the time being, the RRF plan has been prepared within the scope of this amount. The sum available to Latvia could later grow, reaching maximum financial scope of the plan, namely, EUR 2.02 billion (excluding the potential share of loans), based on the actual data of economic growth dynamics for 2020 and 2021.
37% of the total funding or EUR 610.5 million are planned to be allocated to climate change direction. In this field, it is expected to reduce greenhouse gas (GHG) emissions and increase attraction of GHG emissions, by promoting the transition to renewable energy resources, investing into sustainable transport solutions for the purposes of improving accessibility of services, inter alia, in terms of the administrative territorial reform, as well as by improving energy efficiency in residential buildings and entrepreneurship and promoting emergency and disaster management measures and climate change adaptation. When working on the RRF plan, in the field of transport the EC recommendations expressed to Latvia in 2020 have been considered with respect to improving transport infrastructure in Riga and its vicinity that would promote labour force mobility and help restricting the growing energy consumption by passenger cars.
COVID-19 situation brought to light the need to reconsider the existing model of provision of public services and to move towards more rational approach, based on remote service provision, with a broad availability of on-site and online (remote) consultations, developing more comprehensive online access possibilities, by implementing national digitisation reform. In the field of digital transformation, it is planned to promote sustainable growth and digital transformation of economy, inter alia, recovery from COVID-19 crisis, by developing digital services and data economy infrastructure available to public administration, society and businesses, as well as by developing the necessary capacities and skills. Within the scope of the RRF, it is planned to allocate 20% of the total funding or EUR 330 million to the digital transformation component.
In the recommendations from the EU Council, it is specified that Latvia still faces a significant lack of contributions for prevention of regional disparities, therefore high priority investment needs are determined for our country, in order to reduce social and economic disparities and to solve demographic problems. Implementation of the administrative territorial reform is specified as one of the solutions that could help improving the capacity and effectiveness of public sector. Within the scope of the RRF, it is planned to allocate 20% of the total funding or EUR 330 million to reduction of inequality. It is planned to allocate investments, in order to promote accessibility of social services and employment in regions, by promoting the provision of high-quality general secondary education in the territories of local governments, facilitating housing availability, providing support to development of public infrastructure of entrepreneurship, ensuring adequate and available road infrastructure, for the purposes of comprehensive achievement of the goals of administrative territorial reform.
As regards the recommendation expressed in the EC Semester Report to strengthen the resilience and availability of health sector, inter alia, by ensuring additional human resources and financial resources - there are reforms planned within the scope of the RRF plan, supplementing the measures to be implemented from the EU funds and the State budget. In the field of health, within the scope of the RRF plan, it is expected to take measures that would strengthen the resilience and availability of health sector, by developing infrastructure necessary for integrated health care services, ensuring the ability of medical institutions to adapt to crises situations, as well as by developing improved service provision models, inter alia, improving the further education system of medical practitioners and establishing uniform principles in the field of oncology. Within the scope of the RRF, it is planned to allocate 11% of the total funding or EUR 181,5 million to the health component.
In the field of transformation of economy and productivity, it is planned to work in two reform directions: raising productivity via increasing the scope of investments in research and development and ensuring the change of administrative model of the higher education institutions. Within the scope of the RRF, it is planned to allocate 10% of the total funding or EUR 165 million to the economic transformation component. The offered direction of reform investments correlates with the EU recommendations for Latvia to strengthen economy and support further recovery thereof, as well as to direct investments specifically to research and development. The reform will allow Latvia to establish effective innovation system that will be based upon constant employment of entrepreneurship full disclosure principle and targeted public investments into research and development based upon Latvia’s competitive advantages.
Within the scope of the RRF, it is planned to allocate 2% of the total funding or EUR 33 million to the rule of law component. There are enough challenges in the area of strengthening quality and rule of law in the public administration institutions and within the scope of the RRF plan it is being offered to focus on the fields with the most direct impact on the quality of entrepreneurial environment, which have been repeatedly emphasised also in the recommendations of the EU Council and the yearly EC reports - reducing shadow economy and improving tax collection, combating money laundering and economic crime, as well as the responsibility, effectiveness and integrity of public sector.
2% (EUR 33 million) of the total contributions are intended for the field of culture and media, including them in number of components of the RRF plan.
The first version of the RRF plan will be submitted to the Government at the beginning of February this year. Following the approval of the plan in the Government, it will be submitted to the European Commission (EC), where it will be assessed by experts and the comments will be provided as to whether this plan can be recognised as appropriate for the fulfilment of country-specific recommendations and reform directions. Criteria and conditions for introduction will be developed after the plan is approved.
To prevent the harm caused by COVID-19 pandemic to economy and social field, stimulate the recovery of Europe, as well as to protect and create jobs, in Spring this year, the European Commission (EC) proposed to introduce a large-scale European recovery plan. A significant part of the European recovery funding will be allocated to the Recovery and Resilience Facility. The purpose of the facility is to support reforms and investments, specifically those related to the transition to a green and digital economy, as well as to reduce the social and economic impact caused by the crisis. The creation of the EU support facility of such scale within such a comparatively short timeframe is unprecedented. At the end of 2020, the EU legislators reached a conceptual agreement regarding the RRF regulation, which is expected to be approved in the European Parliament at the beginning of February this year.
In allocating the funds from the European Union (EU) Recovery Facility, a single approach is planned to all EU Member States. Namely, national economic recovery plans must, first of all, include the objectives and the necessary reforms for achieving the objectives, investments for the implementation thereof, including as the last particular projects, by which it is intended to achieve the objectives.
The draft RRF plan and infographics in Latvian are available on the EU funds website.
