Latvia's national debt has nearly tripled over the last two decades, raising concerns about reaching critical levels as servicing costs soar due to rising interest rates and an increasing debt burden.
Latvia's national debt has seen a dramatic increase over the past 20 years, growing from approximately 15% of the GDP in 2004 to about 48% in the previous year. This significant rise is attributed to increased government spending during crisis periods, notably during the 2008 global financial crisis and the Covid-19 pandemic, when many governments worldwide, including Latvia, raised expenditures to support households and businesses in distress.
The servicing costs of the national debt have also surged, quadrupling in recent years, particularly as interest payments reached around β¬443 million in 2024. This rise in costs arises from two main factors: the influx of government debt and higher interest rates than seen in the previous decade within the Eurozone. Despite this concerning trend, there is some reassurance as current interest rates have stabilized, potentially alleviating some pressure on the government budget going forward.
Latvian economist OΔΌΔ£erts has expressed concerns regarding the trajectory of the national debt, likening it to an iceberg that can either drift freely or move in dangerous paths that may pose risks to economic stability. The discussion surrounding Latvia's debt is critical, as it impacts governmental fiscal policy and long-term financial health, suggesting that a careful approach is necessary to avoid crossing a potentially hazardous threshold. The question remains whether Latvia can manage its growing debt sustainably without triggering broader economic instability.
