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Shadow economy 42 percent of Latvian GDP

  • 2000-12-21
RIGA (BNS) - Research conducted by Latvia's Finance Ministry on the country's shadow economy shows that in 1999 the shadow economy accounted for 42 percent of GDP, the ministry reported last week.

The Russian crisis of the previous year is believed to have been the motivating force behind this figure, but the forecasts say that the proportion could drop by some 1 percent to 2 percent in 2000.

The Finance Ministry estimates show that in 1999, 75 percent of personal income tax and 70 percent of mandatory payments of state social insurance were collected. Compared to 1998, tax revenues increased by 2 and 1 percentage points, respectively.

Ministry data also affirm that there is a large amount of smuggled excise goods, such as fuel, alcohol and tobacco, from nearly all countries that are important trade partners with Latvia.

The shadow economy in Latvia reached a peak in 1995, at 45 percent of GDP. According to the ministry, the proportion of the shadow economy in Latvia in 1994 was 24 percent; in 1995, 45 percent; in 1996, 43 percent; in 1997, 39 percent; and in 1998, 38 percent.

Shadow economies occur throughout the world, but they thrive during unstable economic conditions.

Research shows that the shadow economy in Georgia in 1994-1995 made up 63 percent of GDP, in Azerbaijan 59.3 percent, and in the Ukraine 47.3 percent. In 1996-1997, by contrast, the shadow economy in Italy was 27.2 percent, and in Switzerland just 7.8 percent of GDP.

The shadow economy embraces all activities generating an income that for various reasons is not declared and is withheld from taxation, as well as those that are not reflected in statistical reports.