COVID-19 Lessons and Post-pandemic Recovery: A Case of Latvia

Abstract

The decision of EU and the response of the national governments to COVID-19 crisis provide the basis for returning "back to normal". A key challenge is the transition to economic recovery in the presence of the ongoing COVID-19 risk. Adequate policy mix and forward-looking actions of the public institutions are crucial to mitigate the devastating impact of the crisis and to preserve growth. Governments need to facilitate positive changes in the labor market, adjust the macroeconomic and fiscal regimes, and mitigate the post-crisis "fatigue" of societies. The turmoil of the EU economy is symmetrical, as the pandemic has affected all EU Member States, but the impact of the pandemic varies considerably from one country to another, as does their ability to absorb the economic crisis. Also, variation in the vaccination performance is partly due to different institutional characteristics across countries. Small countries are more vulnerable to external economic shocks; however, they can increase their resilience by efficient governance and social response. Extraordinary pandemic crisis can be seen as a stress test for the small and open Latvian economy, and it is worth analyzing the lessons that Latvia had learned and its future prospects. The aim of this paper is to evaluate the economic and social consequences of the ongoing crisis in Latvia, assess the effectiveness of the response of the government to the crisis, analyse people's perceptions, and to identify the future scenarios. The authors applied a special theoretical framework for the assessment of the effectiveness of institutions. Institutional analysis of crises response by the Latvian government reveals that the government managed to avoid serious functional disruptions; however, it failed to show convincing ability to learn by doing. The authors also provide a comprehensive analysis of the macroeconomic trends of the "COVID-sick" Latvian economy and conclude that future-oriented solutions relate to international competitiveness and that the key factor of competitiveness is a productivity renaissance. The pandemic crisis has fostered the state support for healthcare, which in Latvia for decades has been underfinanced. The right choice of fiscal instruments is crucial to accelerate the economic recovery and better healthcare. Research is based on the macroeconomic assessment and survey-based analysis. The comparison of statistically justified findings with the public perception helps formulate conclusions on the future scenarios and policies.

Keywords: COVID-19 crisis; economic recovery; health care; productivity; public perceptions.

Figure 1

Government stringency index, Latvia, 21/01/2020-21/12/2021 (2).

Figure 2

The assessment of the effectiveness of the work of Latvian public administration during the COVID-19 pandemic crisis (5). Source: Authors' analysis based on IAD framework.

Figure 3

Personal satisfaction with the life people lead, percent of respondents, 2019-2021 (9). Source: Standard Eurobarometer 92.3, 93.1, 94.3, 95.3.

Figure 4

Public satisfaction with the work of public authorities during the pandemic, percent of respondents, 2020-2021 (10). Source: public poll carried out in the framework of this study.

Figure 5

Public trust in national government, percent of respondents, percent of respondents, 2019-2021 (9). Source: Standard Eurobarometer 92.3, 93.1, 94.3, 95.3.

Figure 6

Correlation between people's attitude toward democracy* and the speed of vaccination** in EU member states (13, 14). Notes: (*) The ranking of EU member states is based on the difference between the share of those opinion poll respondents who chose “democracy” and those who chose “individual freedom” as the most important value for them personally: the more negative the difference, the bigger the share of respondents preferring individual freedom over democracy. (**) Vaccination data on 30 December 2021.

Figure 7

Growth rates of GDP in Baltic states and the EU (16). Source: author's construction based on the Eurostat data, 2021.

Figure 8

Annual productivity growth rates in Latvia (16). Source: author's construction based on the Eurostat data, 2021.

Figure 9

2011–2020 changes in the structure of employment in sector aggregated by technology levels with differing productivity levels (16). Source: author's construction based on the Eurostat data, 2021.

Figure 10

EU current health expenditure per inhabitant, 2019 (in euros) (32). Source: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Healthcare_expenditure_statistics, accessed: 27/12/2021.

Figure 11

Major sources of financing of current healthcare expenditure in EU countries, 2019 (%) (32). Source: Eurostat https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Healthcare_expenditure_statistics, accessed 27/12/202.

Figure 12

Life expectancy at birth (years) and healthcare expense per inhabitant adjusted with purchasing power (euros) in EU countries in 2019 (33, 36, 37). Source: Eurostat (online data codes hlth_sha11_hf and demo_gind) and WHO statistics.