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Tuesday 25.10.2016 | Name days: Beāte, Beatrise

Economic Diary of Latvia. A bit of demographic futurology

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Population decline is becoming a real problem not just for the country’s economy, but also for the country’s existence as it is. Demographers warn: if Latvians continue breeding at the same slow pace and leave the country, Latvia’s population could potentially decline to 1.3 million by the middle of this century.

This week, the Central Statistical Bureau of Latvia published data on the number of deaths and births in the first six months of 2015. Numbers are not too tragic at first glance – only 147 newborns fewer compared to the same period of 2014. However, demographer Ilmars Mezs sees a very serious warning in this. According to him, it shows potential parents’ uncertainty in the future. In addition, this uncertainty could impact population growth indexes in the future. His worries are not baseless, unfortunately.

Since 1990, when Latvia started its path toward independence, the country’s population has declined by more than a quarter. The first exodus of people from Latvia took place in the 90s: those people were mostly military people with their families, as well as Russian-speakers wanting to return to their ethnic motherland – Russia.

Latvia entered the European Union in 2004. However, membership in the EU did not stop the outflow of people. It did the opposite – increased the outflow of the population at the expense of work emigration, which further reduced the country’s population by another 10%. Latvians who remain home or plan to return home have fewer children. Birthrate coefficient is around 1.2 per family. Latvia is next to last in this retard in Europe. Furthermore, this index is below the one considered by experts to be the minimal birthrate coefficient – 2.1 per family.

If things do not change, there might not be any people left in Latvia by the end of the century, believes Mezs (who has six children).

Welcome to a country with no population

If the situation does not start changing drastically, consequences for the economy will be so massive that their full scale becomes incomprehensible. The following can be considered obvious effects: less people means less workers, less paid taxes, less consumers and less bought goods and services. Low birth rates means the replacement of working generations will have notable obstacles in the next 20-25 years. There will be no one to replace old workers, so they will be forced to work for longer, not just because of lack of young specialists, but also because there will be nowhere to find money to finance pensions, which are paid from taxes paid by working people.

The increase of the period of work activity, which is logical with this kind of situation, is only the tip of the iceberg. What is more important is whether or not these people will even be capable of working at the age of 70-75. The country’s healthcare leaves something to be desired, so if the government expects people who are currently in their 40s to continue working 25-30 year from now, legislators should think about preventing diseases and investing in preventive medicine. These people will have to work longer and maintain good physical and intellectual condition.

An increase of proportion of old people in the population will undoubtedly impact the economy and force reforms in it. More and more matters tied to the older generation will be reflected in economic policies.

Ours or theirs

The aforementioned topic becomes especially urgent in the context of the 250 refugees expected to resettle in Latvia in the near future. It becomes urgent in the context of reproduction of those refugees, especially if their reproduction rates eventually exceed those of Latvians. Latvia may not ‘blacken’ completely, as some experts predict. But the composition of the population in Latvia will undoubtedly change as the proportion of representatives of other nationalities grows. What’s more important if the population of people of a different confession – namely Islam – start growing rapidly in Latvia. Islam is not only a different religion, it is also a different way of thinking and a different way of life, with its own traditions, consumer habits, clothes and food.

For example, in European countries, where the population of Muslims is truly large, the matter of legal status of polygamy is often discussed in government halls. European laws prohibit residents having multiple spouses. Aside from an official wife (on paper), Muslims can have two or three other wives, who are regarded as such in accordance with Islam, but not in accordance with laws of the country they live in.

Women and their children remain outside of the country’s social care system: they are not eligible for benefits and social assistance. And now European leaders have headaches as to how they can prohibit polygamy and still provide such wives and their children social guarantees. Latvia will likely face this dilemma as well. With that, the current discussions about allowing or prohibiting same-sex marriages will seem child’s play.

Experience shows that Eastern nationalities integrate in societies of other countries.

The smaller the population, the fewer poor people there are

There is one benefit from declining population. The number of poor people registered in Latvia has decreased by nearly 10,000 people over the course of the last six months, according to information from Welfare Ministry. There were 65,461 poor people registered in Latvia in January. In June, on the other hand, this number declined to 55,597.

This was caused by the decrease in the country’s population. Negative demographic trends could somewhat lift the burden on the budget in a short-term perspective. Payments like child birth benefit, childcare benefit will likely decline. A couple of years from now, less money will be allocated from budgets for the financing of kindergartens, school lunches, etc.

New budget cut proposals have already been developed by a work group created by Prime Minister Laimdota Straujuma this week. This group, which consists of representatives of Finance Ministry, Bank of Latvia, Latvian Employers’ Confederation, Latvian Chamber for Commerce and Industry and other institutions, will have to find opportunities for budget cuts in the next year’s budget under the sanction war between the EU and Russia and problems with Latvia’s economic development.


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