RIGA, June 15 (LETA) - The share of the shadow economy in Latvia increased by 0.4 percentage points last year compared to the previous year and amounted to 21.8 percent of the gross domestic product (GDP), Arnis Sauka, Director of the Centre for Sustainable Business at the Riga School of Economics, told a conference on the shadow economy in Latvia on Monday.

At the same time, in Estonia the share of the shadow economy has increased from 19.5 percent of GDP in 2024 to 20.8 percent of GDP in 2025, while in Lithuania the share of the shadow economy has decreased by 1.1 percentage points to 23.6 percent of GDP in 2025 compared to 2024 figures.

Sauka noted that in Latvia, the downward trend in the shadow economy, which had been observed since 2022, stopped last year. At the same time, Sauka stressed that there are no longer statistically significant differences in the size of the shadow economy between the Baltic countries.

The results of the Shadow Economy Index survey show that the most important component of the shadow economy in Latvia in 2025 was unreported wages, which account for 47.1 percent of the total shadow economy in Latvia.

In turn, the other component "unreported earnings" accounted for 25.5 percent of the total informal economy in Latvia in 2025, and the component "unreported employees" - 27.4 percent.

The share of average wages that entrepreneurs hide from the state, or 'envelope wages', decreased by 1.1 percentage points in Latvia in 2025 compared to 2024 and amounted to 19.6 percent.

Non-reporting of income or profits decreased by 0.4 percentage points in Latvia in 2025 compared to 2024, from 15.2 percent to 14.8 percent.

In Latvia, the non-reporting of employees accounted for 10 percent in 2025, showing a decrease of 0.9 percentage points compared to 2024.

Among sectors, the share of the shadow economy in Latvia was still highest in construction - 29.5 pecent, a decrease of 4.3 percentage points compared to 2024. The share of the shadow economy in the retail sector in Latvia was 24.5 percent last year, compared to 26.2 percent in 2024, in the services sector - 22.3 percent (23.6 percent in 2024), in manufacturing - 19.2 percent (17.3 percent in 2024) and in wholesale - 15.6 percent, compared to 13 percent in 2024.

On a scale of one to five, Latvia's satisfaction with government tax policy has increased from 2.65 in 2024 to 2.76 in 2024.

Entrepreneurs' satisfaction with the quality of business regulation has also increased slightly over the last year, from 3.06 in 2024 to 3.13 last year on a scale of one to five in Latvia.

On a scale of one to five, entrepreneurs' satisfaction with the work of the State Revenue Service rose to 3.67 in Latvia last year (3.6 in 2024).

The Riga School of Economics' Shadow Economy Index in the Baltic states is measured annually using surveys of entrepreneurs in the Baltic states. The authors of the study are Sauka and Professor Talis Putnins of the Riga School of Economics. To calculate the size of the shadow economy as a percentage of GDP, the index includes estimates of unreported business income, unregistered or hidden employees and unreported "envelope" wages.