RIGA, May 16 (Xinhua) -- Despite the Latvian government's efforts to clamp down on illicit business activity, the Baltic country's shadow economy expanded by 1.3 percentage points last year to 22 percent of GDP, a new study showed.
According to the latest Shadow Economy Index for the Baltic Countries, which was presented during a conference at the Stockholm School of Economics in Riga (SSE Riga) on Wednesday, unreported wages made up an estimated 45.4 percent, undeclared income 37.2 percent and illegal employment 17.4 percent of Latvia's shadow economy.
Like in previous years, the highest proportion of unreported activity, 35.2 percent, was recorded in the construction sector. Last year, illicit economic activity also reached 22 percent in retail trade, 20.3 percent in manufacturing and 13 percent in wholesale.
Speaking of unreported pay in the construction sector, experts said that a general collective agreement, which is now being offered to construction firms for signing, is expected to help deal with the problem as the document sets a minimum wage for builders that is higher than the minimum wage in Latvia.
The survey showed that Latvia's Baltic neighbors -- Estonia and Lithuania -- also saw their shadow economy grow in 2017. As compared with 2016, illicit economic activity in Estonia increased by 2.8 percentage points to 18.2 percent of GDP and Lithuania's shadow economy grew 1.7 percentage points to 18.2 percent of GDP. Unreported pay was also cited as the main problem in these countries.
SSE Riga Professor Arnis Sauka, who has been researching shadow economy for years, said in an interview with Latvian public radio on Wednesday that the expansion of the shadow economy was a worrisome trend, because usually strong economic growth causes illicit businesses to shrink, which in Latvia's case had not happened.
Speaking at the SSE Riga conference, Latvian Finance Minister Dana Reizniece-Ozola underlined the importance of people's motivation to pay taxes, arguing that taxpayers need to be sure that their money will be spent effectively and on the right purposes. Furthermore, the authorities have to improve their communication with the public to better explain their decisions, the minister said.
In 2016, the shadow economy accounted for 20.7 percent of Latvia's GDP, down from 21.3 percent in 2015.
