Credit rating agency Fitch affirms Latvia’s credit rating
Fitch outlines that Latvia’s ratings are supported by solid public finances with moderate budget deficit and general government debt ratio below the peer median. Fitch expects that the government will continue to implement sustainable fiscal policy and budget deficit will remain stable. Agency forecasts that domestic demand, inflows from European Union funds and diversified export basket should keep annual economic growth on average of 2.6 % in the medium term and it will ensure sustainability of Latvian economy.
Fitch positively evaluates progress in implementing measures to enhance the anti-money laundering framework, to strengthen supervisory capacity and to change the business models of banks serving the non-resident sector but does not exclude that reputational risks could rise if Latvia will be placed in the ‘grey list’ with insufficient progress implementing MONEYVAL recommendations or observe some adverse medium-term economic consequences.
Agency outlines that lower GDP per capita and larger net external debt than its ‘A’ category peers are constraints to the rating. Agency expects Latvia’s government to address challenges in demographic outlook and labour market to strengthen the competitiveness and increase the economic growth.
Fitch notes that the main factors that could raise credit rating are persistent strong and stable economic growth that fosters higher income per capita without the emergence of macroeconomic imbalances and a sustained improvement in external debt ratios.
Agency could take a negative rating action in case of marked increase in general government debt to GDP, for example, from sustained fiscal slippage or economic underperformance or deterioration in external finances.
The previous credit rating agency’s Fitch announcement was published on April 12, 2019, when agency affirmed Latvia’s credit rating in ‘A-’ with a stable outlook.