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Fitch informs that Latvia’s ratings are supported by solid public finances, as well as institutional strengths and a credible policy framework that come with EU and eurozone membership. Agency positively evaluates low level of government debt and budget deficit which are lower compared to average level of peer countries. Economic growth was 4.8 % in 2018 and it is forecasted that it will remain at the average level of 3.1 % in the following years. Fitch expects that lower headline growth and slower wage increase should ease labour market pressures over the next two years, further reducing risks of overheating.

Implemented changes in Latvian banking sector, enhancement of the anti-money laundering framework and some signs of resurgent demand from key segments such as consumer credit.

Agency has analysed the policy and priorities set by the new government and expects the government to continue to implement the existing fiscal policy framework towards low general government deficit. In agency’s assessment political fragmentation does not make significant risks, but could delay the legislative process.

Fitch outlines that the rating is constrained by the low level of GDP per capita that below the average level of ‘A’ rated peer countries.

Agency could take a negative rating action in case the level of Latvia’s general government debt would increase as a result from the deviation from fiscal policy course as well as in the case of sustained fiscal slippage or economic underperformance and deterioration in external finances, for example from a widening of the current account deficit.

Fitch notes that the main factors that could raise credit rating are sustained improvement in external debt ratios, persistent strong and stable economic growth without the emergence of macroeconomic imbalances.

Full press release in Fitch homepage.