Fitch Ratings affirms Latvia's credit rating at "A-"
Latvia's current credit rating is supported by a credible policy framework supported by membership in the European Union and the eurozone, as well as government debt level and debt servicing costs below the median of “A” rated peers. According to the agency, Latvia's credit rating is limited by a significantly lower income level and higher net external debt than peers.
The agency believes that Latvia's GDP growth will moderate in 2022 as private consumption declines due to rising inflation. Fitch believes that investments will become one of the key drivers of economic growth and that the export sector will remain resilient despite downside risks from external demand and geopolitical risks. Although Fitch sees the risks from the Covid-19 pandemic in certain sectors, the agency expects that their overall impact on the economy will be limited, as evidenced by growth performance in the last quarter of 2021.
Fitch mentions effective implementation of structural reforms facilitating medium-term GDP growth positively impacting long-term demographic challenges as factor that could lead to an upgrade of Latvia’s credit rating. Also, an upgrade would be possible if the Latvian economy would show resilience to overheating risks, as well as Fitch's confidence in government`s ability to place general government debt to GDP ratio on a firm downward path in the medium term, through returning to the tighter fiscal policy.
The negative credit rating action could be possible from a persistent increase in the level of general government debt-to-GDP, a deterioration in international competitiveness or structural shocks to key sectors that would adversely affect Latvia's economic growth or external finances.
The last time Fitch's credit rating agency published Latvia's credit rating was on September 3, 2021, when Latvia's credit rating was affirmed at “A-” with a stable outlook.
The full publication is available at: https://www.fitchratings.com/