Japanese credit rating agency R&I affirmed Latvia's credit rating at A level with stable outlook
Agency notes that the credit rating level and stable outlook is based on conviction that Latvian economy will start recovering from the slowdown which was caused by stagnation of other major Europe economies and other factors. Agency believes that Latvia will maintain stable growth of economy in medium term, thanks to the strengths in the economic and social institutions, as well as the support from investments backed by the EU funds. R&I mentions that the government has maintained fiscal discipline, keeping the government debt ratio in check, and the stability of financial system is maintained as well.
In the agency's view, while Latvian economy is relatively small, it has well-diversified industrial sectors. With the stable economic and fiscal environment and access to the EU funds, the potential economic growth rate is comparatively high. Considering that economic recovery in major export destinations in Europe and full-scale utilization of EU funds for investments are expected, R&I believes that Latvian economy in 2025 will restore real GDP growth rate in the high 1% range.
As per R&I, the military invasion of Ukraine has heightened vigilance against neighbouring Russia. As Latvia is a member of NATO, R&I does not foresee a scenario of heightened military tensions with Russia. The government of Latvia has signalled readiness to increase the defence spending aiming to strengthen the country's defence capabilities.
R&I also believes that fiscal balance is less likely to exceed the government's plan, given the smaller-than-expected budget deficit in 2024 and the government's on-going efforts to restrain expenditures. The medium-term fiscal plan projects a gradual decline in the fiscal deficit, even considering the forecasted higher defence spending. General government debt of Latvia is approximately 48% of GDP as of 2024, standing way below the EU average. R&I notes that debt may go up in future, but the ratio will likely remain in the 50% range.
The previous credit rating announcement from R&I was published on December 18, 2023, when R&I affirmed Latvia's credit rating at A level, stable outlook.
The full text of a publication is available on the agency`s website: https://www.r-i.co.jp/en/index.html