S&P Global lowered Latvia`s credit rating to A from A+, outlook stable
Latvia`s credit rating by S&P Global Ratings remains in investment grade `A` category and is one notch higher than Latvia`s credit rating affirmed by Fitch Ratings at A- with positive outlook.
In agency`s view, the impact of the war in Ukraine and wider regional geopolitical risks will continue to weigh on Latvia's public finances, economic growth, and competitiveness over the medium term, although the magnitude of the impact remains difficult to measure. Latvia's external and fiscal metrics have remained broadly resilient to indirect spillover from the war so far, however, the agency sees a reduced likelihood of a swifter economic recovery and near-term budgetary consolidation due to spending on security and defence, that will remain a key fiscal priority, but could increase beyond current budgetary plans. The agency says that sovereign credit ratings on Latvia are supported by the country's generally effective economic policymaking and eurozone membership, its solid external balance sheet, and moderate government debt.
Agency notes, that stable outlook takes into account medium-term risks to Latvia's budgetary, growth, and balance-of-payments performance as a result of regional geopolitical developments and the perception of foreign investors. However, these risks are balanced by a projected cyclical economic recovery on the back of stronger domestic and foreign demand and looser monetary policy. Moreover, the agency believes Latvia's authorities will preserve the country's prudent fiscal policy, taking enough policy measures to ultimately keep budget deficits in check. The stable outlook also reflects agency`s expectation that the Russia-Ukraine war will not spread to the territory of NATO members, including Latvia, which has been a member since 2004.
The agency also sees similar negative spillover effects of protracted war between Russia and Ukraine on other Baltic sovereigns as well. On May 31, 2024, S&P Global Ratings also lowered Lithuania's credit rating from A+ to A (stable outlook) and Estonia`s credit rating from AA- to A+ (stable outlook).
Full announcement text is available on the S&P Global Ratings official web page (registration necessary).