S&P Global Ratings Revised Latvia Outlook to Negative from Stable
The negative outlook reflects agency`s view that a protracted Russia invasion of Ukraine and high inflation will impose increasing economic and security costs on Latvia's small, open economy, increasing pressure on its growth and undermine its competitiveness.
The agency also sees the negative spillover effects of Russia-Ukraine war on other small regional sovereigns similar to Latvia, for example, it was noted that on December 2, 2022, S&P Global Ratings changed the outlook of Lithuania's credit rating from stable to negative as well.
At the same time, the agency emphasizes that the efficient use of EU funds for public investments and anchor key reforms in various areas will alleviate some of the conflict's negative effects on Latvia`s economy, providing support for economic growth in the medium term.
S&P Global Ratings notes that additional public spending on defence and social support with regard to higher energy costs may complicate Latvia's post-pandemic fiscal consolidation efforts. However, in the same time the agency highlights effective fiscal policymaking and prudent decisions to strengthen energy security.
The agency points out that the rating on Latvia remains supported by its moderate government debt, flexible and adaptable economy, and membership of the EU, Eurozone and NATO, that is a key anchor of the rating.
Full announcement text is available on the S&P Global Ratings official web page (registration necessary).