Fitch Ratings affirms Latvia's credit rating at "A-" level
The stability of Latvia's credit rating facilitated by the credible policy framework supported by membership in the European Union and the eurozone, as well as Latvia's government debt level and debt servicing costs below the median of 'A' rated peers. However, as the agency points out, Latvia's credit rating is limited by significantly lower income levels and slightly lower governance indicators than peers.
"The decision to affirm Latvia's credit rating at the current level with the stable outlook confirms internationally the ability of Latvian government to act decisively to strengthen energy independence, as well as the stability of Latvia’s economy and its ability to maintain growth in such significant global uncertainty," emphasizes Finance Minister Jānis Reirs.
Although Latvia has historically relied on Russian gas as one of the main sources of imported energy sources, and is still exposed to the risks of a cut in Russian gas supplies to the European Union, Fitch highlights Latvia's efforts in reducing the dependence and providing alternatives. In 2022, Fitch forecasts Latvian GDP growth of 2.9%, which will be boosted by the lifting of pandemic restrictions, but GDP growth will still be negatively affected by the impact of inflation on household incomes (Fitch forecasts annual inflation in Latvia at 16.8% for 2022).
Fitch, as factors that could lead to positive rating action, mentions effective implementation of structural reforms, that is likely to increase medium-term trend GDP growth and could mitigate the impact of longer-term demographic challenges. Also, an important factor would be the government's ability to reduce general government debt to GDP in the medium term through fiscal consolidation.
The future factors that could lead to negative Latvia`s credit rating action are a large adverse macroeconomic shock, which would materially undermine medium-term growth prospects and hamper international competitiveness, and substantial worsening of geopolitical risks that could negatively affect economic growth and the policies implemented by the government.
The previous publication of Latvia's credit rating by the Fitch was published on February 11, 2022, when credit rating was affirmed at the "A-" level with a stable outlook.
The full publication is available on the Fitch Ratings website - https://www.fitchratings.com.