Moody’s keeps Latvia`s credit rating level at A3 with stable outlook
According to Moody`s view Latvia's current credit rating reflects a moderate public debt burden and strong debt affordability, though both are likely to weaken over the next few years as defence spending rises to about 5% of GDP from 2026 onward. The economy's flexibility and the government's strong track record of effective policymaking are key credit strengths. However, in the opinion of Moody`s, Latvia's small economic size and high degree of openness make it susceptible to external shocks.
Moody’s expectations for trend real GDP and assessment of public finances remain broadly unchanged in comparison with the last rating action in January 2026. The agency forecasts real GDP growth of 1.9% in 2026 and 2.0% in 2027. Also, Moody’s expects the significant increase in defence spending to widen fiscal deficits till about 4% of GDP in 2027 and raise general government debt to approximately 53% of GDP. While the agency continues to expect the government to implement more substantial consolidation measures over the medium term, major fiscal policy decisions are unlikely ahead of the parliamentary elections in October 2026.
In accordance with Moody`s view the stable outlook reflects balanced risks at Latvia`s current credit rating level. Moody`s expects Latvia's geopolitical risks to remain elevated, though these are mitigated by its NATO membership, the permanent stationing of NATO troops in Latvia, and strengthening defence capabilities. The stable outlook also reflects agency`s view that the significant increase in defence spending will not materially weaken Latvia's credit profile over the medium term, even though debt-to-GDP is expected to rise from moderate levels, given agency`s expectation of robust economic growth and overall continued prudent fiscal policy.
The full press release is available on the Moody`s website https://www.moodys.com (registration necessary).