Rating Agency Standard&Poor’s Upgrades Latvia’s Credit Rating

News - May 30, 2014

On Friday, 30 May, the international rating agency Standard&Poor’s upgraded Latvia’s credit rating. Latvia’s sovereign credit rating for long-term liabilities in the local and foreign currency is upgraded from ‘BBB+’ to ‘A-’ with a stable outlook.

Standard&Poor’s substantiates its decision by Latvia’s strong economic performance, better than expected external sector performance  and by sound and prudent fiscal policy.

In the announcement by Standard&Poor’s it is indicated that in 2013, Latvia’s economy with the increase of 4.1% of GDP was the most rapidly growing economy among all Member States of the European Union. For 2014, the rating agency forecasts the increase of 3.7% of GDP what could average at around 4.3% in 2015-2017. The agency marks out achievements in the narrowing of fiscal deficit and improvement of a fiscal framework by adopting the Fiscal Discipline Law.

Standard&Poor’s recognized also favourable interest rates for loans achieved by the Treasury, continuing the re-financing of the international loan programme in the international capital markets, thus ensuring not a material increase in debt servicing costs.

Current account deficit has rapidly decreased to 0.8% in 2013 since its maximum at the beginning of the financial crisis. However, the rating agency expects its increase what may partially impede further rating upgrade.  The banking sector is evaluated as stable. Accession to the euro area has decreased several risks, but the agency notes that monetary policy goals in Europe will most probably be aligned more closely to the larger eurozone members rather than smaller economies.
The stable outlook balances Latvia’s expected strong growth potential and robust fiscal position against a number of external vulnerabilities. A stable evaluation also indicates that currently the agency does not see significant probability for changes in the rating during the next two years. The agency may downgrade the rating if the government weakens a course of fiscal policy as well as in case of a substantial increase in the current account deficit or in case of escalating risks related to non-resident deposits.

There could be further rating upgrade from material improvement in external sector and income levels converging closer to eurozone members.

Source: The Treasury of the Republic of Latvia.

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