International credit rating agency Fitch Ratings (Fitch) has decided to maintain Latvia’s rating at «A-» with a stable future outlook, according to information from the State Treasury.
Fitch notes that Latvia’s rating is maintained by a reliable policy enhanced by Latvia’s membership in the EU and Eurozone. The state debt and its maintenance cost level, which is lower when compared with average indexes of countries with similar credit ratings, moderate private sector debt level and Latvia’s stable export all contribute to stability of the credit rating.
According to the State Treasury,
the agency welcomes the new government’s strong commitment to enhancing national security,
and increasing the defence budget to at least 3% of GDP by the year 2027. Considering that Latvia is a NATO member state and NATO has strengthened measures to keep the Baltic region safe, Fitch believes the risk of escalation of geopolitical risks with negative influence for Latvia’s economy is low.
The agency predicts in 2023 inflation in Latvia will gradually go down, and its average index may reach 9.5%. At the same time, inflation outlooks remain subjected to high uncertainty and global price trends.
Fitch experts predict Latvia’s economy to suffer a drop of 0.3% in 2023. High inflation and negative actual wage growth will cause household consumption to go down. A significant drop for raw material prices will slow the growth of inflation.
The agency notes that since the start of 2023 Latvia has secured energy independence from Russian gas. However, the country may yet experience gas price fluctuations and challenges with alternative supplies.
Fitch mentioned the government’s ability to accomplish reduction of the state debt level as a positive factor for future development. There is also the successful adoption of effective structural reforms that will help speed up economic growth rates and reduce the effect from long-term demographic challenges.
The future development of Latvia’s credit rating may be negatively affected by a possible significant escalation of geopolitical risks with negative effect on economic growth, as well as serious growth of the state debt level before GDP and a drop of economic competitiveness under high inflation, Fitch notes.
The previous credit rating score for Latvia was published by Fitch Ratings on the 5th of August 2022. It was maintained at «A-» with a stable future outlook.
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