World Economy

Latvia Rating Stable

Latvia Rating StableLatvia Rating Stable

Fitch Ratings has affirmed Latvia’s Long-term foreign and local currency Issuer Default Ratings at ‘A-’ and added the outlooks are stable.

The issue ratings on Latvia’s senior unsecured foreign and local currency bonds have also been affirmed at ‘A-’. The country ceiling has been affirmed at ‘AAA’ and the short-term foreign currency IDR at ‘F1’, Reuters reported.

The affirmation and stable outlook reflect the following factors: Latvia’s ratings are supported by its favorable fiscal position, as well as its credible institutional and policy framework which comes with eurozone membership.

The macroeconomic imbalances that arose in the late 2000s are diminishing. However, the ratings are constrained by the country’s low income per capita and high net external debt compared with peers.

Fitch estimates real GDP growth of 2.3% for 2015. This compares with the ‘A’ median growth rate of 2.9%. Economic growth has been weighed down by low export growth as a result of recession in Russia, Latvia’s third-largest trading partner.

However, resilience in the domestic sector has persisted, held up by strong household consumption. For 2016-2017, real GDP is forecast by Fitch to grow broadly at potential of 3%, bringing Latvia in line with the ‘A’ median.

Economic activity will be mainly domestically driven, with net exports contributing negatively towards headline GDP. Latvia’s fiscal position remains a key support to the rating. “Our latest projections point to a general government deficit of 1.5% of GDP and a government debt ratio of 36.7% of GDP for 2015; both ratios below the ‘A’ median fiscal deficit of 2.6% and debt ratio 44.4%,” it said.

For 2016 and 2017, “we forecast fiscal deficits 1.2% and 1.0% of GDP respectively”.