Credit rating upgrade for Latvia to historic high

Within hours of confirmation that the country would not be included on an international list of money-laundering havens, ratings agency S&P announced an upgrade to the highest rating Latvia has ever had.

"On Friday, February 21, the international credit rating agency S&P Global Ratings (S&P) upgraded Latvia's credit rating from "A" to "A +" while maintaining a stable outlook . The credit rating assigned by A + has provided Latvia with the highest level ever since 1997, when Latvia was first assigned a sovereign rating," said a Finance Ministry statement.

“This is a historic moment. For the first time in Latvian financial history we have been rated with such a high credit rating. This is a clear international confirmation of Latvia's public finance management policy. An increase in the sovereign credit rating is the basis for further attraction of investments to our country as a reliable cooperation partner,” said Minister of Finance Jānis Reirs (pictured above).

The text of S&P's rationale makes it clear the upgrade decision was taken even before the Financial Action Task Force (FATF) had delivered its positive verdict.

"Over the past four years, Latvian authorities have effectively contained fiscal deficits, setting government debt to GDP on a firm declining trajectory. Even against a moderating growth trend, we expect the decline will continue, with net debt reaching about 27% of GDP by 2023. Very favorable macroeconomic conditions and years of strong economic expansion have aided fiscal consolidation, as have Latvia's policy efforts aimed at expenditure control. Low public debt should provide Latvia's small and open economy with room for a fiscal policy maneuver in the case of external shocks," S&P said.

"In addition to strong public finances, Latvia's track record of effective policymaking, its sound external profile, and its eurozone membership support our ratings on the country. Still, comparably low income levels and substantial long-term demographic challenges are key rating constraints," it added.

S&P also took a longer-term view into account in awarding the latest upgrade, noting:

"Despite consistently high political fragmentation, we consider policymaking in Latvia effective, supporting our sovereign ratings. In our view, many of Latvia's past governments were unstable, with an average term of about 1.5 years since independence in 1990. Yet, this has rarely prevented effective policy-making in times of crisis. The country has succeeded in addressing previous financial and economic challenges, including managing a severe economic and financial contraction in the aftermath of the 2008 financial crisis. Latvia made material adjustments to public finances and the economy to address the previously accumulated external, financial, and economic imbalances, as was the case for other Baltic states. That said, we have observed a high degree of cross-party consensus on the most important political items over the years, such as maintaining a business-friendly environment, delivering sound public finances, and retaining strong relations with EU and NATO partners."

 

 

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