Fiscal forecast fair as Fitch retains Latvia rating

Latvia’s long-term sovereign financial prospects retained their rating of ‘A-‘ with the international ratings agency Fitch, a news release from the agency said Saturday.

"Latvia's ratings are currently supported by the sovereign's stronger fiscal position relative to its 'A' range peers, its stable banking sector, as well as Fitch's baseline assumption that economic growth will stay resilient against geopolitical risks," London-based Fitch said.

"Latvia is expected to continue its positive growth performance. For 2015 and 2016, Fitch is projecting Latvia's economy to grow 2.3% and 3.0%, respectively. Turbulence in Russia will hit the economy's external sector performance (Russia accounts for 11% of total exports) and related industries.

"However, we expect this drag to be offset by growth in domestic demand, which has proven resilient in the current environment of growth in households' disposable incomes, improvement in labour employment and low inflation. There is also evidence that Latvian exporters have redirected some exports originally bound for Russia to other important trade partners in EU, BRIC and CIS countries," Fitch added

The ratings agency also praised the country's "stable banking sector" but noted that "a source of vulnerability remains the large non-resident deposits in the banking system (41% of GDP), but there are high levels of liquid assets."

However that risk was partly offset by the "large presence of Scandinavian banks in Latvia, given their financial strength and high home supervision standards," Fitch said.

The main factors that could trigger negative rating action include "sustained fiscal slippage" and the overheating of the domestic economy, Fitch concluded.

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