Fitch released its rating update March 19 saying: "Latvia's ratings are supported by a credible policy framework, underpinned by EU membership and the benefits of eurozone reserve-currency flexibility, as well as government debt levels materially below the median of 'A' rated category peers. These factors are balanced by a lower income level, and higher GDP volatility and net external debt than peers'.
"The Stable Outlook reflects our expectations that the economy will continue to remain resilient in light of ongoing coronavirus pandemic risks and that the authorities will implement policies that are consistent with the long-term sustainability of the public finances.
"Fitch expects the economy to expand 3% in 2021, driven largely by a recovery in domestic demand, particularly private consumption after having contracted an estimated 10% in 2020. Our forecasts assume that pandemic risks start to recede in 2H21, which combined with ongoing fiscal support, should lift consumer and investment sentiment," the agency said.
Latvian Finance Minister Jānis Reirs responded saying: “[A] High credit rating is [an] essential precondition to maintain confidence of financial markets and investors to Latvia’s creditworthiness.”
The GDP growth outlook beyond 2021 is likely to be more favourable, driven by large flows coming from the EU, in particular the EUR 6.2 billion Next Generation EU (NGEU), of which EUR2.5 billion (8.5% of 2020 GDP) will be in the form of grants, Fitch said. It forecast average annual GDP growth of 4% for 2022-2025.
The full rating notice can be read at Fitch's website.