In a decision published Monday in London, Moody's upgraded the issuer rating of the City of Riga to Baa1 from Baa2 with a 'stable' outlook.
The move came just three days after Moody's also upgraded Latvia's government bond rating to A3 from Baa1 on 13 February.
The main drivers of the rating action for Riga were the strengthening of Latvia's overall credit profile and "Riga's track record of solid financial performance, which Moody's expects to continue in the medium-term," the agency said.
"Given its status as the country's economic engine, Riga is the primary contributor to Latvia's economic rebound.
"Riga's GDP per capita exceeds the national average by almost 70% and generates about 50% of national GDP. The city receives approximately 80% of its operating revenue from the central government in the form of shared taxes and intergovernmental transfers," Moody's said.
Riga has outperformed its budgetary targets and recorded an operating surplus in 2014, with a small surplus also expected for 2015-16, Moody's predicted.
However, it did also note the capital's "very high debt burden, due to Riga's off-balance sheet financing of some investments in the past, which stood at 134% of operating revenue in 2014."
Moody's said it expects growing revenues and a prudent approach to capital investments will lead to the gradual reduction of Riga's debt level in the next two years.
