On June 2, 2025, S&P Global Ratings (S&P) published the Report on Latvia following the semi-annual review of ratings, according to which the credit rating of Latvia remains at A level with a stable outlook.
The stable outlook reflects agency`s expectation that the Russia-Ukraine war will not spread to the territory of NATO members, including Latvia, which has been a member since 2004. According to S&P view, medium-term risks to Latvia's budgetary and growth performance arising from regional geopolitical developments are balanced by a projected cyclical economic recovery that will take hold in 2026 on the back of rebounding demand and supported by a ramp up in investments combined with further loosened monetary policy. S&P believes Latvia's authorities will preserve the country's prudent fiscal policy, taking enough policy measures to ultimately keep budget deficits and government debt in check despite the planned defence spending increases over 2025-2028.
S&P highlights that Latvia's economy has weathered the initial impact of the Russia-Ukraine war, but persistent geopolitical uncertainty and heightened geo-economic tensions complicate its medium-term prospects. As mentioned by the agency, while ongoing trade disputes should have a limited direct impact on Latvia, as only about 3% of goods exports are sold to the U.S., it could suffer ripple effects from lower economic growth in the eurozone, its main trading partner. S&P estimates that Latvia’s economy will return to 1% growth in 2025 following the contraction in 2024. Over 2025-2026, agency believes EU funding will help finance an ambitious public-sector investment agenda, which, coupled with progressively increasing government spending on defence and a rebound in private consumption, should underpin economic activity. In tandem with a cyclical rebound in exports, S&P projects economic growth will accelerate and then hold steady over 2026-2028, averaging 2.3% annually.
S&P expects that Latvia's medium-term fiscal stance will be hindered by rising spending on security and defence, which will remain a key medium-term fiscal priority. The agency expects a moderate buildup of general government debt over the medium term while Latvian government intends to implement various fiscal measures to offset part of the planned defence spending increase to 5% of GDP in the medium term, maintaining the level of general government debt below 55% of GDP. S&P forecasts the general government balance to show a deficit averaging 3.5% of GDP during 2025-2028.
S&P published previous assessment on November 29, 2024, when credit rating of Latvia was affirmed at A level with stable outlook.
Full announcement text is available on the S&P Global Ratings official web page (registration necessary).