On Friday, April 10, 2020, the international credit rating agency Fitch affirmed Latvia's long-term foreign currency sovereign credit ratings at the 'A-' level, but the outlook was revised to negative (previously - Stable). The revision of the outlook to a negative Fitch credit rating agency based on the deterioration of Latvia's fiscal outlook for 2020-2021, which is a result of the temporary contraction of economic output and rising expenditures as a result of the spread of the Covid-19 pandemic.
In the same time, the affirmation of the rating at the current level reflects the moderate level of government debt compared to peers countries the comparator countries, as well as institutional strength. The credit rating Fitch notes, that Latvia’s track record of fiscal discipline provides some confidence that the debt ratio will decline further over the medium term.
Although Fitch forecasts that the Covid-19 pandemic will have a large and disruptive impact on the Latvia’s economy, however, the agency expects that the Latvian economy will recover already in 2021 with GDP growth of 5.2%.
Minister J.Reirs: “The agency's decision to reduce future assessments is unexpected, but Latvia has proven to be able to mobilize and recover from crises quickly. The government is now making every effort to ensure that the effects of Covid-19 are mitigated and that the Latvian economy can return to the path of growth as quickly as possible. Such a future option is ensured through regular dialogue with industry and targeted channeling, as well as support from international financial institutions”.
Fitch said that the authorities have put in place-concerted efforts to halt the spread of the epidemic and limit the economic and social impact. Nevertheless, considerable uncertainty remains about the duration of the virus outbreak and its lingering impact on Latvia and its trading partners.
Fitch also believes that the banking sector is in a stronger position to withstand an economic shock than it was at the onset of the Great Financial Crisis in 2008-2009.
The authorities have made substantive progress in enhancing the country´s anti-money laundering framework and strengthening supervisory capacity. These developments lift a major source of risk for the sector and will help authorities focus attention on COVID-19 response, including safeguarding liquidity and capital positions of banks.
The previous credit rating agency’s Fitch announcement was published on October 11, 2019, when agency affirmed Latvia’s credit rating in ‘A-’ with a stable outlook.