Moody`s affirms Latvia`s rating at A3 with stable outlook
As assessed by Moody's, the affirmation of the credit rating has been supported by country’s robust institutional framework, which has led to a track record of prudent fiscal policymaking and has demonstrated an ability to address major policy challenges in the context of recent external shocks, including significant macroeconomic adjustments during the twin shocks of the pandemic and the energy crisis. In the agency’s opinion the affirmation of Latvia's credit rating also reflects solid economic strength and high per-capita income levels compared globally.
The stable outlook reflects Moody’s expectation that Latvia’s geopolitical risks remain elevated, though these are mitigated by its NATO membership, the permanent stationing of NATO troops in Latvia, and strengthening defense capabilities. The stable outlook also reflects agency’s view that the significant increase in defense spending will not materially weaken Latvia’s credit profile over the medium term, even though debt-to-GDP is expected to rise from moderate levels, given agency’s expectation of robust economic growth and overall continued prudent fiscal policy.
Agency expects average real GDP growth of 1.8% over 2025–2034. After contracting in 2023 and stagnating in 2024, Moody’s estimates real GDP growth to recover to 1.7% in 2025 and forecast further increases to 2.4% in 2026 and 2.2% in 2027, driven by domestic demand. According to Moody’s view, although Latvia’s small, open economy is vulnerable to external shocks, this risk is mitigated by its proven flexibility and adaptability.
Agency mentions, that the affirmation of Latvia’s A3 ratings also reflects the country’s record of prudent fiscal policymaking and strong public finances. General government debt stood at 46.6% of GDP in 2024, and Moody’s forecast that it will rise to 49.6% in 2026, mainly because of higher defense spending. As a key policy priority, the Latvian government plans to increase defense spending, as defined by NATO, to around 5% of GDP from 2026 onward, up from 3.3% in 2024. Agency expects general government debt to peak at around 55% in the late 2020s and then to decline gradually throughout the 2030s.
Moody’s previously reviewed Latvia’s credit rating on 25 July, 2025, when Latvia’s credit rating was kept at A3 level with a stable outlook.
The full report is available on the Moody`s Investors Service website https://www.moodys.com/ (registration necessary).