Moody's affirmed Latvia's credit rating at A3 level
As key rating drivers Moody's highlights the progress in enhancing Latvia's energy security, as well as the presence of NATO troops in Latvia as a security guarantee, which reduces the geopolitical risks to national security. The agency expects that the Latvia`s economy and fiscal strength will be largely resilient to the impact of the spillover effects from the Russian invasion of Ukraine.
"Moody’s rating recognized at international level Latvia’s ability to act promptly and decisively to strengthen national security and energy independence as a matter of priority. The actions made so far in strengthening an internal and external security of the country, as well as the readiness of our country to address new challenges in the current situation of geopolitical tension are highly assessed,” emphasizes the Minister of Finance Jānis Reirs.
Although Latvia has historically been highly reliant on natural gas imports from Russia, the agency emphasizes that the Baltic States have taken a number of significant steps since 2014 to diversify energy sources and build the necessary infrastructure, and acknowledges Latvia's preparedness and proactive policymaking in the field of the energy security.
Taking into account the impact of the Russia war in Ukraine on Latvia's export and import indicators, as well as the decline in consumer purchasing power due to rapid inflation driven by increasing energy prices, Moody's forecasts that Latvia's economic growth in 2022 will be week, but positive at 1.3%. However, taking into account that the Latvian economy has demonstrated ability to quickly adapt and adjust to external shocks, Moody's believes that also this time Latvian companies will be able to redirect vast majority of exports to other markets, as well as reduce imports from Russia and Belarus over the coming years, thus limiting risks of lasting negative impact of the military conflict on Latvian economic strength.
Moody's estimates that weaker economic growth coupled with higher state budget spending, incl. support for mitigating the effects from rising energy prices, strengthening national defence capability and accommodating Ukrainian refugees will lead to increased state budget deficit this year. The agency forecasts government debt increase to about 47,4% of GDP this year, but debt burden would clearly remain lower than peers countries.
Moody’s previously reviewed Latvia’s credit rating on 14 May 2021, confirming Latvia's credit rating at A3 with a stable outlook.
The full report is available on the Moody`s Investors Service website.