Moody’s raises Latvia’s credit rating, notes economy has stabilized

Latvia’s economic outlook is showing signs of improvement, leading Moody’s Investors Service to nudge up its rating of the country’s creditworthiness.

Noting that Latvia’s economy has stabilized and that financial stress has been reduced, the ratings service on March 31 revised its rating of Baa3 to stable from negative, according to a press release issued by Moody’s London office. Baa3 is the lowest investment grade ranking, just above “junk” status.

“The worst of the recession has passed, and the fledgling recovery should support the government’s financial strength and the banking sector in future,” Kenneth Orchard, vice president and senior credit officer in Moody’s Sovereign Risk Group, said. “In addition, the prospect of a disorderly currency devaluation is now highly unlikely, reducing the country’s susceptibility to event risk from ‘high’ to ‘medium’ according to Moody’s sovereign rating methodology.”

Moody’s is among rating services whose opinions can affect investors’ views of a country’s financial condition. Others include Standard and Poor’s as well as Fitch Ratings.

“Reducing the private sector debt burden and enhancing international competitiveness are key to returning the economy to a sustainable growth path,” Orchard said. While the Latvian economy is expected to begin growing in the second half of this year, Moody’s noted that a sharp rebound is not expected and that “it will take several years for the economy to recover from the bursting of the property bubble and subsequent financial crisis.”

Einars Repše, Latvia’s finance minister, reacted favorably to the improvement in Moody’s rating. It shows the Latvian government’s measures to overcome the economic crisis have been recognized, Repše said in a press release.

“This rating is a significant signal to foreign investors and to the whole international community,” Repše said, “that also validates Latvia’s accomplishments in overcoming the economic crisis.”