Analytics, Good for Business, Latvia, Rating
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Thursday, 25.04.2024, 19:31
Japanese ratings agency R&I affirms Latvia's credit rating at A-
R&I noted that Latvia has a small and open economy,
placed as an intermediate hub of trade between Russia and Europe. Although
these properties make the economy susceptible to volatilities of the external
environment, the country is expected to continue to enjoy solid economic
growth, backed by strong domestic demand.
In R&I's view, the policy stance of adhering to fiscal
rules will be maintained under a new government formed in January 2019.
The agency said that although ABLV Bank, the largest bank
engaged in servicing non-residents in Latvia, went into liquidation, its collapse
has had no impact on the domestic economy and the financial system remains
stable.
Based on these factors, R&I has affirmed the Foreign
Currency Issuer Rating at A-.
The agency also said that if the UK withdraws from the EU
without
a deal, Latvia's economy would come under downward pressure,
affected by a downturn in the European economy.
"With non-resident deposits decreasing at a fast pace,
the business model of banks providing services for non-residents needs to be
reformed. Meanwhile, there is a possibility that those banks may increase their
presence in the domestic market by, for example, expanding credits to
residents," the agency said in its statement.
From the medium-term perspective, the impact of demographic shifts draws attention. Latvia's population keeps falling owing to continued outflow to other euro area countries, combined with a natural decline. The shrinking population could weigh on social security and healthcare spending and also hamper economic growth, the agency said.
As reported, Japanese credit ratings agency R&I
announced last January it has raised Latvia’s credit rating to A- from BBB+.