Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Latvia (A-/Stable; S-1/Stable) on 21 July 2021. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Latvia’s A- rating is underpinned by i) a track record of prudent fiscal management supporting moderate public debt levels; ii) a stable governance framework and a track record of effective policymaking, underpinned by EU and euro area memberships; and iii) improved resilience against external shocks, with declining levels of short-term external debt. In addition, Latvia benefits from favourable debt financing costs. Challenges relate to i) still lower per capita income levels relative to those of euro area peers combined with moderate productivity growth; ii) limited economic diversification together with a large export sector relative to the small size of the economy, which exposes Latvia to external shocks; and iii) adverse demographic trends. Scope expects the government to remain committed to fiscal discipline and maintaining Latvia’s favourable investment environment following this crisis, as well as a closer integration with the EU and NATO.

The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are balanced. The ratings/Outlooks could be upgraded if, individually or collectively: i) the continued implementation of structural reform, such as in the labour market, innovation and education, and/or infrastructure advancement, leads to a better-than-expected growth outlook; ii) the public finance outlook materially improves; and/or iii) there is a further sustained reduction in external vulnerabilities.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) the public finance outlook materially weakens; ii) financial sector vulnerabilities re-emerge threatening macro-economic stability; iii) external competitiveness declines weakening Latvia’s growth outlook; and/or iv) an external shock or heightened geopolitical risks undermine Latvia’s macro-economic stability.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Senior Analyst

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