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      Scope completes monitoring review for Latvia
      FRIDAY, 01/07/2022 - Scope Ratings GmbH
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      Scope completes monitoring review for Latvia

      Monitoring review announcement

      Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for the Republic of Latvia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A-/Positive; short-term local- and foreign-currency issuer ratings: S-1/Stable) on 27 June 2022.

      This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

      Key rating factors

      Latvia’s A- ratings reflect: i) its institutional strength, underpinned by EU and euro area memberships; ii) improved macroeconomic fundamentals, supported by large allocations and effective absorption of EU funds, resulting in continued income convergence with the euro area; and iii) still moderate government debt given a track record of fiscal prudence before the Covid-19 crisis.

      Latvia’s ratings remain however constrained by credit challenges relating to: i) continued moderate per-capita income levels; ii) unfavourable demographic trends constraining growth prospects; and iii) exposures to external economic and financial shocks, given a large export sector relative to the size of the economy and the dependence of its financial sector on large Nordic banks.

      In Scope's view, external security risks for Latvia, which shares a border with Russia, have increased since the start of the Russia-Ukraine war. However, in Scope’s view, Latvia’s and the other Baltic states’ NATO membership strongly limits the risk of the conflict expanding into the region. Latvia’s security guarantees are underpinned by NATO’s Article 5, which states that if one member of the Alliance is subject to an armed attack, this is considered as a direct attack against all members, who will provide the necessary military support.

      The Positive Outlook represents Scope’s view that Latvia will be able to weather the economic fallout from the Russia-Ukraine war without deteriorating its credit fundamentals and that continued economic and fiscal reform progress, alongside the effective absorption of EU funds, will further improve economic fundamentals and set the conditions for fiscal rebalancing over the coming years.

      The ratings could be upgraded if, individually or collectively: i) economic and income growth prospects improved through the continued implementation of reforms and investment, raising employment and productivity; ii) public debt-to-GDP was set on a persistent downward trajectory, supported by the authorities’ fiscal consolidation; and/or iii) there was a further sustained reduction in external vulnerabilities and/or financial sector risks.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) the fiscal outlook weakened resulting in deteriorating public debt dynamics over the medium term; ii) Latvia’s external position deteriorated or financial sector vulnerabilities were to re-emerge; and/or iii) an external shock or heightened geopolitical risks undermined the country’s macroeconomic stability.

      For the updated scorecards accompanying this review, click here.

      The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings Methodology, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
      Lead analyst: Giulia Branz, Senior Analyst

      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
       

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