Easing crisis improves rating outlook

RIGA - Latvia’s upgrade to its credit rating from the international credit rating agency Moody’s Investors Service is a positive signal to international financial markets, said Prime Minister Valdis Dombrovskis (New Era), reported news agency LETA. “This evaluation of Latvia is a positive signal to international financial markets and lenders concerning the direction taken by Latvia and the recovery of the economy. Moreover, it is a significant appraisal of the work done by the government. However, it is equally important that the improvement in Latvia’s credit ratings are turned into real improvement in the accessibility of credit to the Latvian economy, which is vitally important at present,” said the prime minister.

Moody’s on March 31 raised the outlook for the country’s Baa3 rating from negative to stable. At the same time, the outlook rating for foreign currency deposits was also raised from negative to stable.
“The credit rating agency Moody’s has reviewed our rating outlook and raised it to stable. This decision constitutes a positive appraisal of the government’s efforts, as we have carried out serious and effective measures, as reflected in amendments to the 2009 budget, as well as carrying out fiscal consolidation,” beamed Finance Minister Einars Repse (New Era).

Swedbank Senior Economist Dainis Stikuts says that Moody’s decision to raise the outlook attests to economic stability in Latvia. He said that the decision proves that, in the investors’ opinion, the situation in Latvia has stabilized and will definitely not deteriorate in the near future. “We are seeing already that exports have been growing for more than six months, there has been a long growth period in industry, and the government has been able to cut costs and reduce the budget deficit, although this does not mean, yet, that everything has been done,” stressed the analysts.

“The recession will be over this year, the seasonally-adjusted GDP could start growing already in the first quarter this year, compared to the previous quarter,” said Stikuts, adding that, if structural reforms do not continue, Latvia risks slow growth that will not be enough to counter the risk of emigration, high unemployment and widening social inequality. The foundations of future growth must be laid now, Stikuts warned.

The economist believes that, if the 2011 state budget is passed successfully and economic growth continues, Latvia’s outlook could be changed to positive this year already. “The rating itself, though, will most probably be increased only next year, after the economic recovery tasks described in the international lenders’ program are implemented,” Stikuts said.
At the beginning of February the international credit rating agency Standard&Poor’s raised its outlook on Latvia’s BB rating from negative to stable.