RIGA - On Friday, the credit rating agency S&P Global reaffirmed its 'A-' long-term foreign and local currency sovereign credit ratings on the Republic of Latvia. The outlook remains positive, S&P informs.
The agency outlines that the positive outlook reflects potential to reach an average growth of 3 perdent a year over 2018-2021, which will be supported by strong investments and a favorable external environment.
In S&P Global's view, the ongoing situation in Latvia`s financial system will not result in a fiscal cost for the government, while developments at ABLV Bank generally highlight the reputational risks surrounding the business model of Latvian banks serving non-resident clients. S&P Global concludes that government's intention to substantially reduce the amount of non-resident deposits in banking system will have a limited impact for growth, as estimates indicate that the country's non-resident-focused banking system amounts to only about 1 percent of GDP by value added.
S&P Global outlines that despite the positive short-term economic dynamics, Latvia still faces longer-term challenges. These primarily stem from Latvia's low fertility rates and high outward migration, which could hinder growth in the future.
The agency could raise the ratings on Latvia if the country's fiscal outcomes exceed expectations, net general government debt declines, budget revenue increases and economy grows faster than expected, while a credit rating downgrade could happen if income levels substantially decline, the fiscal position becomes weaker or non-resident serving businesses make additional risks to the country's financial system.